Saturday, March 30, 2024

Limited growth expected post milk quotas

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With the EU milk quota set to be removed on 1 April 2015, production will become further concentrated in the key milk-producing regions of Northern and Western Europe, according to Rabobank’s latest report “New Dawn for European Dairy”.
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Rabobank foresees farmers in these areas will utilise the spare capacity developed through investment and technology gains over the last 30 years. However, with an expansion of over 12 million tonnes already achieved between the announcement of milk quota removal in 2006 and 2014, a large proportion of this additional capacity has already been used.

In a 2012 report Rabobank predicted that between the end of milk quotas in April 2015 and 2020, EU milk production would increase by approximately 10 million tonnes. This equates to a 7% to 8% increase on current annual production (144 million tonnes). However expansion in EU milk production during late 2013 and early 2014 occurred at a quicker rate than anticipated. Rabobank's latest report advises this rapid growth in milk production means that much of the expansion previously forecast has already occurred. Therefore production expansion post-2015 is now expected to only grow by a further 4 million tonnes (or 3%) up until 2020.

Rabobank analysts caution that actual milk production will be heavily dependent on raw milk prices. "If burgeoning international demand or prolonged constraints on production in other regions were to move prices up, movement of additional land or resources into dairy production may become feasible". Production can only grow until the next limiting factor is reached states the report. These limiting factors will vary between member states. Factors indentified by Rabobank analysts include: lack of available land, lack of capital, environmental restrictions, and competition for resources from other enterprises.

 

"[European farmers] will both be the first to suffer losses when prices start to fall and the last to achieve profitability in a rising market".

 

Rabobank

The growth that has occurred so far in EU milk production has been in the Northern and Western Europe as previously predicted by Rabobank.

Many European dairy companies have already identified that much of their growth opportunities lie in the emerging markets rather than within the mature European markets. Rabobank advise that it is likely that dairy companies that operate globally may prefer to source milk from outside of Europe from regions that are close to the emerging markets.

Global dairy commodity prices are expected to remain volatile and Rabobank analysts say this price volatility will be particularly important to European farmers due to their high production costs. "[European farmers] will both be the first to suffer losses when prices start to fall and the last to achieve profitability in a rising market".

 

Once this available capacity of the land is used, a step change in raw milk prices will be required to incentivise further expansion in production through investment in land and capacity. Rabobank advises that "the fragmented nature of EU farms and the comparable high costs of milk production will hamper efforts to improve efficiency". 

 

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