In W40 in the dairy landscape, the Food and Agriculture Organization (FAO) reports that the dairy product index for Sep-23 was 2.3% lower than in Aug-23, the ninth consecutive month-on-month (MoM) decline. Experts attributed this drop to subdued import demand and substantial stockpiles in the major-producing regions. Additionally, the depreciation of the euro against the United States (US) dollar contributed to the fall in global dairy prices.
The National Federation of Dairy Industries (FeNIL) reveals Spain's distinction as having the most expensive raw milk prices paid to farmers in the European Union (EU), excluding Malta and Cyprus. This situation contributes to the influx of competitively priced foreign dairy products, particularly cheeses. Raw cow's milk in Spain was priced at USD 0.54 per kilogram (kg), higher than USD 0.43/kg in Germany and USD 0.48/kg in France. This pricing differential has led to uneven competition, especially in the cheese and dairy derivatives markets.
While Spanish farmers receive record-high prices for sheep and goat milk, the country faces challenges to stimulate dairy production and ensure sector growth due to structural factors beyond pricing. The declining raw milk volume, increasing international supply, and global economic uncertainties further pressure Spain's dairy industry, reducing its competitiveness and eroding profitability. The retailers’ historical sales strategies that promote artificially low prices present a significant challenge for the industry already struggling with rising costs.
The Hungarian dairy sector grapples with formidable challenges, marked by a persistent drop in milk purchase prices, dwindling demand due to soaring inflation and increasing imports. Hungarian raw milk prices plummeted to USD 0.41/kg in Aug-23, a decrease of 32% since Jan-23 and a decline of 17% year-on-year (YoY). This drop mirrors a broader EU trend as raw milk prices have slumped throughout 2023, driven by milk oversupply in Europe and weakened consumption caused by inflation. While this has increased the competitiveness of EU dairy exports, it has negatively impacted domestic processors.
The Hungarian market is currently swamped with dairy product imports, particularly cheese and ultra-high temperature (UHT) milk, creating a market-disrupting effect. The influx of low-cost semi-hard cheeses and canned milk is damaging the Hungarian dairy industry. Processors are forced to lower their product prices, with transfer rates for dairy products falling significantly. Despite reduced prices, demand for dairy products, except for milk, continues to decline. Consumer preferences are shifting towards private-label products and cost-effective alternatives within the same category. Experts suggest that educating consumers and promoting Hungarian dairy products is essential to support the industry in this challenging market environment. Furthermore, innovations like lactose-free products hold growth potential, aligning with evolving consumer preferences and needs.
Lastly, the Agriculture and Horticulture Development Board (AHDB) expects milk production in the United Kingdom (UK) to reach 12.32 billion liters in the 2023/24 season, a 0.5% YoY decrease. This negative projection is due to low milk prices and heightened production expenses, potentially leading to a financial winter crunch. Rising interest rates on agricultural loans further complicate the situation. Despite exceeding the 2022 milk output levels so far in 2023 due to improved prices and favorable weather, the UK dairy industry is currently strained by the confluence of low milk prices, high production costs, and impending tax bills. As a result, the AHDB anticipates a gradual milk production decline in the near term, potentially worsening in early 2024, as farmers may consider reducing their herds to enhance cash flow.