Over the last 30 years, the European Union has operated within a framework of national milk quotas which limits dairy production for EU member states. These quotas were originally created in 1984 to address issues caused by surplus production, however, as of this month the policy is set to expire. Once the current quota regime is eliminated, dairy producers in the EU will finally be free to expand production and increase their export business.
Global consumption of dairy products is growing, especially in emerging countries such as China, Russia, and India. Increasing wealth and disposable incomes are leading drivers of demand for dairy products, along with more consumers realizing the nutritional benefits found in dairy. Although production in developing regions is increasing, it is not keeping up with the rising demand among these consumers. Because of this imbalance in supply and demand, milk will likely be one of the most volatile agricultural commodities in the future.
The EU continues to be one of the leading producers and exporters of many dairy products including fluid milk, cheese, and nonfat dry milk. According to the European Commission of Agriculture and Rural Development, Germany, France, the UK, the Netherlands, Italy, and Poland together account for more than 70% of production in the EU. These top dairy producing countries have been preparing for the upcoming change in regulations and are expected to drastically increase their outputs once the quotas are lifted in April 2015. An expert predicted in a recent Economist article that dairy exports to non-EU countries will double by 2024.
With the opportunity for significant growth also comes significant challenges for the dairy industry. Complex supply chains and increased risk due to price volatility are key isues facing these companies, and they will need to continuously improve operational efficiency in order to remain profitable.
The rise in dairy consumption along with the end of EU milk quotas is sure to trigger competition among dairy farmers, producers, and processors. In order to adapt to these changes in the dairy market, these companies will need a flexible, easy to use CTRM software solution for managing physical trades and mitigating risk. The solution will need to provide advanced analytics with real-time scenario and intelligence capabilities to optimize decision making. Competitive advantage will be gained by dairy companies that implement a next-generation CTRM software, like Eka's InSight CM solution.