Dairy Trade by Selected Countries
International trade flows for the major dairy products strengthened in 1997 with butter showing an especially strong recovery. Total butter exports in 1997 are now estimated at 779,000 tons, 12 percent above 1996 due to significantly higher exports by both Oceania and the EU. Shipments to Russia accounted for nearly all of the growth on the import side. Total 1998 butter exports are forecast to drop back to 715,000 tons with New Zealand accounting for most of the export decline.
Total cheese exports in 1997 are estimated at 976,000 tons, up 6 percent from 1996. Rapid growth occurred in 1997 with increased exports from Argentina, New Zealand, and Australia which more than offset a another decline in EU exports. Russian imports were up sharply in 1997 and should rise again in 1998. Japan's cheese imports continue to show steady growth.
Preliminary trade data for NDM indicate a sharp gain in 1997 exports, pushing the total above one million tons. The United States, with increased DEIP activity, and Oceania accounted for most of the increase at the aggregate level. Aggregate exports of NDM are expected to show little change in 1998 even with reduced exports from the United States. Most of 1997's import increase was by countries not covered by this circular.
Trade in WMP moved upward again in 1997 and will likely maintain that level in 1998. Most of the increased exports came out of Australia and New Zealand. Also, similar to the situation for NDM, most of the trade increase went to countries not covered by this publication.
During 1997, particularly the in second half of the year, U.S. exports of major dairy products were up sharply due to a pickup in activity under the Dairy Export Incentive Program (DEIP). With low U.S. prices, especially for NDM, and relatively buoyant world demand, DEIP contracts for butterfat and milk powder boomed. However, the mid-fall upturn in domestic butter prices forced some potential butterfat contracts to be delayed or rejected entirely. As of mid-December, contracts had been written for 85 percent of the yearly DEIP allocation for NDM, 63 percent for WMP, 50 percent for cheese, and 42 percent for butterfat. Yearly allocations are made on a July/June basis.
In 1997 with the increased DEIP activity, U.S. exports of dairy products show significant increases. Exports of NDM, are projected to jump from 31,000 to 125,000 tons, butter from 19,000 to 23,000 tons, while cheese, most of which is sold without subsidization, is expected to grow from 32,000 to 35,000 tons. Only WMP, which had a good year in 1996, is expected to show a decrease. If DEIP activity declines as expected in 1998, U.S. exports of NDM and butter are likely to be especially hard hit. (For additional information on U.S. dairy exports including some of the other products, see the special article entitled "Exports of Dairy Products from the United States".)
Aided, at least in part, by the new Special Classes program which enables processor/exporters to buy milk at world market prices, exports of cheese and WMP were up in 1997. Exports of NDM, traditionally Canada's major dairy export, at least in tonnage terms, are down sharply as reduced milk production has cut the need for surplus disposal. With the reduction of the quota for industrial milk production, exports of most products are expected to be stable or show small increases in 1998, consistent with unchanged or smaller milk supplies.
Prices and Policy The major determinant of price paid for Australia's manufacturing milk is the international market. World prices for dairy products were generally favorable during early 1995/96 but declined later in the year. The favorable early year prices were sufficient to give producers a sharp boost in their returns but these sagged late in the year and on into 1996/97. The Australian Bureau of Agricultural and Resource Economics (ABARE) forecasts that manufacturing milk prices for 1997/98 will again decline due to lower world prices and economic difficulties in the nearby Asian markets.
|Returns to Australian Milk Producers ($A/liter)|
|Year||Manu. Milk||Fresh Milk|
In most Australian dairy producing regions the old method of valuing milk in terms of its milk fat content has been replaced by a formula based on three components: milk fat, protein, and volume. The new formula recognizes the change in consumer preference toward lower fat products. This move to a compositional method of payment will provide dairy farmers with clearer signals of the economic value of their milk and will help them adjust their breeding and management techniques to maximize industry returns. Payments from processors to individual farmers also vary marginally as firms operate a range of incentive/penalty payments relating to milk quality, sales volume, and out-of-season supplies.
Australian cheese exports rose 2 percent during 1996/97 and are expected to increase about 5 percent in 1997/98. Australian cheese exports have increased steadily from 52,375 tons in 1990 to 113,000 tons in 1996/97. The majority of the increase in exports has gone to Asian markets, with Japan easily the most important. Exports to Saudi Arabia grew to 12,000 tons after 3 years of imports at the 10,000 tons level. Exports to the United States fell further during 1995/96 after growing steadily in recent years.
Australian butter exports jumped in 1996/97 and are forecast to increase again in 1997/98. Traditional markets are taking more, but shipments to Russia have increased in importance.
NDM export sales jumped by 39,000 tons in 1996/97 and are expected to increase again in 1997/98. Despite the sharp upturn, sales followed the usual pattern with the Asian market taking the vast majority of exports. The Philippines, Malaysia, Japan, Thailand, Singapore, and Indonesia were the major markets for Australian exports of NDM in 1996/97. Those 6 countries took nearly 80 percent of Australia's exports that year.
Imports are becoming a factor in Australia due to higher domestic prices and a trade agreement with New Zealand. Cheese imports from New Zealand increased from less than 8,000 tons in 1988/89 to 22,700 tons in 1995/96 but dropped back about 10 percent in 1996/97. Most cheese imports from New Zealand are used in the food service and processing industries. Imports of New Zealand butter, while still around 5,000 tons, are mainly for the bulk trade. Imports of New Zealand butter were also off in 1996/97.
Overview: New Zealand exported 1.2 million tons of dairy products in 1996/97 (June/May), up from 1995/96's volume of 0.9 million tons and the previous record of 1.07 million tons in 1994/95. All exports of dairy products manufactured in New Zealand are carried out by the New Zealand Dairy Board, which was established and given monopoly powers by the Dairy Board Act.
The relatively small increase in milk production forecast for 1997/98 should give the NZDB the opportunity to emphasize products where it feels it has the advantage. Thus exports of cheese and whole milk powder are expected to grow while butter and NDM decline from last year's records.
The United States remains the largest export market for casein and caseinates produced in New Zealand, even though Japan is growing in importance as a casein importer.
Prices: Current forecasts from the Dairy Board indicate that the 1997/98 payout will range from N.Z.$5.45 and N.Z.$5.60 per kg of milkfat, essentially the same as in 1996/97. The possibility of a lower payout reflects the decline in international dairy product prices and continued appreciation of the NZ dollar. Farmgate prices shown below include the NZDB payout plus bonuses added by the various cooperatives.
NZ DAIRY PRICES AT THE FARMGATE
(per kilogram of milkfat)
|f = forecast|
Trade Highlights: In comparison to 1995/96 exports, the main market changes in 1996/97 included: (a) the large increase in butter shipments to Russia, moving from 30,400 tons to 80,200 tons. There were also large increases in butter shipments to the EU, Mexico and Algeria. (b) Increased shipments of cheese to Japan, the United States, Russia and the EU. Algeria and Mexico also bought significantly larger quantities of cheese in 1996/97. (c) Increased shipments of NDM to east Asian markets accounted for much of the increase in 1996/97 exports. Although total exports were up more than a third, exports to non top ten destinations actually declined.(d) Malaysia, Mexico, and Sri Lanka continued to be the leading markets for New Zealand exports of WMP. (e) Casein exports recovered to 83,000 tons with most of the increase going to the United States, the leading destination. Japan and Germany are also important destinations.
European Union (EU):
In recognition of the improved world markets for dairy products and of its obligations under the Uruguay Round, the EU reduced its export subsidies several times in 1995; however, with changing world markets and some stock buildup some subsidy increases occurred in 1996. In addition, since GATT imposed limitations on cheese subsidies are a relatively more serious problem than for butter or powder, the EU selectively reduced the subsidies for some destinations, such as other European countries, where EU cheese is competitively priced without subsidy. Currently, the EU system allows subsidies to be prefixed for up to 4 months for cheese and up to 5 months for butterfat and milk powders.
Prevailing subsidy rates to third countries at the end of 1997 are as follows:
|EU SUBSIDIES PER METRIC TON
|* 1 ECU = $US 1.117|
With EU milk production quite stable due to production quotas, production and exports of the major dairy products tend to reflect relative market conditions.
During 1997, exports of cheese and butter moved in opposite directions. Generally strong international markets for butter essentially enabled the EU to export all that was readily available with the result that at times during the year, domestic EU butter prices were under pressure.
With more milk being used for butter, EU cheese exports pressing the WTO limits, and generally lower subsidies, EU cheese exports dropped 5 percent. A similar rate of decline is forecast for 1998. Exports of NDM, were up sharply in 1997 but that is from 1996's rather low level of exports. Little change is expected for 1998 exports of NDM.
Exports of WMP in 1997 were essentially the same as in 1996 but some decline is expected in 1998 as limited milk supplies are diverted to other products.
In an action that has the appearance of being a serious attempt to circumvent its WTO obligation relative to cheese exports, in the spring of 1997 the EU adopted a plan that extends the amount of cheese that can be exported under subsidy. Basically the plan allows companies to set up manufacturing plants for processed cheese in free trade zones. Subsidized cheese, NDM, and butterfat are sent to these plants, made into processed cheese, and exported to third countries. Under this scheme, even though only cheese is actually sent to third countries, a portion of the subsidies needed to make the processed cheese competitive in world markets is counted against butter and NDM, rather than solely against cheese.
As a result, the EU can exceed its WTO quantity limitations for cheese and may have in 1996/97 (July/June) even though the scheme was in operation less than 6 months. The United States is in the process of formally protesting the EU's scheme before WTO officials.
Mexico continues to be far from meeting overall dairy demand, although some larger, modern dairies effectively compete against imported products. As a result, Mexico likely will continue to be a large importer of NDM, to a lesser extent WMP, and other dairy products. However, NDM and WMP imports in 1997 were similar to the 1996 level when Mexico was suffering because of higher international prices and the loss of consumer purchasing power due to devaluation of the peso.
|Mexico: Imports of Dairy Products in 1996|
|Source||Milk Powder||Cheese||Ice Cream||Cond. Milk|
Under the North America Free Trade Agreement (NAFTA), Mexico is obligated to provide duty-free access for 43,709 tons of U.S. milk powder in calendar year 1997. This duty-free quota rises 3 percent annually. The Government normally allocates the entire duty free import quota for NDM to CONASUPO, (a government buying agency) except for minimal amounts directly allocated to processors in border areas. CONASUPO will probably remain the sole significant NDM importer during 1998.
The Mexican market for imported cheese has grown rapidly in recent years, from 3 percent to 8 percent of the total domestic cheese market and over 30 percent of the market for hard and semi-hard cheeses. Another increase in cheese imports occurred in 1997 and further growth is expected in 1998. Barriers to cheese imports are dropping rapidly under NAFTA and by the year 2003, U.S. produced cheese should enter Mexico duty-free compared to a rate of 40 percent for cheese from Europe or Oceania.
Imports of dairy products were at record high levels in 1995 because the local currency strengthened against the dollar making imported products more affordable, plus importers rushed to beat a tariff increase. Imports of most dairy products were down in 1996 and essentially unchanged in 1997. The declines were due to the sharp increase in domestic production which facilitated consumption increases at the same time as imports were declining.
Brazil's 1997 NDM consumption continued rising due to economic growth and to the demand from states' social programs. Consumer demand for low-fat dairy products has also increased, although it represents a small portion of total demand for NDM. In contrast to butter and cheese, increased imports of NDM will be needed in 1997 and 1998 to meet the expected growth in consumption.
Dairy products remain a significant part of the Russian diet, although calculations based on official statistics show that per capita consumption of dairy products (in milk equivalent terms) decreased from 347 kilograms in 1991 to 252 kilograms in 1995. Variations in consumption of milk and products by regions are very significant. The lowest level of consumption is in the Far East and the Northern regions (150-160 kilograms per year), and the highest level is in West Siberia with consumption of milk and dairy products at 375 kilograms per capita.
Domestically produced dairy products (especially whole milk products) are often unpasteurized and must be consumed within a short period of time because they can not be stored for long periods for human consumption. The short expiration period is a big problem in marketing Russian dairy products.
Overall Trade Trends: Russia is a large net importer of dairy products, and the value of imports is generally increasing. In 1995, imports of dairy products increased 60 percent to $796 million with butter the main import item. In 1996, with lower butter imports, total dairy imports were valued at $534 million. For the first half of 1997, dairy imports were reported at $493 million compared to $353 million for the same period of 1996. Butter is still the major item imported but cheese is catching up.
The Ukraine, owing to its closeness to Russia and the tariff exemptions on imports from the Commonwealth of Independent States (CIS countries) in 1995 became the export leader among the suppliers of milk, cream, and butter to Russia.
In 1996, preliminary data indicate that the Ukraine remained the major supplier of butter while in 1997 that position probably switched to New Zealand. The Netherlands, Germany and New Zealand wereRussia's largest suppliers of cheese in both 1995 and 1996 and likely kept that position in 1997.
Trade Policy: In spite of higher import tariffs, the imposition of a value added tax (VAT) on imported products, and the new per kilo minimum tariff on butter, Russian dairy producers are still facing strong competition from imports of less expensive and sometimes higher quality products. During 1997, import duties for dairy products were left unchanged. There are no export duties for milk products shipped from Russia.
Cheese consumption maintained an upward trend in 1997, with estimated annual total consumption reaching 204,000 tons, up 4 percent from 1996. The gain was mainly due to increased imports since domestic production of both natural and processed cheese were only marginally above the cheese imports from Australia, the leading supplier, up 20 percent, New Zealand was up 10 percent, while EU countries were at the previous year's level of 33,000 tons. Smaller individually packed items are said to be the most popular in the marketplace, regardless of whether domestic or imported, natural or processed.
Japan's total imports of cheese for 1997 were estimated at 170,000 tons, up 6,000 tons from 1996. Interim trade data for January - August 1997 showed that total cheese imports rose 5 percent from the year earlier period with cheese imports from Australia, the leading supplier, up 20 percent, New Zealand was up 10 percent, while EU countries were generally down. Shipments from the United States, though much smaller than the 3 leaders, were up 14 percent for the period.
The overall growth in Japan's cheese imports is mainly attributed to a combination of factors such as real consumption increases and some switching from meat products to dairy products. Imports from the United States were up, largely owing to increases in both fresh cheeses (cream cheese) and grated (pizza) cheese categories.