Milk production ‘set to accelerate’

The European Commission has added weight to claims that milk prices will drop in the new year.

This will be a move away from the buoyant prices of much of 2017 and will reflect a general softening of returns on all dairy commodity markets. Predictably, this is matched by an increase in production, with output up significantly in the United States as farmers responded to better prices.

Production has also risen in the EU, but the Commission’s agricultural markets report says this will accelerate next year, particularly in the key milk- producing countries of France and Germany.

The report paints a gloomy picture of the skim milk powder market, which has failed to recover this year.

It also sees as a negative the large stocks still in store from intervention buying by the Commission in 2016.

EU milk powder stocks are still over 380,000 tonnes and Brussels has been unable to dispose of these because of concerns about destabilising the market.

While the CAP reform discussions have not yet moved to the top of the Brussels agenda, there are growing signs there will be limited changes to the policy.

The farm commissioner, Phil Hogan, has said the basis of the reform will be evolution rather than revolution. The Commission has already ruled out suggestions that the policy could be re-nationalised back to member states.

It has also rejected suggestions that member states could co-finance the entire scheme, including direct payments.

This is on grounds that while some member states could afford to be generous, others could not and the result would be market distortion.

The Commission has also warned that member states will need to be ready to increase their EU budget contributions to maintain the CAP budget close to where it is.

This is because the departure of the UK will reduce the overall EU budget by up to 14%, depending on the scale and how long-term the UK “divorce bill” payments prove to be.

The accuracy of most short-term market forecasts underlines that longer term forecasts are little more than sophisticated guesswork.

However, in its assessment of agricultural markets through to 2030, the European Commission paints a far from encouraging picture for the livestock industry.

It sees consumption of fresh milk falling in Europe, but says this will be offset by continuing growth in demand for dairy products in export markets.

This will be led by China where economic prosperity is creating more middle-class consumers who want to westernise their diets with dairy products. It sees demand for meat falling in Europe, but says this will be partly offset by a growing demand for processed meat.

Again, it sees good prospects in export markets.

It says the trend against milk and meat in Europe will be driven by environmental concerns about climate change and what might be best dubbed “faddy and fashionable” eating trends.

Meanwhile, despite the Mercosur trade deal negotiations being stalled, the Commission has said it is hopeful it will conclude separate trade negotiations with Mexico early in the new year.

The European Commission expects milk prices to fall in the new year.