USDA Annual Review of the EU Dairy Sector

At the end of October 2003 the USDA Foreign Agricultural Service released its annual report on the EU's dairy sector. The report notes that in a context of fixed quotas and increasing yields, the size of the EU dairy herd is continuing to decline. While EU milk production is fairly constant, EU cheese production continues on an upward trend due to its profitability relative to butter and milk powder production. This profitability is supported in large part by an expansion of exports. In 2003 EU-15 cheese exports to third countries reportedly increased by 4% to some 490,000 tonnes. The main export markets are Japan , Croatia , Mexico and, in particular, Russia . Butter exports are also expected to increase, largely on the back of German and Dutch sales to Egypt , Japan , Algeria and Russia . EU milk powder exports are expected to increase by 50% to 240,000 tonnes. This trend is driven by limited availability on world markets arising from the Australian drought. However trends vary from country to country, with Irish exports down, and Dutch, French and German exports up. The major destinations for these exports are Mexico , east Asia, and within the ACP group, Nigeria . The expansion of EU exports will however be short-lived as Australia 's industry recovers from the drought. Overall, EU intervention stocks in the dairy sector are expected to rise in the face of increased imports from Oceania and poorer conditions on the EU-15 butter market. EU consumption of liquid milk is rising slightly on the back of the increasing popularity of coffee shops in Germany and Sweden. Comment: Two major points should be noted: first the importance of the Russian market; should a situation emerge which restricted access to the Russian market then large volumes of EU dairy products would be looking for a new home; second, the upsurge in EU milk powder exports does not reflect any increased competitiveness of the EU dairy sector but rather adverse supply conditions elsewhere. It remains to be seen what the impact of the agreed reforms in the EU dairy sector will be on the export price competitiveness of EU bulk dairy exports.At the end of October 2003 the USDA Foreign Agricultural Service released its..