|No. 2||Rome, June 2004|
Milk and Milk Products
International prices were strong during the first half of 2004, as a result of limited export supplies and sustained import demand. The FAO price index for dairy products stood at 140 in May 2004, against an average of 117 during 2003. Compared to average prices for 2003, prices in May were higher for cheese (37 percent), butter (24 percent); skimmed milk powder (11 percent), and whole milk powder (8 percent). Above-average international prices have meant that the domestic industries in developing countries with relatively open markets have been less subject to competition from low-priced imports.
Indicative Dairy Export Prices
Source: Mid-point of price ranges reported by USDA.
The increase in international prices is mainly attributable to slow production growth, and in some cases declining production, in exporting countries in Oceania, South America and some parts of Europe. As world prices have risen, export subsidies paid by some high-cost producing countries in the northern hemisphere have fallen. In the case of the United States, average monthly export subsidies for skimmed milk powder declined from US$121 per tonne in August 2003 to US$39 per tonne in January 2004. In the EU, export subsidies for dairy products also fell. At the end of April, and compared to the start of the year, EU subsidies were reduced by 46 percent for skimmed milk powder, 19 percent for whole milk powder, 16 percent for butter, and 7 percent for gouda cheese. Despite declines, the amount of subsidy required to bring domestic prices for dairy products in high-cost producing countries down to world market levels remains substantial. As an illustration, even at their reduced levels, at the end of April, subsidies required to export one tonne of product from the EU were US$1 795 for butter, US$1 063 for gouda cheese, US$1 005 for whole milk powder, and US$419 for skimmed milk powder.
Global milk output is expected to rise by approximately 1 percent during 2004, mainly as a result of increased production in Asia and Latin America. In Oceania, milk production in New Zealand for the 2003/04 dairy year is anticipated to be 2.5 percent higher than the previous year; this would be below the average annual increase in recent years. In the case of Australia, continued below average rainfall in some areas of the country is expected to lead to a further fall in output, following the previous year’s drought; production is expected to be 4 percent lower in the 2003/04 season. In the United States, 2004 milk production is expected to be almost the same as the previous year at 77 million tonnes. Milk production in a number of other developed countries (the EU, Canada, and Japan) is subject to policies which restrict output and, consequently, change little from year to year. In central and eastern Europe, milk production is expected to increase marginally in most countries in 2004.
Milk production in the Russian Federation declined by 1 percent in 2003, despite some indications that it was on an upward swing. Production growth has been inhibited by limited feed supplies. In 2004, a further fall in production is expected, as many producers are struggling to achieve profitability. The dairy herd has declined by 5 percent in the past year, but productivity per cow has increased. In the Ukraine, the other large producing country in the CIS, the same production trend is expected. Elsewhere in the CIS, however, most countries are in a phase of positive growth in milk output and this is expected to continue in 2004.
1/ Dairy years ending March of the year shown.
2/ Dairy years ending May of the year shown.
3/ Dairy years ending June of the year shown.
For developing countries overall, growth in milk production is expected to continue. In Asia, India’s milk production during the 2003/2004 (April/March) marketing year is estimated at over 91 million tonnes. The strongest growth has been for buffalo milk, which accounts for almost three-fifths of national production. In China, milk output is projected to increase by an enormous 20 percent in 2004, following similar increases in 2003 and 2002; growth is in response to strong consumer demand and the profitability of dairying relative to other types of agricultural production. As a result of rising international prices, dairy companies have turned to expanding domestic supplies of milk – principally by increasing herd size. In Thailand and the Philippines, milk output is anticipated to increase further in 2004, as a result of favourable domestic milk prices. Along with most of the rest of South East Asia, demand for dairy products in these countries continues to grow, as the population’s diet becomes more diversified. In the countries of South East Asia and in China, the development of school milk programmes is an important element in the growth of domestic demand.
In Latin America, there are signs that milk production in the southern cone countries is emerging from the declines experienced in recent years, when low prices caused output to drop substantially. In Argentina, Uruguay and Chile, milk output appears set to grow in 2004. Elsewhere in Latin America, milk production is expected to continue to increase in Peru in 2004, rising by 3 percent to 1.3 million tonnes - domestic demand is strong, making dairy production one of the most profitable agricultural activities. In Mexico, milk production is expected to rise by 3 percent during 2004, reaching 10.3 million tonnes. Modernization and improved herd management amongst larger producers are important elements in Mexico’s growing milk output.
In Egypt, milk output is expected to be simulated by a 50 percent increase in farm-gate prices for milk, which have largely resulted from a 45 percent tariff on bulk imports of milk powder introduced in 2003. In Kenya, well-distributed rains in the second part of 2003 provided good fodder availability and a favourable outlook for milk production in 2004. Many other countries in East Africa had favourable conditions for fodder and pasture growth, indicating that milk production may be higher in 2004.
International demand for imported dairy products is expected to remain firm particularly in certain Asian countries. Increased purchases of milk powder by countries in South East Asia - for example, in the Philippines, Thailand, Malaysia and Indonesia and China, are anticipated to meet rising domestic demand. Elsewhere, imports by Central American countries and the important markets of Mexico and Algeria could increase. Imports of milk products by Brazil, once an important purchaser, are expected to be limited as a result of growth in domestic production and muted domestic demand. Purchases of milk powder by Venezuela were also anticipated to be lower, in part as a result of difficulties faced by traders in obtaining import licenses. Imports of butter and cheese by the Russian Federation grew substantially in 2003, despite an increase in tariffs in the previous year. For 2004, the Federation is expected to be an important importer of these products. Purchase of butter by some countries in the Middle East and Africa, which are the most price sensitive importing regions, however, are anticipated to fall in the light of the higher international prices - April 2004 international butter prices were 30 percent higher than for the same month in 2003. Amongst the countries which may reduce imports are Egypt, Morocco, and Lebanon.
For the 2004/05 dairy year, export supplies of dairy products are anticipated to be moderately higher from New Zealand and to be reduced from Australia. Export availabilities from South America in 2004 are expected to be similar to the previous year, as higher domestic demand absorbs increased output. Sales by the EU and other countries in Europe are anticipated to be a similar to the previous year. In the United States, surplus for export could be less, as a result of high domestic demand.
For the remainder of 2004, international dairy prices are expected to remain at or near their current high levels, in response to sustained international demand and limited export supplies.