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Future of milk: models and predictions for a new approach

Granarolo project with Areté: data analytics and forecasting systems to provide strategic support to the supply chain

A project started in the aftermath of the Covid crisis and carried forward through the complex period of shock of the agrifood markets which continued throughout 2022 and 2023, enhancing Areté's skills in data science applied to agrifood, and the strategic and commercial ones of Granarolo. The application of innovative tools - algorithms and modeling for monitoring and forecasting price trends - has made it possible to deal with both supply chain relationships and heated market competition with greater responsibility, both exacerbated by the very strong price volatility.

The milk and derivatives sector is one of those which, more than other food sectors, has suffered the strongest price volatility. On the one hand the high cost of feed and energy, on the other the general difficulty of supply in keeping up with a demand characterized by heavy fluctuations, has led to price increases ranging from +120% of SMP, to over 180% for butter up to almost +200% for spot skimmed milk. Volatility which also materialized on the downside, with drops of -50%, -40% and -66% respectively from the second half of 2022 to mid-2023. As further confirmation of the marked propensity for volatility, only in the period May-October 2023, in just 5 months, spot skimmed milk prices have started to grow again, recording new price increases of the order of 130%.

An online platform updated in real time allows you to constantly monitor the trend of prices and the main market variables, from stocks, to yield forecasts, to exchange rates, to all the factors that influence the prices themselves, taking into account the relationships between the various milk products (butter, smp, wmp, edamer). The forecasting systems, developed and interpreted by expert analysts, allow us to understand the factors behind market trends and above all to anticipate these trends, implementing hedging and/or commercial strategies capable of minimizing the risks linked to the volatility of the prices.

“Even before the 2020 pandemic changed everything, we were keen to innovate our way of reading and anticipating the markets – explains Gianpiero Calzolari , president of Granarolo – and we started the collaboration with Areté to find further new forecasting models useful for projecting the our choices and those of our supply chain of breeders and breeders, in particular the models have proven useful for studying scenarios relating to the costs of animal feed in a period of extreme volatility".

“The models allow us to have visibility on commodity price trends up to 18 months ahead – explains Enrica Gentile , CEO of Areté (photo) -. We have now come from over three years of extremely complex and volatile markets. Different situations and reasons that have been adding up and partly alternating with each other - pandemic, geopolitical tensions, weather, logistics problems - which however are making volatility an almost structural condition, with which operators in the sector have to live almost continuously. The monitoring and forecasting tools have allowed our companies not to be caught unprepared, to anticipate market trends and to drastically reduce the impact of price peaks, preserving margins but also facilitating dialogue and negotiation at the different levels of the production chain". “The forecasts now cover around 40 main agrifood commodities, but we are constantly working on new markets, also following the requests and priorities of the companies we work with”.

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EFA News - European Food Agency