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United Dairymen of IdahoMarch 2, 2015
Dr. Marin Bozic
Overview of Global Dairy Markets
The Big Picture vs. The Grand Challenge
Source: Wright (2014)
World Today
Total animals:17 billion
Asset value:$1.4 trillion
Employs:1.3 billion people
Uses:1/3 of the earth’sice-free surface
By the time population stabilizes
60% more food than is produced now
75% of this must come from productivity increase
While also reducing poverty Taking care of natural resources Coping with climate change
2
World will have more people (that have more money)
Source: Australian Bureau of Agricultural and Resource Economics and Sciences (2013)3
GDP vs per capita meat consumption
0
20
40
60
80
100
120
140
0 5000 10000 15000 20000 25000 30000 35000 40000 45000 50000
Per c
apita
mea
t con
sum
pion
(kg/
year
)
Per capita GDP (US$ PPP)
US
Japan
Chi
Ind
Bra
Source: Wright (2014)4
Four of the five highest valued globalagricultural commodities are livestock products
Source: Wright (2014) based on FAOSTAT, 2010 data 5
Far higher growth in demand will occur in developing countries
Source: Wright (2014)
0
20
40
60
80
100
120
Developing Countries Developed Countries
% In
crea
se
MeatMilkEggs
2000 to 2040
6
US Milk Solids Exported
7
0%2%4%6%8%
10%12%14%16%18%20%
SNF exported Fat Exported
US Milk Solids Exported
8
0%2%4%6%8%
10%12%14%16%18%20%
Total Solids Exported
Value of Idaho Dairy Exports
9
0
50
100
150
200
250
300
350
400
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Mil
USD
Based on USDA GATS database. Data likely underestimates true ID exports.
U.S. Exports / US Production
10
U.S. dairy exports now consume more than one day worth of milk production per week.
2013 2014
NDM/SMP 58% 52%
Total Cheese 6.3% 7.1%
Butterfat 10.7%% 8.6%
Dry Sweet Whey 54% 58%
Lactose 72% 66%
Total Milk Solids 15.5% 15.4%
Source: USDEC (2015)
U.S. Dairy Exports Markets
11
Destination2014 Market Value
(mil $)Market Growth Rate
(2014 over 2013)
Mexico 1,645 15%
Southeast Asia 1,322 2.9%
China 697 -1.2%
Middle East/North Africa 644 -17.8%
Canada 592 4%
South Korea 417 38.7%
Japan 407 34.2%
Oceania 298 15.4%
South America 292 5.1%
Caribbean 225 5.8%
Source: USDEC (2015)
Growth of U.S. Exports / US Milk Production Growth
12
Year Nonfat Solids Milkfat Total Solids
2000-2014 71% 25% 63%
2007-2014 75% 32% 73%
2009-2014 94% 39% 94%
U.S. exports ‘only’ cca 15% of total milk solids, but exports have been absorbing most of the growth of U.S. milk production over the past decade.
Tour around the world: skim milk powder imports
13Source: OECD (2015)
Tour around the world: whole milk powder imports
14Source: OECD (2015)
Tour around the world: cheese imports
15Source: OECD (2015)
Tour around the world: butter imports
16Source: OECD (2015)
Tour around the world: milk production
17Source: OECD (2015)
Tour around the world: cheese production
18Source: OECD (2015)
Tour around the world: butter production
19Source: OECD (2015)
Tour around the world: butter exports
20Source: OECD (2015)
Tour around the world: whole milk powder exports
21Source: OECD (2015)
Tour around the world: skim milk powder exports
22Source: OECD (2015)
Tour around the world: skim milk powder exports
23Source: OECD (2015)
EU Intervention Milk Equivalent Price
24
Export subsidies helped clear EU market
25
International NFDM/SMP price convergence
26
0.00
0.50
1.00
1.50
2.00
2.50
3.00
($/lb
s) OceaniaEuropeUSA (Central)USA (Support)
EU Dairy Policy – Quotas Going Away April 1, 2015
27
Source: CoBank (2014)
28
Growth areas:IrelandDenmarkNetherlandsGermanyFrance
Source: CoBank (2014)
EU Dairy Policy – Quotas Going Away April 1, 2015
EU Dairy Processing Growth Post Quotas
29
Commodity 2013 EU Production
EstimatedPost-Quota
Growth
Growth as %of Imports from Major Importers
Expected World Price
Impact
Cheese 19.2 bil lbs 500 mil lbs 4% -15%
SMP 2.6 bil lbs 420 mil lbs 7% -28%
With domestic EU consumption fairly stagnant, most of the additional EU dairy products will be destined for exports.
Multiple studies predict short-term (2015-2018) oversupply as a result of EU milk quota program end.
Source: CoBank (2014)
Paški Sir (Pag Island Cheese)
Island of Pag: 118 square miles, human population: 7,969, sheep population: 30,00030
Paški Sir (Pag Island Cheese)
Cold air descending from Mt. Velebit mix with warm Mediterranean air and create strong, cold and dry wind that lifts sea water in the air and covers the island with salt. Only strong shrubs and aromatic herbs like sage can survive in such climate.
31
Paški Sir (Pag Island Cheese)
Milk production from indigenous sheep has a long tradition on the island.
32
Paški Sir (Pag Island Cheese)
33
Geographic Indicator as Intellectual Property Right
34
Geographic Indicators as Non-tariff Trade Barriers
EU-South Korea Free Trade Agreement: non-European cheese producers cannot sell asiago, feta, gorgonzola under those names in Korea
EU-Canada: restricted the use of ‘feta’ despite feta being previously a generic name in Canada. 75% of feta production happens outside Greece.
Recently Denmark requested EU commission to grant GI status to Havarti cheese. However, international Codex standard for Havarti was finalized in 2007.
35
New Zealand Production Capacity?
36
Year Northern Southern
1995 3,474 616
2003 3,793 1,309
2007 3,613 1,648
2012 3,958 2,488
Most of the recent growth in dairy herd in the Southern Island: Over the last 5 years 4 million reduction in sheep, and 840,000 more dairy cattle.
How Big is New Zealand Anyway?
37
Ranking Countries by Cost of Production
38Source: T. Hemme, Presentation at NWDEPA 2013, Boston, MA, based on IFCN Dairy Report 2012
New Zealand Product Mix
39
301 288 319
289 252
404 392 413
530
619 677
1,273
0
200
400
600
800
1,000
1,200
1,400
2003 2008 2012
NZ Dairy Products Production
Cheese SMP Butter WMPThousand Metric Tons; USDA
95% of output is exported with a product mix focused on meeting international demand (and standards)
Production skewed toward WMP and capacity continues to expand
Also, focused on value-added products such as infant formula (for Asian markets)
Source: Blimling and Associates
Resource Constraints and Strategy Innovations
40
El Nino: Dry NZ Weather, Low Yields
41
La Nina: Rains over NZ, Above Average Yields
42
NZ vs US Milk Per Cow Growth
43
Volatility as US Export Opportunity
44
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
1996 2000 2004 2008 2012
Cont
ract
s
MPP-Dairy Buy-Up Coverage as % of All Dairies in State
45
China Milk Production
46
The Dragon Variation of The Butterfly Effect
47
EU Produces Less SMP, Less Butter
China Milk Production Down 6%
in 2013
EU Exports WMP to China Increase
US Exports More Butter to EU, MENA
Sep 19 2014, CME Butter at $3.06/lb
EU, NZ, China - Summary
48
Milk Production Up 4.8% in 2014. Quotas to be abolished in April 2015, but much of the short-term effect may have already occurred. Mid-term oversupply.
Milk production up 5.5% in 2014 to 82.1 billion lbs, predicted 5% growth in 2015. H1 2014 imports +70% YOY, Q4 down nearly 70% YOY.
June-Nov 2014 Fonterra milk volume up 3.9%, but 2014/15 expected to end 3.3% than last season due to drought, low prices.
Long Term Outlook on US Cheese Consumption
49
15.00
20.00
25.00
30.00
35.00
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010
Lbs/
Per C
apita
/Yea
rU.S. All-Cheese Per Capita Consumption
Long Term Outlook on US Cheese Consumption
50
U.S. Per Capita Consumption Growth (lbs) U.S. Population
GrowthAmerican Italian Total
1970-1980 2.63 2.38 6.16 22.18 mil1980-1990 1.48 4.53 6.43 22.39 mil1990-2000 1.56 3.00 4.89 32.54 mil2000-2010 0.63 2.48 3.04 27.19 mil2010-2020 ?? ?? 2.00 24.54 mil
U.S. Population growth and per capita cheese consumption growth slowing down.
What Is Our Alternative?
51
4,2004,3004,4004,5004,6004,700
2000 2002 2004 2005 2007 2008 2010 2012
(Mil
Lbs)
Fluid Milk Consumption in the U.S.
A Look at the US Domestic Dairy Consumption
52Source: DMI Monthly Sales and Insights Report, January 2015
The Next Ten Years (relative to 2012)
53
• Needed increase in exports (vs 2012):• Milk Powders: 56% • Butterfat: 270%• Cheese: 60%
• In order to export products accounting for 10 billion lbs of milk in 2023, the U.S. would need to capture 70% of the entire forecasted increase in world’s imported demand for skim milk powder and even higher share of additional butter trade.
Cheese (16.5 bil lbs)Other Domestic (3.5 bil lbs)Exports (10 bil lbs)Fluid Milk (-5 bil lbs)
Overview of Global Dairy Markets
United Dairymen of IdahoMarch 2, 2015
Dr. Marin [email protected] of Applied EconomicsUniversity of Minnesota-Twin Cities317c Ruttan Hall1994 Buford AvenueSt Paul, MN 55108
