In the third quarter of this year, demand for dairy products had stagnated in the US and Japan, while Chinese demand had fallen as consumers’ reduced incomes affected discretionary purchases, senior analyst Tim Hunt revealed. The fall in demand would lead to lower prices and there was already evidence of this in the UK, said Hunt. European wholesale butter prices have fallen to almost half the level they were a year ago, which should start to be reflected in retail prices.
UK consumers would also start to be more selective in their purchases, buying fewer non-essential products such as yoghurt and cheese, or buying more own-label or cheaper options, Hunt said. Manufacturers who have spent time getting consumers to trade up to premium products would be adversely affected, he warned.
In the past year, consumption of yoghurts fell by 1.8% [TNS], following three years of consecutive growth. However, fresh milk prices in this country were not expected to fall. The UK had an extremely tight milk supply, said senior analyst Mark Voorbergen. The relatively low prices that UK farmers still received for their milk meant there was not enough confidence in the farm community to expand production, he said.
“Pricing will solve the situation,” said Voorbergen. “If there’s a shortage of milk, people will pay more for it, so for those staying on in the industry there may be opportunities to expand. If not, the UK will become a bigger net importer.”
Long term, global dairy demand was likely to increase again once the economy grew, Hunt said. That could happen from the end of 2009, he predicted.