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World Dairy Trade Faces Uncertain Times

18 November 2016

GLOBAL - The trade in dairy products has suffered a number of massive blows in the last three years and is set to continue face headwinds going forward, according to leading agricultural bank Rabobank.

The Russian trade embargo, the slowing of demand growth from China, the impact of low oil prices on demand from oil exporting countries and the strengthening of the US dollar have all had an impact on the demand for imports.

The expansion of production surrounding the removal of production quotas in Europe added to the pain and resulted in a period of extremely low world prices, according to Rabobank’s report “Strong Headwinds Weigh on Trade Growth.”

“And when we look forward,” says Kevin Bellamy, Global Strategist Dairy at Rabobank. “We see that none of these issues has been resolved. The Russian ban will be in place at least until 2017.

"Demand from China will continue to grow but at a slower rate, oil prices are forecast to remain at around the USD 50 per barrel mark, and the dollar is forecast to maintain its high value against other currencies. As a result, dairy trade is likely to grow at a slower rate than in recent years, driven more by population growth than per capita consumption increases.”

Luckily, this comes at a time when further rapid expansion of export volumes would be more difficult, with further New Zealand expansion limited by land availability, Europe stabilising after milk quota removal, and the US export ambitions limited by domestic demand growth and the strong US dollar.

Dairy trade is also likely to remain dominated by regional rather than global routes with free trade agreements significantly influencing volumes. The exception will be Asia which will continue to be a highly competitive battle ground for exporters from around the globe. All of this must be overlaid with the potential for the renegotiation or cancellation of trade agreements following the US election results.

In the next three years, growth in dairy trade will decrease slightly, due to the strong US dollar, low oil prices, the Russian trade embargo and slowing Chinese growth, Rabobank said. China will find a ‘new norm’, which is likely to mean lower volume growth but more focus on value. This will mean that while price volatility is likely to continue, long-run average price increases are likely to be limited.

Rabobank also highlighted that we live in uncertain times where the new US administration, uncertain Russian relations, uncertainty in the Middle East, Chinese economic performance, Brexit, and the fate of TPP and TTIP can all have a major effect on dairy trade development.

TheCattleSite News Desk



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