Volume increase is tapering off

By Country News on June 10, 2016

 Milk production in the European Union increased after volume limits were abandoned 12 months ago, but there are signs that production is slowing, a Rabobank analyst visiting northern Victoria says.

EU milk production quotas were abandoned in April last year, senior dairy analyst Matt Johnson said.

``While the subsequent surge in milk production across many EU member states was anticipated, the fact that this growth has been sustained  despite the slump in global dairy prices  has taken everyone by surprise.’’

Mr Johnson said EU farmers were also experiencing depressed milk prices due to the prolonged international market slump.

But EU producers had experienced some relief due to the Euro depreciating against the $US.

While the milk production cap was lifted, Mr Johnson didn’t think there was likely to be further reform until the effects of the most recent change was understood.

According to Dairy Australia, major cows’ milk producers include the European Union (EU) (142 million tonnes), North America (91 million tonnes), Russia (32 million tonnes), India (46 million tonnes) and Brazil (25 million tonnes).

Signs are emerging that EU milk production growth is finally slowing, indicating the recent post-quota surge in production is a ``one-off adjustment rather than an opening of the floodgates’’, according to Mr Johnson.

Mr Johnson said after exhibiting significant growth in the first year after liberalisation, EU milk production growth was ``finally starting to taper off’’.

``The removal of milk quotas on April 1, 2015 signified the end of more than three decades of regulation in the European dairy industry,’’ he said.

``While the subsequent surge in milk production across many EU member states was anticipated, the fact that this growth has been sustained  despite the slump in global dairy prices  has taken everyone by surprise.’’

Mr Johnson said there had ``effectively been the perfect storm in global dairy markets, with the removal of quotas encouraging European dairy farmers to increase production to maintain their cash flows. And this just happened to coincide with weaker demand (particularly out of China) which has prolonged the slump in global prices.’’

Mr Johnson said European producers had been buffered from some of the downturn in global dairy prices — at least initially — by the favourable Euro exchange rate and slightly lower feed costs. ``However, the cost of production is now below break-even for many European producers, and we are starting to see this translate into an increased focus on cost-saving rather than expansion,’’ he said.

By Country News on June 10, 2016

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