EU milk supplies in June 2008 were marginally below year earlier levels and overall, they have shown little signs of growth in the second quarter of 2008 despite the increase in quota. Milk continued to be diverted into WMP manufacture away from butter and SMP. WMP output was well above 2007 levels for the fourth month in a row, recording a provisional 18% increase, while butter output was down by 8% and SMP by 9%. Cheese manufacture was 0.9% below last year in June, and cumulatively for the first half of 2008 it was 0.3% down.

EU milk supplies in the first half of 2008 were just above (+0.7%) 2007 levels. In the first quarter, milk supplies grew by 1.7% but dropped to 0.2% below 2007 levels in the second quarter, partly because of the weather. Milk supplies in France and Poland grew by over 5% in June 2008 compared with June 2007 but they were down by 7% in Germany due to the farmer’s ‘strike’ at the beginning of the month. For the first half of the year, milk supplies were significantly below 2007 levels in Belgium, Bulgaria, Greece, Hungary, Finland, Sweden and the UK.

Liquid milk sales in the first six months of 2008 were 0.1% higher compared to 2007. Fermented product manufacture, including yoghurt, keffir, fermented milk drinks and desserts, fell by 1.3%, after increasing by 2.4% in 2007.

Cheese production was marginally lower (-0.3%) in the first half of 2008, hampered by lower exports. There were double-digit increases in production in the Baltic states and output also grew significantly in France and Poland. In Germany, the Netherlands, Denmark and the UK cheese production was lower than a year earlier. In 2007 EU output was 1.6% above 2006.

More milk was put into WMP from March onwards, mainly in Belgium, Germany and France, and probably also in the UK, with returns from WMP manufacture better than butter/SMP or cheese. Demand for EU WMP exports has risen because of drought in New Zealand.

After year over year increases for the previous 10 months, butter manufacture in May and June was 7% and 8% down on the previous year, with milk diverted into WMP away from butter and SMP. Overall butter production from January to June was 0.2% below 2007 levels. SMP manufacture was down by 12% in the second quarter of the year after rising by 7% above year earlier levels in the first quarter.

Condensed milk manufacture was marginally above 2007 levels in the first half of 2008.

('000t)	EU 27 Production		EU 27 Production
	Jan-DEC	Change on	Jan-MAY	Change on
	2007	2006	2008***	2007
Milk Deliveries	132,613	+0.3%	68,678	+0.7%
Liquid milk*	33,253	-0.4%	16,731	+0.1%
Fermented prods	8,478	+2.4%	4,301	-1.3%
Cheese **	8,144	+1.6%	4,104	-0.3%
Butter	1,943	+1.2%	1,020	-0.2%
SMP	988	+4.8%	539	-4.2%
WMP	741	+0.5%	462	+15.1%
Condensed milk	1,128	+0.0%	577	+0.3%

* Provisional figures
** Excludes Processed cheese,
*** Volume and percentage data for February 2008 adjusted to 28 day month
All data is subject to retrospective adjustment
Source: Eurostat, DIN Consultancy

EU-25 Market Balances
Published 25 July 2008

'000t	2005 EU25	2006 EU25	2007* EU-27	2008** EU-27
Milk deliveries	131,421	130,654	133,600	135,000
Liquid milk production	33,070	33,200	33,500	33,600
Fermented products	8,920	9,220	9,600	9,800
Cheese***
- Production	8,850	8,960	9,200	9,300
- Imports	100	100	100	100
- Exports	550	580	590	580
- Consumption	8,400	8,480	8,710	8,820
- Stock change	0	0	0	0
Butter
- Production	2,150	2,040	2,050	2,060
- Imports	90	90	85	70
- Exports	330	240	205	190
- Consumption	1,950	1,930	1,930	1,910
- Stock change	-40	-40	0	+30
SMP
- Production	1,100	980	1,040	1,040
- Imports	10	20	10	10
- Exports	190	80	200	220
- Consumption	970	930	850	820
- Stock change	-40	-10	0	+10

* Contains estimates
** Forecasts
*** Includes Processed cheese,
Data includes estimates of farm production
SMP data includes buttermilk powder
Source: Eurostat, DIN Consultancy

The table shows EU25 market balances for the years 2005 and 2006, and EU27 market balances for 2007 and 2008. The 2007 figures contain estimates and the 2008 figures are preliminary forecasts: all figures in the table are subject to change.

Milk deliveries in 2008 are expected to grow by around 1% as a result of quota increases and higher milk prices, but the impact of the 2% increase in quota may become more apparent in 2009. In 2007, deliveries are higher than in 2006 mainly because of the accession of Bulgaria and Romania.

The difference in cheese production in 2006 and 2007 mainly reflects the accession of Bulgaria and Romania to the EU. Production in 2008 is expected to grow at around the same rate as EU consumption, just above 1%. Growing cheese production reduces the amount of milk available for butter and SMP production, and together with growth in fermented milk manufacture, it is expected to absorb most of the increase in milk deliveries.

Butter manufacture fell sharply in 2006, but with higher prices due to the exhaustion of intervention stocks, it recovered in 2007. So far in 2008 butter production is higher than a year ago but the market balance will depend on how far EU consumption will fall, while exports in 2008 have been low to date. With more butter put into Private Storage Aid so far in 2008, stocks are likely to be higher at the end of the year than at the beginning.

EU consumption of butter and SMP in 2008 will be influenced by the abolition of subsidies in 2007, which has increased costs to food and to feed manufacturers, with the full effect likely to become clear in 2008.

Consumption of SMP has dropped significantly as the subsidy on the use of SMP for feed manufacture has been reduced to nothing. Some market commentators think that that the use of SMP for animal feed (a market of 300,000t) has fallen by over 100,000t. So far in 2008 EU SMP prices have been competitive on the world market and exports have been above year earlier levels. Exports are expected to remain reasonably high for the rest of the year, with availability from Oceania limited until new season production becomes available late in the year.

EU Commission Forecasts

The EU Commission’s latest medium term forecasts (April 2008) up to 2014 continue to predict rising consumption of value added products, particularly cheese, but a slow decline in butter and SMP consumption. The Commission predicted that cheese and fresh dairy product production will absorb around an additional 1 million tonnes of additional milk a year. In the absence of any milk quota increases, this would leave less milk for butter and SMP manufacture. The Commission’s analysis in December estimated that milk prices would be 5% below what they would otherwise have been as a result of a 2% increase in quotas in 2008.

The decline in subsistence farming in the new member states will limit the rise in EU milk production, and the Commission also expect the 2% quota increase not to be fully utilised. EU cheese consumption is expected to grow by 10% by 2014, with a particularly rapid increase in the new member states, where consumption is predicted to rise by nearly 30%. EU cheese production is expected to grow by around 8% between 2007 and 2014. EU butter consumption is expected to fall by around 0.6% a year and SMP by even less.

With a fully utilised 2% increase in milk quotas, production of butter and SMP is expected to increase, marginally for butter but more substantially for SMP. However, the Commission expect world market prices to be high enough to absorb higher exports in the short term without any subsidies. A substantial increase in global demand for dairy products in the medium term is predicted, with the EU continuing to be a major exporter.

However, the Commission’s market projections take no account of any further policy changes. These include the abolition of quotas in 2013, with a transitional annual 1% quota increase, and the abolition of export subsidies.

For detailed figures, please see the backdata files.

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