FAO/GIEWS - Food Outlook No.2 - April 2000 p. 12

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MILK AND MILK PRODUCTS

Price Trends

Since the middle of 1999, the international price of milk powder has been increasing. The strongest growth has been for skimmed milk powder (SMP) whose price increased from US$1 225 per tonne to US$1 550 per tonne between July 1999 and February 2000. Following on from the upward trend in powder prices, cheese prices have also increased, although to a lesser degree. The main factors behind the increase in price for the above products are strong demand in importing countries and limited supplies in exporting countries. Taking the case of skimmed milk powder, Oceania began the 1999/2000 dairy year with low levels of stocks, a situation which remained unchanged throughout the season as a result of strong export sales. On the other hand, while the EC had adequate intervention stocks of skimmed milk powder, sales during the first half of 2000 were constrained by maximum limits for the use of export subsidies agreed under the WTO Uruguay Round Agreement on Agriculture. In contrast to the other principal dairy products, the price of butter has remained at around US$1 225 per tonne since mid-1999. Here, principal factors are the reduced import demand from the Russian Federation, which was the main import market for butter until the sharp devaluation of the Rouble in 1998, and the use of butter substitutes, especially by the recombination industry in South-East Asia.

Indicative Dairy Export Prices 1/

        1999 2000
July Dec. Jan. Feb.
( . . . . US$/tonne, f.o.b. . . . . )
Butter 1 250 1 225 1 225 1 225
Skimmed milk powder 1 225 1 475 1 538 1 550
Whole milk powder 1 425 1 500 1 588 1 600
Cheddar cheese 1 700 1 725 1 775 1 775
Acid casein 3 850 4 100 4 100 4 150

Small rise in milk production expected

Global milk output is expected to rise by 2 percent during 2000, with production increasing in most countries. In Oceania, both Australia and New Zealand have enjoyed favourable weather conditions for pasture growth during the current 1999/2000 dairy year. As a result, production is forecast to grow substantially in New Zealand, by 8 percent (of the two countries, New Zealand, is most dependent on pasture for its milk production), and continue on an upward trend in Australia, increasing by 4 percent. In both countries, current levels of production are the highest ever seen by the dairy industry. Growth in milk production in Oceania is linked to returns from dairying being higher than those of other pasture-based livestock activities - such as beef or sheep farming. In addition, the depreciation of the national currencies of both countries against the US dollar, has meant that depressed international prices, which are quoted in dollars, have not been fully transmitted, in local currency terms, to the farmer. Furthermore, the recent improvement in international prices could lead to an increase in domestic prices and result in further production growth.

Milk Production

    1998 1999 2000
estim.
(. . . . . million tonnes . . . . .)
WORLD 555 560 570
EC 124 124 124
India 74 76 79
United States 71 73 75
Russian Fed. 33 31 31
Pakistan 22 23 24
Brazil 22 22 23
Ukraine 14 13 13
Poland 13 12 12
New Zealand 11 11 12
Australia 10 10 11

In the United States, milk production is anticipated to rise by slightly more that 1 percent in 2000. While this increase is in line with the recent historical trend, it is less than the rate of growth in 1999, when a high milk price, low feed costs and ample forage supplies produced a favourable feed/milk price ratio and provided a strong stimulus to production. In eastern European countries, milk output is expected to expand, mainly via improved yields. For some of these countries, anticipated access into the EC during the coming years may act as an incentive for farmers to increase output, with the aim of gaining entitlement to production quotas, once membership to the EC is achieved. Production in a number of other developed countries (the EC, Canada, Japan, Switzerland) is subject to policies which restrict output and, consequently, changes little from year to year. In the case of Norway, where production is also subject to quotas, limits on subsidized exports of dairy products - mainly cheese - agreed under the Uruguay Round Agreement on Agriculture will require a reduction in domestic milk production during 2000. This is expected to be achieved by the government purchasing the required quantity of quota rights from farmers. In the Russian Federation, a continued decline in output is projected for 2000, as milk production is unprofitable for many producers.

In the developing countries, growth in milk output is expected to continue in Asia and Latin America. India's milk production during the 2000/2001 (April/March) marketing year could rise to an estimated 79 million tonnes: because milk production is concentrated in small units with only 10 percent of national production passing through the formal milk processing sector, exact figures for India's milk output are not available.

Production growth in India is increasingly through improved yields per animal rather than through growth in animal numbers. Also in China, where a moderate growth in total milk output is expected, milk production growth has focused on improved yields rather than expansion of the dairy herd, since the start of the 1990's. In Latin America, milk production is expected to increase in most countries in the region. For the Cono-Sur countries (Argentina, Chile and Uruguay), where the fortunes of milk producers are increasingly linked to the international market, as their domestic markets are not growing sufficiently to absorb increased output, low prices to producers are expected to lead to the accelerated exit of small and less efficient milk producers from the industry. During the last part of 1999 and the first months of 2000 both Paraguay and Uruguay experienced unseasonably dry conditions. As this negatively affected pasture quality, milk output in 2000 may not increase or could even decline. Elsewhere in Latin America, production is expected to rise in Brazil, Costa Rica and Mexico. In this group of countries, rising domestic demand is the principle motor behind growth in milk output.

Strong import demand expected for 2000

Production of milk in excess of domestic requirements in the major exporting countries could grow at a slower rate than that of international demand during 2000. If this were to happen, supplies of some dairy products to the world market, especially skimmed milk powder, could be in short supply. Purchases of milk powder by most countries in South East Asia are expected to increase during 2000, as economic growth in this region should sustain import demand. Additionally, for the oil producing countries in the Near East and North Africa, increased revenue, stemming from higher oil prices, could lead to growth in import demand for a number of dairy products. Elsewhere, Brazilian imports are expected to be maintained. Import demand by the Russian Federation for butter is not expected to recover to pre-devaluation levels during 2000 and this will be a major contributing factor to the probable continued depressed demand for butter in the international market.

Price outlook

Assuming normal weather conditions in the southern hemisphere, limited export supplies in many exporting countries and sustained import demand from a number of importing countries average prices for most dairy products could increase during 2000. As of March 2000, indications were that milk powder prices would show the strongest growth. Depressed demand for butter could result in the average price for this product remaining at low levels during 2000.

Information of the World Dairy Industry

Dairy Outlook E-mail Discussion Group

The Dairy Outlook information network is co-ordinated by FAO's Commodities and Trade Division. The aim of network is to disseminate and exchange information on the world dairy economy.

Using FAO's mail server, messages (questions, answers, points for discussion) are forwarded on a daily basis to approximately 850 list members, spread throughout the world. All messages are reviewed by FAO, before being sent to the list. Access to the network is free-of-charge; however, list members are requested to enhance the scope of the information provided by supplying reports on developments in the dairy sector in their own countries or regions from time to time.

While the main focus of the list discussion is on developments in the world dairy market, topics covered are wide-ranging. For example, recent discussion has included school milk programmes, world trade issues, reference books on cheese production, the marketing of raw milk and the processing of camel's milk. Messages for transmission to list members are accepted in any language.

Joining the network: Send an E-mail to the following address: mailserv@mailserv.fao.orgleaving the subject blank, with the following message:
subscribe Dairy-Outlook-L
or contact: Dairy-Outlook-Owner@fao.org

School Milk Programmes

FAO's Dairy Outlook information network has been a key mover in promoting recent international interest in school milk programmes. FAO's involvement in this subject area arose out of discussion amongst members of the Dairy Outlook network in mid-1997. This in turn led to the 1st International School Milk Conference which was held in South Africa, in October, 1998 (hosted by the South African Dairy Industry and co-organized with FAO and the International Dairy Federation). Subsequently, FAO lent its support to a series of regional follow-up meetings on the theme of school milk during 1999, viz.: Europe (UK), Oceania (Australia) and Asia/Pacific (Thailand). For 2000, three further meetings will be held: National (Austria, 28 April); 2nd European (Czech Republic, September); and 1st Latin American (Colombia, November). For 2001, further regional meetings are planned. For information regarding forthcoming meetings, please contact: Michael Griffin, FAO, Commodities and Trade Division, 00100 Rome. E-mail: Michael.Griffin@fao.org


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