German dairy sees increasing tension in the milk market

Peter Stahl, chairman of the German Milchindustrie-Verband (MIV), said this today (Tuesday, January 25) during the organization's traditional New Year's meeting.

"Last year, an average milk price of 36 cents per liter was paid to farmers. In January, many dairy companies even pay 40 cents. It depends on the product range. The more products are produced and sold in bulk, the higher the payment prices tend to be. is a development that cannot be healthy, if basic products provide more value than high-quality processed products," says Stahl.

Suffering from long-term contracts
It is now the reality for many German and other dairy producers. The dairy sold on the bulk market follows the unfiltered market development. The processed dairy that is made under contract for supermarkets or large food companies increases much less in price. Contracts are often fixed for a long time and supermarkets resist excessive price increases. See the various conflicts between retailers and processors, which sometimes leave shelves empty.

Stahl: "And then we haven't even mentioned the passing on of additional costs that dairy farmers increasingly have to incur for all kinds of animal welfare and environmental requirements, including in the context of the Farm-to-Fork (2F) strategy of the European Commission."

Tying milk from the shelf
The dairy has already made agreements with German retail on one matter. From April this year, all drinking milk on the shelves must at least comply with: Haltestufe 2. In particular, this means that milk from companies with tie-up farming/group stables is kept from the shelves. Imported milk must also meet these requirements. In exchange for the higher requirements, the industry is paid an extra 1,2 cents per liter of milk. However, it is not said that the industry will pass on this extra money to dairy farming, according to MIV director Eckard Heuser. "That can differ per company."

Many German processors are not only suffering from the high milk prices they have to pay. The energy bill, packaging costs and the shortage of spare parts (which often causes downtime) also affect the results.

No forecast for the whole of 2022
The MIV does not dare to say whether the milk price will remain high throughout 2022. Stahl only dares to predict that the milk price this year will average around 36 cents. But there are still many uncertainties, for example about global milk production (which is still tight) and about the rise of vegetarian products. This mainly gains market share at the expense of drinking milk.

On the other hand, there are also possible favorable developments. Stahl: "Dairy production will certainly decline due to the European Commission's F2F strategy." That doesn't necessarily have to be bad for prices. He is not afraid that consumers will be deterred by higher prices: "Spending on food is only a small part of our total expenditure package."