Roel Jongeneel

Petra Salamon, Myrna van Leeuwen, David Verhoog, Trevor Donnellan, Mariusz Hamulczuk, Kevin Hanrahan,

Lauri Kettunen, Fabrice Levert

AGMEMOD Partnership Zagreb, February 25-26th 2015

Selected Preliminary Results of the Baseline 2015

Dairy

Important to remember

• Data built up from MS. Roughly okay till 2012, but not exactly mirroring 2013, 2014 actually observed data. Has implication for number comparisons over time

• Focus is on specific group of MS for which data and behavioural equations have been updated

• For other MS data updates (but not complete) and some further adjustments

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Selected highlights

• Medium run perspective of dairy is good despite short-run pressure on dairy product prices

• EU milk production projected to increase by more than 10 Mt (is likely to be conservative estimate)

• After QA the EU’s reliance on export markets will significantly increase (i.p. cheese, but also butter?)

• The EU is competitive in cheese and smp, less so in other products (but whey?)

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Topics

• Introduction

• Milk production at EU level

• Results for selected MS

• Domestic use

• Trade & competitiveness

• Concluding remarks

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Introduction

• What has been done? – Extensive database update (but still not

complete)

– Adjustment/recalibration of behavioural equations (fully done for selected MS)

– Final scope EU-28, but focus on selected EU MS (De, Fi, Ire, Nl, Pl, beh+data; other MS data)

– Miscellaneous • Whey market preparation (mainly infrastruct.)

• No R-factors applied (but structure in place)

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Introduction

• Policy issues (CAP reform, ...)

– Greening (EFA) not relevant for dairy

– ... but Voluntary Coupling (all but De)

– 19 MS apply coupled payments to dairy (24 MS beef)

– “solution chosen” to cope with still lacking precise information => use existing measures

• Milk supply increase might be a bit underestimated due to ignoring vol.coupling

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Introduction

• State of world market (€/100kg)

• Note: declining prices in ‘14-15, recovery in ’16 • Cheese is going to diverge from other dairy prods?

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Real price dip in 2015 is likely to differ from OECD’s Agricultural

Outlook projection 2014

Milk production at EU-level

• EU-28 milk production increase of 10.8 mill.t (+8%) 10 yr)

• Average prod growth 0.8% p.a.(mostly N-Eur/old MS)

• Dairy cow stock will continue to gradually decline

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Million ton % change

Past data Projected data

Evolution of EU milk production

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Million ton

• No extraordinary growth rates needed to increase the EU’s milk supply to 168 million tons

• Note: more insight needed into evolution of farming systems (grass-based, factory farming) and structural change welcome (e.g. experiences outside EU)

% increase

Past data Projected data

Changes in milk production 2014-2024

• Increases in Irl (+37%), Nl (+13%), Pol (+8%), Germ (+10%)

• Decline in Finland (-4%)

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1000 ton

Milk supply expansion 2013-2016 (%) due to quota abolition

• Irl. largest expected increase due to QA; NL corrected for env. constr.; decline for Fi expected; Fra and Germ both increase

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% increase

Milk yield evolution

• Increase in milk yield/cow in EU-28 in coming decade is on average 1.1% p.a.

• Milk yield increase slows down over time (incr. grass-based?)

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Kg/dairy cow

Past data Projected data

Expected dairy cow stock evolution

• Dairy cow stock will continue to gradually decline after a temporary increase in period 2012-2015

• Dairy cow stock adjustments: new architecture explaining milk supply

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x1000 dairy

cows

Past data Projected data

Dairy cow stock evolution selected MS

• Irish and German cow stocks increase; others decline

• Q: what explains decline in dairy cow numbers?

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x1000 dairy cows Index 2011-

2013=100

Projected data

Cost of production (cost index)

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• (Adjusted) dairy input costs (€/kg milk) vary between MS and tend to increase over time (reflecting feed costs)

• Analysis of production costs needs more refinement in order to properly estimate future milk supply responsiveness

€/kg milk

Domestic use (product weight)

• Demand growth is limited but positive, especially for cheese, fresh dairy products, with butter use declining over time

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x1000 tons

Past data Projected data

Trade: net exports EU-28

• Supply increase creates stronger reliance on export markets

• Cheese exports are leading in EU’s dairy exports

• Will the EU become an increasing fat exporter...? (butter)

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1000 ton

Trade: cheese

• After QA EU’s cheese exports will increase to a structurally higher level than in the Milk Quota-era

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1000 ton % change

Trade: price competitiveness

• The EU is/has become competitive in cheese, but differences exist between member states

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Euro/100kg

Past data Projected data

Trade: price competitiveness

• The EU is competitive in SMP

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Euro/100kg

Past data Projected data

Trade: price competitiveness

• The EU is not competitive in butter although its position improved • When there is a need to export butter this might create some

pressure on EU milk price

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Euro/100kg

Past data Projected data

Trade: price competitiveness

• The EU is not competitive in WMP and is not likely to become so in the future

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Euro/100kg

Past data Projected data

How do our results compare to others?

• EU Commission outlook

– EU milk production 169.5 Mt (2024) (168.5 Mt)

– Dairy cow stock 22.1M dairy cows (2024) (22.8M)

– Cheese prod up (14-24) by 11.5Mt (10Mt) (milk equiv)

– Trade (indicative)

• We export more cheese and butter

• We export less SMP and much less WMP

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How do our results compare to others?

• OECD-FAO Agr. Outlook 2014-2023 – EU milk production 160.5 MT (2023) (166.7Mt)

• Dairy products

• Note: our EU-totals are still rather preliminary. We use within model predictions (2014 not adjusted to actual observation, no R-factors applied)

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OECD-FAO AGMEMOD

product

level 2013 growth rate 2014-2023 level 2013

growth rate 2014-2023

Butter 2,330 0.09 1,856 -0.60

Cheese 10,690 1.03 10,927 1.03

Smp 1,243 0.95 1,306 -0.89

Wmp 638 0.05 548 0.46

Concluding remarks

• General medium term prospect for the dairy sector is still good

• Projected milk supply increase is 166.7 (2023), which is +3.8% as compared to OECD-FAO

• EU’s dairy sector will become more reliant to on the world: might create additional pressure on prices than is currently foreseen

• EU dairy products markets are “satiated” but still can accommodate some consumption increase (especially in some NMS)

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Concluding remarks

• Qualifier: Note that refined analysis focused on Germ, Finl., Irl., Neth., Poland (for other MS still more work needs to be done): take our total EU-28 estimates with due care!!

• Impact of CAP reform (i.p. voluntary coupling) has not yet been adequately taken into account

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