Thursday, 4 June 2020
By Felicity Rusk and Patty Clayton
Previously, we had a look at how the key dairying regions are coping with coronavirus across the globe. This week, we take a more in-depth look at how coronavirus is impacting production and demand in some of the key European dairying regions.
Overall, the number of reported cases in most EU countries has started to slow and countries are slowly starting to downgrade quarantine restrictions. Nevertheless, a broad range of quarantine measures remain in place across various EU member states.
The latest forecast from the EU Commission expects milk production growth to be relatively muted in 2020, at around 0.4%. This is due to a combination of the pressure of lower farmgate milk prices and drier-than expected weather conditions.
There remains significant uncertainty around how the remainder of the year will develop; milk production is at risk of dropping if the dry weather continues or margins are badly affected. On the demand side, recovery rates will be subject to consumer confidence, travel restrictions, and the impacts of a wide-spread recession.
Depending on product focus, routes to market, reliance on exports and government support programmes, different countries within the EU are likely to travel different paths to recovery.
Germany is the largest EU producer and exporter of dairy products. The nation accounts for approximately 23% of milk produced in the EU-27.
- Recently, the measures to prevent the spread of the virus in Germany have eased. Schools are gradually re-opening, and some restaurants and pubs are preparing to reopen.
- Milk production in the first quarter of the year was running 0.8% ahead of the same period last year. Production is now past the seasonal peak, with weekly production dropping. In addition, dry conditions are affecting yields and have raised concerns around milk supplies through the summer.
- Though demand is reportedly strong from the retail sector, the export front has been slow, with lower pricing.
- In the first quarter of this year, German exports of dairy products fell by 3% compared to 2019. In particular, exports of liquid milk and milk powders have dropped, declining by 9% and 21% on the year respectively. The drop in UHT exports is likely linked to the lockdown in China, which occurred in early part of the year.
- As of 1 June, Germany had offered 2,417 tonnes of SMP, 7,763 tonnes of butter and 464 tonnes of cheese into the private storage assistance (PSA) scheme.
France is the second largest dairy producer and the third largest exporter of dairy products within the EU-27. The nation accounts for approximately 18% of the milk produced in the EU.
- Milk production1 in the first quarter of this year was 1.0% higher than during the same period in 2019.
- Weekly deliveries fell behind 2019 levels through April and May in response to the lack of demand and limits on processing capacity. A support package was put in place through CNIEL, the Interbranch Organisation, to support farmers who reduced milk production through the peak period.
- In the week of 11 May, deliveries fell further on year earlier levels (down 2.1%) as dry weather also impacted yields
- A key challenge in France is the build-up of cheese stocks, particularly products of protected origin labelling. This is due to a 60% reduction in cheese demand from the closure of foodservice and outdoor markets. Reports suggest that in early May, producers were faced with 2,500 tonnes of cheese with a relatively short shelf-life. Producers opted to give it away, melt it down into a lower quality product or destroy it. In response, a new national campaign was launched to promote cheese consumption.
- As of 1 June, France had offered 3,975 tonnes of cheese into the PSA schemes, utilising 22% of its total allowance. A further 639 tonnes of butter has been offered, however no SMP has been offered into the scheme.
The Netherlands is the third largest dairy producer with in the EU-27, accounting for around 10% of milk produced. However, the nation is the second largest exporter of dairy products out of the EU, with many routes to non-EU countries
- The Dutch “lockdown” was less strict than some other EU nations. It is now starting to ease, with primary schools partially reopening. Outdoor spaces in bars and restaurants are also set to reopen from 1 June, with further capacity allowed from 1 July.
- The Dutch dairy industry association, NZO, that covers 98% of the milk produced in the nation, put into place emergency protocols in early May to ensure all milk produced on farm was collected. If one processor cannot pick up milk from a producer, another processor would step in and process the milk.
- Milk production1 has shown strong growth in the first four months of the year, with supplies increasing by 2.6% compared to 2019. However, reports suggest that dry weather is starting to hamper milk production.
- In terms of key markets for the main Dutch dairy products, the partial return of foodservice demand in key markets, such as Italy, has tightened the spot milk and cream markets. In the week ending 24 May, prices for SMP and mozzarella have also picked. However, prices for foil-ripened semi-hard cheese continued to fall.
- As of 1 June, the nation has offered 12,459 tonnes of butter and 652 tonnes of SMP into the PSA scheme. A total of 7,355 tonnes of cheese has been offered into the scheme, utilising 84% of its allocated volume.
Poland is the fourth largest dairy producing nation within the EU, and continues to show strong growth in both production and exports.
- Some quarantine restrictions were relaxed in early April. From 16 May, quarantine is no longer compulsory for professionals travelling from another EU country or Switzerland. Restaurants in Poland remain closed (except for delivery services) for the time being. Schools are currently closed until 24 May, although this could be extended if necessary.
- Milk production1 continued to record strong growth in the first quarter of this year. Deliveries increased by 2.1% compared to the same period in 2019.
- The European Dairy Association lodged a complaint to the EU Commission against the Polish Government in late April. The Polish Government encouraged “economic patriotism” amid the pandemic by publicising plants that imported dairy products from outside the nation.
- As of 1 June, Poland has utilised less than 1% of its cheese allocation for PSA. No butter or SMP have been put forward into the scheme.
Italy is the fifth largest dairy producing nation within the EU, accounting for 8% of milk produced within the bloc. It is a key exporter of cheese.
- Italy has endured a long, strict lockdown. However, bars and restaurants began to open from 1 June and there are plans to allow tourists to visit over the summer. This has increased demand to restock supply chains, and with Italy being a net importer of milk, has pulled in milk from countries such as Poland.
- In the first quarter of the year, Italian milk production1 was running 2.2% behind previous year levels. In early March, dairy farmers were asked to curb milk production voluntarily to minimise possible disruption to processing due to staff absenteeism.
- In early April, the Italian Government introduced a €6 million programme to distribute surplus milk to those most in need. Raw milk is purchased through a tender process for the distribution to charities. It is then processed into UHT and disseminated to citizens in regions most affected by COVID-19.
- Italy fully utilised its allocation for cheese PSA in the first week, applying for a total of 12,654 tonnes of cheese to enter the scheme. No butter or SMP has been offered into the scheme although these products are not typically produced in Italy.
Ireland is the sixth largest dairy producing regions in the EU. In 2019, a third of the UK’s dairy imports and 66% of its dairy exports were with Ireland.
- Ireland has had a stricter “lockdown” than in the UK, and schools are not expected to reopen until September. Reopening of restaurants is not explicitly mentioned in its roadmap to ease restrictions, so is still expected to be a few months away.
- In the first quarter of this year, milk deliveries1 in Ireland recorded an increase of 2.8% on the year. April deliveries continued this trend, up 3.5% on April 2019.
- An estimated 92% of Irish dairy produce is sold abroad, therefore, Irish famers are highly exposed to disruption to exports. As such, a recent report from Dairy Industry Ireland suggested that milk prices could fall by 10- 20% this year, which may slow the production growth later this year.
- As of 1 June, Ireland has put forward 8,981 tonnes of butter into the PSA scheme. Its full allocation of 2,180 tonnes of cheese was put forward in the first week that PSA opened.
1) Milk production figures are adjusted to account for the leap year
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