The green fields of Ireland’s County Kerry are a long way from a stuffy Beijing hotel room, but a Chinese man playing the bagpipes did his best to bridge the gap at the launch of “Green Love Plus” baby formula.
The skirling music along with milk dripping down an ice sculpture marked Kerry Group’s tie-up last month with Chinese formula seller BeingMate , the latest in a series of moves by foreign dairy producers to position themselves in China before a flood of new milk hits the market.
European dairies have been ramping up output ahead of the expiration of EU milk output quotas on March 31 next year.
Under the 30-year-old system, each member state incurs a penalty if it produces more than its allocation, which for the EU overall was 154.6m tonnes last year – or about one-fifth of world milk output, according to UN Food and Agriculture Organization estimates.
Much of the additional milk will go to China, which buys roughly two-thirds of world trade in dry whole milk powder and over a third of global shipments of fresh milk. China itself is the world’s fourth-largest milk producer, but after less than two decades of rapid expansion its domestic dairies cannot match the quality or the prices of traditional producers.
“It’s important to have access to markets because the increase in milk that’s expected is destined for global markets,” says Rabobank dairy analyst Matthew Johnson.
With that in mind, New Zealand co-operative Fonterra signed a deal with BeingMate earlier this year, while Arla Foods of Denmark and France’s Danone together own a stake in Chinese producer Mengniu Dairy.
The expected increase in milk comes as competition in the international milk market has heightened following years of strong prices.
Milk prices soured this summer as Russia, the world’s largest importer of fresh milk, cheese and butter, banned European products in retaliation for international pressure over the conflict in Ukraine.
The Russian ban coincided with a reduction in demand from China, as it digests a 70 per cent rise in milk imports in the first half of the year.
The looming quota relaxation offers the opportunity of expansion for producers in countries such as Ireland, which has among the world’s lowest costs of milk production.