Geopolitical uncertainties may make for volatile demand
While long term demand trends remain unchallenged – UN/FAO continue to predict an annual growth of around 1.8% per annum, mostly ahead of global production growth – volatility will not be helped by geopolitical turbulence.
The Trump administration’s attitude to trade and immigration has already resulted in Mexico venturing elsewhere for some of its dairy needs. This has worked out to the advantage of European dairy traders, but measures and policies the US might implement under Trump’s Presidency may be less favourable.
The exit of the UK from the EU is another creator of uncertainty. Currency movements linked to it have already impacted on the competitiveness of EU imports – including Irish imports – and food inflation figures have increased in the UK at least partly as a result. Rising food and fuel prices were the main items which increased February UK inflation from 1.8% in January to 2.3% in February – the highest since September 2013.
Rising inflation is reported to coincide with lower wage growth, squeezing spending power and affecting consumer confidence, which is also unsettled by the uncertainties around what the post Brexit world will look like.
The UK imports 53% of all our cheese exports, 29% of our butter exports, and 12% of our SMP exports. It is a crucial market, and consumer demand remaining buoyant is vital to allow those sales to continue before the UK is no longer a member of the EU. Of course, continued access to that market is vital for the Irish dairy sector thereafter too, and we have made important recommendations on how this needs to be achieved in the IFA Brexit Policy Document which you can access here.
Add to this a raft of elections within the EU (Dutch, which returned outgoing PM Mark Rutte instead of the Eurosceptic Geert Wilders as was feared; French with a candidate (Marine Le Pen, Front National) threatening to leave the Euro and possibly the EU if she’s elected; German; Hungarian…) which each have the potential to alter fundamentally the political direction not only of the countries concerned, but also the future of the EU, and you see that geopolitical uncertainty is rife in 2017.