Years with high milk production may be over

This story was broadly what market expert Monika Wohlfahrt from the German ZMB told an audience of European dairy traders this week. One major factor that could drive milk supply growth is high global dairy prices. For the rest, there are mainly factors that prevent higher milk production in the EU, according to Wohlfahrt. Certainly in 2022. These include: a declining number of dairy cows, poor roughage quality, expensive concentrates, expensive energy and expensive fertilizer, fertilizer shortages, lack of personnel, increasingly restrictive rules regarding the environment and climate, stricter animal welfare rules in some Member States and uncertainty with regarding investments. Farmers are often unexpectedly innovative, but there is a lot that slows them down.

Last year the consequences were particularly strong in Germany, France and the Netherlands. In these three countries together, milk supplies fell by more than 1,1 billion kilos. This decline was partly offset by more growth, especially in Ireland, Italy and Hungary, but the sharp decline in supply in traditional dairy countries such as the Netherlands, Germany and France is unprecedented for the EU.

The balance of all changes in supply is a growth of 2021% in milk supply in 0,1, according to figures from the EU and ZMB. There has not been such a limited increase since the milk crisis in 2009 - after a short period of very high prices.

In the circles of traders and increasingly also dairy producers, the expectation is that the period of high prices will continue until at least the beginning of next summer. Including the German one Milchindustrieverband (MIV) expressed this opinion last week. This view is also receiving increasing support from other sides and outside Europe. And although dairy prices are currently often at record highs, or close to them, many prices have risen even further in recent weeks. Although with small volumes, that is specific to the situation. 

Poor countries buy less and cheaper product
The high prices mean that the sales market is viewed with some care. Doesn't the high price level cause a drop in demand? That is undoubtedly the case. Poorer countries are therefore increasingly looking for cheaper products, such as fat-filled dairy (with vegetable instead of milk fat) with an extra low dairy protein content, alternatives to dairy or simply lower consumption.

However, according to the world food organization FAO, dairy products are not leading the rise in food prices. Grains and meat have risen more in price so far.

According to Wohlfahrt, the dairy products that are currently most popular are cheese and milk powder. Cheese is by far the largest and most valuable product made from milk in the EU, with the largest growth in terms of volume. The cheese market is still growing strongly, both within and outside the EU. Sales of fermented dairy (drinks) have fallen slightly.

Cheese and milk powder in demand
After cheese, skimmed milk powder is the product that is relatively most popular. The problem here is that the EU has been producing less and less lean powder in recent years. According to the ZMB, this year the supply will decrease by almost 100.000 tons compared to 2020. The production of whole milk powder is also expected to be several tens of thousands of tons smaller for the EU-27 (albeit excluding the United Kingdom).