The European Union’s milk quota regime ended at the end of March, bringing the dairy industry into a market-oriented system for the first time in more than 30 years. Co-operatives are working to make the most of the opportunities this offers, while trying to prevent the market volatility feared by many.
The end of quotas is likely to lead to an increase in milk production in Germany, the Netherlands, Poland, Denmark and Ireland. The Irish Co-operative Organisation Society (ICOS) says this is an opportunity for the Irish dairy sector to pursue efficiencies through increased volumes and assert itself on the world stage.
“Farmers and their co-ops are gearing up for an increase in milk supply of the order of 50% by 2020 and they’re making the investments necessary to produce and profitably process and market the milk,” its spokesperson said. “Given that European population and its dairy consumption is largely stable, it’s envisaged that the additional production will largely be targeted at the growing world market, particularly in Africa and south-east Asia.
“The challenge faced in these growing markets will be tough. Our international competitors, particularly those from the southern hemisphere, benefit from low-cost milk production, on huge farms, processed in a massive scale. However, our efficient grass-based production system, enthusiastic young farmers and the fact that we have a seasonality curve that almost exactly mirrors that of main competitors should allow us to trade profitably on those emerging markets.”
In the Irish dairy industry, volumes were fixed, but the EU effectively provided a minimum price for milk through a complex system of intervention purchasing, export refunds, aids for storage and subsidies for industrial use. Farmer milk prices were relatively stable, but this did not prevent a dramatic reduction in numbers of milk suppliers, with a drop from about 65,000 when the quotas were introduced in 1983, to about 18,000 today.
The UK has not reached its EU milk quota since 2004, so there will be little change at farm level. But industry insiders are concerned about the impact of the removal of quotas on an already oversupplied global milk market.
James Graham, chief executive of the Scottish Agricultural Organisation Society, said there had already been a lot of groundwork in Scotland. “The date for the removal of EU dairy quotas has been known for some years,” he added. “With milk production expected to increase around Europe, there’s been a good deal of pre-planning by farmers and co-ops.
“The immediate concern is the current price slump in dairy products that is causing real pain for many UK farmers and a fear that additional production may, in the short term, exacerbate the problem.”
“Although growth potential in mature European markets is limited, there are very significant opportunities globally, especially in China and Africa where demand for nutritious dairy products is growing strongly. While larger co-ops are investing in product innovation and export market development, smaller co-ops are developing niche products and brands that appeal locally in the UK.
“The rapid globalisation of the dairy industry and dairy co-ops was emphatically demonstrated at the International Summit of Co-operatives last October in Quebec, in presentations by several co-ops at the dairy mini-summit hosted by Canadian co-op Agropur.
“The scale of global ambition and pace of investment was breath-taking.”