Export opportunities for the EU dairy sector

1. LP(16)9244 Export opportunities for the EU dairy sector Copa Cogeca WP Milk Brussels, 27.10.2016

3. Outline • Where are wetoday? • EU’s position on the global market • Export perspectives & promisingmarkets • FTAs, FTAs, FTAs • Conclusions

4. The last 2 years have not been great… But marketsare recoveringsinceJunethanks to lowermilk production Main reasons for the long down cycle: • Global oversupply, on the back of high prices, led by the EU & amplified by quota abolition • Temporary slow down in demandgrowth(Russian embargo, stock building in China, oilprices, politicalunrest…) Source: EU Commission DG Agri

5. Short term outlook: is the current recovery sustainable? • Sentiment vs fundamentals • Milk production of key exporters: • How long will EU flows continue to decrease? Strength of spring flush? • A badseasonexpected for Australia but what about New Zealand? • USA production: poweringthrough • Argentina production likely to continue itsdecline over comingmonths • High intervention and other stocks • How will EU exports performat higherprices? • Manybuyers are stillwellcovered • Consistent but not spectaculardemandglobally • More balanced situation overall

6. Outline • Where are wetoday? • EU’s position on the global market • Export perspectives & promisingmarkets • FTAs, FTAs, FTAs • Conclusions

7. EU’s weight in global milk production Source: IDF World dairy situation 2015

8. Global dairy trade flows Source: Rabobank 2011

9. World market: concentrated on the export side

10. Cheese

11. Butter

12. SMP

13. WMP

14. Whey powder

15. Infant formula

16. Liquid milk

17. Main EU export markets for all dairy products (in value - €) 2005 2026 2010 2015 ?

18. Outline • Where are wetoday? • EU’s position on the global market • Export perspectives & promisingmarkets • FTAs, FTAs, FTAs • Conclusions

19. And tomorrow? Is pastbehaviour a reliableindicator for future performance?

20. Global trade will continue to increase • Drivers of global demandgrowth for dairy (+2,3% per year): - population growth- GDP per capita (+growing middle class)- changingdiets- urbanisation - developmentof modern retail • Global trade will likely continue to increase faster than consumptionas major growth regions (South-East Asia, MENA and Sub Saharan Africa) will become increasingly import dependent • EU shouldbewellplaced to respond to the increasingdemand! Annual change in dairy trade flows (in ME): Source: EU Commission DG AGRI

21. Promising markets - Asia • China • Will remain worlds largest importer and key for EU exports • Increasing population (still), increasing middle-class, more westernized eating habits • GDP growth slowing down as central government attempts its difficult rebalancing of the economy • Further increases in imports (in milk equivalent) expected as domestic production will struggle to keep up. • Product mix is changing: the share of WMP, SMP likely to decrease, while more infant formula and UHT (and cheese?) will be imported • High dairy product prices limit consumption growth • South East Asia • All countries are net importers withimpressive population and consumption growth • Today importing mainly powders (SMP, WMP, whey), tomorrow? • South Korea: • cheese consumption (mainly food service) is growing faster than global average, thus supporting EU (and US) exports; very positive effect of the FTA • Japan: • Worlds leadingcheese importer • Growthpotential for EU exports willdepend a lot on marketaccessgrantedunder the future FTA

22. Promising markets – MENA & SSA • MENA • Increasing population (60% of population of Arab countries below 25 years) • Middle and high income countries • Imports 90% of the food it consumes (Middle East) • Food service is booming, explaining rapid cheese growth • SMP imports also growing fast, while WMP remains main product. Butter imports increasing steadily • Sub Saharan Africa • Growing demand due to demographic boom is not met by production increases • Fat-filled milk powder remains by far the main product • Buying power?

23. Promising markets – Americas & Russia? • USA • A net exporter – but domestic consumption is booming, supporting EU exports of cheese and butter • How much can US exports increase? – USDA expects 44% increase over 10 years • Mexico • Big for all dairy products, became largest SMP importer in 2015 • Modernisation of FTA needed (with dairy access) to compete with the US • Brazil • Huge & fast growing market but tariffs and NTBs are blocking access. Good potential for EU exports if the barriers are addressed in an FTA with Mercosur • Russia • Reopening of the market nowhere in sight • Even if embargo is abolished, EU exports will not reach pre-embargo levels but perhaps 30%-40% (lack of buying power as economy is down, depreciation of the rouble, other exporters) • Replacement of milk fat by vegetable fat • Domestic production?

24. Possible development of EU production & exports 9,53%

25. Outline • Where are wetoday? • EU’s position on the global market • Export perspectives & promisingmarkets • FTAs, FTAs, FTAs • Conclusions

26. Global demand for dairy will increase BUT: NZ Improved market access is essential! Can EU deliver? EU trade policy needs to get over the current crisis quickly! VS USA

27. Some key FTA negotiations for EU dairy • TTIP – duty free access would be very beneficial for EU dairy (cheese) exports; no movement for the next 6 months at least and future very uncertain • Japan – very protectionist on dairy, outcome and timing uncertain • CETA - would be beneficial for EU cheese exports but will it ever be signed and ratified? • Mexico: one of worlds largest dairy importers; modernisation of current FTA required to bring EU on level playing field with US • Mercosur (Brazil): a lot of potential, a lot of challenges • ASEAN – Vietnam (awaiting signature), Indonesia and Philippines – high growth markets with already low duties on dairy but zero duty would put us on par with New Zealand • What about China?

28. Conclusions • In principle the future is looking good: global consumption and trade will continue to increase and the EU is well placed to serve the additional demand • EU dairy market balance is reliant on increasing exports • The share of EU exports in global trade will depend on the outcome of ongoing and future FTA negotiations led by the EU and our competitors. • Other factors and uncertainties: • Stability and continued market orientation of EU dairy policy • Integrity of the EU and its single market (Brexit, mandatory origin labelling…), overall increase of protectionism • Political instability in key import regions • Price volatility is here to stay – risk management! • Key economic factors such as exchange rates and oil prices • Growing trend of vegan/‘non-dairy‘ in certain developed markets • Impact of climate change and other environmental constraints • Russia

29. Thank you for your attention!Questions? Jukka Likitalo Secretary General www.eucolait.eu @eucolait