European Union revises down milk expectations as Australia’s pool shrinks

European nations are producing less milk — and there’s a positive flow-on effect for Australian dairy. But is it a double-edged sword?

A slowly evaporating milk pool in Europe is part of an economic double-edged sword for Australian dairy, an industry analyst says.

A drier-than-average summer across the continent has made the European Commission revise down its forecast milk pool for 2022 by a sizeable 0.5 per cent.

The executive body of the European Union says the Russian invasion of Ukraine also played a part in the milk quantity revision, as it triggered a tightening of fodder and fertiliser stocks.

Red Sky Agricultural managing director David Beca said a tightening of European dairy output would bolster Australia’s dairy export advantage in the short term.

However, a forecast recession across the western world would dampen consumer confidence in the medium term.

“The factors driving a revised down milk pool in Europe are in part in the same factors that are pointing to a worldwide recession in 2022-23,” Mr Beca said.

“Yes, in the short term, if the European milk pool shrinks, then there’s less supply out there and that works if demand remains the same.”

Federal Treasurer Jim Chalmers is in Washington DC this week for a G20 finance ministers’ meeting and warned a worldwide recession was likely this financial year.

“In a recession, demand for dairy would decline and then have a drag on prices,” Mr Beca said. “So the supply downgrade may help buoy prices in the short term but a recession, especially if it’s a longish recession, will weaken dairy prices worldwide.”

European Commissioner for Agriculture and Rural Development Phil Hogan. The Commission has revised down the EU’s milk pool for 2022. Picture: Emmanuel Duand

European Commission dairy analysts this week outlined a series of problems in the French, German, Italian and Spanish dairy industries that mirror economic headaches faced by the Australia dairy sector.

The report authors said they anticipated “even higher processing costs of drying milk powders,” which would lead European manufacturers to switch their attention to cheese production.

Following the gloomy forecast, European Milk Board president Sieta van Keimpema said dairy farmers were battling an “explosion in costs” at the farmgate.

“Today, there is a gradual domino effect and each link in the chain pulls the next one down with it,” she said.