November 04, 2003

 

 

European Union Dairy and Products Annual 2003

 

EXECUTIVE SUMMARY

 

Dry conditions had only a marginal impact on total EU-15 cow milk deliveries in CY2003 due to an increased use of fodder. During CY2003 and CY2004, butter and NFDM (Non-fat dry milk) production are forecast to decline mainly due to expanding cheese production.  Nevertheless, in CY2003 both butter and NFDM exports are expected to increase because of reduced competition from Oceania.  At the same time, intervention stocks of butter and NFDM are expected to rise during CY2003.  During CY2003 and CY2004, EU-15 WMP production, consumption and trade are expected to remain at about the same level as in CY2002. 

 

The long-term decline in the size of the EU-15 dairy herd and increasing yield per cow continue apace, maintaining milk production at or near quota.  While dry conditions have led to a decline in average fat content of milk, it had only a marginal impact on total EU-15 cow milk deliveries due to an increased use of fodder. 

 

In CY2003, EU-15 cow milk deliveries are forecast to fall just 150 MMT from 115,600 MMT in CY2002.  The dry summer negatively affected milk deliveries in France and Italy, both are forecast to have a reduction of nearly 2 percent.  It is anticipated that EU-15 cow milk deliveries will remain stable in CY2004, but milk production could be negatively affected by reduced fertility rates due to the hot and dry summer in CY2003.  In Germany cow milk production is expected to be reduced as a consequence of increased slaughter volumes over the coming winter.

 

The trend of increased production of milk other than cow milk, is expected to continue during CY2003 and CY2004.  Reportedly good market opportunities exist for the cheese produced from sheep, goat and buffalo.  Another factor is that this production is not limited by quotas.  Main producers are France, Greece and Spain.

 

During CY2003 and CY2004, human consumption of fluid milk is expected to rise slightly.  This turn-around from the previous long-term decline is driven in part by the increasing popularity of coffee shops in Germany and Sweden, a trend that has been steadily spreading from the U.S. over the past few years.  Despite CY2002 factory use being lower than previously anticipated, the tighter availability of milk this year is expected to cause a further reduction in factory use in CY2003.  It is anticipated that the factory use of milk in CY2004 will recover nearly to the level of CY2002.

 

In CY2003, EU-15 NFDM production is forecast to decrease by 1.5 percent to 1.09 MMT, which is a smaller decline than previously expected.  However, this forecast masks regional differences, with a production increase in the United Kingdom being offset by decreases in Germany, France, Ireland, and Belgium.  The increased production in the United Kingdom is mainly driven by the possibility to produce for intervention.  With high stocks, production of NFDM is expected to continue its decline during CY2004. 

 

It is anticipated that the total use of NFDM by the EU-15 will increase slightly, to 900,000 MT in CY2003.  Human domestic use is expected to remain stable, while the use in feed increases.  CY2003 ending stocks (intervention stocks only) are forecast to increase by 40,000 MT to 180,000 MT, a smaller increase than in CY2002, when 140,000 MT went into intervention.  In CY2004, human domestic use is forecast to increase marginally, while surplus NFDM is again forecast to be bought into intervention, thus increasing ending stocks further to 200,000 MT. 

 

In CY2003, imports from third countries are forecast to increase by more than thirty percent to 90,000 MT, mainly from New Zealand and the EU-accession countries, namely Poland.  The Netherlands and Germany are the major recipients of third country NFDM imports, while limited amounts are imported into France and Belgium.  In CY2004, EU-15 imports are expected to remain at 90,000 MT. 

 

EU-15 NFDM exports to third countries are forecast to increase by fifty percent to 240,000 MT.  This strong increase is driven by the limited availability of NFDM on the world market due to the drought in Australia in CY2002/2003.  Expected decreases in Irish exports are more than compensated for by expected increases from France, the Netherlands and Germany.  Major destinations for EU-15 NFDM exports are Mexico, East Asia (especially Indonesia, and Vietnam), and Nigeria.  During CY2004, EU-15 exports are forecast to decrease, as exports from Australia are expected to play a stronger competitive role on the world market. 

 

During CY2003 and CY2004, EU-15 WMP (Whole Milk Powder) production is expected to remain at the same level as in CY2002 (800,000 MT).  Production is growing in France and the Netherlands to meet demand from non EU-15 countries.  In CY 2003, EU-15 WDM exports to third countries are anticipated to increase marginally to 495,000 MT.

 

WMP consumption in CY2003 and CY2004 is forecast stable.  High intervention stocks of both NFDM and butter prevented a higher WMP consumption in the EU-15 during last summer.  EU-15 ice cream makers replaced WMP by NFDM and butter due to lower prices.

 

CAP REFORMS

 

On June 27 2003, an agreement was reached upon reforms of the Common Agricultural Policy (CAP).  As part of the CAP reforms, intervention prices for butter and NFDM will be lowered by 25 percent and 15 percent respectively.  A total of four steps will impose this cut gradually during four years. The first cut, imposed on July 2004, is expected to have limited effect on the EU-15 dairy market.

 

 

Source: USDA