Coronavirus update: impacts on dairy markets

Wednesday, 25 March 2020

By Patty Clayton

Coronavirus update: impacts on dairy markets

In the past week, markets conditions have been changing daily as new restrictions are placed on our lives, and the government works to support the economy. Organisations across the dairy industry have had to adapt rapidly to new ways of working and new challenges, almost on a daily basis.

Below we provide an update on market events, summarising the key changes and challenges facing the dairy supply chain.

AHDB will continue to provide information on available support along with regular market updates covering all aspects of food and farming through the Coronavirus section of our website

Domestic demand

Milk collections are reported be continuing as normal, with processors providing updated guidelines to ensure the safety of both the tanker drivers and farmers. While we are approaching the peak in the milk production cycle, capacity does not appear to be an issue, barring any breakdowns.

Retail demand has remained elevated for fresh milk and key dairy products such as cheese, butter and dairy spreads. In response, retailers and manufacturers have streamlined product offerings to help ease the pressure on throughput. There are also reports that some of the volumes previously sold through foodservice have been diverted to the retail channels, helping to ease some cashflow pressures.

The biggest concern for those manufacturers supplying into the retail or industrial markets, where demand remains at higher than normal levels, is continuity of supply.  Any widespread need for self-isolation from staff could have serious implications. It could seriously affect a processing line’s ability to process milk. Transport networks between farm, factory and retailer would also be disrupted without access to skilled drivers.

Trade and supply chain

Exports appear to be relatively unaffected, although there were some issues cropping up here and there. Border checks within the EU slowed down deliveries, concerns over quarantine were limiting availability of drivers, and difficulties remain in access to refrigerated containers for overseas shipments.

However, there are reports that the backlog of ships in Chinese ports is easing as restrictions are gradually being lifted. This should reduce the pressure on container availability going forward. Further helping the smooth transport of product is the introduction of ‘green’ transport lanes on the continent and relaxation of driver working hour limits, both here and in the EU.

Overall

While we are starting to see supply chains adapt to ensure food continues to be produced and delivered to consumers, there remains a great deal of uncertainty. Buyers are hesitant to commit, not knowing what future demand will be – which products will be needed, where will they be purchased and at what levels? Dairy processors meanwhile, have no historic trends to guide them in what or how much product to make.

Many uncertainties remain, and in the short term are likely to cause a high degree of volatility in markets. To help provide some transparency, we will be publishing weekly updates covering market developments and pricing trends

Patty Clayton

Lead Analyst - Dairy

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