A recovery in global demand, a weaker Euro, and better margins are expected to conspire to prompt an increase in cheese production this year, the report said, quoting EU dairy analysts at the USDA Foreign Agriculture Service (USDA FAS).
The domestic market may still look weak but world demand is recovering, and in the context of a weaker Euro, this suggests that cheese exports are set to rise, the report said, citing research from the USDA FAS.
The USDA FAS report said that in the first four months of 2010 traders have said that demand for cheese is already growing.
A move towards cheese is not just a response to recent events but fits into a broader search for a competitive niche.
The report authors said: “The sector believes that cheese, in particular branded cheese, will be the main dairy product in which the EU can compete in the world market.”
Despite this, the EU dairy industry moved away from cheese last year – French cheese production, for example, fell 4 %.
The USDA FAS said EU intervention in the dairy market was responsible for the shift from cheese.
In the search for shelter from market volatility, the EU dairy industry turned to the butter and non-fat dried milk (NFDM) markets where EU intervention was available and private storage stocks could be built up.
As the market recovers, it is expected that the dairy processing industry will reduce NFDM and butter manufacturing to focus on cheese.
How successful the industry is in world markets and the ability of the Commission to reduce intervention stocks will depend to some extent on exchange rates.
The USDA FAS said the weaker Euro has made EU dairy exports more competitive on world markets since February.