The Hindu Business Line : Dairy products prices likely to decline in 2008-09

Chennai, March 21 Global prices for most dairy products are expected to decline in 2008-09 (July-June) with production and exports rising in response to current higher global prices.

“The US, in particular, is expected to increase exports as a result of rising production, a lower dollar and global prices that have exceeded its domestic prices,” says a dairy outlook to 2012-13 by the independent Australian Government economic research agency, Abare.

The prices are also expected to be affected by some of the food processors switching over to other cheaper inputs from high-priced dairy ingredients and reduced consumption of dairy products.

But global prices of dairy products are forecast to remain relatively high over the outlook period as demand continues to grow along with production rise.

After a strong 2007-06, global whole milk powder prices are forecast to fall around $4,380 a tonne during 2008-09. But the prices are seen relatively higher during the following period and are likely to average around $4,700 a tonne during 2010-11. However, in 2012-13, the prices are seen declining to $3,700 as production growth outstrips import demand.

Income growth

Growth in dairy products consumption is seen mainly driven by income growth in developing countries, particularly Asia and East Europe.

Prices of skimmed milk powder, averaging $4,420 in 2007-08, are projected to fall to $4,200 in 2008-09, mainly due to increase in production and higher exports from the US. Lack of global stocks and relatively slow growth in production are expected to help a moderate rise of the prices the following year. However, Abare forecasts skimmed milk powder prices falling to $3,660 a tonne by 2012-13.

Mad cow disease

On rising consumption, the agency says that fear of the mad cow disease has led to increased used of skimmed milk powder in animal feeds as protein supplement besides in food processing.

A constrained growth in global butter production in view of milk supplies being diverted to cheese production has reduced the exportable surplus of butter. As a result, exports from Australia, New Zealand and the European Union are expected to be lower in 20087-09. The constraint is expected to remain as increased cheese production is expected to continue.

Despite this, global butter prices are projected to decline five per cent to $3,750 a tonne in 2008-09 on moderate trend in exports from the US. But the prices are expected to rebound to $3,900 in 2009-2010 before slipping to $3,100 in 2012-13.

Cheese prices

Cheese prices, too, are seen decline in line with the general trend of dairy products during 2008-09, when it projected to drop to $4,950 a tonne. But the prices are expected to peak to $5,200 a tonne during 2010-11 and subsequently, decline to $4,460 a tonne.

Abare says the future growth of cheese consumption will be linked strongly to rising consumer incomes and a trend toward more western style diets, particularly in major developing nations in Asia.

The agency said the European Union, the world’s largest producer and exporter of dairy products, will play an important role in short and medium term outlook of the dairy sector. The large size of dairies in the Union and repeat of its previous efforts to dispose of surpluses on world markets at subsidised prices would have a major destabilising effect on global prices and trend. However, production quotas in the union are likely to ensure an increasingly slower growth of milk production.

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