The Irish Farmers Journal sat down with Rupp AG CEO John Broekmans to hear his views on where dairy markets are at the moment, as well as the opportunities and challenges he sees facing the industry.

Broekmans started on an optimistic note for the future of the dairy market saying: “Globally we see a permanently rising demand for cheese and dairy in general.

In regions where people are growing into middle class incomes and spending, they like to buy, as soon as they can, healthy food. This is where dairy profits a lot, especially cheese.

In every kilo of cheese there is ten kilos of milk, so it concentrates all the goodness.”

He said that the rising demand for diary globally is seeing some new countries starting local production for their own markets, but often their climate is not conducive to dairying.

“So, it remains important that the key regions like the northwest of Europe, like Oceania, like the United States, in its own context, and some regions in South America, keep producing milk for all the dairy products.”

He said one of the challenges currently in global markets, which has helped drive the price of dairy commodities to current levels, is that production from those key regions does not follow demand.

“That is partially because it has become less attractive for farmers to invest in the future,” he explained.

He expanded on this by saying the demands placed on farmers, particularly in the European Union, to be more conscious of their greenhouse gas emissions are a drag on those investment decisions.

“The rules of the EU focus much more on climate and sustainability instead of feeding all the people on this planet. There is no balance at the moment, so production cannot follow as fast a demand goes up.”

Challenges

This has led to challenges for companies like Rupp, who essentially are part of overall dairy supply chain. The demand and supply imbalance means that there is very little stock of dairy, including cheese, available.

“You can hardly buy stock from producers, it is all fresh product. So demand is high as prices are high, which makes it expensive for many people.”

He acknowledged that there has been some reduction in the pressure from EU rules in recent months which has meant there are less requirements for farmers to make capital-heavy investments in extra land, sheds and milking equipment.

However, he said that the pace of the rules has just slowed down, rather than stopping or reversing.

“Some countries have gone further. I am Dutch and the government there is proactively paying farmers to stop dairy farming and meat production.

Some farmers take the money and set up somewhere else like Romania where the land and building costs are cheaper, but others take the money and just stop farming.

“This means that if the remaining farmers don’t grow their capacity, then we simply reduce the milk pool, which I find amazing.

There is demand for the product, we have to feed people, so yes you have sustainability but that has to start with healthy nutrition.”

While the outlook for dairy supply does play a role in investment decisions at Rupp, Broekmans said the investment in Co Cork makes sense because of the availability of a high quality raw material.

“Ireland is a good place. There might be pressure on the future volumes, but the image of it being green, green, green is true.

Grassfed dairy farming is different to the rest of Europe where there is milk produced 12 months of the year. But that milk is produced from feeding maize and soy, so it is not the same milk.

“Our factories can only be in the spot where we have access to the raw material. While we don’t process milk ourselves, we buy the blocks [of cheese] and the factories that produce those blocks need to be around us.”

Trade Outlook

When it comes to global trade in any commodity these days, there is no getting past the effect the policies of President Trump are having on everything. When asked what he sees as the biggest threat, Broekmans gives a slightly tongue-in-cheek answer “I think we were lucky that we did not push a lot on our US business.”

He continued more seriously saying: “We are not involved in exports to the US, but other European companies who have a chunk of their business exported to the US, they’re in trouble.

“How are you going to invest in your business if you don’t know if you can sell your product tomorrow? They don’t know, nobody knows. Trump has created chaos.”

He made the point that product that cannot be exported to one region will find its way into another.

He used the example of US cheddar which faces tariffs on entry to the EU which, combined with the logistical costs of getting it to Europe means that a cheaper US product actually costs the same to a European buyer as the more expensive local product. However, that US cheese instead goes to markets like the Middle East where it can compete with European products.

“It’s exactly the same as when Russia blocked imports of European fresh food, including cheese, in 2014. This meant 200,000t less cheese going from Western Europe to Russia. Where were the European producers going to sell their cheese?

“What happened was Russia started buying from other countries and European cheesemakers found new markets in places that used to be served by that cheese. Within a year, everything was stable again.”

China

Rupp has a production facility in China, giving Broekmans a good insight into that market. He said there has been a huge increase in milk production there, expanding by 50% in only a couple of years.

That expansion, he said “is almost too much and it is putting the milk price there under pressure. But that does create opportunity for companies to develop new products, with the government support that is also there.

“I was at a bakery trade show in China last month and the offer of local products included a lot of cream cheese, a lot of cream, a lot of butter, they are starting to produce their own mozzarella.

I have never seen such a big product offer for bakery in China.

“On the retail cheese business, it is totally different. In China they don’t like the taste of cheese like we do in Europe. So, either it has to be very mild or it has to be sweet.

The local sweet cheese suffered a lot during COVID, there was way too many people offering it, the price came under pressure, then quality comes under pressure and the taste changes. Customers then stopped buying it as it didn’t taste like they remember.

“Chinese consumers change their habits very quickly, so a market can grow very quickly but it also can go down very quickly.”

He did add that Rupp is working with a small number of clients in China on products that meet those customers’ specific needs. “The more creative you are in, the greater the potential for growth.”