International prices for milk powder rose sharply during the middle of the year. For example, skimmed milk powder (SMP) rose from US$1 600 per tonne in April to US$2 100 per tonne in September: over the same period, whole milk powder (WMP) prices increased from US$1 650 per tonne to US$1 975 per tonne. Casein prices also increased substantially. Following on from this upward trend, cheese prices also rose, although to a lesser degree. The main factors behind this were strong demand in importing countries and limited supplies in exporting countries. Taking the case of skimmed milk powder, Oceania began the 2000/01 dairy year with low levels of stocks, as a result of strong export sales. Also, the other major exporter of milk powder, the EC, had exhausted its intervention stocks of SMP by the end of the European summer. In contrast, publicly funded stocks of SMP grew in the United States; however, high domestic support prices, and limitations of the use of export subsidies under the WTO Uruguay Round, prevented substantial volumes being exported. While the price of butter did not increase markedly during 2000, indications are that import demand strengthened during the second part of the year and some exporters report higher than average orders for this product.
Global milk output is expected to rise by 2 percent during 2000, with production increasing in most countries. Following a good start to the 2000/01 dairy year, milk production in New Zealand was affected by cold, wet weather in many parts of the country during September and October, which are peak production months. Consequently, output growth during the current dairy year may be below the 4 percent expected earlier. In the case of Australia, production is running at about 4 percent ahead of that for the same period in 1999. In the light of the above, milk output for New Zealand is forecast at 13.1 million tonnes, while that of Australia at 11.3 million tonnes. As both countries have mature domestic markets, any increase in milk output will be largely destined for the production of dairy products for export. In both countries, the devaluation of their national currencies against the US dollar has meant that the increase in international prices, which are quoted in US dollars, have magnified local currency payments to farmers. Consequently, especially in New Zealand, dairying has become a very attractive option and a number of farms are converting from other activities. The growth in milk production in New Zealand, especially in the South Island where many farm conversions are taking place, has necessitated investment in expanding processing capacity.
|( . . . . US$/tonne, f.o.b. . . . . )|
|Butter||1 225||1 225||1 275||1 325|
|Skimmed milk powder||1 325||2 025||2 100||2 150|
|Whole milk powder||1 425||1 975||1 975||2 050|
|Cheddar cheese||1 700||1 825||1 875||1 925|
|Acid casein||4 000||4 900||4 950||4 950|
|(. . . . . million tonnes . . . . .)|
In the United States, despite a reduction in the price of milk, favourable feed and weather conditions, increased yields per cow and herd expansion have resulted in milk production continuing to increase. In 2000, milk production is expected to rise by 3 percent. After many years of decline, the US herd size increased in both 1999 and 2000. Herd expansion has been concentrated in the western States - Arizona, California, Idaho and New Mexico - which are characterized by large, low-cost farms. Milk production in the United States has grown as much in 1999 and 2000 combined, as it did in the previous seven years. Further expansion is predicted for 2001 as a result of a favourable feed/milk price ratio and continued herd expansion, which could persist until at least mid-2001. The surge in milk output has led to a build up of commercial and government funded stocks of dairy products and has resulted in lower domestic prices for cheese and butter.
In eastern Europe, dry conditions during the summer are expected to result in lower milk output for 2000 in a number of countries, including: Lithuania, Poland, Slovakia and Yugoslavia. Additionally, in some countries in the region, for example Poland and Slovakia, the introduction of more stringent milk quality standards have resulted in reduced deliveries of milk to dairies. For some countries in this region, 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 two largest producing countries of the CIS, the Russian Federation and the Ukraine, a continued decline in output is projected for 2000, as milk production is unprofitable in many holdings. Additionally, a shortage of feed-grain during the coming winter is expected to impact negatively on production. However, for the Russian Federation, although the size of the herd continues to decline, yield per cow appears to be stabilizing, perhaps indicating that the continuous fall in milk production which has taken place since 1990 could be bottoming out.
In 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 milk production passing through the formal milk processing sector, exact figures for India's milk output are not available. Production growth in India is increasing 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), the fortunes of milk producers are increasingly linked to the international market, as their domestic markets are not growing sufficiently to absorb increased output. As in many other parts of the world, the more competitive environment within which farmers in the Cono-Sur must operate is leading to smaller, less efficient producers leaving the industry. For example, in Argentina, the number of farmers supplying milk to dairies in July 2000 was 9 percent less than the same month in 1999. As a consequence of this process, the amount of milk processed by Argentine dairies also fell - by 8 percent during the first seven months of 2000. This would imply that milk output in Argentina for 2000 would be about 9.3 million tonnes, as opposed to just over 10 million tonnes in 1999.
Elsewhere in Latin America, production is expected to rise in Brazil, Colombia, Costa Rica and Mexico. In these countries, rising domestic demand is the principle motor behind growth in milk output. In the case of Brazil, higher farm gate prices have acted as an incentive for increased production.
Production of milk in excess of domestic requirements in the major exporting countries grew at a slower rate than that of international demand during 2000. Consequently, supplies of some dairy products to the world market, especially skimmed milk powder, were in short supply. Purchases of milk powder by most countries in South East Asia increased during 2000, as economic growth in this region sustained import demand. Additionally, for the oil producing countries in the Middle East and North Africa, and Venezuela, increased revenue, stemming from higher oil prices, led to growth in import demand for a number of dairy products. Elsewhere, Brazilian imports were expected to be maintained. On the other hand, import demand by the Russian Federation for butter and cheese remained depressed, as, following the devaluation of the Rouble in mid-1998, the price of imported dairy products has risen substantially in national currency terms.
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 are expected to lead to continued high prices for most dairy products during the remainder of 2000 and the first-half of 2001. During this period, SMP, WMP and Casein prices are expected to remain at or near October 2000 levels, while butter and cheese prices could rise further.