Overview of Global Dairy Markets United Dairymen of Idaho March 2, 2015 Dr. Marin Bozic
The Big Picture vs. The Grand Challenge World Today Total animals: 17 billion Asset value: $1.4 trillion Employs: 1.3 billion people Uses: 1/3 of the earth s ice-free surface By the time population stabilizes 60% more food than is produced now 75% of this must come from productivity increase While also reducing poverty Taking care of natural resources Coping with climate change Source: Wright (2014) 2
World will have more people (that have more money) Source: Australian Bureau of Agricultural and Resource Economics and Sciences (2013) 3
GDP vs per capita meat consumption 140 US 120 100 Per capita meat consumpion (kg/year) 80 60 40 Chi Bra Japan 20 0 Ind 0 5000 10000 15000 20000 25000 30000 35000 40000 45000 50000 Per capita GDP (US$ PPP) Source: Wright (2014) 4
Four of the five highest valued global agricultural commodities are livestock products Source: Wright (2014) based on FAOSTAT, 2010 data 5
Far higher growth in demand will occur in developing countries % Increase 120 100 80 2000 to 2040 60 40 Meat Milk Eggs 20 0 Developing Countries Developed Countries Source: Wright (2014) 6
7 US Milk Solids Exported 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% SNF exported Fat Exported
US Milk Solids Exported 20% 18% 16% 14% 12% 10% 8% 6% 4% 2% 0% Total Solids Exported 8
Value of Idaho Dairy Exports Mil USD 400 350 300 250 200 150 100 50 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Based on USDA GATS database. Data likely underestimates true ID exports. 9
U.S. Exports / US Production 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% U.S. dairy exports now consume more than one day worth of milk production per week. Source: USDEC (2015) 10
U.S. Dairy Exports Markets Destination 2014 Market Value (mil $) Market Growth Rate (2014 over 2013) Mexico 1,645 15% Southeast Asia 1,322 2.9% China 697-1.2% Middle East/North Africa 644-17.8% Canada 592 4% South Korea 417 38.7% Japan 407 34.2% Oceania 298 15.4% South America 292 5.1% Caribbean 225 5.8% Source: USDEC (2015) 11
12 Growth of U.S. Exports / US Milk Production Growth Year Nonfat Solids Milkfat Total Solids 2000-2014 71% 25% 63% 2007-2014 75% 32% 73% 2009-2014 94% 39% 94% U.S. exports only cca 15% of total milk solids, but exports have been absorbing most of the growth of U.S. milk production over the past decade.
Tour around the world: skim milk powder imports Source: OECD (2015) 13
Tour around the world: whole milk powder imports Source: OECD (2015) 14
Tour around the world: cheese imports Source: OECD (2015) 15
Tour around the world: butter imports Source: OECD (2015) 16
Tour around the world: milk production Source: OECD (2015) 17
Tour around the world: cheese production Source: OECD (2015) 18
Tour around the world: butter production Source: OECD (2015) 19
Tour around the world: butter exports Source: OECD (2015) 20
Tour around the world: whole milk powder exports Source: OECD (2015) 21
Tour around the world: skim milk powder exports Source: OECD (2015) 22
Tour around the world: skim milk powder exports Source: OECD (2015) 23
EU Intervention Milk Equivalent Price 24
Export subsidies helped clear EU market 25
International NFDM/SMP price convergence ($/lbs) 3.00 2.50 2.00 Oceania Europe USA (Central) USA (Support) 1.50 1.00 0.50 0.00 26
EU Dairy Policy Quotas Going Away April 1, 2015 Source: CoBank (2014) 27
EU Dairy Policy Quotas Going Away April 1, 2015 Growth areas: Ireland Denmark Netherlands Germany France Source: CoBank (2014) 28
EU Dairy Processing Growth Post Quotas Commodity 2013 EU Production Estimated Post-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) 29
Paški Sir (Pag Island Cheese) Island of Pag: 118 square miles, human population: 7,969, sheep population: 30,000 30
31 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.
32 Paški Sir (Pag Island Cheese) Milk production from indigenous sheep has a long tradition on the island.
Paški Sir (Pag Island Cheese) 33
Geographic Indicator as Intellectual Property Right 34
35 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.
New Zealand Production Capacity? 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. 36
How Big is New Zealand Anyway? 37
Ranking Countries by Cost of Production Source: T. Hemme, Presentation at NWDEPA 2013, Boston, MA, based on IFCN Dairy Report 2012 38
New Zealand Product Mix 1,400 1,200 1,000 800 600 400 200 0 NZ Dairy Products Production 1,273 677 619 530 392 413 404 301 319 289 288 252 2003 2008 2012 Thousand Metric Tons; USDA Cheese SMP Butter WMP Source: Blimling and Associates 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) 39
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
44 Volatility as US Export Opportunity Contracts 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 1996 2000 2004 2008 2012
MPP-Dairy Buy-Up Coverage as % of All Dairies in State 45
China Milk Production 46
47 The Dragon Variation of The Butterfly Effect China Milk Production Down 6% in 2013 EU Exports WMP to China Increase EU Produces Less SMP, Less Butter US Exports More Butter to EU, MENA Sep 19 2014, CME Butter at $3.06/lb
48 EU, NZ, China - Summary Milk Production Up 4.8% in 2014. Quotas to be abolished in April 2015, but much of the shortterm 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.
49 Long Term Outlook on US Cheese Consumption Lbs/Per Capita/Year 35.00 30.00 25.00 20.00 15.00 U.S. All-Cheese Per Capita Consumption 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010
50 Long Term Outlook on US Cheese Consumption U.S. Per Capita Consumption Growth (lbs) American Italian Total U.S. Population Growth 1970-1980 2.63 2.38 6.16 22.18 mil 1980-1990 1.48 4.53 6.43 22.39 mil 1990-2000 1.56 3.00 4.89 32.54 mil 2000-2010 0.63 2.48 3.04 27.19 mil 2010-2020???? 2.00 24.54 mil U.S. Population growth and per capita cheese consumption growth slowing down.
What Is Our Alternative? (Mil Lbs) Fluid Milk Consumption in the U.S. 4,700 4,600 4,500 4,400 4,300 4,200 2000 2002 2004 2005 2007 2008 2010 2012 51
A Look at the US Domestic Dairy Consumption Source: DMI Monthly Sales and Insights Report, January 2015 52
The Next Ten Years (relative to 2012) Needed increase in exports (vs 2012): Milk Powders: 56% Butterfat: 270% Cheese: 60% Cheese (16.5 bil lbs) Other Domestic (3.5 bil lbs) Exports (10 bil lbs) Fluid Milk (-5 bil lbs) 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. 53
Overview of Global Dairy Markets United Dairymen of Idaho March 2, 2015 Dr. Marin Bozic mbozic@umn.edu Department of Applied Economics University of Minnesota-Twin Cities 317c Ruttan Hall 1994 Buford Avenue St Paul, MN 55108