There is a great deal of variation in the pattern of dairy production worldwide. Many countries which are large producers, such as India, consume most of this milk within their own country. Many others (in particular New Zealand and the EU), export a large percentage of their production (see Table 1).

The United States is the largest producer of dairy milk when ranked on world production. The interesting point from an Irish perspective is that the US has plans to grow exports of dairy product to meet increasing product demand in China and Africa. This could have significant implications for global markets, on which Ireland is very dependent, in the coming years.

Ten years ago, the US only exported 2% of its milk output. But many of the larger US dairy processors had plans to increase the quality specification of their products to enable increased exports out of the US. Now, all of a sudden, the US is exporting over 15% of its dairy production in 2014. And with US output exceeding 90 billion litres, a small increase in its percentage share of global markets could have significant implications.

As can be seen from Figure 1, the cost of milk production in north America is high, relative to other parts of the world. However, this is a changing landscape and when grain and energy prices are low, their global competitiveness increases. This could, in turn, impact milk prices in European countries that trade dairy output globally and it could slow the pace of milk output increase in a post-quota Europe.

India is in second place in terms of dairy milk production and FAO experts predict milk production is set to increase even further in the coming years (see Figure 2). By 2023, OECD/FAO experts predict that India will be producing over 200 billion litres of milk, an increase of over 60 billion litres on current production.

The impact of this increase on global markets will be limited, as India plays a very small part in global trade. However, India has recently sold some skim milk powder to nearby Asia and the Middle East. Herd size is very small in India, with most herds only one or two cows. Over 55% of the milk produced in India is buffalo milk.

The New Zealand growth in dairy output is predicted to slow down over the coming years. While it will average out close to 2% this year, there are now very real constraints on increased production from New Zealand dairy farms, such as planning permission for new dairy units and environmental management. These are limiting conversions and halting expansion.

South American countries

South American milk production is growing, but at a slower pace than some commentators envisaged. Individual countries are showing small increases, but annual production is very dependent on weather. Argentina is showing a slow, gradual increase in output but there is no major processing investment or policy change, which will impact on export markets.

Brazil has increased the volume of milk processed by 4% per year and while milk price has increased by almost 10% per year.

Uruguay has also increased production for the last number of years, but domestic consumption remains flat so extra milk is being exported out of the country. A new large-scale farm with 8,000 cows has just started production, but again the country has challenges meeting environmental regulations and investing in the milk processing sector.

European milk output

Rabobank analysts predict that EU total milk production is likely to rise between seven and eight percent from 2015 to 2020, as production increases by around 10 million tonnes per year. Germany, France, Ireland and maybe Poland are likely to witness the bulk of dairy expansion. Europe, and especially Ireland, has the potential to produce more milk by increasing stocking rates, but other factors, such as milk price and prevailing market conditions in other agri sectors, are also likely to impact on the actual increase.

Germany, followed closely by France, is the biggest European dairy producer. On average, Germany produces just short of 30 billion litres of milk, with France in second place with 24 billion litres. The UK is a distant third place with 13.9 billion litres.

The major dairy European export countries (Germany, France and the Netherlands) are predicted to increase production (see Figure 3). Danish farmers also indicate that they plan to increase production, but environmental and financial factors are likely to restrict production.

UK milk production steadily declined over the last number of years and it hasn’t filled its national quota for a number of years. So removal of quota barriers is unlikely to change that trend. In Northern Ireland, where UK quota has flowed for a number of years, high cost of production, declining milk prices and uncertainty in the conacre (annual land rental) market will limit output, at least in the short-term.

Ireland has claimed all the headlines in terms of the large percentage increase that is predicted in milk output. However, a 50% increase on five billion litres is only 2.5 billion litres.

While the suggested percentage increases in other European countries appear relatively small by comparison, the relative volume increases are significant.

For example, a 10% increase in French and German production over the next five years is equivalent to a volume increase of between two to three billion litres. Most of this extra output will be exported out of these countries, in the form of dried powder, to countries where demand for dairy product is increasing.

One potential danger for dairy farmers is that all the extra production will be converted to powders which could undermine future powder markets, especially if supply grows and demand falls on a volatile global market.

Some countries, such as Hungary, Lithuania, Romania and Slovakia, are not very big milk producing countries (producing less than 1.3 billion litres of milk annually). This is not going to change dramatically in the short- to medium-term whether quotas come or go, depending on any knock-on CAP reform implications.

Countries in the northern and southern half of Europe are struggling to maintain current supply as cost of production increases substantially. An example of this in the northern half of Europe is Finland, where the dairy industry is very well developed and invests hugely in research and development.

However, Finnish national milk collection is falling year-on-year as their competitiveness, in terms of cost of production, falls relative to other global players.

Spain and very hot countries in southern Europe are also seeing a drift away from producing milk, as the cost of production forces producers out of business.

Member states that have less economically viable milk producers, such as those in Finland and Sweden, are likely to see reductions in production long-term and hence are predicted to show a production decline. Some analysts put the UK in with those countries likely to see a decline in milk production.