OLGA KOZAK, IFCN representative in Ukraine, Dr. of Econ. Sc., Lead Researcher, NSC IAE: The full-scale invasion of the russian federation into Ukraine affects the world milk market

The war in Ukraine affects the global milk market.  This was the opinion expressed by the participants of the 24th IFCN International Dairy Conference “Energy crisis dairy world: challenge or opportunity?”. Olga Kozak, Doctor of Economics, Chief Researcher of the National Research Center “Institute of Agrarian Economics”,   is informing about the event at which she represented the dairy sector of Ukraine:

“The conference was aimed at discussing the impact of the energy crisis on dairy industry, identifying existing problems and outlining the ways to solve them. It was held on June 10-13, 2023 in Riga, Latvia, and brought together more than 210 experts from more than 60 countries around the world.

According to the participants of the event, the full-scale invasion of the russian federation into Ukraine began against the background of the world overcoming the negative post-Covid effects on the economy, including the global milk market.

russia’s war against Ukraine has deepened the energy crisis in the world.  First of all, the supply chains were disrupted. This forced many countries to look for other energy suppliers. As a result, the increase in energy prices and the decrease in the availability of fertilizers and feed led to transformations in the global milk market. Extra complications were added because of the negative impact of weather factors, in particular, in Europe and Oceania, which are major producers and suppliers of dairy products in the world.

As a result, 2022 recorded the lowest-ever increase in milk production at 0.4%, compared to 2.5% in previous years. Instead of the annual increase of 24 million tons, the world received only 4 million tons of milk. The world demand for dairy remained high, but the level of international trade in dairy products decreased for the first time since 2006.

The record-high price of milk in April 2022, which reached 63.4 USD/100 kg, should have become the stimulus for the global growth of milk production. However, due to the strengthening of global inflation, production resources also became significantly more expensive.  In addition, since the end of 2022, the world price of milk began to decrease and in April 2023 it fell to 35.6 USD/100 kg.  This put pressure on the profitability of dairy farming, as in the vast majority of countries national prices were correlated with the world milk price, confirming the globalization of the world.

The conference participants discussed the issue of the dependence of the dairy market on the energy market. They concluded that the dairy industry is a “conservation” industry because raw milk can only be stored for 72 hours under ideal conditions and requires preservation technologies and therefore energy to store the milk on the farm, transport it to the factory, process it in the factory,  delivery to the consumer (with all possible stages).  The cost of this energy will be critical to providing consumers with an affordable and safe dairy product.

The long-term military actions of the russian federation on the territory of Ukraine seem to have led to a new era of energy prices.  Therefore, energy markets are looking for a new form of diversification of energy sources, acceleration of the development of renewable energy sources. There are concerns regarding energy security, which remains at the center of energy policy, but it has to be paid for, and this can harm the achievement of other goals.  Transition to a new energy order can be long and bumpy. High prices for fuel, feed and fertilizers are already affecting the global dairy and processing industry.

Prospects for the development of the global dairy market are associated with many uncertainties, the main of which concerns the duration of the war in Ukraine.

The world is adapting to the new reality.  During the first half of 2023, there was a slow recovery in global milk production due to the effect of high milk prices last year.

Based on the current trends, the forecast scenario looks like this: the increase in milk production in the world in 2023 and 2024 will be at the level of 0.8% or plus 4.1 million tons annually, which will not be enough to meet the growing demand.  In addition, Europe and Oceania will reduce milk production.  This is due to several factors – rising production costs, environmental restrictions, animal welfare requirements, new rules and laws, adverse weather conditions, etc.

If previously it was believed that in the world milk would always be produced in sufficient volumes based on stable historical trends, now this paradigm is changing to the new one: the supply of milk is no longer a fixed variable – there may not be enough milk. In this regard, the conference participants believe that countries, especially those that are net importers, should review their strategies and policies to stimulate domestic milk production.

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