EU dairy undergoes CAP reform benefits

By Neil Merrett

- Last updated on GMT

Related tags: Milk, Eu

The European dairy industry is on course to rebound from a
difficult 2006, as the detrimental affects of CAP reforms on milk
production in 2003 begin to lift, says a new report by the US
Department of Agriculture (USDA).

Due to declining milk production in 2006, the dairy industry particularly in demand for products like non-fat dry milk, experienced rapid increases in prices as supply for some raw ingredients failed to meet demand. Though the report stressed that milk production would still fail to catch up with the capacity reached in 2005, it added that most dairy segments would gradually benefit from improving supply. This increased production was attributed in part to a second 0.5 per cent rise in the bloc's quotas levels. Of these segments, cheese production, which for sometime has been a favored target for milk producers due to greater profitability, will benefit most from the increased milk supply in the bloc. This had been driven by increased demand in both domestic markets like Germany and Italy, and outside of the EU by increased consumption in Russia. As a result of this increase, butter production will still fail to undergo any major benefit from the region's improved milk output. Last year, butter intervention stocks dwindled to their lowest point since they were instigated in 1964. This saw reduced exports from the original 15 EU members. Though increased production in markets like Poland has somewhat offset this decline. With prices still remaining high, butter stocks are still expected to remain low during the remainder of the year. To ensure it can meet demand, the report conceded that the EU may move to increase its imports of the product. Heightened consumption for whole milk powder (WMP) will also put pressure on milk supplies due to increasing international demand for the product aided by declines in Australian output. Nonetheless like butter, production of WMP is expected to remain stable during the year, as cheese processors claim the wealth of milk supplies. Non-fat dry milk (NFDM) production also declined last year, though increased prices for the product could create new opportunities for the dairy industry. The increased cost of NFDM is likely to reduce the products competitiveness for use in the feed sector against substitutes like whey powder, allowing for greater supply to producers and formulators in other markets.

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