Milk prices won't recover in 2016 warn experts

Prospect of global rally recedes and Commissioner Hogan rules out EU intervention saying only the markets can provide a solution

The situation in the European dairy market has been described as 'very serious'.
The situation in the European dairy market has been described as 'very serious'.

Darragh McCullough and Jim O'Brien

The outlook for milk prices continues to worsen, with one leading international analyst admitting that "the light at the end of the tunnel has dimmed" in recent weeks.

Rabobank's Kevin Bellamy said that recovery on milk markets was receding, despite a 7pc fall in output in New Zealand, and increased consumption in China on the back of cheaper dairy prices. Domestic Chinese production has also slackened against rock-bottom prices from competing imports.

European intervention levels equivalent to 21c/l are now the floor in international markets.

Despite the worsening situation, the EU Agriculture Commissioner, Phil Hogan, has ruled out intervening in the market to prop up prices.

Mr Hogan said the problems were market driven and could only be fixed by the market itself, rather than regulatory or legislative actions.

However, he did admit that the relationship between farmers and processors and retailers may need to be the subject of legislative intervention.

His comments come in the wake of a damning British report that identified serious breaches by Tesco in the UK of the retailers' voluntary code.

Lobby groups

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While this issue will be the focus for European dairy lobby groups over the coming months, it is unlikely to help Irish farmers' cause with so little of Irish milk volumes going into fresh milk on European shelves.

"Nobody can deny that the situation in the European dairy market is very serious," Mr Hogan said.

"But the fact that we have not seen such a recovery proves that we are in a deeper and longer lasting trough than was originally foreseen," he added.

Previously, Rabobank had predicted a recovery during the first half of 2016.

Mr Bellamy described the mood at the International Dairy Foods Association conference in Phoenix, Arizona last week as "pessimistic".

US production has yet to ease, driven by a butterfat 'bubble'. But experts believe that a 3pc increase in EU milk supplies at a time when international demand is slackening is the biggest culprit for the current price crisis.

Support within the EU is growing for an insurance scheme similar to the US.

Such a move could counter farmers' tendency to increase output to compensate for lower prices, which subsequently exacerbates supplies.

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