Clear opportunities for growth highlighted alongside production level warnings at the 2022 Eucolait Conference - Dairy Board Vice Chairman Paul Tompkins reports on the European dairy trader conference:
Last week I joined dairy traders from across the world in Berlin for Eucolait’s annual conference. Set up in 1959, Eucolait is the voice of the European dairy trading community representing 430 businesses across 21 countries – including the UK. The conference focused on the global trading environment; looking at worldwide trends, changes in production and where the opportunities and risks lie ahead.
Trade is an essential part of the dairy supply chain, vital for connecting supply with global demand. The ebb and flow of products as they move around the world is facilitated by traders, based both domestically and overseas. The UK is part of a global market and the vast majority of UK dairy farmers are exposed, either directly or indirectly, to fluctuations in global prices. Retailers are now benchmarking the price of their own-label products against international markets and UK farmers must be able to compete. As traders play an increasingly important role on the price returned to processors for their milk, it is important that we as dairy producers have a firm understanding of the influence of global markets and trends on the sector and that our representation reaches across the trading environment.
Global trends and forecasts
The stark message which stood out from the conference was that “the days of oversupply are dead.” In the global trading environment, supply is no longer a fixed variable. In Europe alone there are 60k fewer dairy farms and supply has dropped YOY - this is reflected across the world with NZ forecasting a 4.6% drop compared to 2020/21. The question for traders is not necessarily where they can sell but where they can buy.
At the same time, we see global demand for dairy products continuing to grow – this paradox is causing traders to question what is behind the decline in milk production. Stone X - a financial services network connecting clients to markets – have concluded that there are ‘four forces’ keeping production down: weather variables, farm costs (both price inputs and environmental restrictions), rising GDP driving demand and Chinese import growth. These forces are very much seen as here to stay with the net effect being reduced production coinciding with greater demand.
Increasingly, we are also seeing the share of “local for global” rising, with less milk being consumed where it is produced. Whilst in the west demand for dairy has slowed, at the global level demand for high quality, traceable and safe protein in the diet is up.