At the highest level, global milk supply and demand decide the volume of milk protein people consume each year, the price they pay for it and the price farmers get paid. Short-term up or down movements, due to things like weather effects, can have an interim impact on price and availability.
However, long-term supply and demand trends are more important to understand, as they decide how changing trends signal system viability, environmental demands and investment decisions. This article sets out some of the long-term trends in global milk supply.
The first point to establish is that there are a couple of very big players in global milk production, but these are not necessarily the important players in terms of global trade. The reason for this is that most milk is consumed local to where it is produced.
So, for example, India is a very big milk-producing country, but most of it is produced by local farmers and households that consume the milk produced for themselves. Nigeria is another example. It is a huge African country with 200m people but it is only 40% self-sufficient in milk protein. Again, most farms have one or two cows producing milk for the household.
On the other hand, the United States and the European Union are very big milk-producing blocks, which produce more milk than they consume, so this surplus milk flows to deficit areas of the world where milk protein is required or necessary, such as Africa.
To get a better understanding of what is at play, it is necessary to take a deeper look at what is happening in some of these important milk-producing countries.
United States
The United States is a big player – over 100bn litres of milk produced per year with the stronghold in states such as Wisconsin and New York in the east. States such as California in the west have held milk production volumes level but the strain of water shortage is getting heavier and heavier to bear and is making milk production more difficult. Milk production will struggle and you will see a gentle move from west to east over time with the growth in the east of the US. Farm scale is increasing year on year and the majority of the milk is produced indoors from large confinement herds.
Historically, the US has not been a big player in terms of milk exports (ie milk that is traded internationally), but in recent years it has become a bigger player. Given the scale of US production, any increase in exports from there can have a big impact on global trade. If the country aims to export over 15% of its production, that means over 15bn litres of milk exported annually, almost the same as the volume traded from New Zealand.
South America
South America has been touted as a potentially big player on global milk markets for a long time. Large productive countries such as Argentina and Brazil, not to forget Uruguay sandwiched in-between, have the natural resources to produce a lot of milk.
They have fertile lands in abundance and adequate supplies of water. However, they lack the infrastructure needed to produce a lot of milk. The local producers also lack an understanding of what is required to become significant producers and the need to use alternative systems of production.
Current production systems are more traditional and the lack of skillsets among farmers and workers have kept a lid on production in these regions.
They may well produce a lot more milk at some time into the future, but the wave of milk coming from South America has not started just yet. Local currency fluctuations, weather patterns, local political swings and taxes on exports all hinder development.
Poor milk processing facilities and a lack of marketing know-how all have a part to play in constraining milk production in these countries. So, the milk wave that can be traded from these is likely to be little more than a gentle swell in the foreseeable future.
Oceania
The other key region in the whole milk supply and demand equation is Oceania, and the big players there are Australia and New Zealand. The Australian dairy industry has been on the floor for the last number of years with a mixture of milk processor failings and lack of rain hammering all farmers, not just dairy farmers.
The end result of years of poor milk prices and drought is a dairy industry struggling to reorganise itself. While 2020 sees some recovery (supply up 5% to date), it will take years for the Australian dairy industry to recover to where it was 10 years ago, if it ever does.
New Zealand, after a period of sustained volume growth, is slowing considerably. Growth is now very limited, mainly due to environmental regulations, as the country attempts to get a handle on improving water quality. It has grown from producing five billion litres over the last 30 years to now producing close to 20bn litres per year in the country where natural resources allow large quantities of grass to grow. This made milk viable and this was allied with an excellent infrastructure to make milk processing possible and profitable.
For many years we have talked about milk production moving to regions which have good natural resources to enable viable production. This really means countries or regions that have a competitive advantage using grazed grass. This is happening right now.
Europe:
a milk stronghold
Europe is a longstanding stronghold of milk production. It has well-established structures for producing, processing and marketing milk. Within Europe, the change is that milk supply is getting weaker at the edges towards the north and south, but it is getting stronger in the countries where natural resources are not limiting, especially now that production regulation is removed.
Think of it: a country such as New Zealand grew its milk production for the last 30 years, from five to 20bn litres. But countries like Ireland, within Europe, that could produce more milk were artificially constrained by quotas from producing more milk from the mid-1980s up to 2015.
So, what is happening at the edges of Europe? The Nordic countries of Norway, Finland, Denmark and Sweden all produce milk, but long, cold winters and high production costs make milk production expensive there. As a result, we are seeing declining volumes of milk produced in these countries.
Ireland has technical ability and infrastructure in abundance, but will be limited by other constraints
At the other end of Europe, countries such as Spain that experience very high summer temperatures are also seeing declining volumes of milk produced, as natural resources become stretched. All this means that the long-established dairy-producing countries such as Germany, France and Holland are the mainstay of European production.
At the same time, countries such as Ireland and Poland are now increasing production, but how much further they can grow is yet to be seen. Poland has huge scope for growth, but it is coming from a much lower level of traditional technical ability and infrastructure. Ireland has technical ability and infrastructure in abundance, but will be limited by other constraints including competing land uses, environmental limits and land availability.
To bring the European story right up to speed, French and German production to date is up 1% for 2020. Both countries, as a result, produced more skim and whole-milk powder this year. The Dutch are up 2% after environmental restrictions limited 2018 and 2019 production, so they also produced more powders and cheese this year. Poland’s production is up 2.7% year to date, similar to Ireland.
Five years after quotas were removed, the EU countries showing growth in milk production are increasing volumes produced by 3% to 4% per year. That is the same growth rate by which New Zealand grew annually for the last 30 years.
Global milk production is undergoing considerable change with some countries increasing while others are easing back, mainly for competitiveness reasons. The US has become a major global producer and exporter and development there must be watched.South America has significant potential to expand milk production, but a big increase seems unlikely over the coming decade.Production patterns in Europe are changing with declining production towards the north and south, while those member states towards the centre grow their production levels.The Irish Farmers Journal is hosting a webinar titled: Sustainability and Agri-food – the next decade on Tuesday 3 November at 3pm. Featuring Tom Arnold, chair of the Irish 2030 Agri-Food Strategy Committee along with Tara McCarthy of Bord Bia, Dr Mark Lyons of Alltech and Juan Aguiriano of Kerry Group.
Submit your questions to our panel by emailing webinar@farmersjournal.ie or send to 086-836 6465.
You can view the webinar FREE at www.ifj.ie/2020vision
2020 Vision is supported by Bord Bia, Alltech and Kerry.
At the highest level, global milk supply and demand decide the volume of milk protein people consume each year, the price they pay for it and the price farmers get paid. Short-term up or down movements, due to things like weather effects, can have an interim impact on price and availability.
However, long-term supply and demand trends are more important to understand, as they decide how changing trends signal system viability, environmental demands and investment decisions. This article sets out some of the long-term trends in global milk supply.
The first point to establish is that there are a couple of very big players in global milk production, but these are not necessarily the important players in terms of global trade. The reason for this is that most milk is consumed local to where it is produced.
So, for example, India is a very big milk-producing country, but most of it is produced by local farmers and households that consume the milk produced for themselves. Nigeria is another example. It is a huge African country with 200m people but it is only 40% self-sufficient in milk protein. Again, most farms have one or two cows producing milk for the household.
On the other hand, the United States and the European Union are very big milk-producing blocks, which produce more milk than they consume, so this surplus milk flows to deficit areas of the world where milk protein is required or necessary, such as Africa.
To get a better understanding of what is at play, it is necessary to take a deeper look at what is happening in some of these important milk-producing countries.
United States
The United States is a big player – over 100bn litres of milk produced per year with the stronghold in states such as Wisconsin and New York in the east. States such as California in the west have held milk production volumes level but the strain of water shortage is getting heavier and heavier to bear and is making milk production more difficult. Milk production will struggle and you will see a gentle move from west to east over time with the growth in the east of the US. Farm scale is increasing year on year and the majority of the milk is produced indoors from large confinement herds.
Historically, the US has not been a big player in terms of milk exports (ie milk that is traded internationally), but in recent years it has become a bigger player. Given the scale of US production, any increase in exports from there can have a big impact on global trade. If the country aims to export over 15% of its production, that means over 15bn litres of milk exported annually, almost the same as the volume traded from New Zealand.
South America
South America has been touted as a potentially big player on global milk markets for a long time. Large productive countries such as Argentina and Brazil, not to forget Uruguay sandwiched in-between, have the natural resources to produce a lot of milk.
They have fertile lands in abundance and adequate supplies of water. However, they lack the infrastructure needed to produce a lot of milk. The local producers also lack an understanding of what is required to become significant producers and the need to use alternative systems of production.
Current production systems are more traditional and the lack of skillsets among farmers and workers have kept a lid on production in these regions.
They may well produce a lot more milk at some time into the future, but the wave of milk coming from South America has not started just yet. Local currency fluctuations, weather patterns, local political swings and taxes on exports all hinder development.
Poor milk processing facilities and a lack of marketing know-how all have a part to play in constraining milk production in these countries. So, the milk wave that can be traded from these is likely to be little more than a gentle swell in the foreseeable future.
Oceania
The other key region in the whole milk supply and demand equation is Oceania, and the big players there are Australia and New Zealand. The Australian dairy industry has been on the floor for the last number of years with a mixture of milk processor failings and lack of rain hammering all farmers, not just dairy farmers.
The end result of years of poor milk prices and drought is a dairy industry struggling to reorganise itself. While 2020 sees some recovery (supply up 5% to date), it will take years for the Australian dairy industry to recover to where it was 10 years ago, if it ever does.
New Zealand, after a period of sustained volume growth, is slowing considerably. Growth is now very limited, mainly due to environmental regulations, as the country attempts to get a handle on improving water quality. It has grown from producing five billion litres over the last 30 years to now producing close to 20bn litres per year in the country where natural resources allow large quantities of grass to grow. This made milk viable and this was allied with an excellent infrastructure to make milk processing possible and profitable.
For many years we have talked about milk production moving to regions which have good natural resources to enable viable production. This really means countries or regions that have a competitive advantage using grazed grass. This is happening right now.
Europe:
a milk stronghold
Europe is a longstanding stronghold of milk production. It has well-established structures for producing, processing and marketing milk. Within Europe, the change is that milk supply is getting weaker at the edges towards the north and south, but it is getting stronger in the countries where natural resources are not limiting, especially now that production regulation is removed.
Think of it: a country such as New Zealand grew its milk production for the last 30 years, from five to 20bn litres. But countries like Ireland, within Europe, that could produce more milk were artificially constrained by quotas from producing more milk from the mid-1980s up to 2015.
So, what is happening at the edges of Europe? The Nordic countries of Norway, Finland, Denmark and Sweden all produce milk, but long, cold winters and high production costs make milk production expensive there. As a result, we are seeing declining volumes of milk produced in these countries.
Ireland has technical ability and infrastructure in abundance, but will be limited by other constraints
At the other end of Europe, countries such as Spain that experience very high summer temperatures are also seeing declining volumes of milk produced, as natural resources become stretched. All this means that the long-established dairy-producing countries such as Germany, France and Holland are the mainstay of European production.
At the same time, countries such as Ireland and Poland are now increasing production, but how much further they can grow is yet to be seen. Poland has huge scope for growth, but it is coming from a much lower level of traditional technical ability and infrastructure. Ireland has technical ability and infrastructure in abundance, but will be limited by other constraints including competing land uses, environmental limits and land availability.
To bring the European story right up to speed, French and German production to date is up 1% for 2020. Both countries, as a result, produced more skim and whole-milk powder this year. The Dutch are up 2% after environmental restrictions limited 2018 and 2019 production, so they also produced more powders and cheese this year. Poland’s production is up 2.7% year to date, similar to Ireland.
Five years after quotas were removed, the EU countries showing growth in milk production are increasing volumes produced by 3% to 4% per year. That is the same growth rate by which New Zealand grew annually for the last 30 years.
Global milk production is undergoing considerable change with some countries increasing while others are easing back, mainly for competitiveness reasons. The US has become a major global producer and exporter and development there must be watched.South America has significant potential to expand milk production, but a big increase seems unlikely over the coming decade.Production patterns in Europe are changing with declining production towards the north and south, while those member states towards the centre grow their production levels.The Irish Farmers Journal is hosting a webinar titled: Sustainability and Agri-food – the next decade on Tuesday 3 November at 3pm. Featuring Tom Arnold, chair of the Irish 2030 Agri-Food Strategy Committee along with Tara McCarthy of Bord Bia, Dr Mark Lyons of Alltech and Juan Aguiriano of Kerry Group.
Submit your questions to our panel by emailing webinar@farmersjournal.ie or send to 086-836 6465.
You can view the webinar FREE at www.ifj.ie/2020vision
2020 Vision is supported by Bord Bia, Alltech and Kerry.
This is a subscriber-only article
SHARING OPTIONS: