11 July 2008

4 minute read

Milk

General Market Situation in 2007

Irish dairy products performed well on EU and international markets in 2007 despite increased energy costs, a weak US dollar and suspension of EU support mechanisms. The strong performance was a consequence of high demand and a tightness of supply on EU and world markets and helped mainly by continued growth in the export of infant formula and other value added products.

In 2007 there was a further reduction in EU milk supplies. This, together with high exports, cleared out intervention stores and caused a price spike. Prices of SMP, WMP and butter reached a peak in the Autumn, before falling back by year end, while cheese prices followed at a slower rate.

World milk production is estimated to have increased by 1.4% in 2007, mainly driven by higher prices. The EU accounts for 27% of world milk production. World prices hit record highs in 2007 but dropped back subsequently. The drought in Australia continued to affect its exportable supplies.

Output in Ireland

In 2007 there was a notable increase (over 25%) in the value of the milk sector to €1,668 million. Deliveries were estimated to be up marginally on 2006.

Prices

The average price paid to producers in 2007 was 34 cent per litre, a 29% increase on the return to producers in 2006. In addition, dairy farmers received a dairy premium of 3.6 cent/litre. In the EU-25 the average milk price was 31cents/litre though not all Member States have fully decoupled. This was an increase of 9.9% on 2006 .

Production of Dairy Products

The Department of Agriculture, Fisheries and Food estimate that Irish butter, SMP and WMP production increased by 1.65%, 20.4% and 4.3% respectively in 2007. Production of cheese fell by 3.8%. The volume of EU butter used in the pastry and ice cream industries under Regulation 1898/2005 decreased by 68% to 149,971 tonnes. This included 4,648 tonnes of intervention butter.

Exports

Exports of Irish dairy products and ingredients were robust with some €2.36 billion exported in 2007. This represented an increase of 13% on 2006 as Irish exporters continued to respond well to improved demand, with half of this growth coming from Asia. Value added products, in the main, performed well in 2007. Irish exports of infant formula continued to perform strongly during the year.

Intervention/Market Management

In 2007 no Irish butter went into the Intervention Scheme, and all stocks were exhausted. All remaining internal aids and export refunds were reduced to zero in 2007.

Quota Management

There were an estimated 20,197 active milk producers in 2007, a reduction of approximately 8.4% on 2006.

The Milk Quota Trading Scheme was the main means by which milk quota was acquired by producers. The Trading Scheme replaced the old Milk Quota Restructuring Scheme, and allocated quota to producers in respect of the 2007/2008 milk quota year.

The Trading Scheme is comprised of two elements, namely, a Priority Pool and a Market Exchange. The Priority Pool distributes quota to priority categories such as young farmers and small-scale producers at a maximum price, which in 2007 was set by the Minister at 12 cent per litre. The Market Exchange is responsible for the remainder - typically about 70 per cent - of the quota trade. Buyers and sellers determine the price on the exchange, and the exchange takes place typically on a Co-op area level.

In 2007 the Trading Scheme was responsible for the transfer of about 200 million litres of quota in respect of the 2007/2008 milk quota year, and a further 65 million litres was traded in the December 2007 exchange, which was the first of two exchanges allocating quota in respect of the 2008/2009 milk quota year.

In the milk quota year 2006/2007 Ireland’s deliveries of milk did not exceed the national quota and therefore there was no super levy liability payable to the EU Commission.

Outlook 2008

The outlook for 2008 is for prices on world and EU markets expected to remain firm with high levels of demand particularly for protein. Export refunds and subsidies are likely to remain suspended and this should encourage world prices to converge closer to EU intervention prices. Protein supplies are likely to continue to fall short of demand and prices should remain high, benefiting processors and traders.

Further Reading

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July 2008