Europe's dairy farmers look east for a new milk bonanza

Thursday, December 5, 2013

This is boom time for the main milk production regions of Europe. Dairy farms are expanding at a rate never before experienced and top processors are investing in giant plants, mostly in partnership with the Chinese

by NORMAN DUNN

Meet up with dairy farmers anywhere in Western Europe and the theme is nowadays always the same – expansion.

In Denmark, I learnt last year that there were really no new dairy barns going up for less than 300 cows. In Ireland, the story is the same. The eastern part of Germany inherited 1,000-plus cow units from the communist collective system established there before 1990. And now the giant dairy farms (in European terms anyway) that survived the first years of western market economy are busy fitting the biggest carousels into new barns and aiming for a doubling of stocking rates. Every milker sees a golden dawn coming when what is popularly seen as the stranglehold of production quotas is finally relaxed in 2015.

This "golden dawn" includes new customers from the east. The Chinese have been particularly quick to step in and start joint ventures in Europe for the supply of milk and whey powders for their markets.

In Germany, Deutsches Milchkontor (DMK) has stepped up production of whey protein concentrates, lactose and other dairy powders. The target is around 1.4 million tons of whey powders alone. This co-operative, which has a turnover of 4.6 billion euros (C$6.5 billion) and processes almost seven billion kilograms of milk from 11,000 farmers, reflects the current changes well. It's a product of recent mergers itself and was formerly more concerned with the domestic market. Exports meant butter and cheese to Eastern Europe, North Africa, increasingly Russia too.  

Now, DMK is investing millions aimed at ensuring new export deals well outside of Europe. The Chinese and other Asian nationals expected at DMK's huge stand at the world's biggest food ingredients fair (FIE) in Frankfurt this October far outnumber customers from other nations.

DMK has been very quick off the mark with this new milk bonanza in sight. Its worldwide market now covers 100 countries. About 38 per cent of total turnover comes from foreign sales. Just completed by the dairy is a "Milk Innovation Centre" where scientists work flat out on innovative concepts and products, nearly all aimed primarily at the export market.

But Europe's other dairy giants haven't exactly been treading water. Arla Foods, which collects 10.4 million tonnes of milk from farmers in Sweden, Denmark, Germany and Britain, has teamed up with the Chinese firm Biostime and together they'll be investing C$30.5 million in the largest infant formula production plant in Scandinavia. Biostime, listed in Hong Kong, says it'll be aiming for an annual output of 20,000 tonnes of milk powder products by 2015.

Arla, it is said, has already declared an interest in buying a slice of another Chinese dairy firm, Mengniu, for an improved foothold in the Chinese milk market. Meanwhile, in France, the dairy Sodiaal/Entremont (4.2 million tonnes of milk) is joining with yet another Chinese milk powder giant, Synutra, in the present construction of a $112 million baby food production plant in the milk-rich Brittany region. Expected output, starting 2014, is put at 30,000 tonnes of whey powder and around the same annual output of milk powder.

If we take a look at Ireland in this context, we see a country that has already developed its milk-from-grass skills until it can produce the white stuff almost as cheaply as New Zealand, probably Europe's keenest competitor in the new global milk market. Ireland has said it will almost immediately increase its milk output by at least 50 per cent when the quota shackles come off in 2015. Already, the equivalent of $210 million is earmarked by the country's food giant Glenbia and its dairy ingredients division GIL for a new plant that will process more than 700 million kilograms of milk per year. Targeted powder output is to be 100,000 tonnes per year, all of it aimed at the export market.

GIL already processes something like one third of the Emerald Isle's total current milk production (1.6 billion litres) and exports the production to more than 50 countries.

European farmers and their food processing partners have always been optimistic about the future. Everyone complained 30 years ago when the European Union's masters in Brussels introduced milk quotas, so restricting production in every country. Few are complaining now as the bonds are to be cut in time to meet the demands of perceived huge new markets in the east. Some countries are not waiting. Last year, milk was overproduced by farmers exceeding their quotas in Germany, Austria, Denmark, Poland and Cyprus. Altogether, according to Brussels, 164 million kilograms above quota were produced. Considering that this is only one quarter of the extra milk that'll be needed for the new powder plant in Ireland alone, it shows just how much the processing side is already focused on the future.

Although you wouldn't think it from the expansion plans in every dairy farming area, there are still large regions of Europe where the smaller family farm remains the mainstay of social life and the anchor crucial in stopping the increasing population drift from the land. Many fear that the small producer will now be at the mercy of an uncontrollable cheap milk market dominated by powerful international processors and traders.

On the other hand, a thriving export market can also be a very useful tool in forcing realistic production prices for European milk and milk products – realistic enough, hope the smaller farmers, to ensure their survival alongside the 1,000-cow herds. BF

Norman Dunn writes about European agriculture from Germany.