New Zealand’s Fonterra Cooperative Group Ltd., the world’s biggest dairy exporter, isn’t troubled by an expected surge in European milk production as it will be used to make cheese, and won’t meet China’s taste for milk powders.
When the European Union removes restrictions April 1 that have limited dairy expansion on the continent for three decades, production in the greenbelt of Europe will grow 4 percent to 5 percent a year, according to Fonterra Chief Executive Officer Theo Spierings.
“Denmark, Germany, Holland, the U.K. and Ireland, they are going to show good growth,” he said in a telephone interview from Auckland Wednesday. “But the question is: what are they going to make with this milk?”
While Fonterra, which Wednesday cut its dividend forecast, is struggling with a global dairy glut that’s seen milk prices plunge to a five-year low, Spierings says demand in China, New Zealand’s biggest export market, is picking up, and Europe won’t pose a threat to that business.
“We know that China wants to buy milk powders and not cheese,” said Spierings, a Dutchman who cut his teeth in the European dairy industry. “The Europeans are wired to make cheese. I believe that Europe will stay on strategy, and that is cheese, whereas we are much more milk powders.”
The EU sought to stabilize milk prices in 1984 with quotas after government purchases of surpluses intended to aid farmers instead led to overproduction. The bloc began phasing out quotas in 2009, raising production limits by about 1 percent annually until this season, when caps were held steady before their removal in the marketing year that starts April 1.
Spierings said he expects a decline in the south of Europe “because they don’t have efficient farming systems.” That will limit overall European production growth to 2 percent to 3 percent a year, he said.