EU food exports to Russia still cut off

EU dairy exporters must continue to do without the €8 billion per year Russian food market, after European foreign ministers moved this week towards prolonging economic sanctions to punish Russia for its 2014 annexation of Crimea.

However, record butter prices are helping to make up for the loss of the Russian market, which cut EU cheese exports by 17%, butter exports 5%, and powder exports 5%.

Sanctions were imposed against Moscow in 2014 by the US, EU and other countries in response to Russia’s invasion of Crimea.

A Russian retaliatory ban ended more than €8 billion per year of food imports from the EU, the US and some other countries. It still stays in place, and is likely to do so, after the extension this week of EU sanctions in place against Crimea until June, 2018. A similar extension of sanctions against Russia is expected.

The retaliatory Russian ban on food imports particularly affected the EU’s exports of dairy products and fruit and vegetables.

The continued trade hostilities between Russia and western countries may have contributed to the 0.8% fall on Tuesday in average dairy product prices in the Global Dairy Trade auction, the first decrease after six consecutive gains.

However, markets remain generally buoyant, according to IFA National Dairy Committee Chairman Sean O’Leary, who said butterfat and Skim Milk Powder (SMP) price increases at the GDT auction underpinned current dairy prices.

The average price fell for whole milk powder, a less important product for the EU industry.

Mr O’Leary said the GDT prices for SMP and butter are equivalent to an Irish milk price, after processing costs of 5c/l, of 36.9 c/l including VAT. He said EU average returns in mid-June are equivalent to a milk price of 36.4c/l including VAT.

Rises announced over the past week for May milk have taken prices at most co-ops into the 32-34c range.

On the supply side, new figures show January to April milk deliveries in the EU were 1.5% lower than in 2016, but trending upwards in April, 0.7% up on the 2016 deliveries. On the products side, only cheese output has increased compared to 2016, up 1.4% for the first four months.

New Zealand’s 2016-17 milk production fell 1%, but is expected to return to growth this year, boosted by strong milk pricing signals from the Fonterra co-op. Market analysts will closely watch the country’s general election campaign in September, in which opposition political parties are pledging to regulate New Zealand’s dairy cow numbers, for environmental protection.

Meanwhile, US milk continues 2% ahead of year earlier levels.