Mid-year dairy exports
Year on year export decline masks a positive performance
Irish milk output is up 7% for the first six months of the year and with global markets for dairy commodities robust, one might expect that Irish dairy exports would show positive year-on year gains. Recently published CSO figures show a 19% decline in Irish Dairy exports by volume for the first six months of 2021. That’s a value decrease of €265million when compared with the same period last year.
2020 was by anyone’s reckoning an “anomaly” year and not to be outdone, 2021 has offered up some major challenges for the Dairy Industry. In light of these factors, the performance of Irish dairy year-to-date can be considered robust and once again resilient in the face of considerable headwinds.
Logistics and supply chain
Logistical and supply difficulties were well documented throughout 2020 but 2021 has proved equally if not more challenging with the procurement and cost of equipment posing a massive challenge for our dairy exporters squeezing the gap between cost of sale and margin. Throughout the dairy supply chain at farm level to supermarket checkouts, costs have increased: oil, plastics, wood and most notably freight costs have risen exponentially this year giving rise to what some have termed a logistical crisis.
Some Irish dairy exporters have reported a twofold or more increase in freight charges over the past 12 months with increases in shipping costs to the Far and Middle East, both strategic regions for Irish dairy exports, particularly pronounced. This is heightening the need to plan customer demand and shipping dates with precision in order to secure containers and ensure delivery of goods on time.
Evident is the enormity of this increased logistical cost when the largest freight forwarder in the world, Maersk recently announced a record profit citing a “container boom” as consumers and businesses alike order goods in mass quantities.
Market Demand - Asia
Global commodity dairy prices have performed well in 2021 across the key Irish export categories of butter, cheese and powders.
One notable area that is challenging Irish export value is the decline in demand in Asia for specialised infant nutrition. This product category declined in Irish value exports by €118m in 2021 versus 2020 reflecting reportedly lower birth rates in China and a move by consumers to an increasing preference for locally produced brands. Indeed, total global Chinese infant formula imports are down approximately 24% the first half of the year. It remains to be seen whether the Chinese government policy encouraging families of up to three children will have on future demand for this product.
When you strip out this infant formula business Asia is performing very well with demand for other dairy products up 17% in volume versus 2020. Indeed, butter, is starting to gain traction in these markets and in particular, China and Japan. China is importing significant levels of whole milk powder this year, up 35% year on year, and Ireland is benefitting from this demand with year on year January to June exports up from 152mt to over 2000mt.
From a UK perspective there is increasing volume of exports through Northern Ireland, up over €35 million, partially countering the decline in exports to mainland UK of €74 million. On a positive note there were indications in June of a return to normal trade with the highest value exports to the UK from Ireland for that month in five years. Indications are that this may have been driven by supply chain fill, particularly in foodservice, as Covid-19 restrictions were removed and pubs and restaurants were busy during the European football championships.
European milk output is up approximately 0.5% for the first six months. There was positive trade on butter into the key market of Germany and France, up 9% and 12% respectively. Ongoing covid-19 uncertainty across Europe during the first half of the year with localised restrictions re-introduced and challenges across foodservice have impacted consumption. There is hope that with vaccination levels increasing and tourism returning that the second half of the year will offer some upside.
Dairy exports to Africa are in line with the same six months last year at €331 million. Demand in the region, and in particular West Africa, tends to correlate positively with oil price. The price of a barrel of crude oil dropped from c.$70 in the first 6 months of 2020 to end the period at $44/barrel. Almost exactly the opposite has happened in 2021 with the year starting at $45/barrel but rose to $71/barrel by the end of June. Nigeria and Ivory Coast are best demonstrating this with exports up by €20 million combined driven by demand for enriched powders.
Cheese has been performing strongly with a value growth of 14% to €48.3 million with 14,000 tonnes-largely to North African markets. Algeria represents the bulk of this growth, with exports of close to 7000 tonnes (valued at €24 million) from January to June, up 21% in volume. Cheese exports to Egypt have grown by 32% in value and volume to 3,783 tonnes valued at €12.7 million. Both countries were the focus of a ministerial-led Trade Mission pre-pandemic in 2020 and a follow-up virtual trade mission in April of this year.
Irish dairy in the US
The momentum for Irish dairy exports into the United States continues apace with exports up 2% in value and close to 4% in volume versus what was a record six months in 2020. Although trade of butter has softened slightly there has been an uplift in Irish cheese exports. The US market accounted for €231 million in exports in the first half.
A further positive note in US Irish trade has been the removal last March of a 25% tariff related to a dispute between the EU and US aircraft industry.