PARIS Feb 19 Dairy makers expect strong Asian
demand will push milk prices in France to record levels in 2014
for a second year running, further squeezing their margins as
price-warring retailers resist passing the higher costs on to
Booming Chinese demand for dairy products and food safety
scares has also sparked a raft of deals in the country's dairy
sector with foreign makers including the two biggest French
dairy makers, family-run Lactalis and stock market-listed Danone
"Milk markets are doing well and are on a strong upward
trend, global demand is strong, Asian demand is clearly firm
today," said Olivier Picot, chairman of the FNIL dairy makers'
group at a news conference.
Milk prices in France rose 9 percent in France last year to
344 euros ($470) per 1,000 litres, while average dairy prices in
supermarkets fell 1 percent and the retail price of fresh
products dropped over 2 percent, FNIL figures show.
"With the underlying factors being the same, it is very
likely that this rise will continue in 2014 with the same order
of amplitude," he said.
Some Chinese dairy companies are now supplying themselves
directly from French milk farms.
"If you walk around France you will find SMEs (small and
medium-size enterprises) making drinking milk and filling
containers to China. It is frequent today," he said.
He stressed Europe was the key supplier to meet the Asian
demand currently with U.S. prices were artificially supported
internally, making them uncompetitive abroad.
French makers of cheese, yoghurt and other dairy products,
from the large companies like Lactalis down to farm-based family
businesses, paid 730 million euros more for their milk supplies
in 2013 compared with the previous year. The bill has gone up by
a total of 2 billion over the past 4 years despite a price dip
in 2012, Picot said.
Any rise of 10 euros per 1,000 litres in the price of milk
makes the bill for the dairy industry swell by an additional 240
million euros, he said.
However, higher milk prices could not be passed to their
clients and French consumers last year, as retailers fought to
keep prices at the lowest levels.
While competitors in Germany are able to pass rises up to
three times a year, in France, talks between retailers and
suppliers are annual, Picot said. There is also no obligation
for retailers to accept rises in prices.
Food products account for 15 percent and of consumer
spending in France while dairy accounts for 2 percent.
Dairy producers exported 37 percent of their French output
in volume last year with sales totaling around 25 billion euros
($34 billion), including internal sales and exports.
Picot stressed there was also a risk for milk farmers if the
dairy makers' margins became too bad.
"At some point if dairy producers can't find a solution
downstream, they will have to look upstream," he said.
($1 = 0.7272 euros)
(Reporting by Sybille de La Hamaide; Editing by Andrew Callus)