December 22, 2009
2009 has been a difficult year for the Irish dairy industry. The slow down in consumer demand and general economic uncertainty, coupled with the financial crisis and strong Euro ensured that commodity prices stayed weak for much of the year. The recovery of demand, from its low point in the latter part of 2008, started to manifest itself from mid-summer, most notably for butter and powders. The consequent improvement in prices was reflected from late Q3 and Q4 in payments by the IDB for purchases from supplying members.
“This upturn in product prices, however, is fragile”, IDB’s Interim CEO, Dr. Sean Brady commented. “International buyers are fully aware that almost 400,000 tonnes of butter and skim milk powder are being held in storage in the EU and US and are, as a result, tempering their purchases in expectation of a limited release of product onto the market sometime in 2010. “Such a release”, Dr. Brady said, “could impact on the price gains made in recent months”. Current EU stocks are running at 270,000t of SMP and 83,000 tonnes of butter equating to 30% and 4% respectively of EU annual production and a large portion of these volumes are due to be released on to the market from May 2010.
“Given the current economic situation and demand, it is essential that the release of this stock is managed and export refunds are reinstated if necessary to ensure that surpluses do not re-emerge in 2010 leading to a decline in prices again and a renewed build-up of intervention stock”, Dr. Brady said.
Increases in milk output in 2009 were constrained in the key dairy exporting countries of Argentina (+0.5%), Australia (+0.5%), with ongoing drought conditions, and the EU27 (+0.4%), but total world milk production is expected to come in at 0.1% for the year. New Zealand is expected to see a reduction in production in the order of 0.3%, with minimum effect on exports. A focused culling of dairy herds in the USA impacted production with marginal decline yoy forecast for 2009. In the EU, milk production increased in Poland (5.5%), Germany (4.4%) and in the Netherlands (2.8%) while poor weather conditions affected productivity in France (-4.7%), the UK (-1.2%) and Ireland, where milk production is expected to come in at -2.1%, well below quota for the year.
2009 cheese production around the world was stable to lower. EU27 cheese production was down 0.4% until mid-year but picked up from August onward. Demand for cheese was sluggish in the EU with consumption estimated at almost 9 million tonnes and, while consumers have been protected to date from price increases, those increases will impact at retail level at some point in the future.
Oceanic production of cheese fell in 2009, with the reduction most marked in Australia where cheddar production was down an estimated 18.7%. New Zealand’s supply was tight as cheese milk was diverted into whole milk powder (WMP) and they concentrated on their preferred markets.
In the US, cheese production from January to September was up 2.5% with domestic retail and food service markets holding firm. US exports of cheese decreased by more than a quarter year on year.
Skim milk powder (SMP) production decreased in some countries, namely Australia (-5.2%) and US (-6%), but EU production is forecast to be up 12% on 2008. Whole milk powder prices rose in the third quarter on the back of increased demand in emerging countries and tighter supplies.
Looking forward, IDB Interim CEO Dr. Brady said that he was optimistic for the future of the Irish dairy industry.
“The fundamentals are strong. We have quality products. We make them from milk produced in the most natural environment, from the most natural foodstuff, grass. This has to be the cornerstone of the Irish dairy industry going forward. The world’s populations are growing, urbanizing and westernizing and dairy products can deliver the nutrient elements to support this. Food security and supply is a major concern and the Irish dairy industry is poised to respond to that. The adoption of a unity of purpose, efficient management of resources, investment in product development and a commitment to an innovative marketing structure are crucial to the long term sustainability of our industry.”
An improvement in the economies of the emerging markets, in particular, will stimulate a recovery in demand for dairy products. Limited availability of cheese from Australia and New Zealand will also create some opportunities for Irish exports to the Middle East and North African markets in the short term.
Overall the IDB performed well in 2009. The overseas subsidiaries in both the Europe and the United States performed strongly despite the global downturn. Global sales of Kerrygold branded products are up 9% year-on-year. This is impressive, given the economic situation and heavy competition in the marketplace and was achieved by a robust marketing activity.
Coming to the end of his tenure as Interim CEO of the IDB, Dr. Brady commented:
“The agri-food industry remains Ireland’s most important indigenous industry in terms of economic activity and impact and the IDB, with over 45 years of experience, has successfully extended the range and volume of its exports, including the expansion of its sales of consumer dairy products under the Kerrygold brand. I have no doubt that the IDB has the scale, scope, logistics and distribution network, sales and marketing expertise to enable the seamless delivery of Irish dairy products to the global market in the most cost effective manner, ultimately to the benefit of the Irish dairy farmer”.