Arla expects depressed milk market to improve in 2016

Global milk prices, depressed by oversupply, should start to pick up at the beginning of 2016 partly because supply in China will ease, the head of one of Europe's biggest dairy companies, Arla Foods, said on Monday.

The price of whole milk powder has fallen 53 percent since the start of 2014 due to a food import ban in Russia, slowing economic growth in China and the ending of a quota system in Europe.

China and Russia imported 28 percent of global milk production last year but their intake has fallen to around 10 percent this year.

Peder Tuborgh, Chief Executive of Arla, expects that China, the world's biggest importer of dry whole milk, will need to start increasing its imports again at the start of next year as its stocks will be depleted by then.

"We are waiting for China to bring down its stocks and we expect lower growth in supply from some countries outside Europe," Tuborgh told Reuters.

British dairy farmers warned this month they face financial ruin due to falling milk prices, while in France dairy farmers have stage protests about the low price of milk and other commodities.

The European milk market was liberalised in April this year with the removal of 30-year-old quotas, allowing farmers to increase production and that has added to price pressures.

Tuborgh said he was not too concerned about the impact because production in Europe had increased by only 1-2 percent since the end of quotas. However, he said farmers still needed help.

"European politicians need to discuss what can be done to help farmers," he said.

Continuing EU intervention in the milk market was one way to help, he said.

France will push for an increase in milk market intervention prices at a European Union council of farm ministers on Sept. 7.

Intervention prices designed to mop up excess supply of butter and skimmed milk powder are still in place after the liberalisation of quotas but have been lowered repeatedly in EU farm reforms.

Tuborgh expects global demand for milk to grow by 2-3 percent annually in the next few years, driven by rising standards of living in rapidly growing economies.

Protests by farmers have led some European retailers to recently increase the price they pay milk suppliers. They include British supermarket chains Morrisons and Aldi and Scandinavian retailer Rema 1000.

"We expect to see the price deflation, that has been a reality in many markets this year, to level off," Tuborgh said.

Arla Foods' revenue fell in the first half of 2015 by 3.8 percent from a year ago to 5.1 billion euros, while net profit dropped by 19 percent to 122 million euros.

Denmark-based Arla Foods is the world's seventh-largest dairy company and is owned by 13,500 farmers in seven countries across northern Europe. ($1 = 6.6598 Danish crowns) (Reporting by Ole Mikkelsen; Editing by Susan Fenton)

 
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