May 5, 2010

Demand for Irish dairy produce has surged over the past two months, driving prices for butter and skim milk powder (SMP) up by as much as 25%.

Industry figures show that the cost of butter has jumped from EUR2,850 (US$3,694)/tonne to more than EUR3,300 (US$4,278)/tonne since February.

A sustained improvement in dairy markets had not been expected until a general economic recovery had gathered pace.

The return of Chinese buyers and lower milk supplies in Europe this spring had created a gap in the market, said Michael Barry of the Irish Dairy Industries Association. However, he said these developments could not fully explain the latest surge in demand and prices.

The industry official said the Commission was coming under growing pressure from secondary processors of dairy products, such as the confectionery industry, to release stocks from intervention.

Up to 50,000 tonnes of butter and 60,000 tonnes of SMP will start to be released from EU stores next week under the Deprived Persons Scheme. These stocks will be fully released by August.

Given that the Commission has just another 23,000 tonnes of butter in intervention, it is unlikely that this volume of produce will be enough to satisfy current demand levels. In contrast, the Commission has close to 180,000 tonnes of SMP in storage.

Any move by the Commission to release further intervention stocks is likely to be opposed by some member states. But, with prices for butter and SMP continuing to rise, the pressure to act is expected to intensify.