EU’s New Quota-Free Era

May 6, 2015 06:44 AM
 
EU’s New Quota-Free Era

Without quota, how much more milk will the EU make?

The April 1 start of a European Union (EU) dairy industry without milk production quotas drew opposing reactions from inside the 28-country community.

In Brussels, dairy farmers hit the streets March 31 to protest the lifting of EU milk quotas, fearing that the move will flood the market with cheap surplus milk.

On the same day, the Irish Dairy Board—Ireland’s largest exporter of dairy products—unveiled a new global corporate identity. Now known as Ornua, the Dublin-based dairy cooperative says its name change “marks the next step in its exciting journey” and a “new era for Irish dairying” as Ireland optimistically prepares for a future without milk quotas.

After 30 years of milk quotas, the EU’s new era brings fear, optimism and key questions: How much more milk will the EU produce? Which dairy products will be most affected? Will the EU be more aggressive in exporting dairy products? And how should U.S. dairy exporters compete?

An analysis by the U.S. Dairy Export Council (USDEC) reveals the end of European quota limits is likely to increase EU milk production 11% by 2020.

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USDEC says the EU could produce 15.4 million more metric tons of milk by 2020, compared to 2013 data. Of the extra milk, 76% is expected to come from just six of the 28 EU countries: Ireland, Denmark, France,
Poland, Germany and the Netherlands.

USDEC projects the annual increase in Germany’s milk production at 1.8%. But even higher annual growth rates are expected in Ireland, up 4.6%; the Netherlands, up 3.7%; and Denmark, up 3.0%.

Much of that new milk will be turned into exportable commodities, such as cheese. USDEC predicts the end of quota limits will lead to 660,000 more metric tons of EU cheese on the market by 2020.

EU dairy companies will invest billions of dollars in processing capacity, USDEC says. Already, more than $2.7 billion has been spent on manufacturing and processing facilities.

While higher milk production is expected in the EU, USDEC says falling milk prices could moderate the
immediate impact of quota removal. Additional dairy commodities produced by the EU will mean increased competition with the U.S. and other dairy-exporting nations, USDEC adds.

USDEC believes that although a bigger European export presence would create greater competitive challenges for U.S. suppliers, continued rising market demand would absorb increased EU volumes and still leave ample opportunity for U.S. suppliers in nearly all sectors.

Even so, U.S. dairy suppliers need to become even more customer-centric as the EU ups its game, says USDEC. “If U.S. dairy exporters stress the fundamentals of doing the right things—improving the quality and range of products, improving customer service, getting closer to customers—the U.S. should continue to build share in the global marketplace despite increasing competition from EU countries,” USDEC stresses.

The EU introduced its milk quota system in 1984 to halt massive overproduction there. Leaders hope the end of quotas will allow producers to compete with U.S. and Australian farmers for the burgeoning markets in countries like China and Korea.

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