There are few things that make dairy farmers across the globe collectively hold their breath more than the Global Dairy Trade (GDT) auction every other Tuesday. But what is the GDT and why do dairy farmers as well as others linked with the dairy sector pay such close attention to the auction?

During a recent visit to New Zealand facilitated by NZTE, New Zealand’s equivalent of the IDA and Enterprise Ireland, the Irish Farmers Journal met with the director of the GDT, Eric Hansen.

Hansen was one of the main brains behind the design and implementation of the GDT back in 2008 and he continues to spearhead the auction. He offers unique insight, foresight and analysis on the GDT as it battles to remain the barometer for everything regarding the global dairy trade.

The GDT, if nothing else, sets the sentiment in global dairy markets. However, with less product being traded on the GDT at a time when the world has produced more milk, is it still relevant and fit for purpose?

Background

The GDT was established as a subsidiary of the world’s largest dairy exporter, New Zealand processor Fonterra. According to Hansen, the decision to establish the auction came as a way of getting better oversight from dairy markets for Fonterra.

“In the mid-2000s, milk price shot up and there was a sense of not having a clear picture of where the global market was or what it was doing,” Hansen told the Irish Farmers Journal.

“It was a way of having better price discovery and oversight on what was being paid on the global stage. The alternative without it was a situation where we didn’t know what was happening. This way is much clearer, much better.”

The GDT is a separate entity now, but is still an affiliate of Fonterra and returns a dividend to the dairy giant at the end of each financial year.

As outlined in the graphic, the majority of product offered for sale is Whole Milk Powder or WMP. This is Fonterra’s most important product and is reflected in the GDT with exactly half of all product sold on the GDT in the past year being WMP.

Click here for pdf of graphic

After WMP, skimmed milk powder (SMP) accounts for 23% of product sold. Butter and cheese, which are important products for Ireland, registered just 8% and 4% of product sold through the GDT last year.

Asia and Oceania accounts for 52% of all product traded with China, which is an important destination market.

How does it work?

An array of dairy products are put up for sale at an auction twice every month and buyers from across the globe bid to buy those products. A pre-announced starting price is put on a quantity of dairy products. During each bidding round bidders have five minutes to enter their quantities. If demand exceeds supply, then no product is sold and the price is raised for the next round. All product is sold at the same price when demand has balanced with the supply quantity.

The demand only goes up to equal to what the demand we have on the supply side. It is self-balancing in many way

“Bidders are there bidding against each other. It’s not very different to any other auction,” Hansen explained.

“We work with CRA, a company in Boston, who essentially manage the running of the actual auction itself. The GDT is in the middle of the night for us, so we’re all in bed! There is a two-hour helpdesk too but it usually runs smoothly. After that, a buyer and a seller fulfil a contract and conduct their business separately.

“The demand only goes up to equal to what the demand we have on the supply side. It is self-balancing in many ways,” he said.

The buyers and sellers?

There are no Irish sellers on the platform at present. However, GDT has sellers from every continent and they are some of the biggest processors in the world.

Danish processor Arla, Dairy America, Murray Goulburn from Australia, Indian processor Amul, Euroserum from France and Fonterra are some of the largest sellers of produce to the GDT.

Hansen would not divulge who the specific buyers are, but he did say that buyers come from “every continent” and are “some of the biggest buyers, traders and food service companies in the world”.

“What I would say is that each month we have new buyers from all across the globe.

“We have buyers some months that we don’t have another month. Those buyers will come in when the demand is there on their side,” Hansen explained.

Relevance

The volume of product traded on the GDT has fallen over the past 12 months. This has coincided with a global glut of milk.

Comparing like with like and using the most recent figures available to the GDT, the quantity of WMP and SMP traded in between January and March 2015 and the same period this year was down almost 30,000t.

If the GDT is still the go-to source for trading of dairy produce, then surely the service should have seen an increase in trading? Not so according to Hansen who dismissed the notion that the GDT is no longer relevant.

“It is still relevant, it very much is. It provides assurances and gives an oversight that is required for buyers and sellers of dairy product. The GDT reflects changes in global prices very quickly. While I’m not one to predict dairy prices, when the balance of supply changes in global markets, then the GDT backs that up and reflects it.

“Up to US$5bn [€4.4bn] of dairy commodity products are sold annually, by leading dairy companies in Europe, US, India, Australia and New Zealand. I think that shows that the GDT is still relevant,” Hansen said.