The combined milk supply from the Big Seven dairy exporting regions of Europe, the US, New Zealand, Australia, Brazil, Argentina and Uruguay had been growing since the spring of 2019.
That came to an end in quarter three of 2021, with production falling in the EU, the US and New Zealand. And although South American supply increased, the deficit from the other big four was too big to offset.
In Europe, although Irish collections are on track to hit another record this year (up 6%), overall European milk production has declined this year.
Production in the other key European exporting regions of Germany, France and the Netherlands, who combined account for almost half of total EU milk supply, is back 1.6%, 1.3% and 2.1% respectively.
New Zealand is also experiencing an unpredictable milk production season. Challenging weather conditions resulted in weak supply in the three months leading up to and including October (typically their peak milk production month) resulting in a 3.4% decline in milk production for the season to date, compared to last year.
Tightening farmgate margins, driven by feed and energy costs, have also halted US milk production growth, where cow numbers have fallen dramatically from record highs in June where they totalled 9.5 million head to a loss of 107,000 head in the succeeding five months.
Production for the year-to-date is up 1.9%, however global food and agribusiness research analysts Rabobank are predicting production to drop by 0.5% in quarter four of this year, with the decline expected to continue for the first half of 2022.
Argentina has posted strong growth this year, mainly due to more favourable feed costs, mild weather and declining land price compared to 2020. Milk supply is expected to be up 3% for the full year.
Brazil and Uruguay have also been in growth territory, however weaker supply from the aforementioned ‘big hitters’ has resulted in weaker supply globally.
The short-term supply outlook looks broadly similar to the current situation, with less than 1% growth anticipated across the main exporting regions in 2022.
China accounts for 20% of total global dairy imports, and their surge in demand as witnessed in the first half of the year in particular has underpinned strong prices globally.
For the period January to October, Chinese dairy imports soared by 26% compared to last year. However, we have seen a drop off in imports since September as a result of reported high levels of stock in the region.
Strong demand has also been supported by Southeast Asia, where dairy imports in Indonesia and Vietnam are up 15% and 31% respectively to the end of September.
The outlook at the turn of the year and for Q1 2022 remains positive, off the back of weaker milk flows, high and sustained prices and solid demand, the latter driven to a large extent by strong Chinese demand in the first half of the year.
Unusually, both proteins and fats have sustained high prices throughout 2021. Despite the squeeze on margins as a result of increased input, processing, and route to market costs, farm gate prices have witnessed strong increases over the course of 2021.
If high and sustained dairy commodity prices have been the headline of 2021, so too have the exponential costs absorbed by the industry throughout the supply chain and the outlook in the short term, shows no sign of a let up.
Full year export performance is expected to be on par with the positive performance of 2020 –a scenario which would have been difficult to predict 12 months ago, when sentiment was arguably one of caution and ambiguity, as the two black swan events of Covid-19 and Brexit dominated proceedings.
Irish dairy industry flying the flag at Food Ingredients Europe
The Irish dairy industry was out in force at the Food Ingredients Europe trade show held in Frankfurt, Germany, earlier this month, with a number of processors showcasing their product portfolio on the Bord Bia Origin Green stand.
This event, seen as the key European show for ingredients, was attended by over 13,000 trade buyers and food industry professionals over four days.
Ireland’s presence was promoted to international buyers throughout the pavilion through an Origin Green marketing campaign to direct buyers to the Ireland stand.
Although footfall was down on previous years and significant Covid-19 protocols were in place, exhibiting companies reported on steady attendance numbers and significant interest in Ireland’s offering.