Europe’s milk price hit its lowest level in July at 25.7c/kg (1 litre = 1.03kg) and, while it has been in recovery since, uncertainty remains. Weak markets have been caused by oversupply, with the US up 2% in 2016 so far compared with 2015 and the EU up 0.6% with the ending of quotas.

Milk consumption is forecast to grow annually by 1.6%, with most of the growth coming from Asia and Africa whose current per-capita consumption lags well behind the developed world. Alongside this, production is forecast to grow in India by 5.5m tonnes per annum and elsewhere in Asia by over 2m tonnes annually. However, elsewhere, including the EU, US, China and New Zealand, production is forecast to decline over the next decade.

China largest importer

China will continue to be the largest importer over the next decade, while growth is forecast to take place in Africa, which is projected to reach almost 12m tonnes equivalent of dairy products in 2026 compared with just over 8m currently. It is a similar growth forecast for China and the rest of Asia, with growth predicted at 2m tonnes for China bringing it up to 8m tonnes of imports by 2026 and the rest of Asia is predicted to grow to 16m tonnes, up from 13m tonnes currently.

Price forecast to remain weak

With the current overhang of stocks in storage, price is forecast to remain weak for the next couple of years. However, with the basic fundamentals of production being curtailed and strong consumption growth in developing countries, price is forecast to recover in the second half of the decade to 32c/kg or higher.

Arable

Currently 45% of EU land is used for agriculture and, within this, almost half (46%) is used for cereal, oilseed and other arable production, while 45% is dedicated to grassland and fodder crop production.

Yields have grown over the past decade through genetic improvement even though the area used for crop production has declined. For the next decade, the forecast is for stability in production and yields rather than growth. The greening measures in the current cap and compliance with environmental legislation curtail production growth and expansion.

Growth in production but not in prices

Cereal production is forecast to grow to 333m tonnes by 2026, driven by livestock feed demand and strong export prospects. However, there is little growth in prices forecast, with current low prices expected to continue given the huge global stocks on the back of record harvests. Recovery to €170/tonne is forecast for the second half of the decade.

Read part one of the outlook report here.