The AHDB has published its Dairy Market Outlook for 2021. The full publication can be found at https://ahdb.org.uk/news/2021-dairy-market-outlook-now-online. The levy board is forecasting GB milk production to increase marginally in 2021, but the pandemic and trade friction are expected to continue to have an impact on consumption, trade, and farmgate prices through the year.
Production
In its latest Dairy Market Outlook, the AHDB expects GB milk production to total 12.56 billion litres for the 2020/21 season (April-March), up 0.2% on 2019/20. For the calendar year 2021, the forecast is for a 0.5% rise compared with 2020 to 12.59bn litres. It is hoped, with the easing of Covid related restrictions from March there should be an increase in food service demand and the restrictions on production experienced last spring are not expected to reoccur this year; the spring flush is forecast to be up 1.2% (39m litres) on 2020.
Trade
According to the AHDB total UK dairy exports were down 11% on the year for January- November 2020. Imports were also lower, by 7%; both due to the pandemic disrupting trade. Reduced demand from the foodservice sector at home and across Europe is expected to continue during the early part of 2021 but it is forecast to improve as we progress through the year. The majority of the UK dairy trade is with the EU, meaning the trade deal was good news for the sector. However, the additional paperwork, health certifications etc (Non-Tariff Measures) will add time and costs to trading and is of particular concern for short-shelf-life products, such as cream and skim concentrate. Exporting the surplus of these products helps balance the UK milk market, any disruption, particularly during the spring flush, when processing will be tight, could put pressure on markets. With regards to imports, the changes to paperwork will be phased in from April to July 2021 and hopefully this should present less problems.
Consumption
All the major dairy categories have seen retail growth both in volume and spend during the pandemic; although still not fully offsetting the loss from the foodservice sector. An increase in cooking from scratch, baking at home during lockdown, at-home lunches and more hot drinks have all contributed. Fresh cream was the fastest growing sector with retail volumes up by 22.8% to the year ending 27th December according to market research company Kantar. Butter and cheese retail volumes grew by 18% and 15% respectively. Perhaps a little surprising, is the fact mozzarella was one of the fastest growing cheeses; despite restaurant closures, an increase in demand for takeaways has boosted mozzarella consumption, with 6% more pizzas sold to the w/e 4th October 2020 compared to year earlier levels. Some of these consumption trends are expected to continue through 2021. Even by the end of the year AHDB is assuming out-of-home consumption will not have returned to pre-Covid levels as some consumer ‘wariness’ will continue. The scenario of higher retail demand offsetting some of the lost foodservice sector demand, but not all, is expected to continue.
Looking ahead, uncertainties remain. Exports maybe impacted via trade friction or lower demand, leaving more product on the market. The middle ground liquid processors have been particularly hit hard by the loss of the foodservice sector any setbacks in recovery of this market could affect liquid prices. But with only a marginal increase in production and the expectation that demand will recover by the second half of 2021, dairy markets look relatively promising. However costs; feed, fuel and fertilisers are expected to increase over the course of 2021 putting pressure on margins.