Dairy Production in Selected Countries
Cow milk production in selected countries for 1997 is estimated at 381.3 million tons, up 2 percent from 1996. Significant production declines in Russia and Ukraine were more than offset by continued rapid growth in Oceania and a resumption of expansion in the United States. Brazil, Argentina, and China were also characterized by strong growth in 1997.
For 1998, cow milk production is forecast to increase another 2 million tons. South America, Australia, and India are expected to show significant increases, while only moderate growth occurs in the United States.
Milk cow numbers continued trending downward in most countries during 1997, to 132.4 million head, but rising output per-cow allowed milk production to increase. A further small decline in cow numbers is forecast for 1998 but higher per cow yields due to improved genetics and better management are expected to facilitate another increase in milk production.
For the major dairy products, only butter production at 5.1 million tons showed a decrease in 1997. Output of cheese, nonfat dry milk (NDM), and whole milk powder (WMP), estimated at 11.8, 3.1, and 2.5 million tons respectively , each showed some growth in 1997.
For 1998, cheese production is forecast to gain another 2 percent, butter output may gain 1 percent while output of NDM declines about 1 percent.
North America: Milk production in the United States for 1997 is estimated at 71.2 million tons, up 2 percent from 1996. Early in 1997, growth in milk-per-cow was slowed by concerns about high feed prices and tight feed supplies, however, late spring and early summer brought better pasture conditions and higher milk production particularly in the western dairy regions. The improved feed conditions allowed the usual 1-percent decline in cow numbers to be more than offset by increased per cow milk yields.
U.S. milk output is forecast to barely increase in 1998, to 71.3 million tons. Feed prices have moderated but growth in output-per-cow is expected to remain low. Producers in many areas say their margins are too tight to be optimistic about the future. Several states, particularly in the Northeast, have used state or regional authority to boost the price of beverage milk in an attempt to help dairy farmers stay in business.
According to current prospects, U.S. production of dairy products in 1998 will again be dominated by cheese, projected to gain 2 percent. Butter and NDM production are forecast to decline again in 1998 despite the favorable prices for butter during the fall of 1997.
In Canada, slow growth in demand for manufactured dairy products is expected to result in small reductions in milk production during both calendar 1997 and 1998. Canadian milk producers are subject to production quotas based on estimated demand for manufacturing milk (Market Sharing Quota, or MSQ ) For the 1996/97 dairy year (August/July) the MSQ was kept at the year earlier level of 43.9 million hectoliters for milk; however, preliminary estimates say that figure was exceeded by 5.7 percent as optimistic production plans made at the start of the year were carried out. For 1997/98, in response to slow growth in demand, the MSQ was cut by 3 percent and that cut is expected to impact both calendar 1997 and 1998 production. Again, production is likely to exceed the quota, but overall production should be down.
On December 12, the Canadian Dairy Commission announced that as of February 1, 1998, support prices for butter and NDM would be increased. The new support prices will be $C5.39 per kilogram of butter and $C4.43 per kilogram of NDM. The current support prices are $C5.32 for butter and $C4.20 for NDM. According to the press release, the new support prices will allow an increase of $C1.25 in producer returns per hectoliter (hl) of milk, an increase of $C0.19 /hl in processor margins, and a $C0.76 offset to cover the reduction in government subsidy. The CDC press release did not specify what adjustments would be made in the target price for manufacturing milk.
One additional uncertainty in Canada's milk production picture is the role of the Optional Export Program (OEP) which allows processors to contract directly with farmers to supply milk at prices low enough to allow the manufactured products to be competitive at international prices. Though the program has been on the books since 1995, until this year activity has been very limited. For 1997/98, announced contracts for Ontario, totaled 16,000 tons at a price of $C25.00 /hectoliter, comparable to $US 7.70 per cwt of milk using late December exchange rates. For Canadian producers, that price is somewhat above the over-quota price producers received during late summer and early fall. Unfortunately little detail regarding the operation of the OEP in other provinces is available.
Canada's output of many dairy products was down may ease somewhat in calendar 1998, if milk production declines as expected. With somewhat less milk available, cheese production is forecast to retrench in 1998 while favorable exports keep butter production at the 1997 level and NDM very close to that level.
In Mexico, 1997 milk production is estimated at 7.8 million tons with growth to 8.0 million in 1998. (NOTE: Mexico's milk production series has been revised downward to better reflect commercial production.) With continued tight margins, large efficient producers in Mexico are both increasing their herds and pushing up per-cow yields, however, most of these gains are being offset by losses of small and medium sized farms. Five years ago, many Mexican officials were optimistic that development of a dairy industry in the tropics would provide substantial relief from the need to maintain a high level of imports; however, fluid milk production in the tropics continues to fluctuate according to the weather. Milk production in tropical areas remains relatively undeveloped plus even the current low level of development is hindered due to a lack of marketing facilities and other basic infrastructure.
South America: Milk production in Brazil continued its rapid expansion, rising to 20.6 million tons in 1997 with further growth expected in 1998. The increase reflects gains in per-cow productivity due to genetic improvements, good weather in most regions, favorable returns to producers and increased dairy production from non-traditional milk-producing areas. Despite the rapid increases in production, Brazil remains a major importer of dairy products as a large proportion of the production increases is being used by the fluid market.
Argentina's 1997 milk production is estimated at 9.2 million tons, up 3 percent from 1996. Output is projected to increase again in 1998, to a record 9.7 million tons. A stable economy, a free dairy sector, and increased domestic consumption in the past 5 years have made the sector one of the most dynamic at both the farm and processor levels.
Output of milk in both 1996 and 1997 was slowed somewhat by drought conditions in the leading producing province. The half-a-million ton production increase forecast for 1998 assumes that more normal weather prevails.
Another factor that may slow longer term production prospects in Argentina is the proportion of production that goes to the export market since the domestic market gives better returns than the export market, i.e. increased exports may mean lower producer prices. In 1996, exports accounted for approximately 10 percent of milk utilization, but that proportion is expected to grow to 20 percent by the year 2000.
A second possible negative factor for dairy production is Argentina's new status as a nation free from foot and mouth disease. With that status, Argentina has increased prospects for beef exports and the profitability of beef production. Since much of Argentine milk production is from grass-based systems, beef is expected to more effectively compete with dairy for scarce pasture resources during 1998 and subsequent years.
European Union (EU): Overall milk production was down slightly in 1997 and another small decline is projected for 1998. Under the EU quota system managed on an April/March year, "in-quota" milk production is very profitable with the result that most producers try very hard not to under produce. As a result, in years when conditions are favorable for milk production, national quotas are often exceeded by significant quantities.
With strong export demand for butter, 1997 EU cheese production barely increased but growth may get back on track in 1998. At 1.7 million tons, 1997 EU butter production is expected to be down from 1996 despite strong demand from both the export and domestic markets. However, these same factors may act to hold 1998 output at the 1997 level. EU production of NDM is estimated at 1.15 million tons in 1997, approximately 2 percent below 1996 when surplus conditions forced some intervention buying.
German milk output in 1997 is estimated at 28.0 million tons, down slightly from 1996. Many German farmers were over-quota in 1996/97 as they stepped up production in an effort to profit from the relatively low penalties imposed on over-quota production in 1995/96. As a result over-quota penalties for 1996/97 (April/March) milk production were rather severe and now more producers are trying to avoid them.
French cow milk production in 1997 is estimated at 24.9 million tons, slightly below 1996. A further small decline in likely in 1998. French milk production was just under the quota in 1996/97 but a further decline in milk tonnage is probably needed because the butterfat content is increasing.
The dairy sector in the United Kingdom, like much of U.K. agriculture, is being dominated by the crisis caused by Bovine Spongiform Encephalopathy (BSE). In the short run, some cows were kept in production longer than normal because slaughter facilities were running at full capacity. In the longer run, the slaughter scheme has had the unintended effect of increasing the dairy herd replacement rate, which with the more rapid introduction of superior genetics and the greater production potential of young cows may hasten structural change in the production sector.
Italy's 1997 milk production is estimated at 10.6 million tons, down from 1996's record 10.8 million tons. Italy's 1996/97 milk production was well over-quota and that over-quota production has put the industry in a spirited debate over who should pay the fine for the over-quota output.
Italian milk producers say the fine is the responsibility of the government since it calculated and agreed to use a base quota that was too small. After several dairy farmer demonstrations, the government seemed to agree with the producers and agreed to pay 80 percent or more of the total fine. However, this year, the EU Commission is insisting that the fines must be paid by individual producers. As of mid-December the final outcome remained in doubt, although the Commission has threatened legal proceedings to ensure that its position is upheld.
Eastern Europe: Poland's 1997 milk production is estimated at 12.0 million tons, up 2 percent from 1996. A similar rate of growth is expected in 1998. Growing demand for dairy products has led to favorable prices for producers. In addition, minium procurement prices (support) have been boosted by the government. For the 1997/98 dairy year, minimum procurement prices for Grade A milk were set at 0.55 zylotys ($US 0.16) per liter, a 10 percent increase over the year earlier level in zyloty terms. The procurement price is supported by government purchases of butter and NDM.
A further complicating factor for the Polish dairy sector is that as of December 1, 1997, the EU banned imports of Polish dairy products. EU officials say it was due to inadequate sanitary conditions in manufacturing plants while Polish officials say it was mostly politics. Reportedly, $200 million worth of trade is involved.
Unlike the situation in Poland, Romanian milk production is expected to decline in both 1997 and 1998. Very low producer returns is the primary factor behind the downturn in milk production and cow numbers.
Former Soviet Union: The impact of economic reforms in Russia has been strongly felt in the dairy sector. Milk production continues to decline as herd size drops. Milk production is likely to approximate 33 million tons in both 1997 and 1998. On the positive side, official statistics suggest per cow milk yields have stopped declining and may even be rising. The genetic base of the milking herd is slowly being improved while feed supplies are more plentiful this year.
In contrast to the national situation, some Russian dairy companies are successfully restructuring and competing and, as a result, have increased production. For example, one Moscow company has modernized 4 plants and is increasing production of fluid milk, yogurt, cottage cheese and other dairy products.
Difficult economic conditions persist in Ukraine's dairy industry as milk production is expected to continue its downward trend in 1997 and 1998, dropping to an estimated 16.6 million tons in 1997 and 14.0 million in 1998. Ukrainian milk producers claim their inputs cost 50 percent more than other developed countries pay while farmgate prices for milk are below those of Australia and New Zealand.
Asia: India's 1997 cow milk production is estimated at a record 34.5 million tons, up 3 percent from 1996. An additional 3-percent increase is projected for 1998. In addition to cow milk, India also has a strong buffalo milk sector which is both larger and growing faster than cow milk production. In prior years, increased competition between the cooperative and private sector dairies for milk supplies drove up producer prices. In addition to increasing their herds, the better prices encouraged farmers to increase the quantity and quality of feed given to animals and to adopt better animal husbandry practices. However, in 1997 farmgate prices have largely stabilized and that should have important implications for production growth in the years beyond 1998.
Japan's 1997 milk production is estimated at 8.6 million tons, marginally below 1996. Another small decline is likely in 1998. Tight margins have reduced the incentive for anyone to expand while smaller, less efficient operations continue to exit the industry.
Statistics for China show milk production is likely to continue its long-term upward trend with strong increases expected in 1997 and 1998. However, increasing costs and relatively stable procurement prices are likely to cause the growth rate to fall in subsequent years. Increasing land prices due to pressure from non-dairy enterprises is one of the major factors behind the cost increases.
Oceania: New Zealand milk output in 1997/98 (June/May) is expected to total 11.6 million tons, an increase of only 1 percent over last year's record output. The slower growth expected in 1997/98 is due to large part to likely impacts of El Nino. Pre-El Nino forecasts suggested production could reach 12.0 million tons. A second factor behind the forecast of slower growth is the probability that farmgate milk prices will be down again. The New Zealand Dairy Board (NZDB) payout for the 1996/97 season was $NZ3.18 per kilogram of milk solids. For this season, the NZDB has told producers to expect a payout in the range of $NZ2.90 to $NZ 3.05. As a result of the reduced returns, farmers have cut their expenditures on normally productive inputs like feed and fertilizer.
Another factor that will tend to limit future expansion is the general acceptance of the principal that increased milk production will require increased processing capacity and that should be paid for by the producers who expand. Thus, new entrants or farmers who expand their herds will be required to pay substantial amounts for their proportional share of the processing capacity needed to handle their milk.
With only a small increase in milk production expected in 1997/98, the NZDB will be in a better position to promote its strategy of selling relatively more branded and high value products and less of the bulk commodities such as butter and NDM. Current export forecasts largely fit that strategy. Output of cheese in 1997/98 is expected to increase about 8 percent while butter, NDM and WMP hold their own or decline slightly.
Australia's 1997/98 (July/June) milk production is expected to total 9.6 million tons, 4 percent above last year's record. Nearly all the increase is due to increased herd numbers as producers add to their milking herds. Australia's production forecast has also been moderated by the likelihood of El Nino effects during the second half of the season. The pattern differs somewhat from New Zealand mainly because in 1996/97 Australia had a modest milk production increase while New Zealand had a bumper year.
Even with the downturn in Australian manufacturing milk prices in 1996/97, milk production still represented better returns than competing enterprises such as sheep or beef. Most of the increased production is expected to occur in the Eastern States, particularly Victoria and Tasmania where a larger share of the milk is used for manufacturing purposes.
The 1997/98 season started with generally ample soil moisture. In addition, lower grain prices are expected to make supplemental feeding more feasible.
Improved supplies of milk will boost Australia's 1997/98 output of most dairy products. Cheese, butter and NDM are expected to expand about 5 percent to 275,000 tons, 171,000 tons and 249,000 tons respectively, while WMP production expands at a slightly faster rate. Australian processors feel that international prices for cheese and for WMP tend to be much more stable than those for butter and NDM.