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Dairy prices in the EU are expected to recover slightly in 2016 but may not reach the highs of last year until the end of this decade, according to the EU commission.

In a report on prospects for agriculture, the commission predicted global milk output would continue to grow in the coming years, adding to stocks which have already accumulated.

Until 2020, the average EU milk price was expected to hover about €0.32/kg to €0.33/kg (about 23p/litre at current exchange rate of £1=€0.71), said the report.

This was a lower projection than was made last year, however, energy and feed costs were also expected to be lower.

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An expected decrease in New Zealand’s production next year, due to drought, could help prices improve faster, but farmers should not expect an immediate price lift as there was usually a two to three month lag between changes in commodity prices and the price paid for raw milk, said the report. 

Beyond 2021 the milk price was expected to increase as the price of dairy commodities, oil and feed costs also increased.

However, the commission warned that since 2007, EU milk and dairy commodity prices had fluctuated significantly and such variations would continue over the next 10 years, in response to issues such as weather, energy prices, exchange rates and animal health.

EU milk deliveries were expected to grow moderately by 0.9% (15m tonnes) over the next 10 years, with more than 30% of extra product channelled into cheese and exported powders.

This compared to the exceptional increase of 6.5m tonnes in 2014 driven by good weather, high prices and the end of dairy quotas. 

The EU’s share of world exports would grow, while New Zealand would be more constrained by its natural resource availability.

World outlook – dairy demand and production

The current rock-bottom dairy prices have been driven mainly by a surge in global production just as China reduced its dairy imports and Russia placed a ban on imports from the EU, US, Norway and Australia.

If Russian and Western relations were to thaw and the ban lifted by the end of 2016, exports would only reach about half the level they previously were, in part because the country’s domestic production had ramped up to plug the gap, said the commission’s report.

Previously, about 30% of the EU’s dairy exports went to Russia. 

However, the Chinese market was now rebalancing, said the commission, and it was expected that dairy imports would grow by 3.5% a year – once domestic stocks had been absorbed.

Demand in the US and in particular Africa was also increasing and overall world imports of dairy commodities were expected to increase 2.4% a year (more than 1.4m tonnes), although this was less than the past decade when trade increased by nearly 1.9m tonnes a year.

China would remain the biggest dairy importer, accounting for 22% of the world’s dairy trade, while New Zealand would continue as the biggest exporter, accounting for 31% of world dairy trade.