FAO/GIEWS
- Food Outlook No. 3, June 1998 Page 9
MILK AND MILK PRODUCTS
Global output of milk is forecast to increase by 1 percent in 1998, continuing
the steady progression in world milk output of recent years. Despite the
effects of dry weather on production in both Australia and New Zealand
in the current season, output in both countries is expected to increase:
by 1 percent in the case of New Zealand, following last year's record increase
of 12 percent, and by 4 percent in Australia. For both countries, general
optimism regarding the long-term future of the international dairy market
and higher returns from dairying relative to other animal products are
the principal motives behind the expansion in output. In eastern Europe
production could grow in a number of countries. For example, Poland, the
largest milk producer in this group of countries, is expected to register
a 3 percent rise in milk output in 1998. Cow numbers are increasing, following
several years of decline, and yield per cow is also expected to rise. In
the United States, milk production is anticipated to grow only marginally
in 1998. There, an unfavourable milk price/production cost ratio is seen
as the main constraint on output growth. Production in a number of other
developed countries (the EC Canada, Japan, Norway, Switzerland) is subject
to policies which restrict output and, as a result, changes little from
year to year. In the CIS, total milk production is expected to continue
to decline. This is anticipated to be largely a result of falling output
in the two major producing countries, the Russian Federation and the Ukraine.
In these two countries, milk production on many of the former state-owned
farms, which account for the majority of milk output, continues to remain
unprofitable. However, output in some of the other member states of the
CIS, such as Belarus and Uzbekistan, may rise, possibly heralding the end
of the sustained decline in milk production which this group of countries
has experienced since the start of the 1990's.
In the developing countries, growth in milk output is expected to continue
in Asia and Latin America. Assuming normal weather conditions and an average
rate of production increase, India's milk output in the 1998/99 (April/March)
marketing year could rise to 74 million tonnes. This would make India the
world's largest milk producing country: slightly over 50 percent of India's
milk comes from buffaloes. Growth in Indian milk production has been sustained
by an expansion in domestic demand, although per caput consumption is still
a relatively modest 65 kg of milk equivalent per year. Many Latin American
countries are expected to see an expansion in milk output, mainly as a
result of increased demand from their domestic markets. However, producers
in the southern cone have had to cope with extremely heavy rains - attributed
to the El Niño weather phenomenon - which has limited access to
pastures. For example, by the end of March, some parts of Argentina had
already exceeded the annual average rainfall for the year. For Latin American
countries which are also exporters of dairy products, principally Argentina
and Uruguay, a fall in international prices since the beginning of the
year (see below) may also contribute to a slow-down in production growth.
Despite a slow start to the year, imports by Brazil from the Mercosur are
reported to be proceeding well, with the outlook good until Brazil's spring
milk flush (September/October).
MILK PRODUCTION
| |
1996
|
1997
estim.
|
1998
f'cast
|
|
|
(. . . . . million tons . . . . .)
|
| WORLD |
539 |
547 |
555 |
| EC |
125 |
125 |
125 |
| United States |
70 |
71 |
71 |
| India |
68 |
71 |
74 |
| Russian Fed. |
36 |
34 |
33 |
| Pakistan |
20 |
21 |
22 |
| Brazil |
19 |
21 |
22 |
| Ukraine |
16 |
15 |
14 |
| Poland |
11 |
12 |
12 |
| New Zealand |
10 |
11 |
12 |
| Australia |
9 |
9 |
10 |
Demand for cheese in the main importing countries is anticipated to remain
stable during 1998. In the case of butter, purchases by the Russian Federation,
the major importer, may be less than in 1997. Similarly, decreased purchases
of milk powder by South-East Asia, following the economic crisis which
has affected several countries in the region, could result in a stagnation,
and possibly a decline, in world demand for powder in 1998.
Export prices for most dairy products have fallen since the end of 1997
due to reduced import demand and, at the same time, rising output in several
exporting countries, for example, Australia, New Zealand and Argentina,
which has contributed to some growth in supplies to the world market. Products
affected are butter, skimmed milk powder and whole milk powder: casein
prices fell sharply in the first-half of 1997 and have remained depressed
ever since. Cheese is the exception to the general trend as prices for
this commodity have remained generally stable. Cheese prices have been
sustained, to a degree, by commitments to limit subsidized exports under
the Uruguay Round Agreement. For the remainder of 1998, international prices
of dairy products are expected to remain weak as a result of ample export
availabilities and sluggish import demand. Prices for butter and powder
may fall further during the year, while those for cheese are expected to
remain stable.
PUBLIC STOCKS OF BUTTER AND SKIMMED MILK POWDER IN THE EC AND
USA
| |
European
Community
|
United States
|
|
|
Butter
|
Skimm.
milk
powder
|
Butter
|
Skimm.
milk
powder
|
|
|
(. . thousand tons . .)
|
| April '96 |
69 |
11 |
0 |
5 |
| April '97 |
58 |
116 |
0 |
0 |
| April '98 |
33 |
137 |
0 |
0 |
SOURCE: USDA, ZMP.
Note: At the end of the month.
Public stocks of butter in the EC in April 1998 were at a similar level
to a year earlier, but they were lower if compared to the early 1990's,
as a result of strong demand from the internal market and significant growth
in exports. Similarly, EC public stocks of skimmed milk powder did not
rise significantly from the level of the previous year. In the United States,
public stocks of dairy products have been virtually non-existent in recent
years; however, as a result of increased production, skimmed milk prices
have fallen to sufficiently low levels to trigger Commodity Credit Corporation
(CCC) purchases, although they have not been classified as "uncommitted
inventories"; i.e., stocks.
High prices for dairy products on the international market in 1995 led
many in the industry to look forward to a period of further increases,
in part associated with decreasing export subsidies as a result of commitments
under the Uruguay Round's Agreement on Agriculture. In some countries,
the
optimism of 1995 led farmers to extend production - sometimes via the
purchase of land at what today seem inflated prices. In many countries
where prices are linked to those in the world market, the subsequent drop
in world prices has led to a severe fall in profitability. The fall in
world prices since the end of 1997 has in some cases been offset by currency
devaluation (for example, in New Zealand and Australia), while in others
(Argentina and Uruguay) it has been translated into sharply lower prices
to the farmer. Should prices remain at current levels, this could limit
production growth in such countries which export without the use of subsidies,
although this could be partially offset by some growth in these countries'
domestic use. Furthermore, low returns may be expected to speed-up the
process of less efficient milk producers in these countries leaving the
industry, with a concomitant increase in the average herd size.
INDICATIVE DAIRY EXPORT PRICES 1/
| |
1997
|
1998
|
|
|
April
|
Feb.
|
March
|
April
|
|
|
( . . . . U.S.$/ton, f.o.b. . . . . )
|
| Butter |
1 425 |
1 775 |
1 675 |
1 675 |
| Skimmed milk powder |
1 775 |
1 575 |
1 525 |
1 525 |
| Whole milk powder |
1 775 |
1 800 |
1 725 |
1 725 |
| Cheddar cheese |
2 150 |
2 163 |
2 113 |
2 100 |
| Acid casein |
4 125 |
4 100 |
4 100 |
4 100 |
1/ Mid-point of price ranges reported by the New Zealand
Dairy Board.
For the net dairy importing countries, many of which are developing countries,
lower world prices may mean that growth in their domestic industries is
inhibited by competition from imports. However, this may be limited in
those developing countries where much of the milk production and distribution
takes place outside the framework of the formal processing sector (which
would be the main user of imports). In the case of South East Asia, the
sharp devaluation of many countries' currencies against the US dollar has
meant that domestic milk prices (in dollar terms) fell below international
levels and, hence, their dairy sectors should not be adversely affected
by outside competition.
