A world awash in milk
The abolition of EU quotas is just one part of the global milk glut story
Published 16/09/2015 | 02:30
The world is awash in milk, with global trade in whole milk powder at its lowest since 2011, the U.S. Department of Agriculture says.
For the first seven months of 2015, American dairy exports were down 28pc compared with the same period in 2014, says the US Dairy Export Council. The USDA expects purchases of whole milk powder by China, the world's biggest dairy importer, to drop 40pc this year.
The former No 2 importer, Russia, has banned imports from not only the EU, but also the US and Australia in retaliation for sanctions imposed to protest against Russian intervention in Ukraine. "We don't see any major recovery in sight," says Pekka Pesonen, secretary general of Copa-Cogeca, a farm lobby in Brussels.
Record prices last year primed farmers to bolster output in the US, where milk production in 2015 will reach €284bn-the fifth consecutive record-setting year.
China is producing more milk thanks to investments such as a €124m, 20,000-cow facility that China Modern Dairy Holdings, partly owned by private equity firm KKR, unveiled in 2013. The Chinese are also consuming stockpiled milk powder and importing less. Global milk supply grew 3.7pc last year, almost triple the growth rate of 2013, the USDA says.
Dairy gluts have recurred since countries became more open to trade in the 1980s, says Andrew Novakovic, an economics professor at Cornell. Because cows don't have an on-off switch, increases in supply are harder to slow when demand drops unexpectedly.
"If you overshoot because Russia's closed down and China's having an off year, prices go in the tank," he says. The US has lost more than 76pc of its dairy farms in the past 25 years. "This is a problem of globalisation," he says.
Fonterra, New Zealand's largest dairy cooperative, announced on September 1 that it would offer interest-free loans to farmers. Hope Dairies, a unit of Hancock Prospecting, which is owned by Australian resources billionaire Gina Rinehart, has shelved plans to open an A$500m (€312m) dairy farm and milk powder facility in Queensland. Agri-Mark, a Massachusetts-based cooperative with $1.1bn (€970,000) in sales last year, began dumping milk in June for the first time in a half-century.