The reach of Russia’s ire
Russia’s ban may have global implications beyond Europe, Carmen Paun reports
The ban imposed by Russia at the beginning of August on dairy products from the European Union (EU), US, Canada, Norway and Australia will cause disturbances on the European and world markets, the European Dairy Association (EDA) warned the European Commission on 13 August. This is due to a redirection of global dairy trade flows, the organisation claims, as all dairy industries in the world affected by the Russian embargo will have to find new markets for their exports, according to the EDA.
For the EU, the ban will see increased costs by the dairy industry to store and remarket products they can no longer export to Russia and a downward pressure on dairy prices in the EU, the organisation has explained. It has already seen the industry face costs related to blocked and returned shipments, unused stocks of specifically packaged products and consignments for the Russian markets, as well as investment in new resources needed to identify new markets, according to the EDA. The indirect effects of the Russian ban bear on the prices for dairy products in the EU, as retailers and wholesalers have already requested renegotiations in several EU countries, according to the organisation.
The Russian market accounted for 15 per cent of the EU’s dairy exports before the 7 August ban, EDA says. The total value of the EU’s dairy exports to Russia in 2013 was almost €1.5 billion, European Commission trade statistics show. With additional milk volumes expected to be produced and shrinking demand, there will be a downward pressure on milk prices, the European Milk Board (EMB), which represents European milk producers, also warns. The 2015 end of the milk quotas, which limited production, will also add to the industry’s problems. “The producers will not be able to withstand such a situation for long,” the organisation says, adding that this will in turn lead to many producers leaving the milk market or becoming indebted.
The EMB recommends that the European Commission adopt an instrument to regulate milk supply in a way that would curb production in critical times and stop market prices from plummeting. “We are still analysing the impact on the dairy market,” European Commission agriculture spokesman Roger Waite tells Dairy Industries International. He says that, due to the longer shelf life of dairy products, the sector’s situation was not as urgent as for fruits and vegetables, for which Brussels announced support measures on 18 August. A meeting scheduled for 28 August with representatives of the EU member states is expected to look particularly at the impacts of the Russian embargo on the EU dairy market, Waite says.
At a previous meeting held on 14 August in Brussels, one EU country called on the Commission to forfeit the super-levy that dairy producers would have to pay for exceeding milk delivery quotas in the year between 1 April 2012, and 31 March 2013, a source participating at the meeting said.
The European Commission announced in February that Austria, Germany, Denmark, Poland and Cyprus had exceeded their milk quotas for deliveries in that year and would have to pay penalties totalling roughly €46 million combined. Given the exceptional situation imposed by the Russian embargo, one EU unnamed country, industry sources told Dairy Industries International, would like to see these levies cancelled to release pressure on the EU milk producers.
A year of change
The Russian dairy embargo could reverse the outlook of the EU dairy market in 2014-2015, forcing it to face high supply, decreasing demand and plummeting prices. This compares starkly with the 2013 situation of high prices and tight supply, according to a European Commission statistical and economic information report released on July 22, before the Russian ban was announced. This had been partly caused by low milk collection in the EU, on the one hand, and in New Zealand and Australia, on the other hand, fuelling a strong increase in domestic prices pushing them to new highs, the report explained. Milk prices saw their highest levels yet in October 2013, when it reached €40 per 100 kilograms, up 16 per cent from the previous year.
The prices for butter, skimmed milk powder and whole milk powder were also increasing in 2013, driven by robust world demand, according to the European Commission report.
Another upward trend was seen in the EU’s cheese production, which grew by one per cent in 2013 to 9.3 million tonnes. The report foresaw increasing domestic demand and exports before the Russian ban, which saw cheese products sent back to their producers after being stopped at the borders.
EU butter production had been estimated to reach 2.27 million tonnes in 2013, increasing by 15,000 tonnes from the previous year, according to the European Commission report. EU butter exports were estimated to reach 119,000 tonnes in total. European Commission trade statistics show that out 35,363 tonnes of butter from the EU went to Russia last year. They generated receipts of €145 million.
The EU’s skimmed milk powder production was estimated to decrease in 2013 by 6.3 per cent to reach around one million tonnes. Exports of the product were also expected to decrease due to tight supply.
Finally, European production of drinking and acidified milk was expected to decrease slightly, by 0.4 per cent and 0.2 per cent, respectively, in 2013, according to the Commission report.
