Summary
EU milk production will continue to expand in the coming decade adding 1 million tonnes per year up to 2030. The growth rate in global import demand for dairy products is however slowing down as self sufficiency rate sin some developing country regions improve. The EU will however remain the leading global diary exporter. The main area of concern for ACP countries is EU milk powder exports. Where sustained high levels of skimmed milk powder (SMP) exports will be maintained, though be it below the 2019 peak. Exports of fat filled milk powder (FFMP)will also continue to increase, reinforcing an import-based model of African dairy sector development. This will be reinforced by EC efforts to secure the removal of both tariffs and all non-tariff barriers to EU exports of dairy products to growing African markets. A more detailed analysis of the impact of these EU exports on local integrated African dairy sector development is needed, with this requiring better reporting on trends in EU export of FFMPs. A key question remains: how can the EU’s current short-term export maximization focus in dairy sector relations with Africa be reconciled with the longer term need to promote the structural development of Africa milk production and the locally integrated development of African dairy sectors?
The European Commission (EC) takes the view that by 2030, ‘EU milk production growth will slow down’, with growth of +0.6% per annum compared to previous growth of 1%. However, while EU milk production growth may be slowing, EU milk production will continue to grow throughout the coming 10 years. This will generate on average an extra 1 million tonnes of milk per annum up to 2030. On this trend EU milk production is projected to reach 179 million tonnes by 2030. This increase in production will be driven by a 14% growth in average yields from 7 300 kg/cow in 2019 to 8 340 kg/cow in 2030. This will then see a reduction in the EU dairy herd, and hence greenhouse gas emissions. The reduction in greenhouse gas emissions will also be helped by a growing differentiation of demand for dairy products in the EU (e.g. organic, pasture-based, local), with an emphasis on less environmentally damaging forms of production.
EU Milk Production and Deliveries to Dairies 2011-2020 (million tonnes)
| 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | |
| Production | 152 | 153 | 154 | 160 | 163 | 163 | 165 | 167 | 168 | 169 |
| Deliveries | 141 | 141 | 142 | 149 | 153 | 154 | 156 | 158 | 158 | 160 |
EU Milk Production and Deliveries to Dairies 2021-2030 (million tonnes)
| 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | |
| Production | 170 | 171 | 172 | 173 | 174 | 175 | 176 | 177 | 178 | 179 |
| Deliveries | 161 | 163 | 164 | 165 | 166 | 167 | 169 | 170 | 171 | 172 |
Source: EC, Agricultural Outlook for Markets and Income 2019-2030’, 19 December 2019
A closing of the ‘price gap between skimmed milk powder and butter’ is expected to lead to an ‘increase in the EU raw milk price, stimulating production growth’. This however will increasingly be focused on the production of higher value dairy products.
In terms of the global impact of EU milk production growth the EC estimates ‘overall, global import growth in demand is expected to slow down to less than 0.9 million tonnes per year by 2030 (compared to 2.1 million t in the last period)’. This is below the projected growth in EU milk production, which accounts for only 8% of growth in global milk production. The bulk of the growth in global milk production estimated at a total of 14 million tonne per annum will take place in developing countries (India, above 40%, Asia other than China and Japan 25% and Africa 8%) and will serve domestic markets. According to EC projections ‘the decline in demand for imports is expected to also reduce the annual volume of EU dairy exports to more than half compared to 2008-2019 (around 250 000 t of milk equivalent).
This pattern of global production growth which will see ‘increasing self-sufficiency in many developing countries’ is expected to see a slow-down in global import dairy demand growth. Nevertheless, developing countries are expected to remain important dairy product importers given the rate of growth in consumer demand for dairy products which will exceed production growth. Against this background ‘the EU is projected to remain a leading global dairy supplier’, with the EU ‘expected to supply 27% of world dairy trade in 2030, ahead of New Zealand (25%) and the US (16%)’.
Within this global context, according to the EC, in Africa ‘population growth, increased frequency of purchases and the development of cooling systems will play an important role in increasing demand’ (1). The African market is therefore likely to take on increasing significance for EU dairy companies given wider global trends.
Looking at trends in EU dairy product exports the most important products for ACP countries are milk powders, including fat filled milk powders. Only for certain specific ACP markets are cheese, butter and liquid milk exports part of the EU’s export portfolio. In terms of trends in dairy product production in the EU from an ACP perspective the most significant development is in butter production, which is connected to the production of FFMPs.
EU Butter Production, Consumption and Exports 2019-2030 (‘000 tonnes)
| 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | |
| Production | 2,490 | 25,30 | 2,566 | 1,581 | 2,594 | 2,610 | 2,626 | 1,643 | 2,661 | 2,679 | 2,697 | 2,716 |
| Consumption | 1,990 | 2,016 | 2,027 | 2,033 | 2,041 | 2,049 | 2,055 | 2,062 | 2,060 | 2,077 | 2,084 | 2,092 |
| Exports | 179 | 179 | 200 | 205 | 207 | 213 | 219 | 225 | 232 | 240 | 247 | 254 |
Source: EC, Agricultural Outlook for Markets and Income 2019-2030’, 19 December 2019
EU butter consumption is on the rise while the EU is also expected to gain further market shared in the global butter trade (up to a 22% share of global butter imports). This is projected to see an annual increase of butter production of 0.8% up to 2030. This could then generate a further expansion of EU production and exports of FFMPs, where demand growth in target markets is seen as strong.
In the coming years EU exports of skimmed milk powder (SMP) are only expected to be below the record levels attained in 2019. However, these record levels were fuelled by the disposal of EU intervention stocks. Export volumes will however be sustained at elevated levels relative to earlier period, with the 2019 peak only being exceeded in 2030. This trend is thus unlikely to bring any marked relief to sub-Saharan African milk producers. This needs to be seen in context where EU SMP prices are expected to rise up to 2030, with production growing at a rate of 1.7% per annum up to 2030. This will support new record levels of EU SMP exports by 2030.
EU SMP Production and Exports 2007-2018 (‘000 tonnes)
| 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | |
| Production | 926 | 868 | 1,048 | 965 | 1,096 | 1,107 | 1,109 | 1,457 | 1,537 | 1,560 | 1,529 | 1,531 |
| Exports | 200 | 176 | 229 | 376 | 515 | 520 | 417 | 638 | 695 | 579 | 780 | 823 |
EU SMP Production and Exports 2019-2030 (‘000 tonnes)
| 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | |
| Production | 1,577 | 1,656 | 1,669 | 1,687 | 1,701 | 1,726 | 1,752 | 1,777 | 1,804 | 1,833 | 1,863 | 1,892 |
| Exports | 945 | 839 | 814 | 823 | 829 | 844 | 862 | 880 | 899 | 920 | 941 | 960 |
Source: EC, Agricultural Outlook for Markets and Income 2019-2030’, 19 December 2019
To complete the projection picture for EU milk powders the EC projects a decrease in EU exports of whole milk powder (WMP) by 1% per year, while whey exports are projected to increase by 1.4% annually (down from a growth above 5% in 2008-2019).
Other EU Milk Powder Exports 2007-2018 (‘000 tonnes)
| 2007 | 2008 | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | |
| WMP | 366 | 483 | 458 | 445 | 388 | 386 | 374 | 390 | 395 | 375 | 393 | 394 |
| Whey | 353 | 342 | 401 | 398 | 461 | 492 | 516 | 504 | 538 | 553 | 566 | 598 |
Other EU Milk Powder Exports 2019-2030 (‘000 tonnes)
| 2019 | 2020 | 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | |
| WMP | 283 | 275 | 266 | 264 | 261 | 260 | 259 | 258 | 257 | 256 | 255 | 254 |
| Whey | 598 | 599 | 608 | 617 | 625 | 635 | 644 | 654 | 664 | 674 | 684 | 694 |
Source: EC, Agricultural Outlook for Markets and Income 2019-2030’, 19 December 2019
| Comment and Analysis
Growing self-sufficiency in many developing countries and the slow down global dairy import dairy demand growth, is likely to see the EC attaching growing importance to securing markets in sub-Saharan Africa (SSA). SSA is the region which EU dairy companies see as their ‘natural’ market for exports, given EU cost and logistical disadvantages in serving growing markets in Asia. EU dairy market penetration in SSA will be facilitated by existing patterns of EU corporate investments in SSA dairy sectors and existing patterns of trade It will also be facilitated by existing EU trade agreements where the policy focus is not only on removing tariffs on imports of dairy products from the EU on a preferential basis, but also on securing the elimination of all quantitative restrictions and non-tariff barriers to EU exports. The reported slow-down in EU exports of SMP stocks should come as no particular surprise given the inflated volumes arising from EU stock disposal programmes in 2019. However, this needs to be seen in the context of the longer-term trend in SMP exports which has emerged since the initiation of EU policy reforms in the dairy sector in 2007. The significance of these reforms lay in the extent to which the move away from price support to coupled and decoupled farm payments increased price volatility in the EU milk price. The 2009 milk market crisis which saw milk prices drop to €24.4 per 100 litres (3), saw a rapid increase in skimmed milk powder exports which were more than 2 ½ times the volume of exports in 2011 compared to 2007 (+315,000 tonnes compared to a production increase of 170,000 tonnes). A recovery in EU milk prices to record highs in 2013 (€40 per 100 litters) saw EU SMP exports fall back, but to levels which were still double the 2007 levels. The onset of the 2014-16 milk market crisis, following a major surge in EU milk production in response to high prices (+10 million tonnes from 2013 to 2015), the impending abolition of EU milk production quotas (April 2015), lower than expected growth in global import demand and the imposition of the Russian agri-food product import embargo (3), saw EU SMP exports once again take off. Between 2013 and 2019 EU exports of SMP more than doubled (from 417,000 to 945,000 tonnes) as the EU bought SMP into intervention stocks to support EU milk market prices (with EU SMP production increasing 468, 000 tonnes to absorb ‘surplus’ milk) and subsequently began to dispose of these accumulated SMP stocks on world markets. A process which was completed in 2019. The point to note is throughout the coming period EU SMP exports will remain on average at double the level of EU SMP exports in 2013, the year before the latest EU milk market crisis. Thus, while periodic EU milk market crisis situations gives rise to EU policy responses which fuel an increase in EU production and export of SMP, these higher levels of export are subsequently sustained. Expanded levels of milk powder exports (particularly SMP and FFMP) then become part of the structural development of EU corporate expansion into sub-Saharan African market. These milk powders are repackaged or reconstituted locally into a multiplicity of dairy products for local and regional sales, commonly through subsidiaries of or joint venture with major EU dairy companies. This participation in local reconstitution and repackaging activities helps maximise the revenues gained by the EU dairy partner from its initial sales of milk powders. This pattern of growth in local dairy production in Africa however is wholly disconnected from local milk producers, who are only marginally involved in dairy sector growth. In some countries this can be seen as representing a major missed opportunity for rural development, through a product which on a daily basis places a cash income into the hands of farmers. The remarkable point is not that the growth in EU exports of SMP is stagnating in the coming years, with growth only resuming on a sustained basis in 2022, but that these elevated levels of EU SMP exports are being sustained and new record levels be reached by 2030, despite wider trends. These wider trends include: the slowing down of global import growth in dairy products; a growing EU focus globally on sales of higher value dairy products; and the phenomenal growth in EU exports of Fat Filled Milk Powder (FFMP). These Fat-Filled Milk Powders can be produced to the needs of specific customers and their specific reconstitution needs, with the EU being by far the leading global supplier of these FFMPs. Significantly FFMPs are not currently part of the EU’s annual dairy market review. This is a matter of some concern given the pre-eminence of sub-Saharan African markets as destinations for EU FFMP exports. More EC reporting and assessment of trends in the EU’s export trade in FFMP and SMPs is required, if an accurate picture of the impact of EU dairy sector exports on local dairy sector development in Africa is to be obtained. In the longer term with environmental constraints on milk production in major global dairy exporting regions, the question arises as to how the EU’s current short term export maximization focus in dairy sector relations with Africa will be reconciled with the longer term need to promote the structural development of Africa milk production and the locally integrated development of African dairy sectors. |
Sources
(1) EC, ‘EU Agricultural Outlook for Markets and Income 2019-2030’, 19 December 2019
https://ec.europa.eu/info/sites/info/files/food-farming-fisheries/farming/documents/agricultural-outlook-2019-report_en.pdf
(2) AHDB, The rise of fat-filled milk powders’, 19 October 2018
https://dairy.ahdb.org.uk/news/news-articles/october-2018/the-rise-of-fat-filled-milk-powders/#.XkQTT2hKiUk
(3) European Parliament, ‘The EU dairy sector: Main features, challenges and prospects’, December 2018
https://www.europarl.europa.eu/RegData/etudes/BRIE/2018/630345/EPRS_BRI(2018)630345_EN.pdf