Transcript EU dairy market balance is reliant on increasing exports

LP(16)9244
Export opportunities for the
EU dairy sector
Copa Cogeca WP Milk
Brussels, 27.10.2016
Outline
 Where are we today?
 EU’s position on the global market
 Export perspectives & promising markets
 FTAs, FTAs, FTAs
 Conclusions
The last 2 years
have not been
great…
But markets are recovering since
June thanks to lower milk
production
Main reasons for the long down
cycle:
 Global oversupply, on the
back of high prices, led by
the EU & amplified by quota
abolition
 Temporary slow down in
demand growth (Russian
embargo, stock building in
China, oil prices, political
Source: EU Commission
unrest…)
DG Agri
Short term outlook: is the
current recovery sustainable?
 Sentiment vs fundamentals
 Milk production of key exporters:
 How long will EU flows continue to decrease? Strength of spring flush?
 A bad season expected for Australia but what about New Zealand?
 USA production: powering through
 Argentina production likely to continue its decline over coming months
 High intervention and other stocks
 How will EU exports perform at higher prices?
 Many buyers are still well covered
 Consistent but not spectacular demand globally
 More balanced situation overall
Outline
 Where are we today?
 EU’s position on the global market
 Export perspectives & promising markets
 FTAs, FTAs, FTAs
 Conclusions
EU’s weight in global
milk production
Source: IDF World dairy situation 2015
Global dairy trade flows
Source: Rabobank 2011
World market: concentrated on
the export side
Cheese
Butter
SMP
WMP
Whey powder
Infant formula
Liquid milk
Main EU export markets
for all dairy products (in value - €)
2005
2010
2015
2026
?
Outline
 Where are we today?
 EU’s position on the global market
 Export perspectives & promising markets
 FTAs, FTAs, FTAs
 Conclusions
And tomorrow?
Is past behaviour a
reliable indicator
for future
performance?
Global trade will continue to
increase
• Drivers of global demand growth
for dairy (+2,3% per year):
Annual change in dairy trade flows (in ME):
- population growth
- GDP per capita (+growing middle class)
- changing diets
- urbanisation
- development of modern retail
• Global trade will likely continue to
increase faster than consumption as
major growth regions (South-East
Asia, MENA and Sub Saharan Africa)
will become increasingly import
dependent
• EU should be well placed to
respond to the increasing demand!
Source: EU Commission DG AGRI
Promising markets - Asia
• China
– Will remain worlds largest importer and key for EU exports
– Increasing population (still), increasing middle-class, more westernized eating habits
– GDP growth slowing down as central government attempts its difficult rebalancing of
the economy
– Further increases in imports (in milk equivalent) expected as domestic production will
struggle to keep up.
- Product mix is changing: the share of WMP, SMP likely to decrease, while more infant
formula and UHT (and cheese?) will be imported
- High dairy product prices limit consumption growth
• South East Asia
– All countries are net importers with impressive population and consumption growth
– Today importing mainly powders (SMP, WMP, whey), tomorrow?
• South Korea:
– cheese consumption (mainly food service) is growing faster than global average, thus
supporting EU (and US) exports; very positive effect of the FTA
• Japan:
– Worlds leading cheese importer
– Growth potential for EU exports will depend a lot on market access granted under the
future FTA
Promising markets
– MENA & SSA
• MENA
– Increasing population (60% of population of Arab countries below 25
years)
– Middle and high income countries
– Imports 90% of the food it consumes (Middle East)
– Food service is booming, explaining rapid cheese growth
– SMP imports also growing fast, while WMP remains main product. Butter
imports increasing steadily
• Sub Saharan Africa
– Growing demand due to demographic boom is not met by production
increases
– Fat-filled milk powder remains by far the main product
– Buying power?
Promising markets –
Americas & Russia?
• USA
– A net exporter – but domestic consumption is booming, supporting EU exports of
cheese and butter
– How much can US exports increase? – USDA expects 44% increase over 10 years
•
Mexico
– Big for all dairy products, became largest SMP importer in 2015
– Modernisation of FTA needed (with dairy access) to compete with the US
• Brazil
– Huge & fast growing market but tariffs and NTBs are blocking access. Good potential
for EU exports if the barriers are addressed in an FTA with Mercosur
• Russia
– Reopening of the market nowhere in sight
– Even if embargo is abolished, EU exports will not reach pre-embargo levels but
perhaps 30%-40% (lack of buying power as economy is down, depreciation of the
rouble, other exporters)
– Replacement of milk fat by vegetable fat
– Domestic production?
Possible development of
EU production & exports
Export share of EU milk production
180000000
160000000
140000000
120000000
100000000
80000000
60000000
40000000
20000000
9,53%
0
12,28%
2005
18,14%
2015
2026
EU Exports in tonnes of ME
EU dairy cow milk production in tonnes
Outline
 Where are we today?
 EU’s position on the global market
 Export perspectives & promising markets
 FTAs, FTAs, FTAs
 Conclusions
Global demand for dairy
will increase BUT:
Improved market access is essential!
Can EU deliver?
EU trade policy needs to get over the
current crisis quickly!
NZ
VS
USA
Some key FTA negotiations
for EU dairy
• TTIP – duty free access would be very beneficial for EU dairy
(cheese) exports; no movement for the next 6 months at least and
future very uncertain
• Japan – very protectionist on dairy, outcome and timing uncertain
• CETA - would be beneficial for EU cheese exports but will it ever be
signed and ratified?
• Mexico: one of worlds largest dairy importers; modernisation of
current FTA required to bring EU on level playing field with US
• Mercosur (Brazil): a lot of potential, a lot of challenges
• ASEAN – Vietnam (awaiting signature), Indonesia and Philippines
– high growth markets with already low duties on dairy but zero
duty would put us on par with New Zealand
• What about China?
Conclusions
• In principle the future is looking good: global consumption and trade will continue
to increase and the EU is well placed to serve the additional demand
• EU dairy market balance is reliant on increasing exports
• The share of EU exports in global trade will depend on the outcome of ongoing
and future FTA negotiations led by the EU and our competitors.
• Other factors and uncertainties:
– Stability and continued market orientation of EU dairy policy
– Integrity of the EU and its single market (Brexit, mandatory origin labelling…), overall
increase of protectionism
– Political instability in key import regions
– Price volatility is here to stay – risk management!
– Key economic factors such as exchange rates and oil prices
– Growing trend of vegan/‘non-dairy‘ in certain developed markets
– Impact of climate change and other environmental constraints
– Russia
Thank you for your attention!
Questions?
Jukka Likitalo
Secretary General
www.eucolait.eu
@eucolait