Dairy Production in Selected Countries
Cow milk production in selected countries for 1999 is estimated at 384.9 million tons, up 1 percent from 1998. Strong production growth in the United States, India, China, Argentina, and Australia account for most of the global growth. The Ukraine, Russia, and Poland are expected to be the only major producers that show significant declines.
For calendar year (CY) 2000, cow milk production is forecast to increase another 2.3 million tons at the aggregate level. On-going economic problems will cause Russia and Ukraine to decline further.
Milk cow numbers continued trending downward in most countries during 1999, falling to 128.6 million head, but rising output per-cow allowed milk production to increase. A further small decline in cow numbers is forecast for CY 2000, however higher per cow yields due to continuing genetic improvement and better management are expected to facilitate another increase in total milk production.
For the four major dairy products, only whole milk powder (WMP) production at 2.8 million tons is expected to show no growth in 1999. Output of cheese, butter, and nonfat dry milk (NDM), estimated at 12.5, 5.4, and 3.2 million tons respectively, each showed some growth in 1999. For 2000, butter and WMP production are forecast to gain another 3 to 4 percent, while cheese grows at a slower rate and NDM remains near the 1999 level.
North America: Milk production in the United States for calender 2000 is forecast at 74.6 million tons, up 1 percent from 1999 which in turn was 3 percent above 1998. Improved returns in 1998 and early 1999 stimulated a reversal in the long-term downtrend in cow numbers with the result that October cow numbers in the 20 leading dairy states were almost 1 percent higher than in October 1998. Expansion was most pronounced in the western states. Growth in milk-per-cow in CY 2000 is expected to return to the normal 1 to 2 percent range after a 3-percent jump in 1999.
Rapid growth in U.S. milk production coupled with favorable product prices much of the year, particularly for cheese, caused rapid growth in the cheese sector with output up nearly 6 percent and 1999 and a further 3 percent likely in CY 2000. Butter and nonfat dry milk (NDM) were up sharply in 1999 as processors attempted to balance milk supplies. Stable to moderate growth is expected in CY 2000. With the sharp increase in NDM production and limits on the quantity that can be exported using Dairy Export Incentive Program (DEIP) bonuses, a significant quantity of NDM was offered to the price support operations of the Commodity Credit Corporation. As a result, end-of-year stocks are expected to be near 95,000 tons, half again as large as at the start of the year. Another sharp increase in stocks is likely in CY 2000.
Canadian milk producers are subject to production quotas based on estimated demand for beverage milk and for manufacturing milk (Market Sharing Quota, or MSQ ). In recent years, continued growth in demand for manufactured dairy products has allowed Canadian officials to raise their production quotas but producers have tended to overshoot those quotas by a relatively wide margin. For the 1998/99 dairy year (August/July) the MSQ was boosted to 43.8 million hectoliters (up 2 percent) but, following the pattern of recent years, actual industrial production was approximately 10 percent higher.
On December 17th 1999, the Canadian Dairy Commission announced an increase in support prices for the second half of the 1999/2000 dairy year. The announcement set the new support (reference) prices for butter and NDM. The new support prices are $C5.54 (up from $C5.47) per kilogram of butter and $C4.68 (up from $C4.43) per kilogram of NDM. These new prices are designed to provide an increase of $C0.83/hectoliter to farm receipts. The announcement also noted that the price processors pay will be boosted by $C1.68/hectoliter to offset both the higher prices farmers are to receive and the scheduled reduction in the government subsidy for in-quota production.
In Mexico, 1999 milk production is estimated at 8.9 million tons with further growth projected for calender 2000. Early 1999 prices have been above year earlier levels as demand increases with the growing population and improving economy. Much of the increased milk supply is destined for the beverage market.
South America: Argentine milk production for CY 2000 is forecast at 10.2 million tons, unchanged from the estimate for 1999. Milk output grew 60 percent in the past decade, but due to poor returns to farmers, CY 2000 is the first year in which production is expected to not grow. Farmgate prices fell approximately 30 percent from March to October 1999 as a result of growing milk production, flat domestic consumption, and depressed international dairy prices. Argentine analysts expect CY 2000 prices to remain low. These low prices are likely to keep CY 2000 milk production near the 1999 level.
In Brazil, growth in fluid milk production in 1999 is expected to be around 2 percent, slower than the range of 5 to 8 percent growth of recent years. The slowdown in the increase of fluid milk in 1999 is attributed mostly to poor economic growth, rising unemployment, stagnant consumer purchasing power, prolonged dryness in dairy areas of the Center-West regions, and competition from dairy imports. However, rapidly improving genetics, a strong pattern of private investments and new government support indicate that rapid growth is likely once domestic demand regains its strength.
In response to pressure from Brazilian milk producers, the Government has increased import restrictions as a means to address alleged market disruptions caused by imports of subsidized products, mostly powder milk and to a lesser extent UHT milk. In August 1999, the Foreign Trade Office opened an official investigation of dumping against Argentina, Australia, New Zealand, the European Union and Uruguay for those products. Government sources expect to finalize this case before the end of the year. If the case is resolved in favor of Brazilian milk producers, trade sources believe that significant (some over 100 percent) additional tariffs could eventually be applied.
The Brazilian government is also increasing enforcement of non-tariff barriers on dairy imports, such as formal review and registration of foreign processing and plant inspection systems, greater pre-inspection of plants in exporting countries, certificates of origin, laboratory product-quality tests, and product label registrations according to Brazilian consumer law.
European Union (EU): By the standards of most other countries, EU milk production in aggregate is remarkably stable, for example output in 1999 estimated at 119.7 million tons, is down slightly from 1998's level of 119.9 million. The EU quota system, with its large penalties for over-quota production is largely responsible for that stability. Preliminary estimates for the 1998/99 dairy year (April/March) that EU production (corrected for butterfat content) was 760,000 tons over-quota and that excess was expected to carry a superlevy fine equivalent to $US 275 million. Italy accounted for approximately 40 percent of the excess. Germany and Austria also made significant additions to the over-quota total. One of the reasons for the over-quota production is the tendency for the butterfat content of milk to rise even though milk production per se is stable.
Loss of much of the cheese market in Russia caused some production decline in 1998 and early 1999 but continued growth in the domestic market prevented a further decline in 1999. Production and intervention buying of nonfat dry milk were both up in1999.
Eastern Europe: Milk production in Poland is expected to decline 5 percent in 1999 due to the decline in dairy cow inventories as a result of lack of profitability. Production of butter, WMP and whey are all likely to decline in 1999 along with the lower milk output. The decline in cheese production is largely the result of lower demand for export to Russia. The 1999 output of NDM is expected to grow slightly as the introduction of export subsidies for this product improved its price prospects.
In CY 2000, milk output is forecast to recover to the 1998 level as a result of higher milk yields and expected higher milk procurement prices caused by shortage of good quality raw milk for processing. As of January 2000, a higher quality standard for raw milk will go into effect eliminating the lowest quality milk from the commercial market.
Former Soviet Union: In Russia CY 2000 feed shortages and declining herd size are expected to precipitate another decline in milk production. Most Russian dairy farms are reported to be unprofitable due to low quality genetics, limited supplies of quality feed, and a lack of support services. Russia tends to rely on milk powder to produce processed dairy products. During 1999, butter production decreased significantly, while margarine substituted in consumers diets, indicating a shift in consumer preferences toward cheaper items. The 1999 decline in dairy imports offered Russias dairy processing industry an opportunity to fill the gap between local supply and consumption; however, limited supplies of domestic milk hindered processing expansion.
Fluid milk production in Ukraine is expected to decline in CY 2000 due to further reduction in the dairy herd and low productivity in the collective farm sector. This decrease will occur after a period of relatively stable milk production during 1998 and early 1999. Ukrainian dairies are experiencing some difficulties with milk procurement because private producers, who account for over two-thirds of the total production, are dissatisfied with low procurement prices and prefer to market their milk and home-produced dairy products directly.
Asia: Indias total milk production is forecast at 79.3 million tons in 2000, three percent higher than in 1999. Cow milk production, estimated at 36.5 million tons, makes up slightly less than half of that total. Increased dairy processing capacity has led to higher demand and farm-gate prices for raw milk, which in turn has encouraged dairy farmers to improve their feeding and husbandry practices.
Indias fat-based pricing system for procurement of fluid milk has led to the increase in the share of buffalo milk (which has a higher milk fat content). For example, the range in prices for the fluid milk in March 1999 was rupees 11.30 - 13.50/liter for buffalo milk (7 percent fat) and rupees. 7.00 - 11.00/liter for cows milk (4 percent fat).
Chinas milk production is forecast to only grow at a moderate pace due to poor economic conditions, saturation of the powdered milk market, and high feed costs. Milk output is forecast to grow slightly faster than the dairy herd due to improving yields as a result of improved genetics, better management, and improved cooperation between small household dairy farms and large state and collective farms. The Chinese government has set a goal of increasing total milk output to 10 million tons by 2005.
In Japan, largely due to declining cow population, national milk output continued to fall and is forecast to decrease one percent compared to the previous year to 8.44 million tons. During 1999, consumption patterns for drinking milk (particularly regular white milk) remained weak, more than offsetting consumption growth for milk beverages and fermented milk products such as yogurt.
During 1999 there were new policy developments in two areas related to Japans ongoing dairy sector reform. There is to be a new direct payment system which will replace the current deficiency payment scheme for fluid milk for processing. Though details have not been released the Ministry of Agriculture plans a system of relief measures consisting of compensatory payments to producers for losses incurred if extreme price fluctuations occur. Secondly, a pilot dairy commodity market became operational in November 1999 and 2,277 tons of NDM, imported under current access rules, was traded and completely sold in the first tender.
Oceania: New Zealands fluid milk production in 1999/2000 is forecast to reach 12 million metric tons, up more than 8 percent and a new record. Favorable rains and warm weather have led to improved pastures in most areas resulting in a sharp rebound in milk output compared to last years drought-reduced production. Milk production in the first third of the season was strong, with some areas showing collection gains more than 10 percent above last years figures. However since mid-November regional dryness has caused some problems. Given the large boost in fluid milk output, production of cheese, butter, milk powder and whey is expected to recover strongly, hitting record levels.
The key domestic policy issue facing the dairy industry during 1999/2000 will be the restructuring process. The basic idea is to change the way dairy products are marketed outside of New Zealand. Elimination of the statuatory authority for the monopoly position enjoyed by the New Zealand Dairy Board is one of the major items under consideration. The first restructuring bill including provisions for a super co-op resulting from merger of the existing co-ops was approved by the Parliament but was rejected by the Commerce Commission due to concerns over lack of domestic competition and high costs versus benefits. A Commission decision on a new merger proposal is expected by February. If approved, farmers must then approve the merger with a 75 percent or more vote. Co-ops must also agree on the new merger structure. If all steps are approved, the statutory state export monopoly of the New Zealand Dairy Board would end effective September 1, 2000.
After September 1, 2000, the megacoop would have exclusive rights to specified quota markets for 6 ½ years, with control fully phased out by 2010. Exports to non-quota markets would be open to any company (including a few expected smaller independent companies), but the megacoop would likely export most product to these markets given its control of most of the domestic milk supply. Foreign investment in the industry would also be allowed.
Australian milk production increased an estimated 8 percent in 1998/99 to 10.483 million tons. The major producing state of Victoria increased production by over 9 percent. The strong growth reflects outstanding seasonal conditions in most states and almost 3 percent more cows in milk. The growth in milk production is forecast to slow to 1 to 2 percent in 1999/2000 as uncertainty about market deregulation temper additions to the dairy herd.
In anticipation of the removal of the domestic market support scheme and the intention of Victoria to deregulate, the GOA has recently agreed to an assistance package of $A 1.8 billion if all state governments and the industry agree to deregulation of the dairy sector. In late December, 90 percent of the dairy producers in Victoria, the leading dairy state, voted in favor of the deregulation plan. Current expectations are the plan will be fully approved and go into effect on July 1, 2000.