Milk Markets: when the time for recovery will come…

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Beyond the measures confirmed and detailed by Commissioner Hogan on 15 September (which will be discussed below), global markets continue to struggle. The defection by Russia, and particularly by China, has intensified the imbalance caused by a production which has grown, in these last months, far higher than the demand.

Some hope for a recovery in the form of the return of Chinese purchases, whereas producers continue to believe in the four principal global exporters. This is a desirable effect and will be, given the current state of affairs, advantageous.

However, two elements should be taken into consideration:

  • the political will in China for the development of the country’s own milk sector, as seen also in Russia. This approach could cause leaders of these countries to manage their purchases, pace and volumes in a new and differentiated manner.
  • the fact that available stocks on sale among exporters are very important, notably regarding milk powder. Besides the quantities which will be put under the private storage scheme in the European Union, other stocks remain immediately available and will have an important buffer effect on prices (particularly those paid to producers) during the recovery of global demand.

With a price of less than 20 cents and the amount in stock in New Zealand, for example at Fonterra, European milk producers risk facing a sluggish economy for several months.

Among the measures refined and presented to Member States by Commissioner Hogan on 15 September, the decision to increase private storage aid for  milk powder by 100% is undoubtedly the one which will have the most rapid effect in the attempt to prevent the downward spiral of prices in the European Union. If the quantities stocked and frozen for a minimum of 9 months are sufficient, the imbalance in European supply-and-demand could be diminished, ensuring a healthier market in the short-term.

And it is indeed only short-term: European operators are unable to store powdered milk for the global market. They have neither the means nor the will. With regards to prices in the EU, their short-term recovery will be subject to the pressure of a risk of opening the floodgates to the stocks of other big exporters if they witness a substantial recovery without a significant global recovery.

When this global market will begin to stabilise (this is far too early to anticipate positive signals at this stage), the competition between exporters to put stocks and new productions on the market will be strong.  In this sense, the supplementary efforts to aid the promotion of dairy markets should be acknowledged as highly valuable and should be fully operational by 2016.

The dairy industry has operated in a new context since 2007, with significantly high price fluctuations (both upwards and downwards) at a higher frequency than previously. The current crisis is not the last.

In this sense, we can only hope that the outline sketched by the Commission during the Council of Ministers of Agriculture of 7 September, in terms of new tools to deal with debt in the milk sector and the involvement of the EIB, materialises quickly. This could represent a viable response to enable the increased resilience of a sector whose development should not be broken or hindered due to economic crises which are now inherent within it.