The long-term fate of national dairy industries within the European Union, now that the bloc has lifted its 31-year-old milk production quota regime, will depend on their ability to export – particularly to China.
The lifting of the quotas last month looks set to provide an immediate benefit to Irish and Polish sectors, given their relatively low milk yields per cow – which offer scope for quick improvement, VSA Capital said.
Danish, French and German dairy industries also offer “significant growth potential”.
However, “over the longer term, countries that stand to benefit the most from quota removal will be those that most successfully develop their export channels outside of the EU”, VSA said.
China remains “key driver”
Milk prices within European countries will become more reactive to values in the global market, “to which the EU will now be more directly exposed”, thanks to market liberalisation, the London-based broker said.
Furthermore, the will depend on “how well the EU countries can develop export channels, particularly to China” the top importing country for many dairy products.
“China’s consumption of milk products will remain the key driver of future pricing.”
Exploiting Chinese demand has allowed New Zealand to lift to 95% the proportion of its dairy produce shipped abroad, rendering it the top milk exporting country.
New Zealand’s success “suggests that significant opportunity therefore exists for the most efficient milk producers in the EU”.
Future “bleak” for some farmers
In the UK, the EU’s third-ranked milk producer after Germany and France, the drive for efficiency in the new era suggests that the “the future for the most inefficient dairy farms looks bleak”, VSA said.
The broker noted a forecast from the chief executive of an unnamed UK-based agricultural supplier “that up to 25% of the least efficient farmers could consolidate their operations or shut down completely”.
However, for more productive operators – large or small – the new market dynamics offer a “significant opportunity.
“In 2014-15, UK farmers produced the most milk for 30 years and are also some of the most productive in Europe.”
The prospect of the big processors which dominate the UK market looking for export markets “should be positive for UK farmers, and could potentially open up some of the higher-priced [production] contracts to a greater number of farmers”.
(Source – http://www.agrimoney.com/news/exports-to-china-key-for-eu-dairy-prosperity–8307.html)