Rapid Expansion of European Milk Production has Ended
Rapid expansion in EU-28 milk production following the elimination of quotas has likely ended. Through August, preliminary figures show 2019 milk production is up only 0.3% from year-ago levels. While this past summer’s extreme heatwave likely knocked back 2019’s year-over-year output growth, structural changes are also occurring that could point to the end of the region’s post-quota expansion.
According to CLAL data, in the year prior to quota elimination, the EU-28 expanded output by 4.6% compared to 2013 in anticipation of an unfettered market. In 2015, year-over-year output increased 2.6%, but then slowed to a 0.6% increase in 2016 due to oversupply and government subsidies to entice producers to decrease production in some countries. In the two years following, output increased 1.8% and 0.8%, respectively.
Sarina Sharp, analyst with the Daily Dairy Report, says that as early as March 2018, EU-28 milk production growth dropped to 0.4%, and it hasn’t exceeded 1.7% in any month since then. Going forward, she notes that structural changes in Europe’s dairy industry could further limit growth. “The European dairy herd has been shrinking and inventories suggest that the decline will accelerate in future years,” Sharp notes. At the end of last year, Europe’s milk herd of 22.9 million cows was down more than 400,000-head, or 1.7%, from December 2018, according to Eurostat.
“Although European dairy producers could make big gains in milk output by boosting milk production per cow, shrinking heifer inventories suggest that gains in European milk collections could be muted for quite some time,” Sharp says.
While some countries could continue to expand output, it appears that today’s largest milk-producing nations in Europe could find expansion difficult, Sharp says. “For example, Germany accounted for nearly a quarter of the EU-28’s decline in milk cows. Since peaking in 2014, the German dairy herd has contracted by 4.5%. Over the same period, the French milk-cow herd shrank 4% and the British herd slipped 0.2%.”
The heifer supply in Europe has also declined, Sharp notes. “At the end of last year, the EU-28 had just shy of 20.4 million young dairy heifers—500,000 fewer than in December 2017. The 2.4% year-over-year decline in the heifer supply was even steeper than the downturn in milk cow numbers,” she notes.
From the recent peak in December 2015, heifer numbers have slipped by 883,000 head. The only major milk-producing nations in Europe to add to their heifer supply last year were Italy, Spain, and Poland.
“Heifer inventories point to steep declines in milk cow numbers in the years to come in legacy dairy nations like Germany and the Netherlands,” she adds. Dutch heifer inventories of 454,000 head in December were the smallest dating to at least 1973. Last year, the Netherlands had 282,000, or 38.3%, fewer young dairy heifers than it had at the recent peak in 2014. Much of the Netherland’s drop in cow numbers has been due in large part to producers there having to bring cow numbers in line with EU-wide limitations on phosphorous, Sharp notes.
Declining milk cow and heifer supplies are not the only challenges EU producers face moving forward. “After being freed from quota, producers in many EU nations could face shackles of a different form as agriculture loses political clout,” Sharp says. For instance, livestock industries in the Netherlands are under pressure to reduce the nation’s livestock herds in an effort to reduce greenhouse gas emissions. The Dutch government has promised to reduce greenhouse gas emissions to 25% below 1990 levels by next year, an aggressive goal to say the least.
“After years of effort, the Netherlands has achieved only a 15% reduction in greenhouse gas emissions,” Sharp says. “And other European nations are also short of their goals, which likely will prompt more regulations that raise costs and limit growth in agriculture and other industries, particularly in Western Europe.”