Here’s a summary of the Eucolait (virtual) General Assembly – June 9, 2021, written by Catherine Paice, Editor Dairy Industry Newsletter:
Mary Ledman, Rabobank
Rabobank forecast global milk supply growth to slow from the second half of 2021, and through the first half of 2022, with the Big 7 producing countries increasing supply by 1.1% yoy, driven by the US. From a global perspective, the pandemic is not over, Rabobank Global Dairy Strategist Mary Ledman told the Eucolait Assembly, with different levels of recovery resulting in “patchy” demand. “The US will need exports to keep stocks manageable.” China continues to drive global demand “but we foresee weakness ahead”, with a slow-down in China’s non-whey imports forecast towards the end of 2021. Shipping delays, higher freight costs and rising feed and other costs on-farm will all be major contributory factors to markets and prices. Margin pressure is mounting as costs are not offset by higher milk prices. Container costs keep rising, underpinned by successive shocks to the global supply chain.
Monika Wohlfarth, ZMB
Markets firmed at the beginning of 2021, despite the unexpected global increase in milk supplies, but are showing signs of stagnation now, according to economist and ZMB boss Mokina Wohlfarth. Global cereal and dairy prices reached their highest levels last year since 2011, according to the UN-FAO Price Indices. High feed costs are now weighing on farm profitability. Some member states have been increasing milk prices, but farmers are seeking more.
The economic impact of the corona pandemic was lower than initial fears and forecasts. European economies will recover from their ‘Corona-dip’ with EU GDP growth forecast at +4.2% this year and +4.4% in 2022, after a fall of 6.1% last year.
Covid-19 has changed consumption patterns, but some are reverting already. Liquid milk retail sales were up 4.8% in Germany in Jan-Dec 2020, but down 3.8% in the first 4mths of this year. Cream sales in retail were up 10.6% last year, and up 4.6% in Jan-Apr. (And so on as follows: Yogurt sales +3.8%/+0.6%, self-service cheese +9.1%/+3.3%, deli cheese -13.1%/-7.8%, butter +7.8%/-4.3%, spreads +9.1%/+4.3%).
Adjusted for the leap year, total EU milk deliveries in 2020 were unchanged from 2019, albeit with mixed results within the main producing member states — Germany, France, Poland, Ireland and the Netherlands all producing higher volumes, despite drought limitations.
In the first quarter of 2021, more milk was channelled into cheese (+1.9%), and also condensed milk (+5.3%) and liquid milk (+0.5%). March data indicated more milk was going into all fresh products, including cream, and less into liquid milk and powders.
Organic milk deliveries increased in Germany, France, Austria, Denmark, Finland and Sweden, by up to 25,000t a month, and continue to show gains, according to ZMB.
EU exports continue strong, despite logistical shortages and disrupted trade with the UK. EU cheese markets are generally balanced, with exports to other Third Country destinations picking up this year (Jan-Mar +5%). The butter market has remained firm in the first half of 2021, although exports to Third Countries are more volatile than last year. SMP markets are firm due to lower supply. No further export growth is expected for infant milk formula, with sharply reduced shipments already to China/Hong Kong. China is, however, buying large volumes of whey products, and EU whey powder prices are at an 8-year high.
The biggest uncertainties are, how long will the pandemic last, what will be the new normal, and how will milk production develop? On the positive side, high milk supply last year was absorbed by demand, and output is stagnating in Oceania. Global stocks are relatively low (except for butter and cheese in the US), and the pandemic has had less effect on world economies than expected (so far). Uncertainties include the potential for La Nina to cause a long winter in Europe; high feed costs; environmental and animal welfare issues; and frustrated farmers! The longer term impact of the pandemic is still uncertain, and the climate debate weighs on policy-makers in the longer term, along with changing consumption habits and the trend towards vegan diets.
Monica Ganley, Quarterra
Covid-19 continues to wreak havoc on Latin America, with many challenges up ahead, Monica Ganley, founder of the Buenos Aires-based Quarterra consultancy, said. Most countries are struggling to contain the virus, many with daily cases still setting new records. Restrictions remain in place across most of the region, with vaccination programmes making slow and uneven progress. According to the IMF, Latin American GDP fell by 7.0% in 2020—more than any other continent—and governments are borrowing heavily to finance social relief programmes.
The main producing countries—Argentina, Uruguay, Brazil, Mexico, Chile and Columbia—nevertheless saw milk production rise in 2020. The pandemic has forced processors to shift production to meet greater retail orders for liquid milk (especially UHT) and fresh dairy products. Cheese production was down due to foodservice losses early in the pandemic, although it has largely recovered. High levels of processing consolidation in general allowed these shifts to occur without too much disruption. Processors are now routing milk back into export markets and shifting product out of the region as they try to capitalise on strong global prices. Exports to Algeria and China have increased, especially at the expense of Brazil. In markets with retail price controls, including Argentina, processors are particularly dependent on the higher margins achievable. Where export markets are flourishing, fuelled by currency depreciations, farmgate prices are increasing to motivate higher milk production.
E-commerce and food delivery services have “exploded”, according to Ganley, with many Latin Americans making grocery and foodservice purchases online for the first time ever. “Demand for dairy products has remained remarkably robust,” Ganley said.
Key challenges include the withdrawal of Government financial support programmes, continued restrictions for consumers and workers, and resistance to any retail price increases.
The EU-Mercosur trade agreement with the key South American countries (Argentina, Brazil, Paraguay, Uruguay, and Venezuela), signed exactly 2yrs ago after decades of negotiation, has stalled. In the case of dairy, the agreement called for reciprocal tariff rate quotas of 30,000t for cheese, 10,000t of SMP and 5,000t of infant formula, phased in over 10yrs. The next step would be ratification by each EU member state and the Mercosur countries—but this is looking less and less likely, Ganley said. EU member states have expressed environmental concerns in connection with the agreement, with Mercosur doing little to quell these fears, and leadership changes, especially in Argentina, reducing the likelihood of agreement. “Differences of opinion between Mercosur countries are so great there has been talk of dissolving the bloc,” Ganley said.
Rupert Schlegelmilch, EU Commissiom
Rupert Schlegelmilch, deputy director general in the EU trade directorate, told the assembly that the Commission was looking at the possibility of a better complaints mechanism, especially for SMEs, arising from trade agreements. Canada provided a good example of challenges related to the administration of their tariff rate quotas, which was leading to very high transfer prices. “We have seen more and more unilateral measures from other countries, eg the Trump administration, without going through the WTO, so we need to be able to react more quickly. We have to be able to react in less than 5yrs; the WTO is not capturing many of the actions being adopted in world markets.”