USDEC Executive Brief
5 Data-Based
Forecasts about the
end of EU Milk Quotas
BY MARK O’KEEFE AND ROSS CHRISTIESON
For more than 30 years, European countries
have imposed quotas on milk production. But in
a decision that alters the global dairy marketplace,
those quotas end on March 31, 2015.
For U.S. dairy exporters and farmers, this raises several
questions, including:
• How much more milk will the European Union
likely produce?
• Which dairy products will be most affected?
• Will the EU be more aggressive in exporting dairy products?
If so, what is the best strategy for U.S. dairy to remain
globally competitive?
To answer these and other questions, the U.S. Dairy Export
Council interviewed dozens of milk processors, producers and
industry organizations in the six main EU countries likely to
produce the most milk and export the highest levels of dairy
products following quota reform. The findings are detailed in a
country-by-country, 334-page report available to USDEC
members on usdec.org here.
INSIDE: Our Five Research-Based Insights
1. The EU will produce significantly more milk,
mainly from six countries (page 2)
2. Much of that new milk will be turned into
exportable commodities, led by cheese (page 2)
3. EU dairy companies will invest billions of dollars
in processing capacity (page 3)
4. The big EU exporters will become even bigger
U.S. competitors (page 3)
5. Smaller EU companies will try to compete with the
U.S. on price (page 3)
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Preparing for the End of EU Milk Quotas
MARCH 2015
1. The EU will produce significantly more milk, mainly from six countries.
From its discussions with leading EU dairy processors and
organizations, USDEC generated a most-likely scenario, taking
into account downturns in the global dairy market.
Under that scenario, total milk production is expected to grow
by 11 percent, with the EU producing 15.4 million metric tons
more milk in 2020 than it did in 2013.
Seventy-six percent of the extra milk is expected to come from
just six of the 28 EU countries—Ireland, Denmark, France,
Poland, Germany and the Netherlands.
76 PRECENT OF PRODUCTION INCREASE WILL COME FROM JUST 6 OF THE 28 EU COUNTRIES
IRELAND
DENMARK
NETHERLANDS
POLAND
FRANCE
GERMANY
Germany is the largest milk producer in the EU. Increasingly
large dairy cooperatives in that country will encourage growth
in production volumes and the development of export markets.
The annual increase in milk production in Germany is projected
at 1.8 percent. Yet, even higher annual growth rates are expected
in Ireland (4.6 percent), the Netherlands (3.7 percent) and
Denmark (3.0 percent).
2. Much of that new milk will be turned into exportable commodities, led by cheese.
In terms of sheer numbers, the impact on cheese production is
most profound. The most-likely scenario projects that cheese
production will increase by 660,000 metric tons across the six
major dairy countries in the EU.
Cheese production in the EU has increased in recent years—
the end of quota will accelerate that trend. Production of whole
milk powder has declined in recent years, and the end of quotas
will effectively reverse the trend and create additional product.
Many of the extra commodities will be exported to countries
outside the EU.
USDEC’s most-likely scenario projects there will be 303,000
metric tons more milk powder (skim + whole) and 218,000
metric tons more cheese exported in 2020 than in 2013.
The vast majority will come from the six major dairy countries.
U.S. Dairy Export Council › Executive Brief, March 2015 › Visit us at usdec.org
BIG 6 PRODUCTION
INCREASES BY 2020 VS 2013
BIG 6 ADDITIONAL EXPORTS
BY 2020 VS 2013
PROJECTED
INCREASE (MT)
ANNUAL
GROWTH %
PROJECTED
INCREASE (MT)
ANNUAL
GROWTH %
Cheese
660,000
1.5
163,000
4.0
Whey
315,000
2.3
160,000
4.9
Butter
231,000
2.1
87,000
9.7
SMP
189,000
2.7
146,000
6.3
WMP
151,000
3.7
140,000
6.4
COMMODITY
EU-28 EXPORT GROWTH: 2013-2020
COMMODITY
2013 (MT)
PROJECTED
GROWTH (MT)
PROJECTED
GROWTH %
Cheese
787,000
218,000
4.2
Whey
517,000
170,000
4.9
Butter
122,000
74,000
7.7
SMP
407,000
168,000
5.9
WMP
374,000
135,000
5.3
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Preparing for the End of EU Milk Quotas
MARCH 2015
3. EU dairy companies will
invest billions of dollars in
processing capacity.
4. The big EU exporters will
become even bigger U.S.
competitors.
5. Smaller EU companies
will try to compete with the
U.S. on price.
Investments totaling more than 2.7
billion (U.S.) have been made in EU dairy
manufacturing and processing facilities.
Half of this amount, $1.38 billion, is in
Germany and the Netherlands.
The EU already exports more cheese,
whole milk powder and butter than the
United States.
Other co-ops have less experience in the
export market and don’t have the direct sales
outlets available to them that Arla, DMK
and FrieslandCampina do.
The largest dairy company in Germany,
DMK, is clearly focused on export growth
after the removal of quotas. In its 2013
annual report, DMK said investments have
been made to “progress the course of internationalization,” which will improve shareholders’ competitive position by “combining
the strong position in the domestic market
with the development potential in Eastern
Europe, Asia and
the emerging
countries.”
Meanwhile,
substantial
investments are
under way
at Netherlands-based
FrieslandCampina to add value to milk
powders. FrieslandCamina stated in 2014
that it intends to double exports to China
post-quota, focusing on cheese, UHT milk
and infant formula. Denmark-based Arla
Foods established a new cheese “innovation factory” through its joint venture with
Mengniu Dairy in China.
Several companies already have extensive experience in the export market, and
that involvement will become even more
pronounced with the end of quotas in
March 2015.
For example:
• FrieslandCampina plans to export
much of the increase in post-quota
milk to countries outside of the EU.
The co-op already has an extensive
range of sales offices, supplying dairy
products to 100 countries, and a physical presence in 28 countries.
• DMK generated 44.5 percent of its
sales outside of Germany in 2013.
DMK drove the inter-nationalization
of its business further with a new,
internationally focused distribution
organization.
• Arla Foods supplies 70 percent of its
production to EU markets and 30 percent to outside markets. The hope is to
develop a volume split of 50-50.
U.S. Dairy Export Council › Executive Brief, March 2015 › Visit us at usdec.org
For example, the largest milk processor in
Poland, Miekpol, ships about 12 percent
of its product to other EU countries and
about 7 percent to countries outside the
EU. Export to non-EU countries is run by
traders; the company does not have branch
offices or partner companies abroad. Export
development strategy is at a very early stage.
Therefore,
companies
such as
Miekpol
are most
likely to
fight on
price.
This,
coupled
with an
increasingly
competitive marketplace,
may exacerbate the high levels of market
volatility seen in recent years.
All other things unchanged, the effect on
international dairy commodity prices is
expected to be negative. In reality, longterm
demand growth is expected to increase at
a rate greater than the increase in overall
exportable supply. This would keep upward
pressure on dairy commodity prices.
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Preparing for the End of EU Milk Quotas
MARCH 2015
Conclusion: Customer-Centric Focus Key to Continuing U.S. Export Growth.
The research is clear that more dairy commodities from the EU
will lead to increased competition between the major exporting
countries, including the United States, New Zealand and EU
member nations.
According to the groundbreaking Globalization Study commissioned by the Innovation Center for U.S. Dairy, global demand
for dairy products will grow faster than available supply over the
next 10 to 15 years, driven by economic growth in developing
nations. There is a latent demand gap—the global shortfall between
consumption and production forecasts—for many commodities
that is likely to persist through 2020.
The conclusions of that study have been affirmed in subsequent
studies, including a Globalization Refresh by the Innovation
Center for U.S. Dairy and ongoing analysis by the U.S. Dairy
Export Council.
Regarding USDEC’s current analysis of the EU, a substantial
increase in milk production is foreseen over the next several
years. Under the most-likely scenario, the EU will produce 11
percent more milk in 2020 than it did in 2013. This isn’t a
huge increase, considering the strong growth in dairy export
markets in recent years.
The large, sophisticated dairy companies in the EU will rely on
subsidiaries and joint ventures in emerging markets in Asia, Africa
and the Middle East. They will take a value-added approach, vying
for high-quality, and stable customers on the basis of product quality and customer service. These customers value long-term commitments. A joint venture between Arla Foods in Denmark and the
Mengniu group in China, which developed an “innovation factory”
to meet the specific product preferences of the Chinese market, is a
prime example.
It is incumbent on U.S. suppliers to respond in kind.
The U.S. industry has made great strides in terms of improving
quality in recent years; however, top-notch buyers will continue to
demand more and our competitors are upping their game. It will
be important for ambitious U.S. suppliers to respond in kind by
becoming even more customer-centric.
If U.S. dairy exporters stress the fundamentals of doing the right
things—improving the quality and range of products, improving
customer service, getting closer to customers—the United States
should continue to build share in the global marketplace despite
increasing competition from EU countries.
Total exports of skim milk powder from major suppliers, including
the U.S., EU, New Zealand and others, grew 38.5 percent from 2010
to 2014 (estimated), while whole milk powder grew 28 percent and
cheese 13 percent.2
2
Dairy: World Markets and Trade, Foreign Agricultural Service, USDA, Dec. 16, 2014
U.S. Dairy Export Council › Executive Brief, March 2015 › Visit us at usdec.org
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Preparing for the End of EU Milk Quotas
MARCH 2015
Request the Full Research Report
You can request the 334-page research report this brief is based upon
by going to the usdec.org website here. Click “Request Report” and
follow the prompts.
“The goal of this research was to provide meaningful insights
in relation to the competitive nature of the international dairy
markets following quota removal,” said Ross Christieson, senior
vice president of market research and analysis at USDEC. “To
do this, we had to take a very pragmatic, company-by-company
approach to gather and analyze the information. While other
studies may give a general view, our research attempts to provide
important details for USDEC members and the U.S. dairy industry.”
The report, “European Union: The Impact of the Removal of
Milk Quota in 2015,” takes a comprehensive look at the EU dairy
industry, with special emphasis on the six leading dairy nations of
Germany, France, Poland, Denmark, Ireland and the Netherlands.
Filled with useful charts, it navigates through the current situation
in the EU and projects what the future is likely to hold.
This executive brief was created as an
exclusive bonus offer to subscribers of the new
“U.S. Dairy Exporter Blog.” The blog delivers
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U.S. Dairy Export Council › Executive Brief, March 2015 › Visit us at usdec.org
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Preparing for the End of EU Milk Quotas
MARCH 2015
About the Authors
Mark O’Keefe
Ross Christieson
VICE PRESIDENT, EDITORIAL SERVICES
SR. VICE PRESIDENT, MARKET RESEARCH AND ANALYSIS
Working with talented colleagues, I utilize the best practices of
journalism and digital marketing to build global demand for U.S.
dairy products.
I manage USDEC global market research. I look at where opportunities exist for U.S. dairy companies, then work with U.S. suppliers
to help them take advantage of those opportunities.
I enjoy mining the in-depth research of USDEC colleagues such as
my co-author, Ross, to create relevant, accessible nuggets that give
you an edge in the global marketplace.
I am the head researcher behind the full, 334-page volume this
executive brief is based on: “European Union: The Impact of the
Removal of Milk Quota in 2015”.
Read more articles from me at the U.S. Dairy Exporter Blog.
I would love to connect with you on Linkedin.
Read more articles from me at the U.S. Dairy Exporter Blog.
See all of our USDEC research on our website here.
ABOUT THIS BRIEF
USDEC Executive Briefs boil down in-depth research to their most essential points.
ABOUT USDEC
The U.S. Dairy Export Council (USDEC) is a non-profit, independent membership organization that represents the global
trade interests of U.S. dairy producers, proprietary processors and cooperatives, ingredient suppliers and export traders.
Funded primarily by the dairy checkoff program through Dairy Management Inc., USDEC aims to enhance U.S. global
competitiveness and assist the U.S. industry to increase its global dairy ingredient sales and exports of U.S. dairy
products. USDEC accomplishes this through programs in market development that build global demand for U.S. dairy
products, resolve market access barriers and advance industry trade policy goals. USDEC is supported by staff across
the United States and overseas in Mexico, South America, Asia, Middle East and Europe.
U.S. Dairy Export Council › Executive Brief, March 2015 › Visit us at usdec.org
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