Dairy Trade by Selected Countries

SUMMARY:

International trade flows for the major dairy products weakened again in 1999 with butter showing the largest decline. Global butter exports in 1999 are now estimated at 691,000 tons, 5 percent below 1998 due to significantly lower shipments from Oceania. On the import side, reduced imports by Russia and the United States are the major significant changes. For CY 2000, global butter exports are forecast to return to or slightly exceed the 1998 level.

Total cheese exports in 1999 are estimated at 996,000 tons, up 2 percent from 1998. Much of the slow growth at the aggregate level is due to another steep decline in Russian imports. Exports are forecast to grow 3 percent in CY 2000

Preliminary 1999 export data for NDM indicate a strong recovery from last year’s decline. With increased activity under the Dairy Export Incentive Program (DEIP),the United States is up along with strong increases from Australia and New Zealand. In CY 2000 slower DEIP activity in the United States and a push to use milk for more profitable products may pull aggregate exports below the 1999 level.

EXPORTERS:

United States: During 1999, particularly in the second half of the year, U.S. exports of NDM were up sharply due to an increase in activity under the Dairy Export Incentive Program (DEIP). With low U.S. prices for NDM, DEIP contracts for milk powder boomed. In contrast, domestic butter and cheese prices were high enough to induce some over-quota imports of both cheese and butterfat (as anhydrous milkfat) during the summer and fall months. Current prospects for butter and cheese prices indicate CY 2000 imports are likely to be reduced while exports rise. Butter exports are expected to increase in response to continued high production in the United States.

As of mid-December, contracts had been accepted for just under 70 percent of the total (annual plus pre-allocated) DEIP allocation for NDM, 26 percent for cheese, 46 percent for WMP, and 15 percent for butter or butterfat. Yearly allocations are made on a July/June basis.

(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".)

Australia: World prices for dairy products were generally lower during late 1998 and early 1999 but a weakening Australian dollar offset much of the impact on farm prices. As a result average farm prices for manufacturing milk were only slightly below those of 1997/98. For 1999/00, the Australian Bureau of Agricultural and Resource Economics (ABARE) forecasts that manufacturing milk prices will fall again despite further improvement in the economies of nearby Asian markets.

Australian cheese exports increased over 20 percent in 1998 compared to the level reached in 1997. Asia remains the most important market with Japan by far the largest market. Japan imported 72,985 tons of Australian cheese or over 43 percent of all exports. Exports to the United States were up almost a third to 8,424 tons. Although Australia is a major cheese exporter, during the first 9 months of 1999, cheese imports of 44,000 tons were well above the comparable year-earlier level. Most of the increase came from New Zealand but many European countries also shared the growth.

Butter exports for the first 10 months of 1999 were approximately one-third higher than in the corresponding period of 1998. A broad range of countries, led by Singapore, Thailand, the United States, India, and Saudi Arabia, took more Australianbutter over the first 10 months of 1999.

Australian NDM exports for the first 10 months of 1999, were up 10 percent over the level of exports achieved during the corresponding period in 1998. Comparable figures for WMP showed an even larger increase compared to Jan.-Oct. 1998.

New Zealand: According to the Dairy Board, higher milk output and a continued recovery in Asia are expected to lead to a gain in dairy product exports in 1999/2000. Demand in Southeast Asia is expected to recover further with Japan to see a slight rise in imports. Russian demand for dairy imports is still expected to remain depressed. Little change is expected in EU or U.S. imports.

Current forecasts from the NZDB indicate that the 1999/00 payout will range from N.Z.$5.75 to N.Z.$6.00 per kg of milkfat, slightly above the 1998/99 level.

The possibility of a higher payout reflects some improvement in international dairy product prices.

Farmgate prices shown below include the NZDB payout plus bonuses added by the various cooperatives.

In 1998/99, New Zealand’s butter exports fell due primarily to lower shipments to Russia while cheese exports rose with higher shipments to the U.S. Exports of cheese were up as the United States and Australia both took significantly more than in the prior year. Whole milk powder exports in 1998/99 rose only marginally as shipments rose to China and Malaysia but fell to Venezuela and Mexico.

European Union (EU): With EU milk production quite stable due to quotas, exports of the major dairy products tend to reflect relative market conditions. According to preliminary data during 1999, EU exports of cheese remained depressed while butter exports showed some recovery. The Russian market was particularly important for EU cheese exports. Exports of NDM partially recovered in 1999 in response to stronger international demand, particularly late in the year.

For the future, EU dairy exports are expected to be affected by the Berlin Agreement to accept the dairy reform package, originally called Agenda 2000. The Agreement extends the cutoff of the quota system to March of 2008 and in a 2-step process expands the overall EU quota by approximately 2 percent. Support prices for nonfat dry milk and butter are to be reduced by 15 percent also in a multiyear adjustment period. The agreement also put a budgetary cap on the amount that can be used to support dairy, and for future EU exports, that cap is expected to be the most significant part of the agreement according to some EU analysts.

Canada: As has been discussed in previous editions of this circular, in late 1997 the United States and New Zealand asked the WTO for a ruling in response to the claims that Canada was providing non-transparent subsidies to its exports and that Canadian exports were above WTO permitted levels. The United States also asked for a ruling on Canada’s method of estimating the fill of its TRQ for fluid milk imports. The original panel upheld the United States and New Zealand on both allegations while on appeal, the TRQ decision was largely reversed.

As a result of the foregoing, on December 23, 1999, Canada, the United States, and New Zealand jointly announced a step-by-step agreement under which Canada’s subsidized exports of dairy products will be reduced. Under the agreement, Canada will immediately comply with its WTO export subsidy commitments on butter, skimmed milk powder, and an array of other dairy products. In addition, Canada has committed to reduce substantially the amount of subsidized milk made available to cheese producers during the remainder of the current marketing year (ending July 30, 2000) and to cease issuing permits for such milk on March 31, 2000. Beginning in the 2000/01 marketing year (Aug./July), Canada will not be able to export more than 9,076 tons of subsidized cheese. That total is less than half of the volume exported in recent years.

Note: Export forecasts in the various tables were made well before this agreement as announced and have not been revised.

IMPORTERS:

Mexico: The current economic recovery in Mexico is expected to continue, thus allowing consumer spending on dairy products to increase in the short term. 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, and a significant importer of WMP, cheese, butter, and other dairy products. Imports of NDM and WMP in 1999 and 2000 are expected to be in the 140,000-ton and the 45,000 ton neighborhood, respectively, for both years.

Cheese consumption during 2000 is forecast to increase compared to the previous year’s revised estimate as a result of population growth, the improving economic situation, and the stronger peso. On the import side demand is for high-quality cheeses, which generally are not produced domestically. That demand is expected to remain stable since these cheeses are consumed mainly by families with incomes above the national average.

Brazil: Despite a sharp increase in domestic milk production, much of which is produced and consumed outside the commercial sector, Brazil continues to be a major import market, especially for its Mercosur partners, Argentina and Uruguay.

Although cheese consumption is rising, Brazil’s cheese imports are estimated to fall in 1999 for the fifth consecutive year. Declining cheese imports in part reflect the hike in the import tariffs in February 1998, compounded by 1999's devaluation of Brazil’s "Real" currency. Further, the Ministry of Agriculture has tightened in March 1999 sanitary and inspection controls on imported cheese. The new procedures require inspection equivalency studies between exporting countries and the Brazilian dairy inspection system, pre-approval of dairy plants in the country of origin, and label registration according to the Brazilian consumer law.

Russia continues to be a large net importer of dairy products, and the value of imports was generally increasing until the August 1998 financial crisis. Butter is still the major item imported while cheese is a distant second.

The financial problems continued throughout most of 1999 and, as a result there were sharp increases in the price consumers pay for imported dairy products. As a consequence import estimates for 1999 and CY 2000 are sharply below pre-crisis levels.

Ukraine, owing to its closeness to Russia and the tariff exemptions on imports from the Commonwealth of Independent States (CIS countries) is an important suppliers of milk, cream, and butter to Russia. Preliminary data for 1998 show New Zealand as the leading butter supplier, with Ukraine and Belarus in second and third place respectively. Germany, the Netherlands, and New Zealand are the leading suppliers of cheese.

Japan: Cheese consumption in Japan maintained an upward trend in 1999 with estimated annual total consumption reaching 220,000 tons, up 1 percent from 1998. The gain was again mainly due to increased imports since domestic production of both natural and processed cheese were unchanged. In 1998, cheese imports from Australia, the leading supplier, were up 9 percent and those from New Zealand were up 6 percent. U.S. exports to Japan continued to show rapid growth but from a much smaller base.

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.

The increase in imports from the United States was largely due to increases in both fresh cheeses (cream cheese) and grated (pizza) cheese categories. Smaller individually packed cheese items are said to be the most popular in the marketplace, regardless of whether domestic or imported, natural or processed.

Last modified: Thursday, April 06, 2000