W41: Dairy Update

In W41 in the dairy landscape, raw milk prices have been falling in the European Union (EU) since the beginning of the year. However, milk deliveries in the EU were 0.7% higher in January-July compared to the same period in 2022, despite the decline in raw milk prices. Although energy, fertilizer and feed costs are slowly starting to decline, they remain high, resulting in tight margins for EU milk producers. Increased slaughter volumes could result in a 0.6% decline in the dairy herd in 2023, similar to 2022. However, better feed quality and availability are expected to contribute to 1% higher milk yields. This development counteracts the decrease in herd size and could lead to an estimated 0.3% increase in deliveries. Assuming normal weather conditions, the upward trend in EU dairy yields is expected to continue at the same pace, with deliveries expected to increase by 0.2%.

In the Netherlands milk supply in Sep-23 amounted to 1.09 million metric tons (mmt), 1.2% lower compared to Sep-22. This means that milk supply has fallen below the 2022 level for the first time. In the previous eight months, on average, more than 2.5% more milk was produced than in the same period last year. However, in August the supply increase started to drop with just 0.3% more milk supplied, and dipped below 2022 levels in September. Seasonally, September is the month with the smallest production. The average daily production in Sep-23 was 36,422 mt of milk.

The French Ministry of Economy has announced a tax deduction of EUR 150 per cow, up to EUR 15 thousand per farm, in order to reduce the taxation of livestock farmers as a consequence of the increase in the value of their assets. With inflation, the book value of cows, which are an asset of the farm, has increased. Consequently, the amount of taxes that ranchers have to pay increases. Without tax relief, farmers could be tempted to sell some cows to pay less taxes, thereby risking losing production capacity. This measure is therefore seen as a means to combat the reduction in the number of livestock and the decline in French beef and milk production.

In the Eurasian Economic Union (EAEU), from Jan-23 to Aug-23 milk production increased by 3%. Belarus gained the most by increasing its output by 5.5%. Russia and Kazakhstan increased their output by 2.6% while Kyrgyzstan increased its production by 2.2% These gains were offset by Armenia whose overall milk output fell by 94.8% over the seven month period. The overall increase in milk production in the economic bloc can be attributed to the modernization and intensification of production, as well as the implementation of a large number of investment projects.

The weighted average price of milk in Ukraine amounted to USD 0.34 per kilogram (kg) without value added tax (VAT) at the start of Oct-23, an increase of USD 0.013/kg. The increase in purchase prices is due to the lack of raw milk in Ukraine. Milking volumes decreased during July-August in conditions of intense heat. Accordingly, domestic processors produced less dairy products for the autumn-winter sales season than usual. In addition, since the beginning of the year, milk consumption in Ukraine has increased by 12% compared to last year. Resultantly, there is increased demand for dairy products in the domestic market, and milk production and processing is struggling to keep up, leading to an increase in the price of dairy products.