Land availability will be a major obstacle in EU dairy expansion plans, after milk quotas go on April 1, according to experts at Rabobank.
They see production becoming further concentrated in the key milk-producing regions of Northern and Western Europe, where farmers will utilise the spare capacity developed through the last 30 years of investment and technology gains.
“However, with an expansion of over 12 million tonnes already achieved between the announcement of milk quota removal in 2006 and 2014, a large proportion of this additional capacity has already been used,” said Rabobank analyst Kevin Bellamy.
“Once this available capacity of the land is used, a step change in raw milk prices will be required to incentivise further expansion in production through investment in land and capacity.”
“In addition, actions will be required to ensure European milk remains competitive in global markets.”
“Farmers in many EU regions will have to compete with lower priced milk from other production regions, where farm consolidation and efficiency has progressed more quickly.”
Ireland’s plans to boost milk production by 50% by the end of the decade are by far the most ambitious in the EU, with other member states expecting growth under 20%.
Rabobank predicts an EU milk production growth of 7-8% by 2020.
The European Commission predicts EU milk growth of 8% over the next 10 years — described as “remarkably conservative” by ICOS, representing Irish co-ops. Only one twelfth of the growth is predicted by the Commission to come in Ireland — even though Ireland’s Food Harvest 2020 projections are for almost three times that growth, in just five years. ICOS experts said the Commission’s figures for Irish dairy heifer numbers are “particularly puzzling”.
“We would have some questions on the robustness of some of the projections,” said an ICOS spokesperson.
On the demand side, Rabobank predicts global demand in the dairy market will increase at a compound annual growth rate above 2%, from 2014 to 2020.
But extreme price variations are expected, like last year’s 19% average milk price slump in the EU, driven by increasing production, less stockpiling of dried milk in China, and a Russian import ban. EU farmers fear producers in mountainous areas and in the far north and south will struggle to deal with competition from large farms in more temperate areas.
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