Latest China figures aren’t about record dairy imports
It is very challenging for the dairy industry to expand from a standing start.
But that is the hand dealt by the EU, instead of dismantling the quota over a number of years.
On the plus side, the year ahead gives the industry time to plan its campaign in great detail.
In particular, the marketing side of Ireland’s expansion plan deserves close examination. The spotlight should especially be on the Chinese market.
Growth in Chinese dairy imports will hit 25% in the first half of this year, a rise equivalent to 1.1bn litres of liquid milk, or one fifth of Ireland’s annual milk production.
The Chinese market soaked up an estimated 11% increase in global dairy product exports in the final quarter of 2013.
Demand from the country’s 1.3bn consumers has played the major role in boosting global dairy prices by 42% over the past year.
However, new figures have kept China in the news in the last few weeks.
The Shanghai stock market index fell below the key level of 2,000, after investors reacted to an 18% slump in Chinese exports in February.
In March, figures showed Chinese manufacturing sinking to its lowest level in eight months.
Iron ore prices fell 8.3% — their biggest one-day crash since the Lehman collapse in the 2008 global financial crisis.
Fears of a hard landing for the Chinese economy have re-emerged, amid rising financial pressures and economic sluggishness, including the country’s first ever domestic bond default.
China’s leaders are ramping up spending to help economic growth — but worried investors are selling their Chinese stocks.
China has accounted for half of the $30tn increase in world debt over the past five years, so financial markets are watching closely for cracks in the economy.
If such cracks appear, and widen, the global dairy market will be the least of concerns, because a slump back into global recession could be triggered.
Nevertheless, the global dairy market is where Irish attention must be directed over the coming year. In particular, the Chinese dairy market must be watched closely.
Even before recent, negative economic signals from China, the country’s dairy market was expected to cool down, due to growth in supply globally and growth in China’s milk production.
‘Frenetic’ buying by China has taken the dairy price rally to record highs in some markets, but the trend is about to go into reverse as growth in Chinese demand eases, according to analysts in Rabobank, the leading global agri-bank.
They expect a small rise in China’s own milk supply in the second half of 2014, and a 20% increase in global supplies available for export in the first half of the year.
As a result, dairy prices should ease modestly through the second half of the year, say the market experts at the bank.
The Chinese dairy boom wasn’t going to last forever, and reality is setting in at a good time from Ireland’s point of view, before farmers and processors here commit themselves to ‘full speed ahead’ with milk expansion.
The strong dairy markets of the past year have helped farmers here recover from the difficulties of 2009 and 2012/13, and processors’ bank balances have benefited.
But boom markets also bring the possibility of long-term damage to demand, by encouraging global dairy product buyers towards alternatives.
Some buyers have replaced milk-based fats with alternatives derived from oilseed plants.
Some companies producing vegetable-based fats have revealed record profits, due to the quest for alternatives to expensive dairy products.
It’s just one of the possible downsides of the boom-and-bust, volatile dairy markets that the Irish dairy industry must take on board as it plots its quota-free course after March 31, 2015.
