Dairy industry commentator Ian Potter told this week’s Semex UK Conference that there were wildly contradictory factors affecting the future of the sector.
Huge and unsatisfied global demand, particularly from China for milk powder, had to be balanced against the local factor of a looming milk surplus in the UK and Ireland.
The milk powder position is something of a phenomenon.
Whereas it normally achieves only commodity status and trails in the wake of other processed dairy products, it is now leading the field as butter and cheese go, in Mr Potter’s words, “off the boil”.
Skimmed and whole milk powder (SMP and WMP) might yet be in over-supply, but that seems unlikely in the near future.
“New information out of China predicts that its WMP imports will increase by 25% in 2015 on top of the 2013 increase of 28%.
“Imports of SMP are expected to rise by 15%,” he said.
Arla foods had been particularly adept at using the global auction system to sell UK milk powder of both types into China.
European product was much sought after for the Chinese baby food market because of its good food safety record. China itself had a well-publicised tragedy resulting from contaminated baby food, and New Zealand also had a food scare with its product.
New Zealand dealt quickly with the problem and, although it dented confidence among more affluent Chinese mothers, imports are still strong.
In November alone China imported 86,000 tonnes of WMP, accounting for around 80% of the country’s requirements.
The rescinding of the 30-year-old “one baby policy” in China was already leading to larger families and an increased demand for baby food.
Nearer to home there are problems, however many of them linked to the ending of EU milk quotas next year.
“The Irish government has published its target of increasing milk production post-quotas by 50% by 2020.
“Clearly the Irish train is already running and it’s coming towards us fast.
“Calving data would indicate there are 24,000 more cows in Ireland and that they are calving earlier in the year,” said Mr Potter.
There was the possibility that Irish farmers would slow production by feeding less to avoid going over quota this year when penalties would still apply, but in Mr Potter’s opinion this was unlikely.
“My guess is that they will apply the brakes, but not hard enough,” he said.
“They see 2015 as a real opportunity, not a threat, and they don’t want to be late for the party,” he said.
Against that, Irish dairy farms were small and the dairy industry would face a challenge in scaling-up production.
The problem of extra milk and dairy products from across the Irish Sea would be compounded, in his view, by “rocketing” production in the UK.
The weather had been kind last year, and so far during the winter, and cows were yielding well.
He could see a position developing within weeks where there could be a lack of processing capacity.
“We don’t have the balancing capacity to cope, and we are likely to end up with distress milk possibly quite a lot of it. All roads lead to significant farm-gate price volatility,” he added.
Farmers contracted to processors with a strong processing base would fare better than those tied to buyers who brokered a large percentage of their milk.
“In my opinion a spring price correction or adjustment is obvious and inevitable,” warned Mr Potter.
There was a more positive note for the medium to long term, with a prediction that UK competitiveness and efficiency would win through.
“We all need a thriving dairy industry, and I reckon where we are today is the closest we have been to it in my lifetime,” he concluded.