The unprecedented increase in dairy product prices in 2007, leading to the highest prices on record, are unlikely to be repeated in the 2008, the Irish Dairy Board has said.
In its review of world dairy markets, the board said the "price spike has peaked for dairy commodities such as milk powders and butter". It added that market prices were rapidly returning to more normal levels but cheese markets would continue to be firm.
"The 2007 upsurge in prices is seen as a temporary situation brought about by exceptional market conditions. EU milk output was down approximately 1 per cent in 2006, partly in response to the Cap reform policy of reduced price supports, combined with inflexibilities in the transfer of milk quotas in member states like France," the report said.
"Extreme weather conditions reduced output in traditional dairy suppliers such as Australia and Argentina, while the rapid development of bio-fuels is now actively competing with food production," it said.
"This has led to a dramatic rise in feed costs for dairy farmers. Dairy intervention stocks in both the EU and the US, which had been meeting the developing shortfall in supplying rising demand from a prosperous world market, were sold out," it went on.
"While the price spike of 2007 was exceptional, the long-term outlook for dairy markets is good. Demand for dairy products, particularly cheese, is expected to increase," it continued.
"The strong GDP growth in Asia, together with the income-per-capita growth being experienced in oil-producing regions, population growth, westernisation of diet and, in several cases, government milk consumption programmes, are all leading to increased demand," it said.
"However, the sharp rises in prices in 2007 led to reductions in consumption and a market correction is already well under way," it added.
The report said that it expected international markets to see significantly lower price levels for community products than those achieved this year.
This would be particularly true for butter because there was a chronic surplus in the EU and it would need export levels of 150,000 to 200,000 tonnes to balance current levels of production and demand.
"Irish production of cheese and whole milk powder will increase, with production of butter and skim milk powder (SMP) expected to decline. There will be further reductions in the production of casein with the development of other uses for skimmed milk, especially in infant formulae," it concluded.