Dairy

 

Overview of dairy products

Prices fall slightly from their current high levels due to sustained productivity gains in the major producing countries and resumed growth in China. India overtakes the EU to become the largest milk producer in the world, building considerable skimmed milk powder exports over the projection period.

 

Market situation

In early 2012, high returns and excellent pasture conditions in Oceania, and parts of South America, generated a supply response triggering a fall in milk and dairy prices. With demand continuing to expand, especially from China, prices bottomed out in mid-2012 at levels much higher than during the previous downturn in 2009. The decline in Chinese milk production by 5.7% in 2013 led to strong import demand for dairy products and to higher world dairy prices. Additionally, during the first half of 2013, major players on the world dairy market - the United States, the European Union, New Zealand and Australia - produced less milk than a year ago. The main reasons were high feed cost and adverse weather conditions in Oceania and parts of Europe.

Prices for skim milk powder (SMP) and whole milk powder (WMP) reached a new peak in April 2013, above the level of the 2007/08 commodity boom. Production in the major dairy exporting countries started to increase in mid-2013, as feed prices declined and milk margins improved. Nevertheless, due to continued strong demand on the world market, prices of dairy products remain high into the year 2014.

 

Projection highlights

  • World milk production is projected to increase by 180 Mt by 2023 when compared to the base years (2011-13), the majority of which (78%) is anticipated to come from developing countries. The average growth rate for the projection period is estimated at 1.9% which is below the 2.2% witnessed in the last decade. The slowdown in growth reflects growing shortages of water and suitable land in developing countries combined with a slow introduction of modern dairy production systems.
  • Several dairy product prices reached new highs during 2013, and a correction is expected in the near future, followed by firming nominal prices over the medium term. Real prices are projected to decline slightly in the next decade, albeit remaining considerably above the pre-2007 levels.
  • Per capita consumption of dairy products in developing countries is expected to increase by 1.2% to 1.9% p.a. The expansion in demand reflects robust income growth and further globalisation of diets. By contrast, per capita consumption in the developed world is projected to increase between 0.2% and 0.9% p.a.
  • A general expansion of trade in dairy products is expected over the coming decade. Strong growth is expected for whey, cheese and SMP, at more than 2% p.a. Lower growth is expected for WMP, at 1.7% p.a., and especially butter at 0.7% p.a. The bulk of this growth will be satisfied by expanded exports from the United States, the European Union, New Zealand, Australia and Argentina.

 

Figure. World dairy prices in nominal terms

Source: OECD and FAO Secretariats‌

 

Figure. World dairy prices in real terms (2005 USD)

Source: OECD and FAO Secretariats‌

 

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