Signs are good that dairy market is on the mend

eurofile: New Zealand Global Dairy Trade auction price soars

The surge in the New Zealand Global Dairy Trade (GDT) auction price has boosted hopes that the long awaited recovery of the dairy market is firmly in place.

This is being helped in the UK by the weakening of sterling. Depending on the level of exposure to export markets this could be worth up to three pence a litre.

The GDT price rose by almost 13% this week, meaning successive increases over the past six weeks have topped 20%. This reflects supply and demand coming back into balance, with milk production finally dropping in key production areas. The GDT delivered price increases across all commodities, including butter and cheese.

The outcome adds weight to claims that the European Commission plans to curb milk output through its recent rescue plan has been overtaken by market events.

The commitment from Chancellor Philip Hammond to maintain Cap funding until 2020, if Brexit is complete before then, has been taken with a pinch of salt by the farming lobby.

In reality all that is being offered is the guarantee of support for one year, since the CAP will be in place and funded by Brussels until at least 2019.

The bigger question is the need for support after 2020. The Government gave no hints as to whether this would be forthcoming, and it did not offer any assurance that it recognises the importance of agriculture and food security or the reality that farming is subsidised in every developed economy.

Comments along these lines would give farmers the certainty about the future they need for businesses that by their nature are long term.

Brexit will not just change things for farmers in the UK – it has implications for the wider funding of the Cap, according to a report from a leading agricultural economist.

According to Alan Matthews from Trinity College Dublin the departure of the UK will leave the EU 27 with a bill of between 1.2 and three billion euros a year if they are to maintain existing spending levels. This reflects the loss of UK contributions to the EU budget, but also the fact that key countries, including Germany, receive a budget rebate to reflect the UK’s rebate.

When the UK leaves those rebates will end. Even before the UK leaves the weakening of the economy and output could reduce its contributions to the EU budget, creating a shortfall others will have to make up.

It is becoming increasingly difficult for the European Commission to maintain its opposition to national labelling schemes.

France has introduced this for a number of products, led by dairy.

Portugal has now followed this lead with legislation to make country of origin labelling compulsory for all dairy products sold there.

Similar schemes are being considered in a number of other EU member states, including Italy and Spain – and not only for dairy products. Ireland already has a labelling scheme in place for milk and more limited arrangements for beef. This will put weight behind the drive for the UK, or the UK regions, to use Brexit as a reason to introduce meaningful labelling.

Ironically in Brussels the UK was one of the member states that opposed this, believing it undermined the single market and reduced flexibility for retailers.