Dairy farmers’ outlook good in spite of CAP
From a farmer’s viewpoint, the more serious issue is lower support prices.
These will be cut and producers will not be compensated for subsequent falls in milk prices.
This is the brave new world of an EU market-led approach to farming.
It has been driven by many concerns, not least the pressure by poorer countries to open up markets. Underpinning the changes is the belief that a free open market will work out for the best.
This is expected to lead to radical restructuring of the milk production and processing sectors, according to Davy Stockbrokers senior researcher John O’Reilly.
Much has been written about the need for production consolidation and of the price pressure facing the sector as markets open up.
Dairygold cheese fetching less in the British market than it cost to produce is an example that has struck a chord with farmers interested in adapting to the significant changes agreed at Commission level.
For years we have warned of the changes coming to the sector and they are fast becoming a reality.
Forecasts suggest we will be down to 60,000 farmers from the current 100,000 and that decline has been a reality for a long time.
It is one of the EU ironies that subsidies were introduced to ensure Europe never suffered a food shortfall, a concern driven by experiences during World War II.
Another irony is that the subsidies worked so well, farmers became complacent.
All that is coming to an end, and not a hasty end.
Fearful farmers may see this as the end but the pessimists are usually wrong and the feared outcome is never fully realised.
O’Reilly, an acute observer of the sector, says the outlook for some is good.
There are grounds for optimism about the dairy industry’s prospects. Several factors have driven the sector forward. The expansion of dairy technology has created new market segments.
Specifically Glanbia and Kerry have technologies that rank them as industry leaders in the field, according to O’Reilly.
He believes the antagonism towards dairy produce is no longer as strong as it once was.
He says that will see the demand for dairy products rise, increasing the potential for quoted firms like Kerry and Glanbia to grow.
Noteworthy too is the increase in demand in areas where dairy product consumption was low in the past.
That has emerged where income has grown in urban areas of economies whose traditional diet did not include these products, most notably in China.
As the supply sector in China cannot keep pace with the higher demand, rising consumption is changing the dynamics of the world dairy industry. EU dairy stocks are projected to be virtually non-existent by 2010.
This would require other milk-producing countries to expand sufficiently to meet growing import demand from the Asia Pacific.
It is very doubtful that New Zealand and Australia could do this. For its part, the US is a net importer of dairy products.
South and Central American countries have the potential to expand milk production but the region continues to be regarded as an export opportunity.
Given the opportunities that will emerge down the line, expect Glanbia and Kerry to establish a direct presence in China, anchored on their respective capabilities in milk proteins, O’Reilly believes.
In that regard Kerry has had people on the ground in China for many years and, as usual, is a step ahead of the rest.
As I understand it, food ingredients was the motivating factor at the time. Whatever the reason, Kerry anticipates change and its ability to do so may be more important than ever.
The same is true for Glanbia.
