The global milk supply ‘crunch’ continues to bite, negating a further build-up of stocks and fuelling further upside to the current price rally, according to Rabobank’s latest dairy outlook.
Rabobank’s dairy specialist Mark Voorbergen, based in the Netherlands, says while the removal of the quota system that has capped European Union (EU) milk production would see a surge in milk production, it is unlikely to significantly affect global dairy commodity prices in the longer term.
The phasing out of production quotas – which have been imposed on European dairy farmers since 1984 – is estimated to result in an additional production growth potential of nine billion litres of milk between 2011 and 2020.
“However, only some of this additional European milk will be realised and exported,” Voorbergen says.
“Firstly, a significant amount of the additional supply will be absorbed in the EU, where demand continues to grow at between 0.3% and 0.5% per year.
“Secondly, in the longer term, dairy farmers in less favourable areas of Europe will actually reduce production under the new liberalised regime due to increased competition and finally, sustainability and environmental concerns will prevent some of the growth aspirations to become reality.”
Voorbergen says Rabobank does not anticipate the changes in European dairy will have that large an impact on the global market nor significantly affect dairy commodity prices.
This is good news for Australia, where local milk prices are impacted by the global market.
However, he warns local producers to expect increasing price volatility during the transitional phase where the quota system was being phased out.
“A major shift like this in a large market like Europe will not happen without leaps and bounds,” he says.