Rabobank says world dairy trade still has issues

By Jim Cornall

- Last updated on GMT

Rabobank's latest report on the dairy industry says that it still faces strong headwinds.
Rabobank's latest report on the dairy industry says that it still faces strong headwinds.

Related tags International trade Us

Rabobank says that the trade in dairy products has suffered some big blows in the past three years, and that there are still challenges ahead.

The report, “Strong Headwinds Weigh on Trade Growth,” points to the Russian trade embargo, the slowing of demand growth from China, the impact of low oil prices on demand from oil exporting countries and the strengthening of the US dollar all having an impact on the demand for imports.

Increased production following the removal of quotas in Europe have added to the problems and resulted in a period of extremely low world prices.

Kevin Bellamy, global strategist dairy at Rabobank, who authored the report, said that looking forward, none of the issues have been resolved.

He said that the Russian ban will be in place at least until 2017, demand from China will continue to grow but at a slower rate, oil prices are forecast to remain at around the $50 per barrel mark, and the dollar is forecast to maintain its high value against other currencies.

“As a result, dairy trade is likely to grow at a slower rate than in recent years, driven more by population growth than per capita consumption increases,”​ Bellamy said.

Other factors

The report says that, fortunately, this all comes at a time when further rapid expansion of export volumes would be more difficult, with further New Zealand expansion limited by land availability, Europe stabilizing after milk quota removal, and the US export ambitions limited by domestic demand growth and the strong US dollar.

Dairy trade, it says, is also likely to remain dominated by regional rather than global routes with free trade agreements significantly influencing volumes.

The exception will be Asia, which will continue to be a highly competitive battleground for exporters from around the globe.

All of this must be overlaid with the potential for the renegotiation or cancellation of trade agreements following the US election results, the report said.

Indeed, following the US presidential election, Donald Trump has said he will pull the US out of the Trans-Pacific Partnership deal on his first day in office.

Struggles ahead

Much has changed since the last dairy trade map was drawn up three years ago, the report notes.

In 2015, the growth in trade was only 0.3% more than 2014. In the next three years, growth in dairy trade will decrease slightly.

The report says that China will find a ‘new norm’, which is likely to mean lower volume growth but more focus on value. This will mean that while price volatility is likely to continue, long-run average price increases are likely to be limited.

The strong US dollar and healthy domestic demand growth will mean that the US is less willing to compete in global dairy markets, Bellamy believes.

Uncertain times

The report concludes that current developments mean that the dairy industry must cope with uncertain times where the new US administration, uncertain Russian relations, uncertainty in the Middle East, Chinese economic performance, Brexit, and the fate of TPP and TTIP may all have a major effect on dairy trade development.

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