The Hindu Business Line : ‘Dairy products prices may fall on rise in output, exports’

Global dairy products prices are forecast to rule lower during 2008-09 (September-August) as rise in production and exports from the US and the European Union improve their availability in the world markets.

“In 2008-09, world prices for skimmed milk powder and whole milk powder are forecast to average around 13 per cent and six per cent lower at $3,650 and $4,275 a tonne respectively,” said Abare, Australia’s independent agricultural and research economics body, in an outlook.

Stating that import demand from various countries continued to grow, particularly in Asia and West Asia where income growth was high, it said demand from developed nations such as the US and European Union also remained firm.

However, growth in supplies of milk powder was expected to be limited in line with slow growth in global milk production. In addition, changing pattern of demand is likely to result in more milk going into cheese production. “Slow growth in production, together with exhaustion of EU intervention stocks, will limit the amount of milk powder available for export and contribute to world prices remaining at relatively high levels,” Abare said.

Cheese

Cheese prices are forecast to average four per cent lower at around $4,875 a tonne as supply in the global market grows more rapidly than demand. Cheese production in the European Union is expected to increase, reflecting solid growth in domestic demand and relatively high world prices. “However, increasing domestic cheese consumption in the EU is expected to limit growth in exports in 2008-09,” the Australian research body said.

Butter

Butter prices are anticipated to fall by over six per cent to average $3,750 a tonne. Butter consumption has been increasing as incomes in the Russian Federation, Egypt and parts of West Asia have increased. In the US and the EU, butter consumption growth has been more slow. Rising production of butter in the EU and increased exports from the US are expected to put pressure on global prices. On the growth of the dairy industry, Abare said supply constraints in the major exporting regions were expected to limit growth of the trade, despite good demand growth.

Among key constraints on growth in the world dairy supplies are market reforms in the European Union that have led to reduced surpluses and slower growth in exports; and government policies discouraging exports from Argentina. The continuing effects of drought in Australia have reduced milk production and export of manufactured dairy products from down under.

EU milk output

During 2008-09, the European Union milk production was forecast to increase two per cent. Higher milk prices have provided incentives to increase production growth in the European Union. However it would be limited by legislated production quotas under the Common Agricultural Policy in some of the largest producing nations of the Union.

Argentina

In Argentina, the Government has imposed export taxes to curb shipments abroad and maintain low-cost supplies for the domestic consumers. As a result, export growth was expected to be limited in the short-term, despite production recovering in the South American nation due to new investment in dairy farming.

New Zealand

In New Zealand, the time taken to build dairy herds, competing land uses and increasing compliance costs associated with government regulation on effluent disposal are expected to come in the way of rapid increase in production, Abare said.