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USDA GAIN: Dairy and Products


22 October 2012

USDA GAIN: EU-27 Dairy and Products Annual 2012USDA GAIN: EU-27 Dairy and Products Annual 2012

In 2012 and into 2013, EU-27 deliveries of fluid milk and manufactured dairy products are expected to increase but at a slower pace even when factoring in the economic downturn and rising cost of production into the equation. The increase in milk production will be mostly directed for production of cheese, which remains in demand both domestically and internationally, and Non Fat Dry Milk (NFDM), directed mostly for export driven by growing world market demand thus prices. Several efforts in 2012 to maintain the EU milk quota system after 2014 and to introduce intervention on the EU dairy market were rebuffed by the European Commission.
USDA Gain Report - Dairy and Products

Dairy, Milk, Fluid

Production:

In the first half of 2012 the decrease of prices for dairy products on the world dairy products market led to a slower pace of milk production increase in the EU27 in comparison to 2011. Since July 2012, world market prices for dairy products started to recover which is expected to result in higher milk output towards the end of the year. In 2011, favorable world dairy market conditions, high producer prices and strong domestic consumption of dairy products especially in the first half of 2011 had boosted milk deliveries and raised farmer’s willingness to expand production.

As a result, 2012 milk supplies are expected to increase by roughly one percent and continue to grow by an additional half percent in 2013. Increase of production stems from continuing domestic and export demand for dairy products. The 2012 increase of milk deliveries is expected to be highest in Poland, Latvia, and Hungary. However, the increase of milk deliveries in 2012 will be limited because some member states exceeded their MY 2011/2012 (April-March) milk production quota ceiling (Ireland, the Netherlands, Denmark, Germany, and Italy) and farmers in these countries will have to pay fines. Although the increase of milk quota in MY 2012/2013 will allow for further increase of milk production, high costs of feed, energy and the economic crisis in certain EU member states are expected to limit further expansion of milk output. However, high costs for inputs accompanied by limited support of governments to milk production are expected to push out less efficient dairy farms from the market making the EU dairy sector more competitive. The trend of declining cow numbers is expected to continue in 2012 and 2013 but will continue to be offset by increasing productivity per cow due to availability of better genetics and less efficient farmers exiting production.

Consumption:

In 2012, fluid milk use is expected to increase slightly reflecting the projected 0.2 percent increase of the EU27 population but the majority of higher output of raw milk will be used by the processing industry. In 2013, fluid consumption is forecast to remain at the 2012 level because of the lingering effects of the economic downturn in Europe with higher milk output used by the processing industry.

Trade:

In the first seven months of 2012, extra EU-27 fluid milk trade increased by 38 percent due to stronger demand by China and Libya supplied mainly by Germany and France. External trade is expected to remain stable in 2013.

Dairy, Cheese

Production:

EU-27 cheese production is expected to increase by one percent in 2012 due to higher output of milk, continuing domestic demand and growing exports. Strong world market prices for cheese and dried whey powder, a residual product of cheese manufacturing, are expected to stimulate increase of output in 2012 and 2013. Dairy industries in Germany, France, and Italy remain the driving forces of European cheese production, supplying over 55 percent of the total output.

The Benelux dairy sector believes that cheese, in particular branded cheese, will be the main dairy product which the EU can compete with on the world market. With the abolition of the milk quota after 2015, Benelux milk production is expected to increase significantly with most of the milk forecast to be processed into cheese. In 2012, French cheese production is estimated to be stimulated by both higher exports to non-EU destinations (Japan in particular) and domestic demand. In Germany, higher production of soft cheese is expected in 2012, however reduced hard cheese output will offset the increase.

In Greece, 2012 cheese production is expected to increase by less than two percent in comparison to the previous year. Recent investment in the cheese-processing sector helped improve product's affordability, resulting in a more competitive marketplace. In Italy, mozzarella occupies first place in terms of volume produced, followed by Grana Padano and Parmigiano Reggiano. Italian cheese production is increasing mainly due to recovering prices and to growing demand in main export markets (France, the United States, Germany, and the UK). The earthquake that rocked Northern Italy on May 20, 2012 adversely affected production of cheese in Italy. Around 400,000 wheels of ParmigianoReggiano (Parmesan) and Grana Padano cheese, worth more than 240 million Euros ($194 million), were damaged when the powerful earthquake shook them from the warehouse racks on which they are left to mature. Cheese production in the UK is expected to expand in 2012 largely due to increased cheddar production which, in recent years, has lost ground to the more mature cheeses.

Consumption:

In 2012, domestic cheese consumption within the EU-27 is expected to increase in comparison to the previous year. In several EU member states economic crisis leads to changes in the consumption pattern of cheese. Although the volume of consumed cheese remains high, consumers have switched to less expensive brands of hard cheese or substituted it with fresh cheese, while higher quality and more expensive brands of European cheeses are mainly exported.

In the first eight months of 2012, French households consumption of cheese increased by 2.1 percent. The abnormally cold weather conditions in spring 2012 favored French cheese consumption. Also, retail prices are maintained low in France as dairy companies are doing their best to make their products economically attractive for customers. Cheese products account for about 13 percent of sales in Greek supermarkets. Feta is the most well known Greek cheese and the most consumed in Greece. It is made from 70 percent of sheep’s milk and 30 percent of goat’s milk. The Greek consumer ?along with those in other Western countries? is becoming increasingly concerned about body weight. Cheese can form part of a calorie-controlled diet and feta is lower in fat than many cheese alternatives.

Trade:

EU-27 export of cheeses is forecast to grow in 2012 and 2013, mainly due to higher import demand from Russia. In the first seven months of 2012, EU-27 cheese exports to Russia increased by 19 percent, supplied mostly by Germany, Poland, and Lithuania. The growth of EU-27 cheese exports in 2013 is expected to be limited by availability of cheese on the EU market. Major external markets for EU cheeses include Russia, the United States, Switzerland, Japan, and Algeria. Cheese imports are projected to remain within the established quota due to growing domestic supplies.

Policy:

EU policy on common food names (i.e. generic terms), like parmesan, feta, salami are raising concern. Over the last few years dairy industries have observed more monitoring by the EU regarding these terms within its borders. For example, within the EU “feta” cheese can only come from Greece. Increasingly, the EU is preventing the use of these names in other countries through its Free Trade Agreement negotiations.

Dairy, Butter

Production

In 2012, butter production in the EU-27 is projected to increase by two percent due to higher supplies of raw milk and growing demand for exports of NFDM as butter is a residual product of NFDM manufacturing. Reduced world prices for butter in the first half of 2012 and lowered export demand resulted in increased participation in the 2012 Private Storage Scheme (PSA).

Consumption:

In 2012, EU-27 domestic consumption of butter is expected to increase in comparison to 2011 due to higher production. It should be noted, however, that domestic consumption includes commercial stocks which will only be actually consumed in 2013. Although health concerns are still a factor limiting some butter consumption, economic considerations are playing a greater role in consumer buying decisions. For example, higher prices for vegetable oils and lower prices for butter in 2012 relative to 2011 have favored the incorporation of butter in the food industry in France, while in Germany margarine is still cheaper than butter. EU-27 butter consumption is forecast to remain stable in 2013.

Trade:

In the first seven months of 2012, EU exports of butter increased by seven percent in comparison to the same period of 2011. Higher exports of butter were offset by reduced exports of butter oil to Russia. However, reduced demand from Russia was partly compensated by higher exports to Northern Africa. Exports of butter are forecast to grow especially in the first half of 2013 as prices for EU butter are competitive and butter is available from PSA stocks. Imports in 2012 are expected to increase into the New Zealand import quota. In the first seven months of 2012 imports from New Zealand amounted to 37,600 MT, almost three times more than in the same period of 2011.

Stocks:

Intervention stocks built in 2009 were consumed under EU food assistance programs in 2010 and 2011. The 2012 PSA program started on March 1 and lasted till August 15. The PSA built in 2012 amounted to 133,300 MT, up 26 percent from the last year’s figure, which indicates existing surplus of butter on the domestic market. The high PSA stocks were built despite the reduction of subsidies for storage under the PSA scheme announced by the EC on February 23, 2012. Most purchases under PSA occurred in the third quarter of the year. Therefore, due to 3-6 months contacts, the stocks generated from August will not be sold until after December 2013. Stock levels at the end of 2012 will be higher than those recorded at the beginning of the year.

Policy:

On September 16, 2012, butter's weighted average price stood at 314 Euros per 100 kilograms, well above the EU intervention price set at 221.75 Euros per 100 kilograms.

Dairy, Milk, Nonfat Dry

Production:

Strong export demand is expected to boost EU-27 NFDM production in 2012 by over eight percent. Growing world market prices make production of skim milk more attractive. In 2013, NFDM output is forecast to further increase because of higher supplies of milk and demand for exports, albeit slower than recorded in 2012.

Consumption:

In 2012, consumption of NFDM is expected to return to lower historical levels still supported by release of remaining intervention stocks. High prices for whey favor the use of NFDM in animal feed rations. The consumption increase in 2011 resulted from domestic use of intervention stocks within the assistance programs for needy people. In 2011, 94,000 MT of intervention NFDM stocks was allocated for this purpose. Italy, Spain, Poland, and France were the primary beneficiaries of this aid.

Trade:

In the first seven months of 2012, NFDM exports were 22 percent higher than a year ago because of higher export demand and availability of product from increased production and release of intervention stocks. Increased exports to Mexico, Vietnam, and China more than offset reduced shipments to Algeria. However, France, which is Algeria’s leading supplier of NFDM, increased shipments to Algeria by 35 percent in the first seven months of 2012. In 2013, exports of NFDM are expected to decrease due to lower availability of product in comparison to 2012.

Stocks:

The use of NFDM intervention stocks already committed for 2012 food assistance programs are expected to reduce stocks to zero by year’s end.

Policy:

On September 16, 2012, the weighted average EU-27 price for NFDM amounted to 263 Euros per hundred kilograms, well above the EU intervention price set at Euros 246.

Dairy, Dry Whole Milk Powder

Production:

In 2012, EU-27 WMP production is expected to decrease in comparison to 2011. Strong competition for raw milk supplies in 2012 across the EU-27 and very competitive export markets limited increase of WDM production. In 2013, WDM production is forecast to remain flat as prices are expected to favor manufacturing NFDM/butter.

Consumption:

In 2012, domestic disappearance of WDM is expected to decrease in response to reduced availability. For 2013, consumption is forecast to remain stable.

Trade:

In 2012, lower production coupled with strong competition from Oceania in the Asian markets is expected to result in reduced EU-27 exports. In the first seven months of 2012, EU-27 exports of WDM were three percent below the previous year’s level, mainly due to lower shipments to Algeria and Nigeria, and despite higher exports to Oman. Exports in 2013 are forecast to remain stable.

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