The global dairy market towards Implications for the UK value chain

Transcription

1 The global dairy market towards Implications for the UK value chain Mark Voorbergen mark.voorbergen@cmenp.nl Tel: AHDB dairy session 13 February februari 2013

2 Contents Section 1: Section 2: Section 3: Milk price developments between now and 2020 The global market going forward Implications for the UK value chain 2

3 Long period of strong global supply growth ended in July Year on year supply growth of the Big 6 Global supply had a very strong run for24 consecutive months When supply peaked in H2 2012, a strong downward price correction seemed inevitable 3

4 Prices did react, but relatively modestly Surpluses apparently were not that high Why? 4

5 The strength of import demand kept up with supply growth The degree of downward price pressure following the strong supply developments was only moderate. owing to the ongoing increase in exports by the big 6 Targeted not only at the usual suspects.. but also at a large number of smaller destinations

6 Outlook for price direction: short, medium and long term Global supply has been weak since mid 2012, except for New Zealand Prices in next 6 months: will it go up or UP 2013/2014: When and where will be the next peak? 2015/2016 : Downward pressure but when? What will be the strength and pace of EU supply growth 2017/18: Contraction in the EU? Consumption growth in developing markets leveling off? 6

7 Contents Section 1: Section 2: Section 3: Milk price developments between now and 2020 The global market going forward Implications for the UK value chain 7

8 Global consumption growth is robust Population growth, income growth and urbanisation are very robust drivers of global dairy demand Additional regional milk requirements between China and many developing countries will remain net importers of milk.. and require growing import volumes to balance their market Source: Own supply and demand model, 2012

9 Global revenues are no longer inferior to EU revenues Premium for EU milk over NZ milk USD/litre equivalent Premium for EU milk over NZ milk Source: Rabobank,

10 Global supply will be challenged to keep up Between 2011 and 2013 milk supply is slightly ahead of demand growth Between 2014 and 2017 milk supply starts lagging behind demand growth. Despite the post 2015 EU events and continuous growth in NZL and the US After2017, rising milk prices will boost milk production in new areas or choke off demand in price sensitive regions Source: Own S/D model Global demand growth fundamentals are very resilient Milk supply in traditional export regions is constrained

11 Conclusion on global market developments Global market developments turn the 2015 quota termination into an opportunity rather than a threat Revenues have become more aligned with EU market revenues 11

12 Contents Section 1: Section 2: Section 3: Milk price developments between now and 2020 The global market going forward Implications for the UK value chain 12

13 Is ignoring global market opportunities a mistake? Access of the UK value chain to the global market is as yet minimal Why would UK farmers invest in growth if their milk is sold into a crowded domestic market with only modest growth opportunities Being late is never a reason do not do anything In the meantime Danone, Nestlé, Chinese babyfood players are investing rapidly in direct access to milk supply Do they know more than we do? 13

14 Is UK milk production efficient enough to play on the global stage? The gap with New Zealand has narrowed Level of fixed costs compares favourably with the rest of Europe But this positive picture come largely because of lack of investment in recent years 12 februa ri

15 UK processors absent amongst the world s leading players Global top-20 of dairy companies : co-operative 15 bn USD NB: 2011 Revenues * estimate Source: Rabobank

16 Conclusions Global dairy demand will need more supply from the traditional export regions to balance the market at current prices This will turn the post 2015 era into a long term opportunity rather than a threat for European value chains The UK value can not afford to continue to ignore global market opportunities Not because global revenues will always be superior to revenues on the UK market but because it will inject new growth opportunities into the UK value chain It will achieve a better spread of risk it will achieve a better negotiation position on the domestic market 16