Emma Higgins: dairy industry is facing unprecedented challenges

New Zealand 30.10.2023

Source: The DairyNews

Emma Higgins, a senior agricultural analyst at Rabobank, notes that the decline in global milk prices this year has led to a slowdown in supply in major dairy production regions. She highlights the emerging scenario where global demand may experience a resurgence before milk output can fully recover. This dynamic creates a potential whiplash effect in global markets, setting the stage for what she describes as "a bullish run-in to 2024." The anticipation is that the mismatch between demand recovery and delayed milk output rebound could drive a positive momentum in the dairy market.

The global dairy industry is facing unprecedented challenges with varying situations across the world. While some regions worry about a shortage of milk and dairy products, others are actively working to reduce dairy farming. The Irish dairy industry, which exports over 1.7 million tonnes of products to more than 130 countries, is navigating this complex market landscape.

In 2022, global milk production experienced slower growth, increasing by only eight million tons compared to an average annual growth of 24 million tons in the previous five years. Higher inflation reduced the affordability of dairy products, leading to a slight decrease in per capita consumption. Despite a record-high milk price, dairy farmers worldwide did not significantly increase milk deliveries due to concerns about rising production costs.

In the Netherlands, the third-largest milk supplier in the EU, the government has introduced buy-out schemes to reduce dairy farming. Over 500 farmers, including 90 dairy farmers, have expressed interest in these schemes, signaling challenges for the dairy industry due to environmental measures, anti-pollution regulations, climate action initiatives, biodiversity protection, water quality protection, and new animal welfare rules. The cumulative effect of these measures could result in a 25% reduction in Dutch farming by 2030.

The global trends in the dairy industry include uncertainties about the future of milk prices paid to Irish farmers. Rabobank's senior agricultural analyst, Emma Higgins, warns of potential whiplash effects in global markets, with the possibility of a bullish run-in to 2024. Lower global milk prices this year may lead to a resurgence in global demand before milk output can fully recover, creating market volatility.

China, the world's largest dairy importer, is experiencing a slowdown in demand recovery due to lulls in economic growth. However, Rabobank predicts a modest growth of 0.4% in milk production from the Big 7 export regions in 2024.

The changing market sentiments could impact Irish co-ops' decisions on milk prices. Despite challenges, the recent rise in prices at the Global Dairy Trade auction and reduced milk production in New Zealand's North Island may contribute to a positive market shift. However, uncertainties remain, including the impact of China's tariff changes on dairy exports and the ability of other exporters to adapt to new market conditions.

The dairy industry's journey forward involves navigating complex environmental, economic, and political factors, requiring adaptability and sustainable practices for long-term success.