EUROPEAN MILK prices will come under renewed pressure in 2005 as market developments and commission policy conspire to cut returns to producers, analysts are predicting.

Erhard Reichardt, of German statistics agency ZMP, points to the growing supply of EU milk as one factor leading to a bearish market. “Since November output has expanded in the EU and this is getting faster,” he told FW. “France has 4.5% more milk than a year ago, Germany has more milk, the Dutch have more milk and eastern Europe has more milk.”

The expected growth in consumer demand for dairy products in the new member states has failed to materialise, he added, while Russia has put up barriers to their exports on the grounds of inadequate hygiene standards.

“Dairy exports from the EU-15 to Russia are also going slowly, and while New Zealand is not in a position to meet all the Russian demand, Argentina and Brazil are emerging as suppliers.”

Dr Reichardt predicted that more dairy product would go into EU intervention stores this spring. Skimmed milk powder was less of a concern, as the 109,000t ceiling would not be breached and there would probably be a market for it later in the year, given the poor season Oceania has just had.

But butter would be more of a problem in 2005, with the EU unlikely to achieve the same level of exports as last year, as world demand has dropped in response to high prices. As such, the intervention ceiling of 60,000t could easily be hit, at which point the commission would either suspend buying, or only accept tenders at lower prices.

“Overall, I think EU milk prices will fall at least 0.5 cents/litre (0.35p) this year, and that could become 1 cent/litre (0.7p),” Dr Reichardt predicted.

UK analyst Mike Bessey agreed there were many “bear factors” shadowing the market, not least the EU Commission, which would be eager to bring market prices closer to support levels.

“This follows the commission’s embarrassment that the markets largely ignored the drop in intervention prices after July and invalidated the compensation payments that were part of the mid-term review.” But there were some reasons for optimism, too, he suggested, pointing to the drop in supplies from Oceania. “Even if EU export subsidies are cut, this might not prevent world prices rising and large volumes flowing out from the EU as happened last year.”

Mr Bessey also suggested that the commission may be reluctant to see large volumes of butter and powder going into intervention following its success in 2004 in running down stocks, and may turn to private storage aid.

philip.clarke@rbi.co.uk