A global market is a complex entity, be it for dairy, beef, technology or whatever. And trying to evaluate such a market is even more complex. However, sometimes the simplest analogy can be the most effective.

And it was with just such a simple analogy that Kerry Group chief executive Stan McCarthy responded with when asked for his outlook for dairy prices for the coming year.

“Put it this way. If I said we will see oil back at $100/barrel by the end of this year, it certainly doesn’t feel like it does it? And we don’t even produce oil in the country,” he said. McCarthy’s answer was pragmatic, given the signs he sees in the market.

The Kerry boss warned the current situation for dairy markets is a storm that could last into 2017, blaming the downturn in dairy markets on increased global supply.

“The global downturn is supply-side driven at this point in time,” said McCarthy.

“Everybody in the dairy industry is going to be challenged this year. I hope I’m wrong, but [it looks like] there will be more milk flowing by the end of March.”

McCarthy explained how the global market has entered a new phase over the last year or so, describing what he deemed an “amplified” market situation, with production increases as high as 14% or 15% in major producing countries such as the Netherlands.

Positive on Irish dairy

Despite the downbeat outlook, McCarthy was positive on Irish dairy, describing it as being in a great position.

In a situation like the current one, it is the most efficient producer that will emerge first. However, he did state that the current volatility tools available (fixed milk price scheme) to the industry were not the hedging mechanisms needed. Instead, McCarthy says he would like to see a proper derivatives market in place with the necessary liquidity to help sell forward.

On China

Over the past year, many have blamed the downturn in dairy markets on reduced demand from China, the world’s largest importer of dairy commodities.

McCarthy was far more optimistic on the market. Having recently travelled to China, he said that demand for dairy and dairy consumption there is still vibrant.

“There is still strong demand in China for safe, imported dairy product. What has come back in China is the price for dairy products,” he added.

McCarthy said the surge in dairy imports by China from 2011 to 2014 was down to supply chain mismanagement and that the country’s stocks of dairy commodities would need to normalise again.

Overall, however, McCarthy said that dairy demand from China will continue to be vibrant. He pointed out that on 11 November last year, a major online shopping day in China known as “Singles Day”, online sales for the e-commerce giant Alibaba exceeded $14bn, and the single biggest selling item was milk.

McCarthy also highlighted that the economics of milk production in China do not add up, especially given the lack of a proper supply chain for animal feed.

On Brexit

When asked about the potential impact of Brexit, McCarthy suggested he didn’t see it having that much of an effect on Kerry’s business, were it to happen, as the majority of Kerry’s business in the UK is serviced from within the UK.

A small amount is sourced from Ireland, but in the overall context of the business it is very small.