5 Jul 2016

EU scheme will keep NZ milk prices down - analyst

10:11 am on 5 July 2016

The European Union's skim milk powder intervention scheme has been officially raised to a record 350,000 tonnes, which analysts say will slow down the rise of New Zealand milk prices.

In May the government-backed scheme raised its cap to 218,000 tonnes and it has now lifted it by another 132,000 tonnes, effective from 30 June.

AgriHQ dairy analyst Susan Kilsby said the scheme takes the excess milk from the market and puts it into storage, which has a mixed effect on prices.

"In the short term it's providing some stability in the market, and some support around skim milk powder levels.

"But what it does over the longer term is we've now got skim milk powder stocks built up in the EU to record levels so it's going to take several years for those stocks to work through the market as it's slowly released, and that will only happen once milk supply slows down and the markets rebalance."

Ms Kilsby said this would prevent milk powder prices from rising quickly for quite some time.

"It certainly will keep prices for skim milk powder down while we sell more of our milk powder in the format of whole milk powder - there is a link between the two products because they can be substituted to a certain degree.

"It's certainly going to hamper dairy commodity prices from lifting quickly even when the milk supply does slow down in Europe."

Ms Kilsby said the EU Agriculture Council has also talked about reintroducing compulsory supply restrictions which will be discussed at its next meeting in July.

"While any restriction on supply would be supportive to the market in the short term, in the long term it will encourage EU farmers that would not have been viable in an otherwise open market to keep producing."

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