However, this growth is slower than the prior decades. While prior growth was at 1.9m tons per year, this next decades increase would mean a growth of approximately 1.4m tons per year.
The December 2015 report from the European Commission, titled Prospects for EU Agricultural Markets and Income 2015-2025, looked at multiple markets in the EU agricultural commodity markets based on macroeconomic assumptions.
The world’s market will remain thin in 2025, according to the report, as only 7.5% of the world’s dairy production will be traded by 2025. This means there will be a risk of “short-term market imbalances strongly affecting dairy market prices,” the EC report said.
Price changes over time
Low prices, due to Russia’s import ban and China’s reduction in purchases, are being quelled by the rest of the world. Demand is growing steadily thanks to diets that favor dairy and population growth.
While a 1.9% average annual increase is lower than the market has seen over the past decade, when it stood at 2.1% on average, it is expected to support an increase of dairy deliveries of approximately 1% per year to 164m tons in 2025. This means there will be an extra 16.1m additional tons of milk produced each year, compared with 14.5m between 2005 and 2014.
World milk prices are expected to recover to moderate levels in the short-term, the report said, before taking the last five years of the reports prediction period to grow even larger. Milk prices are expected to expand to an average of €360 per ton (approximately $392 USD) from 2020 to 2025.
Even with China’s reduction in purchases, the country will continue to be the world’s main dairy importer, with 22% of world dairy trade, the EC report stated.
EU’s share of exports expected to grow, NZ more constricted
A potential to increase production means the EU has “considerable potential” to grow its share of world exports, according to the EC report. EU’s main competitor, New Zealand, is more constrained by its lack of availability of natural resources.
Powder could grow even larger in Europe, as half of the additional milk produced in the EU could be used in this way, with 30% being used to make cheese.
“Among the world’s main exporters, it is the EU that is expected to see the highest increase in production and exports,” the report found. “Production is no longer constrained by quotas and production capacity is strong, given very good agronomic and climatic conditions for milk production, big processing capacity, a wide variety of products and significant yield growth potential.”
On the other hand, New Zealand will become more limited with a 1.7% annual expected growth in the next decade, compared with 5.2% annual growth over the previous 10 years. The country will remain the world’s biggest exporter, with 31% of the world’s trade, but the EU will strengthen its market position to 28% of the world’s trade by 2025.
Cheese production to increase by more than 1m tons
The larger availability of milk supply means more cheese and butter, according to the report, as there will be a 1.15m ton increase of cheese over the next decade. It is expected to reach 11.2m tons by 2025.
Cheese’s main success will come in the domestic market, the EC said, as more Europeans and people across the world are using cheese in sandwiches, pizzas and other food items.
“Cheese exports have been clearly affected by the introduction of the Russian ban, as Russia was the EU’s main customer for cheese, accounting for over 30 % of its exports,” the report said. “Nevertheless, EU traders have been very successful in directing a significant proportion of exports to other destinations (mainly the USA, Japan and South Korea) and 2015 cheese exports are expected to be close to 700 000 tons, only 13 % below the 2013 level.”
Over the past decade in the EU-15, per capita consumption of cheese has increased by 1kg (2.2lbs) to reach 19.8kg (43.7lbs). EC’s report predicts further growth of 0.8kg (1.8lbs) growth in consumption of cheese over the next decade.