The decline of the euro, coupled with a revival in milk production prompted by higher prices, has raised prospects for Europe's dairy exports – in particular cheese, trade in which is to recover to pre-crisis levels.

US Department of Agriculture staff have lifted estimates for European Union exports for most dairy products, including milk powders, of which the region is the second largest shipper after New Zealand.

"A weaker euro has made EU products like dairy more competitive on the world market since February 2010," a report from USDA attaches across the region said.

The euro has, thanks to concerns about the region's sovereign debts, lost some 14% to $1.23 against the dollar this year, boosting the competiveness of eurozone exports.

Export hopes have risen in particular for cheese, of which the EU - the world's top-ranked exporter - now looks set to ship 530,000 tonnes this year, 12% more than originally expected, and a figure in line with that in 2007.

Cheese margins recover

"During the first four months of 2010, traders have commented that the demand for cheese is growing," the briefing said.

"The sector believes that cheese, in particular branded cheese, will be the main dairy product in which the EU can compete on the world market."

Better demand has fed through into a "remarkable" increase in prices of Italy's major cheeses, such as Parmesan, higher production will be centred in Germany, "as commercial stocks are depleted", and France, which accounts for more than one-sixth of EU output.

'Prices to rise'

Prospects are also improving for trade in milk powders, in particular skimmed milk powder, for which exports will hit 240,000 tonnes, 15,000 more than initially expected.

"Demand for milk powders is growing in Asia, in particular in China," the report said, also flagging the gradual selldown of EU stocks built up by intervention buying last year.

The extra exports will be supported by growth in EU milk production, which will grow in particularly in Germany, as farmers respond to better prices.

"The increase of farmgate prices for raw milk is expected to continue in 2010 resulting in higher milk deliveries from farmers to processors."