Falling consumer demand, due to high prices, has put pressure on milk prices.
A wait-and-see attitude among buyers of dairy products, hoping prices will fall further, has slowed the market. However, the EU prices for the main commodities are still mostly 30% to 50% ahead of 12 months ago.
Irish companies that rely on the UK market now have to contend with the consumer reaction to fresh food prices, which are 13.3% higher than last October.
Overall, UK inflation is at only 6.6%, but food inflation has jumped, in the biggest annual increase since 2005. There have been big price rises for most dairy products.
Over the past year, cheese volumes sold in the UK are reported to be back 5.8%, and butter sales back nearly 10%.
With the Bank of England warning the UK faces its longest-ever recession, and that unemployment could nearly double by 2025, Irish food exporters that depend on cross-channel trade face a difficult period.
In Ireland, there are reports of a 10% fall in supermarket spending in September compared to August. Eight out of 10 Irish consumers say they are concerned about their finances and are adjusting their shopping to reduce costs.
Across Europe, high inflation and the war in Ukraine have been two of the main drivers of falling consumer confidence for over a year.
Now, with employment growth slowing, rising interest rates, wage growth unable to keep up with inflation, and food and energy prices unlikely to fall significantly in the short to medium term, the dairy market volume is likely to shrink.
In the EU, volume declines are reported in key categories such as cheese and milk, but the full impact on dairy consumption will not be felt until 2023.
Irish exporters are reported to be hit hard by a 15% drop in butter volumes sold in Germany, where Ireland has a 20% market share.
Sluggish imports by Chinese buyers are also weakening the global dairy market.
On the other hand, prices will be supported by the resilience which characterised the dairy market through the pandemic, and by under-supply of milk, which is particularly evident in New Zealand and Australia.
September milk supplies in New Zealand continued to lag the previous year, by 3.2%, with season-to-date supplies back 3.7% year on year. With New Zealand exporting more than 90% of its dairy products, reduced milk production will have a significant effect on global markets.
Bad weather down under reduced the peak milk flows of late October, with wet conditions holding back farmers.
Australian milk production has been hit even harder, running 6.6% behind for the season to date, with lasting damage done to feed provision in many flood-affected areas.
Only the USA reported September growth (of 1.5% year on year) in milk supply, with the EU milk supply down slightly, still recovering from summer and autumn droughts.
South America continues to lose global dairy market share, with the exportable surplus likely to decline further.
So far this year, the total volume of the major dairy exporters (including the EU) up to September was 0.9% lower than in the same period of 2021.
