The EU Agricultural Outlook report, published on 18 December 2017, signals that despite the recovery of dairy prices in 2017, the year ahead will likely be a lot more difficult.

While price increases in 2017 were largely driven by the strong demand for dairy fats and a fall in production in late 2016/early 2017, these trends will be reversed in 2018, with milk production expected to grow significantly  (reaching 164 million tonnes, up 0.8% on 2016 levels) and butter prices already declining from their sky-high position, putting prices under pressure.

SMP stocks in public intervention will also continue to weigh heavily on the market. Despite high demand and low prices driving EU SMP exports up to a record 40%, intervention stocks grew to 381,000 tonnes in 2017, creating price uncertainty on the market in the short term.

In the medium term (until 2030) however the outlook is far more positive, outlining that EU dairy is expected to continue to benefit from world population and income growth in international markets. In particular the consumption of cheese and processed dairy products is expected to rise, with demand from China in particular remaining high. There will also be a growth in domestic EU demand for dairy products, while liquid milk consumption is projected to continue its decline. This sustained domestic and global demand will likely support prices and lead to an increase in EU milk production of below 1% per year on average, according to the report.

The report predicts however that the development of EU production will be limited due to enhanced sustainability criteria, including the protection of water, air quality and landscapes, and reduced greenhouse gas emissions, as well as  a predicting a significant rise in organic production in response to consumer demand.

The report cautions that volatility will therefore likely remain ever-present, and calls for food supply chain operators to adapt and respond to this, by developing strategies to limit exposure. A number of Irish co-operatives have already taken this on board over the last number of years, with the introduction of fixed milk price schemes, which will help farmers deal with lower farmgate prices.

Read the full report here: https://ec.europa.eu/agriculture/sites/agriculture/files/markets-and-prices/medium-term-outlook/2017/2017-fullrep_en.pdf