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INTRODUCTION
A dairy is a business enterprise established for the harvesting or processing (or both) of
animal milk – mostly from cows or goats, but also from buffaloes, sheep, horses, or camels –
for human consumption. The word dairy refers to milk-based products, derivatives and
processes, and the animals and workers involved in their production: for example, dairy
cattle, dairy goat. A dairy farm produces milk and a dairy factory processes it into a variety of
dairy products. These establishments constitute the GLOBAL DAIRY INDUSTRY, a component
of Food Industry. Dairy products include food items such as yogurt, cheese, and butter.
Rates of dairy consumption vary widely worldwide. High-consumption countries consume
more than 150 kg per capita per year: Argentina, Armenia, Australia, Costa Rica, Europe,
Israel, Kyrgyzstan, North America and Pakistan. Medium-consumption countries consume 30
to 150 kg per capita per year: India, Iran, Japan, Kenya, Mexico, Mongolia, New Zealand, North
and Southern Africa, most of the Middle East, and most of Latin America and the Caribbean.
Low-consumption countries consume under 30 kg per capita per year: Senegal, most of Central Africa, and most of East and Southeast Asia.
GLOBAL DAIRY INDUSTRY TRADE OVERVIEW 2016-2017
The volume of dairy products traded over 2016-17 rose by 4.1%, with solid growth in China,
Japan and Mexico serving to offset a continued slowdown in the Middle East and North
Africa(MENA). Total dairy export volumes to Southeast Asia grew by 2.8%, whilst exports
volumes to the Middle East and North Africa fell 4.4%. Overall, the value of global exports was
up 7.1% on 2015-16 to US$38.8 billion, with improved global prices for key dairy commodities reflected by large increases in the value of butter, cheese, WMP and whey powder traded.
Global dairy exports to China grew by 5.3% in volume over 2016-17, while the value of world
dairy exports to China grew by 12.2% to US$8,321 million. Shipments of liquid milk declined
by 10%, from 662,000 to 599,000 million tonnes, with a corresponding decline in the value of
the category. Exports of AMF to China also fell markedly, down 46% on 2015-16 volumes from 50,000 tonnes to 27,000 tonnes.
World dairy exports to Japan grew by 5%, from 492,000 tonnes to 518,000 tonnes, whilst the
value of dairy exports to Japan grew by 8.4%, from US$1,449 million to US$1,571 million.
Volumes of cheese exported to Japan grew slightly, up less than 1% and sitting around
239,000 tonnes, but with the value of the category increasing 5.9%, from US$ 834 million to
US$883 million. SMP volumes grew 61% to 42,000 tonnes, up from 26,000 tonnes in 2015/16.
Whey powder exports saw a significant increase of around 8%, from 57,000 tonnes to 62,000
tonnes with a total value of US$196 million. Over the course of 2016-17 the European Union
increased its share of the Japanese market, from around 22% of Japanese imports to over
27% by volume.
The volume of dairy exports to southeast Asia grew by 2.8% from 2.384million tonnes to
2.451 million tonnes, while the value of exports grew by 10% to a total value of US$5,195
million reflecting improved global prices for dairy commodity prices. The largest changes were
in milk powders, with strong growth in SMP and a decline in volumes of WMP. Exports of SMP
were up 10% by volume, with strong growth in exports to Malaysia (+20%), the Philippines
(+11%) and Indonesia (+15%), while the total value of SMP exports grew almost 13% to
US$1,340 million. Declines in WMP imports were consistent across most major markets within southeast Asia.
Dairy exports to Mexico over 2016-17 grew 4%, totalling almost 706,000 tonnes, with the
total value increasing by 11%. Cheese volumes grew from 114,000 to 126,000 tonnes, while
SMP/ NFDM imports grew by 7% from 287,000 tonnes to 306,000 tonnes. Shipments of whey
powder remained largely stable, down 1.8% to 44,500 tonnes, while exports of cheese were
up 1.3%, to 117,000 tonnes. Increases in smaller categories such as lactose and liquid milk
also boosted volumes
Volumes of dairy exported to the Middle East and North Africa (MENA) have continued to
fall, with the total volume of exports down 4% to 2,577,000 tonnes. Exports of butter to the
MENA region fell 21% from 200,000 tonnes to 158,000 tonnes, while volumes of WMP fell
12% from 558,000 tonnes to 494,000 tonnes. However, the total value of exports to the
region was largely stable; down only 0.1% to US$6,735 million. Export volumes to Egypt were
down the most in the region (-27%) to 190,000 tonnes, with exports of butter down 49% to
21,000 tonnes, with volumes of SMP and WMP down 22% and 40% respectively. Exports to
Saudi Arabia were down 15% from 421,000 tonnes to 358,000 tonnes with declines in cheese
(-8%), SMP (-26%) and WMP (-30%), while total exports to the UAE were down 3%. Total
exports to Algeria rose 13%, lifted higher by stronger volumes of milk powders with SMP up 20% to 145,000 tonnes and WMP up 18% to 208,000 tonnes.
Dairy exports to Russia have grown exceptionally over 2016-17, albeit from a very low level
in 2015-16. Volumes were up 46% from 129,000 tonnes to 189,000 tonnes, which is still well
below Russian import volumes of 2013/14, prior to the trade embargoes placed on dairy
imports from United States, European Union, Australia, Canada and Norway. Export volumes
of butter (+59% 24,000 tonnes), lactose (+79% to 25,000 tonnes), SMP (+111% to 28,000
tonnes) and WMP (up 287% to 27,000 tonnes) all grew. The total value of dairy exports to
Russia rose 43% to US$609 million with the value of WMP exports increasing almost fourfold
to US$71 million. Infant formula remains the most valuable category at US$134 million,
however total sales of this product have fallen, down 17% to US$134 million. With the trade
embargoes in place, the chief beneficiaries have been South American exporters and New Zealand, with the latter’s export volumes to Russia growing 236% over 2016/17
CURRENT DAIRY MARKET SCENARIO 2017
The global dairy sector is currently in state of turbulence since February 2013 which is evident from
the chart below owing to Slowing demand from China, Russia’s trade embargo and the removal of EU
milk quotas which resulted in a period of excess supply and low prices. Despite this, the long-term
outlook for the sector remains positive as prices have bottomed in March 2015. Rising populations and changing diets are increasing demand for dairy.
As incomes are rising and nations are becoming increasingly urbanised, individuals tend to receive
more of their calories from proteins (lentils and dairy) as opposed to basic carbohydrates (mostly
grains). Global demand for dairy is expected to increase by 2.5 per cent per annum to 2020, largely driven by increasing urbanisation and rising incomes in emerging markets.
GDT Chart:1
GDT Chart 2:
*GDT Price Index is calculated from the total quantity sold in a Trading Event across all products, contract periods and sell ers ** Source Reuters
As it can be seen from above chart 1 that prices have been falling since early 2014 due to
lower demand from china, Russian import Embargo on Various European and American
nations along with excess supply. Prices bottomed in Late 2015 from where market was
supported by market intervention from EU, Lower supply from Australia and improved
demand. In last 4 quarters market has been trading steady to slightly bullish.
Throughout 2016 market was bullish due to a slump in milk production in Australia, New Zealand and
Argentina and the European Union (in 2H of 2016), as well as a strong demand for some dairy products,
particularly cheese and butter.
Market and prices got some support at the beginning of current year (2017) due to lower domestic
production and depleted inventories in China driving stronger import demand. It is expected that
market will continue to trade bearish by the end of this year and early next year due to glut and
sluggish market unless demand will rise at the lower levels to support the prices .
Chart 2 indicates the seasonality of the index. GDT price Index trades steady to bearish during the 1st quarter of every year and stabilises or trades sideways in last quarter of the year.
DAIRY PRODUCT BALANCE SHEETS
GLOBAL BUTTER BALANCE SHEET
2013 2014 2015 2016 2017
Beginning Stock 247 231 250 342 319
Production 9249 9636 9893 10020 10266
Import 319 330 289 348 362
Total Availability 9815 10197 10432 10710 10947
Consumption 8716 9023 9183 9443 9733
Export 868 924 907 948 926
Ending Stock 231 250 342 319 288
*Al l figures in 1000 MT **Source USDA
Butter production has been rising steadily over last 5 years due to increase in domestic production for major Producers like India, EU, Canada, Mexico and New Zealand.
Australia’s butter export and production are continuously falling for last 3 years due to lower milk output and stoppages at several processing facilities resulting in higher imports for a traditional exporter.
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2015 2016 2017
Falling exports from major exporters like Australia, Argentina and US has supported the prices. New Zealand and Belarus has captured the bigger market share
Source: CLAL
QUARTERLY DAIRY COMMODITY PRICES (HISTORIC AND FORECAST) WORLD FOB OCEANIA
Source: Rabobank *e = estimates **f = Forecast All figures in USD/MT
Butter prices globally has been bullish since 2015 owing to lower milk production, adverse weather conditions and rising demand. Prices are expected to stay steady to weak from current levels.
Demand has also increased for butter since consumers perceives butter to be a better, safer and healthier alternative to vegetable oil substitutes such as margarine.
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FOB Prices in USD/MT- Oceania
Butter Skim Milk Powder Whole Milk Powder Cheddar Cheese Sweet Whey Powder
GLOBAL CHEESE BALANCE SHEET
2013 2014 2015 2016 2017
Beginning Stock 691 692 769 838 845
Production 18186 18659 19150 19391 19635
Import 1274 1185 1124 1206 1243
Total Availability 20151 20536 21043 21435 21723
Consumption 17618 17958 18389 18669 18858
Export 1841 1809 1816 1921 2050
Ending Stock 692 769 838 845 815
*Al l figures in 1000 MT **Source USDA
Cheese production has continued to rise globally over last 5 years due to higher production in major cheese production countries like EU, Russia, USA, Brazil, Canada, Belarus and Mexico. Global Production has been unaffected by the continuous fall in production in Argentina and Australia. Production in Japan, South Korea and Phi lippines has been stagnant for last half decade.
Exports from New Zealand, Belarus, USA and EU continues to rise over the last half decade.
EU cheese exports remains strong where as New Zealand exports have declined due to weak demand from USA and Japan for EU produced cheese.
USA cheese exports have been resilient in the face of strong EU competition and shipments to key markets like Mexico, South Korea, and Japan remain strong.
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2015 2016 2017
Cheddar Cheese GDT Price Indexes
Chart 1:
Cheese prices had traded sideways in 2015 before prices crashed in 2014. Although market
price improved after remaining stagnant and price continue to rise in 2016 and traded steady to weak in 2017.
Cheese exports from major suppliers are up in 2016-2017, with a boost in buying from South Korea, China, Southeast Asia and South America which also supported the prices at bottom level. Demand for cheese in developed markets like EU and US has been strong too.
Chart 2:
Cheese prices seasonality indicates that cheese prices generally trades weak during the 1st quarter of the year which gets steady during second quarter of the year before trading steady to bullish in last 2 quarters.
GLOBAL WHOLE MILK POWDER BALANCE SHEET
2013 2014 2015 2016 2017
Beginning Stock 355 399 642 665 388
Production 4,581 4,992 5,112 4,645 4,729
Import 1,179 1,207 1,003 1,040 1,039
Total Availability 6115 6598 6757 6350 6156
Consumption 3,666 3,786 3,969 3,926 3,863
Export 2,050 2,170 2,123 2,036 1,981
Ending Stock 399 642 665 388 312
*Al l figures in 1000 MT
**Source USDA
Global WMP production fell in 2016 which is expected to stay at similar levels in 2017. Ending stocks has been falling for last two years which may support market prices in next year, if production does not increase dramatically.
Global production decline is due to lower production in major producing countries like EU, China due to new law coming to force in 2017, Argentina and Brazil. Consumption has also declined in China, EU, Brazil and Venezuela.
Imports are dwindling in significantly in Venezuela, China and Brazil resulting in lower prices however Algeria, Australia, Indonesia and Taiwan demand have supported the market.
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New Zealand exports fell in 2016 for WMP due to weak demand and implementation of new law in china which accounts for 30% of New Zealand’s exports, however New Zealand has well diversified export market like Algeria, UAE and Sri Lanka.
WMP GDT Price Indexes
Chart 1:
WMP prices traded rangebound in 2016 stabilising after bearish rally in 2015. WMP prices are bearish in 2017 owing to supply glut, weak demand from major
consumers/importers and lower prices.
Chart 2:
WMP prices trade weak during 1st quarter under normal circumstance. Market firms in 3rd quarter.
GLOBAL MILK FLUID BALANCE SHEET
2013 2014 2015 2016 2017
Production 550,333 570,714 592,104 596,307 606,857
Imports 740 969 1,031 1,280 1,204
Exports 1,110 1,354 1,580 1,865 1,885
Consumption 549,963 570,329 591,555 595,722 606,176
*Al l figures in 1000 MT **Source USDA
Global Fluid milk production has been rising consistently over the years due to consistent population growth.
Fluid milk production has been falling for a couple of years in Argentina, China and Australia mainly due to Poor weather condition, lower farm gate prices and cow culling.
GLOBAL NON-FAT DRY MILK BALANCE SHEET
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2015 2016 2017
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2015 2016 2017
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Fluid Milk Importers
2015 2016 2017
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2013 2014 2015 2016 2017
Beginning Stock 431 383 513 606 968
Production 4,051 4,512 4,773 4,827 4,793
Import 1,148 1,178 1,187 1,253 1,320
Total Availability 5630 6073 6473 6686 7081
Consumption 3,488 3,592 3,784 3,722 4,026
Export 1,759 1,968 2,083 1,996 2,114
Ending Stock 383 513 606 968 941
*Al l figures in 1000 MT
**Source USDA
DAIRY INDUSTRY SCENARIO IN MENA REGION:
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Non-fat Dry Milk Producers
2015 2016 2017
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2015 2016 2017
The MENA region is the third fastest growing region for dairy and has overtaken Eastern
Europe with a value Compounded Average Growth Rate (CAGR) of 4.9%. The market in the
MENA region is unsaturated with per capita spend on dairy at just US $25 per head, the lowest
in the world. This means that there is huge growth potential with improving efficiencies in
cold storage in a developing retail environment for perishable food. Except for Iran, yoghurt
and sour milk products has seen a strong performance across all markets.
Owing to increased urbanisation in the region, demand for on-the-go dairy solutions is
excepted to increase due to consumers having less time to prepare food, especially with
female participation in the workforce on the rise.
Major trends and factors which will drive the sales in MENA region are:
Lactose-free dairy aimed at minimizing the effects of food intolerances and allergies
Organic and functional fortified dairy products
Flavoured variants of dairy products
Products that incorporate convenience within their packaging
Dairy products marketed to children, providing nutritious solutions for lunchboxes and
car journeys in-line with the burgeoning ‘on-the-go’ snacking movement
DAIRY INGREDIENTS AND ITS DERIVATIVES
LACTOSE PRODUCTS
Lactose products are manufactured from fresh, pasteurised whey (or whey permeate), remaining after cheese making. The lactose is extracted from whey by a process of evaporation, crystallisation, decanting and drying. In the food processing industry, lactose products are used for chocolate, milk beverages and sports nutrition, infant formula, confections, dry mixes, baked goods, seasoning blends, sea foods and diet products. In the animal feed industry, lactose is used to produce pet food, pig feed and for milk substitutes for calves.
MILK PERMEATE
Milk permeate is released during the production of milk protein concentrates. Milk permeate powder is manufactured from fresh pasteurised skimmed cow’s milk. The protein is extracted from the skimmed milk by ultrafiltration. The remaining liquid milk permeate is concentrated and dried. In the animal feed industry milk permeate powder is used as a filler for milk substitutes for calves and pig feed. In the food processing industry this product is used for example as a filler for baked products, chocolate, ice cream, desserts and milk beverages.
MILK PROTEIN CONCENTRATE
Milk protein concentrate (MPC) is made from fresh pasteurised skimmed milk. By a process of ultrafiltration, the milk protein is separated from the other components. The liquid concentrate is further concentrated and dried. MPC is available with a protein between 40 % and 85 % milk protein content. In the animal feed industry milk protein concentrate is used in products such as pet food and pig feed and as an ingredient for milk substitutes for calves. In the food processing industry, MPC is used in the manufacture of, for example, baked products, sports nutritional products, energy bars, milk beverages and desserts.
WHEY PROTEIN
Whey is a derivative of cheese production, and is therefore available in most cheese -producing countries. Whey ingredients are available in a variety of forms including the following:
Dried Sweet Dairy Whey (DSW) obtained by drying liquid whey, a co-product from the
manufacture of cheeses (such as cheddar or mozzarella); typically contains 11% to 14.5%
protein.
Whey Protein Concentrates(WPC) have higher protein levels compared to sweet whey. The
most common forms contain protein levels of 34% or 80% (WPC34 and WPC80 respectively).
Concentrations of 50%, 60%, 75% and 85% protein are also available, but on a more limited
basis.
Whey Protein Isolate (WPI) has a protein content of 90% or greater.
Whey powder is made from fresh whey, the liquid part that remains after cheese making. This
whey is pasteurised, concentrated and dried. In the animal feed industry whey powder is used
in pet food, pig feed and as an ingredient for milk substitutes for calves, amongst other uses.
The product is used in the food processing industry for baked products, chocolate, milk
beverages, ice cream, desserts, sauces and ready meals, etc.
Whey permeate is produced in the manufacture of whey protein concentrate (WPC). It is
made from fresh, pasteurised whey from which the protein has been removed. The remaining
liquid whey permeate is concentrated and dried. Whey permeate powder is used in the animal
feed industry as a filler in pet food, pig feed and milk substitutes for calves, etc. It is also used
in the food processing industry, for example for baked products, chocolate, milk beverages, sauces and ready meals.
US DRY WHEY FUTURE CHART:
EURO DRY WHEY FUTURE CHART:
CASEINS
The casein content of milk represents about 80% of milk proteins. The principal casein fractions are alpha(s1) and alpha(s2)-caseins, ß -casein, and kappa-casein. Casein has a wide variety of uses, from being a major component of cheese, to use as a food additive. As a food source, casein supplies amino acids, carbohydrates, and two essential elements, calcium and phosphorus.
EMERGING DAIRY MARKETS
MENA region, South East Asia and Latin America are the Emerging region for dairy and dairy products in the next decade. Indonesia's market for milk products is growing, but the country lacks large -scale dairy farmers and distribution infrastructure, making it one of Asia's largest dairy importers. The dairy industry is forecast to grow annually by about 13 percent over the next few years. The key driver of this growth is Indonesia’s growing middle class who are eating out of the home more often and have a greater demand for high-quality food as they start to place more importance on a healthy lifestyle.
At USD 60 billion LatAm market accounts for 15% of global dairy sales which is likely to change soon. LatAm dairy market is one of the fastest growing in the world driven by cheese and yoghurt. Economic slowdown in several regions has slowed the dairy sales in the region however popularity of reusable packing, increasing Urbanization (80% of population lives in cities) where demand for smaller packs and to go multi Packs is on rise, and growing market for dairy alternatives is supporting the demand. Iran is certainly one of the most promising markets to keep an eye on in the coming years, the growth of milk and dairy market in Iran, a growth promoted by rapid urbanization and evolution of lifestyle that in turn sees a growing customer interest towards milk and dairy products. An annual growth rate of over 22% within 2021 is expected, thanks for the most part to diffusion of online sales and consumer profiles that gets more and more westernized.
