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The EU is projected to continue to dominate the global trade in dairy products, with EU milk production growth slowing down but continuing. There is a growing trend towards increased EU exports of low priced ‘fat filled milk powders’, in the face of growing competition on milk powder markets from Latin American exporters. This is increasing the importance of negotiated EU tariff and non-tariff preferences on sub-Saharan African markets. There is growing concern over the devastating impact of increased ‘fat filled milk powder’ imports on local milk supply chains in West Africa. Maintaining the policy space for managed trade in milk powders would appear to be an essential part of sustainable strategies to promote the development of local milk production in the face of surging demand for dairy products in sub-Saharan Africa.
Continued EU Milk Production Growth
According to the EC’s December 2020 EU Agricultural Outlook report, over the period from 2020 to 2030 the EU is projected to make the strongest contribution in global milk production growth amongst leading dairy product exporters. Consequently, ‘the EU is expected to remain the world’s leading dairy exporter’, with 28% of world trade in dairy products by 2030 (1).
A steady growth in EU milk production of 0.6% per annum is projected, based on increase yields (from 7,400kg/cow to 8,300kg/cow) ‘as productivity gaps between EU Member States continue to close’. This will be supported by the extended life span of dairy cattle.
In terms of market developments increased on-farm sales of dairy products are projected, with this trend having been given an added boost by the Covid-19 pandemic (1).
Trends in EU Milk Production and Yields (2011-2030)
| 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | |
| Production (million tonnes) | 138.0 | 138.5 | 140.0 | 144.6 | 147.4 | 148.6 | 149.9 | 151.3 | 152.0 | 154.0 |
| Yields (kg/cow) | 6,332 | 6,374 | 6,388 | 6,636 | 6,761 | 3,634 | 6,977 | 7,294 | 7,411 | |
| 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 | |
| Production (million tonnes) | 155.2 | 155.9 | 156.7 | 157.6 | 158.4 | 159.3 | 160.1 | 160.9 | 161.7 | 162.5 |
| Yields (kg/cow | 7,529 | 7,617 | 7,704 | 7,790 | 7,876 | 7,962 | 8,047 | 8,133 | 8,218 | 8,302 |
Source: EU Agricultural Outlook: For Markets, Income and Environment 2020 – 2030 – statistics, ‘Milk supply and utilisation in the EU, 2005-2030’, December 2020 https://ec.europa.eu/info/sites/info/files/food-farming-fisheries/farming/documents/medium-term-outlook-tables_en.pdf
An increase in milk fat and milk non-fat solids contents is projected, which it is felt ‘should provide enough milk solids to sustain growth in processing.’ According to EC projections, ‘by 2030, milk fat availability is expected to grow by 0.8% per year and milk non-fat solids availability by 0.9%’ (1).
Projected Global Dairy Market Trends
The strong growth in EU milk production and continued export growth will be accompanied by a strong growth in dairy production in developing countries, particularly India and Pakistan. It is felt growth rates in milk production in Africa meanwhile ‘could overtake their past growth rates’ (1).
The EC expects global import demand growth to ‘slow down to 1.3 million t per year by 2030 (compared with 2.3 million t in last 10 years)’, with import demand growth for skimmed milk powder (SMP) halving and for whole milk powder (WMP) falling by 35%. The EC however see’s global import demand continuing to grow, with WMP being replaced by a more rapid expansion of import demand for ‘fat filled milk powders’, where the EU dominates global markets (1).
This global import growth will be driven by ‘population growth, increasing income and expanding urbanisation’ all of which, particularly in sub-Saharan Africa, will ‘support import growth in commodities for processing’ (1).
Projected EU Exports Milk Powders
Overall, in terms of EU dairy exports, the annual rate of growth is expected to be lower than over the past 10 years, but the growth in EU exports of dairy products will continue. However, it is not overall level of EU dairy exports which are most significant for ACP milk producers, but rather trends in EU exports of milk powders, including fat filled milk powders.
Despite growing domestic use, EU exports of skimmed milk powders (SMP) are expected to reach 1 million tonnes by 2030. Between 2020 and 2030 EU exports of SMP are projected to increase 20.5% (+175,000 tonnes), this compares to a 59% growth in EU exports between 2011 and 2020 (+316,000 tonnes) (2).
EU Exports SMP (thousand tonnes)
| 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 |
| 536 | 551 | 439 | 661 | 707 | 597 | 794 | 826 | 946 | 852 |
| 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 |
| 893 | 916 | 928 | 943 | 959 | 974 | 988 | 1,001 | 1,014 | 1,027 |
Source: EU Agricultural Outlook: For Markets, Income and Environment 2020 – 2030, December 2020, tables
https://ec.europa.eu/info/sites/info/files/food-farming-fisheries/farming/documents/medium-term-outlook-tables_en.pdf
In Africa, the EC projects a substantial expansion of demand for SMP, which is largely sold to consumers in powder form, for reconstitution at home (1).
Meanwhile, EU exports of WMP are expected to continue to decline (-2% per annum until 2030), ‘due to lower competitiveness’. Overall, between 2020 and 2030 EU exports of WMP are projected to decline 15% (-48,000 tonnes). This compares to a 21% contraction in EU exports between 2011 and 2020 (-82,000 tonnes).
EU Exports WMP (thousand tonnes)
| 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 |
| 397 | 377 | 368 | 375 | 386 | 381 | 404 | 346 | 315 | 315 |
| 2021 | 2022 | 2023 | 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | 2030 |
| 306 | 300 | 297 | 292 | 288 | 284 | 280 | 275 | 271 | 267 |
Source: EU Agricultural Outlook: For Markets, Income and Environment 2020 – 2030, December 2020, tables
https://ec.europa.eu/info/sites/info/files/food-farming-fisheries/farming/documents/medium-term-outlook-tables_en.pdf
However, more than out-weighing this decline in EU exports of whole milk powder will be the expansion of EU exports of ‘cheaper and customised alternatives’, in the form of ‘fat-filled milk powders’. EU exports of ‘fat-filled milk powders’ are projected to gain market share, playing an increasingly important role in the EU’s ‘dairy’ product export portfolio.
These milk powders are used both directly for home consumption and as inputs into the manufacturing of value-added dairy products. Where this occurs the price of imported milk powders sets a ceiling on the prices which can be obtained by local milk producers.
The growth in EU ‘fat filled milk powder’ exports to substitute for EU whole milk powder exports needs to be seen in a context where EU exporters will face increased competition in the coming decade from Latin American dairy exporters on global milk powder markets. These milk powder markets are strongly price driven (1).
According to an April 2019 report from SOS Faim Belgium, Oxfam-Solidarité and Mon Lait est Local, ‘in 2018, 74.9% of European exports of milk powder to West Africa were fat-filled mixtures’, which were being imported ‘from the EU at an average price 58% lower than the price of whole milk powder.’ This price gap between whole milk powder and fat-filled powder has been widening in recent years. Campaigning development NGOs report that in Senegal, ‘one litre of milk reconstituted from milk powder, is sold at a consumer price between 800 and 1100 FCFA, whilst local milk is sold at 1500 FCFA per litre, depending on the production zones’ (3).
However, significantly the EU provides no data on the expansion of EU’ fat filled milk powder’ exports. What is more terms of customs classifications these ‘fat filled milk powder’ exports are not even classified as ‘dairy’ products. The EC’s tariff code for fat filled milk powder is CN 19019095 and is defined as ‘Food preparations in powder form, consisting of a blend of skimmed milk and/or whey and vegetable fats/oils, with a content of fats/oils not exceeding 30 % by weight’ (4). These EU exports of ‘fat filled milk powders’ are a growing cause of concern in certain sub-Saharan African regions.
EU ‘Fat-Filled Milk Powder’ Exports: A Growing Concern in West Africa
According to reports carried by politico.eu the growing volume of low cost ‘fat-filled milk powder’ imports from the EU is undermining the functioning of local milk supply chains in West Africa. These imports are seen as having a ‘devastating impact’ on long established local milk producers. The growing level of imports serve to compound pre-existing problems linked to the low level of productivity of dairy farming in West Africa (5).
| Causes of Low Dairy Sector Productivity in West Africa
· Dairy productivity of the livestock remains low, particularly because of the difficulties in feeding · Isolation of pastoral and agro-pastoral areas: a fragile product such as milk requires adequate · Insufficient capacity of farmers to increase their capital. · Climate change aggravating the effect of prolonged droughts, especially in the Sahel. · Soil poverty, reducing the potential for diversified feed production for livestock, hence the SOS FAIM, Oxfam Solidariteit, Mon Lait est Local, Vétérinaires sans frontières Belgium, ‘Lets Not Export Our Problems’, April 2019 |
The politico.eu analysis suggests ‘while countries use high tariffs to protect products like fresh milk and cheese… they have not done so for milk powder and concentrated milk’, which are seen as ‘a necessity for less advantaged people and children’. However, West African cattle farmers complain this has opened a ‘back door that allows the cheaper imitation milk to enter the market’ (5).
The politico.eu analysis links the growth in ‘fat-filled milk powders’ to the expansion of butter manufacturing by major EU diary companies such as the Irish firm Ornua. The development of ‘fat-filled milk powder’ which used low-cost palm oil from climate damaging plantations in Malaysia and Indonesia or other low costs vegetable oils, enabled the concerned dairy companies to side-step the expensive process of discarding by-products which would otherwise have to be disposed of (5).
Sub-Saharan Africa has become the main market for these EU ‘fat-filled milk powder’ products. Burkina Faso’s minister of animal resources, Sommanogo Koutou, claims not only do ‘fat-filled milk powder’ imports undermine markets but are also less healthy than natural milk sourced locally (5).
According to the politico.eu analysis based on figures provided by the European Milk Board total EU exports of ‘fat-filled milk powder’ exports ‘rose to276,892 tonnes per annum in 2018 a 234% increase in 10 years’. Exports to Burkina Faso increased from ‘1,529 ton in 2009 to 8,176 tons a decade later’, while imports to Senegal reached 85,981 tons in 2019 up from 65,529 ton in 2017. Similarly, exports to Nigeria reportedly quadrupled in the last 17 years reaching 94, 464 tons in 2019. While companies from the USA and New Zealand are also involved the EU dominates this trade (5).
According to politico.eu ‘Europe’s milk exporters argue that Africa simply does not possess the levels of investment and production required to meet the needs of the fast-growing populations in the region.’ The claims that ‘fat-filled milk powder’ is nutritionally inferior are also contested. The industry lobby group ECOLAIT maintains ‘European exports of dairy products are key to contributing to food security in West Africa’, with there being ‘no indication that domestic production could fully replace imports in the short term’ (5).
The EC for its part claims ‘EU agricultural policy has moved away from subsidizing specific products to supporting farmers in a way that is non-market and non-trade distorting’, asserting ‘the main reasons for a shortfall in domestic fresh milk supply in West Africa are structural, including high input costs, poor infrastructure and difficulties in improving the genetic stock of cattle.’ It was further maintained that if West African governments chose to do so, ‘they can take measures to temporarily restrict imports under WTO provisions and rules that form part of the Economic Partnership Agreements with Ghana and Ivory Coast’ (5).
| Comment and Analysis While the EC asserts in Africa SMP is used largely for home consumption, this is not entirely the case. In some countries and regions expanded milk powder exports are used for processing into value added dairy products and can directly substitute for local milk procurement. In these instances, the price of imported milk powder can directly compete with the prices paid for local milk and can shrink returns to local milk producers and undermine the development of local milk production. It remains to be seen whether increasing internal EU SMP prices, which are projected to increase almost 31%, will be reflected in the prices at which SMPs are offered for sale in Africa. This needs to be seen in a context of the increased competition the EU is projected to face from Latin American producers on milk powder markets and the 24% increase in world market prices the EC projects. A word market price which according to EC projections will be 5.3% higher than the EU SMP price (compared to 11% higher in 2020) Projected EU and World Market Skimmed Milk Powder Prices
Source: EU Agricultural Outlook: For Markets, Income and Environment 2020 – 2030, December 2020, tables
Growing competition from Latin American producers in milk powder markets, is likely to reinforce the trend towards increased EU exports of fat filled milk powders (where the EU already has a globally dominant position), increase the importance attached to the enforcement of EU market access preferences negotiated under EU trade agreements with sub-Saharan African countries and accelerate investment by EU diary companies in local milk powder reconstitution facilities across Africa. While there can be little doubt that in regions such as West Africa there are structural problems faced in developing price competitive dairy production systems, this does not mean the rapid growth in EU exports of low-priced fat filled milk powders is not contributing to the structural challenges facing local diary sector development in West Africa. While there can be little doubt that rising effective demand for dairy products in sub-Saharan Africa before the Covid-19 pandemic was exceeding the current capacity to expand local milk production in many regions, a critical question is: how can imports of low priced ‘fat filled milk powders’ and skimmed milk powder be managed in ways which support the development of local milk t dairy supply chains? Clearly scope for more rapid expansion of sub-Saharan African milk production exists, with the EC in its outlook report acknowledging in the coming decade African milk production growth ‘could overtake their past growth rates’ (1). The question arises: what trade policy measures can be set in place to reconcile current import needs, with an accelerated development of sub-Saharan African milk production? This is an urgent question, for the growing volume of fat filled milk powder products on the market in West Africa is seeing a whole generation growing up with little knowledge of how fresh milk really tastes. This is beginning to consumer preferences amongst the young in Africa, with a growing taste for reconstituted milk products and a growing aversion to the taste of fresh milk. This a worrying development with potentially serious long-term implications. In terms of trade policy one option in this regard is to link the issuing of import licences for milk powders to investment in the development of local milk supply chains, to ensure a progressive expansion of local milk production while meeting current consumer demand. Potentially this could be supported by the application of a supplementary levy on imported milk powder, linked to minimum import price requirements (which would close the price gap between locally soured milk and milk produced from imported milk powders), which would generate revenues to support incentive prices to try and stimulate local milk production. If properly designed and managed, such arrangements could both create the market space and provide financial incentives for expanded local milk production. Currently, while the EC asserts West African governments are free to pursue measures to temporarily restrict imports, the EC us also insisting this be in line with WTO requirements and the provisions of concluded EU Economic Partnership Agreements (EPAs). This is potentially a problem, for EU EPAs with Cote d’Ivoire, Ghana, Cameroon, Kenya (EAC), and the SADC EPA region (which includes South Africa), all include provisions prohibiting the use of quantitative restrictions on imports from the EU and insisting on ‘National Treatment’ for EU exporters. If these sub-Saharan African governments were to adopt measures to temporarily restrict imports, this would require the EC to continue to refrain from insisting on full compliance the provisions of concluded economic partnership agreements. This would sit uneasily with the EC’s policy thrust towards the greater enforcement of concluded trade agreements, given most visible form by the establishment of the office of the Chief Trade Enforcement Officer (see companion epamonitoring.net article ‘Appointment of Chief Trade Enforcement Officer Could Signal a Push More Rigorous Enforcement of EPA Commitments Made by ACP Governments’, 11 December 2021). The EC’s implicit assertion that the EU only provides non-trade distorting support to its agricultural sector, sits uneasily with earlier EC assessments that up to 50% of the income of EU dairy farmers is derived from either de-coupled direct aid payment or coupled dairy sector specific payments. Against this background, allowing African governments the policy space to pursue measures to temporarily restrict imports as an integral part of wider dairy sector development efforts would appear to be the least the EU should do to provide trade policy support to African efforts to develop local milk production. |
Sources:
(1) EU Agricultural Outlook: For Markets, Income and Environment 2020 – 2030, December 2020, full report
https://ec.europa.eu/info/sites/info/files/food-farming-fisheries/farming/documents/agricultural-outlook-2020-report_en.pdf
(2) EU Agricultural Outlook: For Markets, Income and Environment 2020 – 2030, December 2020, tables
https://ec.europa.eu/info/sites/info/files/food-farming-fisheries/farming/documents/medium-term-outlook-tables_en.pdf
(3) SOS FAIM, Oxfam Solidariteit, Mon Lait est Local, Vétérinaires sans frontières Belgium, ‘Lets Not Export Our Problems’, April 2019
http://www.europeanmilkboard.org/fileadmin/Subsite/Afrika/Brochure_campagnelait_court_EN.pdf
(4) European customs portal – 19019095, food, preparations, powder
https://www.tariffnumber.com/2021/19019095
(5) politico.eu, ‘The EU milk lookalike that is devastating West Africa’s dairy sector’, 12 August 2020
https://www.politico.eu/interactive/the-eu-milk-lookalike-that-is-devastating-west-africas-dairy-sector/