Content sourced from Fonterra's April Global Dairy Update
Fonterra’s assessment of published industry statistics indicates that global trade in dairy ingredients has grown more than 7% per annum since the financial crisis in 2008/09, reaching 13.9 million MT in 2013.
Growth slowed to 2.8% in 2013 impacted by supply issues, including the drought in New Zealand.
Global trade in dairy ingredients accounts for 8% of global production with the European Union (EU) and United States (US) representing 30% of global exports, and Argentina, Australia and New Zealand comprising a further 28%.
Russia and China (including Hong Kong) continue to lead the growth in demand accounting for 25% of total dairy imports.
Dairy imports into China are primarily milk powders, while the key import into Russia is cheese.
Growth in Supply
The major Southern Hemisphere exporting countries of Argentina, Australia, New Zealand and Uruguay saw some year-on-year growth for the month of February1 , with weather conditions resulting in good pasture and feed growth.
However, overall the annual growth in this region was 3.8% lower than the previous year. In the Northern Hemisphere, milk production for the EU countries in aggregate remained reasonably static and was up just 0.7% in 2013.
Consumption gap in Russia and China
Imports of dairy products into China were up 36% in 2013.
A decline in China’s milk production of 5.7% over the same period is a contributing factor to the strong growth in import volumes, primarily in Whole Milk Powder and Whey Products.
Rabobank estimates a consumption gap in China of almost 10 billion litres, which has provided support for global dairy prices.
Russian production has been down 5-6% year-on-year for two consecutive years, impacted by structural investment challenges.
This void is being filled by imports, predominately cheese and milk fats, up 7.4% in 2013. Belarus is an important contributor to Russia’s imports, supplying approximately half, with the EU supplying the majority of the shortfall of imported product.
Factors Influencing Supply
Strong dairy prices, low feed costs and export demand could see global milk production expansion in the medium term.
Milk quota removal in the EU in July 2015 will allow European dairy farmers to expand production without the requirement to purchase milk quota rights, for the first time in 30 years.
This may cause some strengthening in production growth and movement in farming regions within the EU, but consolidation in milk supply is not expected to be significant.
These factors will continue to influence the global dairy market going forward.
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