Average export prices for dairy products in 1998 were lower than those of 1997, with the exception of butter, which registered a rise. Prices in general were affected by ample supplies in the main exporting countries, coupled with reduced purchasing power as a result of currency devaluation in a number of major importing countries in South East Asia and also in the Russian Federation. While reports of reduced stocks in Oceania led to some strengthening in international prices in December 1998 and January 1999, they have since relapsed. Reasons for this latest price decline include lower than average import demand for butter by the world's largest importer, the Russian Federation, during the winter.
A small increase in global milk output is expected for 1999, with production edging up in most major milk producing countries. In Australia, milk output for 1998/99 could exceed last season's record levels, despite dry weather in some areas. On the other hand, dry conditions in New Zealand could lead to milk production declining by some 3 percent during 1998/99. In spite of weather-related production constraints, the industries in the above countries are firmly set on the expansion phase of the cycle. The principal motor behind this is higher returns from dairying relative to other livestock activities. Additionally, currency devaluation in both countries has meant that farmers were cushioned to some extent against falling prices (in US dollar terms) on the international market in 1998.
| 1998 | 1999 | |||
|
Feb.
|
Dec.
|
Jan.
|
Feb.
|
|
| ( . . US$/tonne, f.o.b. . . ) | ||||
|
Butter
|
1 775
|
1 700
|
1 650
|
1 575
|
|
Skimmed milk powder
|
1 575
|
1 350
|
1 400
|
1 350
|
|
Whole milk powder
|
1 800
|
1 625
|
1 625
|
1 575
|
|
Cheddar cheese
|
2 163
|
1 850
|
1 850
|
1 850
|
|
Acid casein
|
4 100
|
3 950
|
3 950
|
3 950
|
|
1997
|
1998
estim. |
1999
f'cast |
|
| (. . million tonnes . .) | |||
|
WORLD
|
561
|
546
|
556
|
|
EC
|
124
|
124
|
124
|
|
India
|
76
|
71
|
74
|
|
United States
|
73
|
71
|
72
|
|
Russian Fed.
|
33
|
34
|
34
|
|
Pakistan
|
23
|
21
|
22
|
|
Brazil
|
23
|
21
|
22
|
|
Ukraine
|
15
|
15
|
15
|
|
Poland
|
13
|
12
|
12
|
|
New Zealand
|
12
|
11
|
12
|
|
Australia
|
10
|
9
|
10
|
Somewhat exceptionally, and reflecting the industry's heavy dependence on pasture, the expansion of milk production in Oceania is based on herd expansion, rather than increased yields. Elsewhere, in eastern Europe, milk production is expanding largely as a result of improved yields: this is the case, for example, in Poland, the region's largest milk producer. In Bulgaria, privatisation of the country's dairy industry could be completed in 1999. This process - in conjunction with economic growth, improved feed supplies and favourable milk prices - has led to milk output increasing each year since 1997. In the United States, milk production is anticipated to rise only marginally in 1999, as a result of lower producer returns, stemming from reduced milk prices. Production in a number of other developed countries (the EC, Canada, Japan, Norway, and Switzerland) is subject to policies which restrict output and, consequently, it changes little from year to year. In the Russian Federation, milk production in 1998, at 33.6 million tonnes, was down almost 3 percent on the previous year. However, following the devaluation of the rouble, the higher price of imported dairy products may lead to some expansion of dairy production in the Federation in 1999. Milk production in the Ukraine, the second largest producer in the CIS, appears to have stabilised at slightly under 15 million tonnes - after a steady contraction since 1990, when output was 24 million tonnes. Within the Ukraine dairy sector, milk output from private farmers is increasing, while that from former, large-scale state farms is decreasing.
In developing countries, growth in milk output is expected to continue in Asia and Latin America. Assuming normal weather conditions, India's milk output in the 1999/2000 (April/March) marketing year could rise to 76 million tonnes, confirming India's position as the world's largest milk producing country. Milk production in India has been stimulated by rising domestic demand, which has resulted in higher farm-gate prices. As India operates a pricing system based on the fat content of milk, most of the growth in Indian milk production has come from the buffalo herd: buffalo milk yields 7 percent fat, compared to 4 percent for cow milk. In China, moderate growth in total milk output is expected. Unlike in the previous decade, milk production growth in China during the 1990's has focused on improved yields, rather than expansion of the dairy herd. In Latin America, the upheaval in the Brazilian economy at the end of 1998 has had important consequences for other Mercosur members. Brazil, the main regional market, accounts for 75 percent of Argentina's exports, and a similar proportion of those from Uruguay. Despite uncertainty regarding both domestic demand and the future level of imports by Brazil, milk production in Mercosur is expected to increase due to momentum in the herd expansion phase of the cycle, with a possible depressing effect on producer prices. Elsewhere in Latin America, growth in milk production in Colombia, combined with stagnant domestic demand, has meant that companies are looking towards export markets to absorb their increased output in the form of dairy products. In Mexico, milk production could be stimulated following the removal of retail price controls on milk at the end of 1998; however, as farmers are reported to be facing higher feed costs, the short-term effect of this change may be more on the processing mix - for example, increased production of pasteurised milk - than on milk production per se.
As production of milk in the major exporting countries is not expected to grow substantially in 1999, supplies of dairy products to the world market are anticipated to be little changed compared to the previous year. Likewise, import demand for cheese in the main importing countries is likely to be similar to 1998. One factor behind a lack of growth in cheese trade could be reduced import demand by the Russian Federation and Brazil, following the devaluation of their currencies. Global trade in butter could fall if import demand by the Russian Federation is reduced, given that the Federation has accounted for an average of 50 percent of world trade in recent years. For milk powder, import demand is expected to remain steady in south-east Asia, North Africa and Mexico, although Brazil may reduce its imports.
| European Community |
United States | |||
|
Butter
|
Skimm.
milk powder |
Butter
|
Skimm.
milk powder |
|
| (. . . . thousand tonnes . . . .) | ||||
|
Feb. '97
|
56
|
120
|
0
|
0
|
|
Feb. '98
|
27
|
130
|
0
|
0
|
|
Feb. '99 *
|
16
|
173
|
0
|
0
|
Import demand from third countries will be the key issue in determining whether intervention stocks in the EC increase substantially during the year. If exports by the EC remain at similar levels to those of 1998, year-end intervention stocks of skimmed milk powder could be 100 000 tonnes or 50 percent more than in 1998, while in the case of butter, intervention and publicly-funded private storage could rise by 50 000 tonnes (60 percent). Any substantial build-up of intervention stocks could be a factor adding to downward pressure on international prices during the second-half of 1999.
Factors with a bearing on the price outlook for the rest of 1999 include: the level of Brazilian import demand, following the substantial devaluation of the real; production growth in the second-half of the year in the main dairy exporting countries in the southern hemisphere (New Zealand, Australia, Argentina and Uruguay), all of which rely on rain-fed pastures; the level of export subsidies provided by the United States and the EC and the size of EC intervention stocks. Assuming normal weather conditions in the southern hemisphere, the international dairy market is expected to remain reasonably well-balanced in 1999; however, average prices for the year may be slightly below those prevailing at the end of 1998.
