ALICE O’DONOVAN, Policy & Legal Adviser to Eucolait: World dairy markets: tendencies, prices, prospects, impact of Ukraine

2022 has been an eventful year for world markets, as a perfect storm of inflation, fluctuating production, the hangover from COVID and the secondary consequences of the illegal and unprovoked Russian aggression combine and influence buying and selling.

Globally, dairy trade declined year on year during the first half of 2022, although there is evidence of some recovery in Q3 2022 from some exporting regions (US and New Zealand in particular). China remains buyer #1 on the world market and cannot be matched in volume terms, however with an increased focus on boosting domestic output, the pursuit of the ‘zero-COVID policy’ and a gloomy economic forecast, infinite growth may no longer be a possibility. Southeast Asia on the other hand is a ‘region to watch’ in terms of import demand.

Prices are high, particularly in the EU – regarding farm gate prices, it has been a relatively profitable year for many EU milk producers, even with increased input costs. As a result, other origin products tend to enjoy a price-competitive advantage for now. Looking at the global price picture,recovering milk streams in recent weeks and more cautious buying behaviour will affect the ability to charge a premium.

Milk production and where it happens will dictate much of the trading activity. The scene is set for the US to pull ahead in this respect, with Oceanian production falling and output in the EU flat or declining. Much has been said in the EU about the Farm to Fork policy and its environmental goals making farming unviable – in the end it may be structural factors and rising costs that bite first.

The horrific Russian aggression on Ukraine has led to a sharp increase in energy prices and shortages in feed and fertilizer. Energy intensive activities such as drying for powders are compromised. Various EU initiatives have attempted to counteract this – e.g.  ‘save gas for a safe winter’ and the recent fertilizer communication. With respect to Ukrainian trade, volumes keep moving despite the ongoing aggression. A price advantage and duty-free access to the EU have influenced this somewhat, undoubtedly the boost in trade of some categories is testimony to the resilience of Ukrainian dairy actors.

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