After the historic high prices of 2013, we have now witnessed prices recover to a near familiar level. Prices have been falling consistently since the Spring with the Fonterra GDT auction experiencing a fall of around 40% in 2014. This was to be expected as New Zealand enjoyed a strong production season and Europe has followed suit with an impressive milk output. This has led to a glut of supply in the marketplace as demand from China has also calmed down despite differing predictions at the start of the year.
Many were predicting that prices would stabilise again but an unexpected announcement during the summer has changed the landscape again. On August 6th Russian PM Dmitry Medvedev announced that Russia would be immediately banning all dairy imports from the EU, US, Australia, Canada and Norway. This was a direct response to trade restrictions imposed on Russia by the mentioned nations. This trouble has been brewing since the Ukrainian EU referendum and Russia has now retaliated with a significant blow to the EU economy especially.
This situation will severely affect the EU with countries such as Denmark, Netherlands and Poland most concerned. There is naturally going to be a vast quantity of product that will need to find a new home urgently. Russia is the main export destination for the EU dairy industry with around 20% of overall produce sent there. 33% of EU cheese exports and 32% of EU butter exports are sent there and these statistics highlight the importance of the Russian market.
The repercussions have already been felt in Europe with Danish giant Arla announcing it is to immediately cut 79 jobs at plants in Denmark that manufacture product for Russia. Arla had identified Russia as a key growth market and had invested heavily to supply. Dutch dairy Friesland Campina are also severely affected as they exported some €320m worth of product to Russia last year. Russia is by far the largest consumer of Dutch Edam and Gouda. This market has already experienced volatility this year due to the previous Russian ban on German imports. It was recovering in price but now the ban on Dutch product has thrown it into turmoil once again.
This volatile situation has thrown the market into turmoil for many producers. Most buyers were buying short term stock in the immediate aftermath as they waited to see how big the crash would be. The Fonterra GDT index has fallen 48% so far this year with most prices at their lowest point since 2009. A sign of the pressure many cheese producers in Europe are under was witnessed when the European Commission was forced to suspend the extended private storage scheme after only a week, Italy submitted a total of 84,120 tonnes of cheese for storage which made up considerably more than half of the overall allowed quantity. This is a clear sign of desperation with clearly no other suitable alternative buyers to fill the Russian gap.
While the ban is very worrying news for many European dairies , particularly those in Germany and Holland (See the chart), it is not expected to have a huge impact on UK or Ireland exports. The UK only sold £5.9m worth of dairy products to Russia and cheese accounted for £5.4m of this total. There were great fears in Ireland when the ban was first announced, with Bord Bia estimating the loss to the dairy sector at around €80m. However these fears have now been alleviated with Agriculture Minister Simon Coveney announcing the total loss
at around €8m. Again most of these lost exports are cheese but the minister confidently predicted that they will be sold elsewhere as the IDB are performing strongly in other emerging markets.
The IDB Purchase Price Index has continued to reflect global dairy prices as it is now at its lowest level in 14 months. It has fallen by 11.6% so far this year in total. However not everyone is happy at these trends as the milk price in Ireland has come under increasing pressure since the market turned. Glanbia recently announced yet another significant cut in their milk price with a drop of 2.5c. This brings it down to 30.5c/l which is a huge drop since the start of the year. This has naturally upset farmers nationwide but it was inevitable the milk price would suffer due to such a collapse in the overall market. It will be interesting to see where the milk price heads next year with the removal of quotas. The IDB have already warned it would take an unexpected ‘weather event’ to halt the current price fall.
To conclude I want to reassure all of our customers that we will yet again provide a secure source of supply through the upcoming winter months. The relationships we have built over the years with both our suppliers and customers will ensure we will have the best market information in what is becoming an increasingly difficult market to make long term predictions. This will be vitally important to us as we will be able to stock product at keen prices so our customers will also experience the benefits. Thanks again for all your support this year and I wish you all a prosperous festive season.
Yours,
Ian Galletly
Managing Director
Ingredient Solutions Ltd.
Catherine’s role is Technical Assistant and she is one of the newer members of the Ingredient Solutions team. Catherine recently graduated in Food Science and Innovation at WIT and is motivated, positive and enjoys working in a team. Catherine says, “I always see the good in every challenge that approaches me as they can lead to opportunities to learn more.” She is looking forward to focusing on the areas that she can control and learning how to perfect them.
Ted is the Factory Manager, he is the man that keeps everything running smoothly, supporting production and technical operations. He ensures that all the machinery within the factory functions at maximum efficiency and is properly maintained.
Suma has worked for Ingredient Solutions for two years as Technical Manager – leading the technical team. Before working for Ingredient Solutions, Suma worked in Asia, the Middle East and Europe and has over twenty years experience in management and leadership in food and other industries.
Pina is our UK Sales Support Administrator and has worked for Ingredient Solutions since 2012. She works alongside Gary Davies and the sales team providing them with sales information and supporting the team especially when they are on the road. Pina works remotely for Ingredient Solutions from her base in Luton in the UK.
Marek is based near Lublin, that’s not a typo we don’t mean Dublin, he’s our man on the ground in Eastern Europe.
