End of the EU milk quota. Expectations from 2015
At the beginning of 2015, a few weeks before the end of the milk quota regime, discussions on the future of the dairy industry intensified in Brussels.
At the beginning of every year dairy analysts usually make market development forecasts for the coming year based on the latest trends, as well as general economic and political factors.
In January in the European Parliament there were held three hearings on the issues related to dairy sector. During two weeks representatives of the European Dairy Association, some members of the European Parliament, EU Commissioners and representatives of the European Commission were discussing the forthcoming European dairy industry transition to the quota-free regime. Based on the consensus outcome of the discussions there was produced a paper, EDA Policy Recommendations. The main idea of the document is that dairy industry now needs policy stability. Experts believe that after ten years of deep and successful reforms, the efforts necessary to alleviate the impact of the current market situation should be focused on the market mechanisms within existing policy framework.
There are different opinions about the prospects of the dairy market in the near future. For example, Phil Cogan, the EU Commissioner for Agriculture, spoke about the dairy sector as one of the most promising. It is worth mentioning that he gave such an assessment not in 2013, the year of euphoric success of dairy industry, but in January 2015, after mid-2014 when global dairy market entered into its downturn phase, Russia imposed sanctions on food (including dairy) products from EU, US, Canada, Australia and Norway, and China’s market activity weakened.
Dairy market analysts are now much less emotional than a year ago speaking about the consequences of the coming abolition of the milk quota regime. According to Alexander Anton, Secretary General of the European Dairy Association, the impact of the end of the EU milk quota will make much less impact on the market than, say, the January elections in Greece, the elections in Portugal and Spain later this year, as well as elections in the UK in May. In his opinion, the effects of the EU sanctions adopted December 18, 2014 in response to the illegal annexation of the Crimea, and the sanctions re-evaluation scheduled for March-April 2015 will have more impact on the dairy market. Transition to the quota-free dairy market is not considered now as something special or unexpected, as the preparations for this step have lasted for 10 years.
Analyzing the prospects for the dairy industry, Roland Sossna, International Dairy Magazine chief editor, is urging not to expect too much from the year 2015 and be very cautious in forecasts. Firstly, the year has already begun and seems it does not look the way analysts had predicted. In addition, the two years of the milk market boom not only stimulated the increase in milk production almost everywhere in the world, but also initiated depression of the market of dairy products. High prices and expectations of their further growth forced to make stocks, for example, in China.
The analyst believes that the volume of milk available on the market will be a crucial indicator for the dairy market development in 2015. In addition, it seems that when China has eaten its milk powder stocks, the country will take its place of significant customer again and this will impact the global market. Much depends on whether Russia will lift the embargo. So far there are no signs that this may happen soon. Even if it happens, import demand will not grow as much as it used to be in good old days: the ruble is devaluating, inflation is rising and falling oil prices affect the purchasing power of Russian consumers.
There are many reasons to share Roland Sossna’s view on the dairy market forecasts. Conditions are changing very quickly and a wide span of hardly predictable factors and events are involved in dairy market development forecasts.