German dairy industry challenges

Researchers from the Georg-August university in Göttingen, where they study the yearly developments of the German dairies, have analysed the 2018 results and laid their predictions for 2019.

For the German dairy industry, 2018 began with a significant increase in sales compared to 2017, however they say that 2019 will remain a difficult market environment.

In January last year, sales of €2.04 bn were €170m (or 8.3%) higher than in 2017, but this lead didn’t last long due to falling milk prices in the following months.

Overall, sales in the first two quarters of 2018 were 4.5% and 0.3% higher than in the previous year, however sales in the fourth quarter 2018 is expected to decline by 6% compared to the previous year. This would mean a total turnover of nearly €27.7bn for the German dairies in 2018, which is €200m or 0.7% less than in 2017.

Export sales of the German dairy industry also fell in 2018 with the exception of short breaks. At €700m, foreign sales in September were significantly lower than in 2017 (-8.9%).

For the fourth quarter, an average decline in foreign sales of 10% is expected. Thus, total exports in 2018 would have amounted to just over €8.7bn, which would correspond to a decrease of €569m or 6.1% compared to 2017.

The stagnating export rate, which even declines in individual years, also suggests, according to the university’s studies, that it has become more difficult to sell “made in Germany” dairy products on the world market.

Focusing mainly on exports, the German dairy industry, with the exception of a few companies already operating globally, is poorly positioned to benefit from expanding production in other countries.

Business expectations for 2019 are quite good, is the evaluation of the university. However, increasing milk volumes worldwide won’t increase the milk price. Even the drought in northern Europe in the summer of 2018, according to the available figures, will not affect milk production as drastically as was initially feared, especially as the aid paid by the federal and state governments stabilised businesses.

The rise in GMO-free feeding and dairy farm sustainability programs mean that production in Germany is becoming more expensive compared to foreign locations. In the domestic market this can be compensated for by marketing advantages by meeting the expectations of the food retail industry and possibly higher selling prices.

In the world market, however, it will hardly be possible to enforce higher revenues, for example, for GM-free feeding.

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