Milk prices require a "considerable" rise to spur the extra European and US production needed to meet global demand, Rabobank has said in a report placing the internet and urbanisation as among dairy farmers' best friends.
While growth in global milk consumption will jump from 1% last year to 2.8% from 2011, the big southern hemisphere producers are limited in their scope to meet rising import demand.
Expansion in New Zealand, the world's biggest dairy exporter, is constrained by a lack of suitable land, while water shortages are clouding Australia's prospects. Extra Brazilian production will go largely on meeting expanding domestic needs.
"The market will therefore require additional contributions from the European Union or the US to balance the market entering the medium term," Rabobank said.
Higher costs
However, for EU or US farmers to raise output will require a higher milk price, given waning subsidies and the likelihood of higher grain and fertilizer bills "keeping the costs of producing milk far higher than in most of recent history".
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Growth in global dairy consumption (and in major importing countries)
2011-13: 2.8% (2.4%)
2009-10: 2.4% (0.8%)
2008: 1.0% (1.9%)
Consumption was 605.4bn litres milk equivalent (118.6bn litres) in 2008
Source: Rabobank |
"The market will have to cover the costs of production of at least the [Northern Hemisphere's] lower cost producers," Rabobank said, saying the "only way is up" for prices.
"The world will have to pay considerably more for milk that it did in the first half of 2009 if farmers are to invest."
While the bank declined to forecast prices, it noted production costs in California and Ireland at about $0.42-0.44 a litre last year, equivalent to a whole milk powder price of $3,600-3,600 a tonne, free on board.
Production costs were 15-20% higher in the UK, at a little over $0.50 a litre, thanks in the main to higher labour charges, with Dutch costs higher still.
Internet boost
The report attributed higher demand for dairy not just to the world gaining an extra 400m mouths to feed over the next five years, but to the increased concentration of populations in urban centres.
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Fastest growing dairy markets, 2011-13 (and growth rate 2009-10)
1: China, +7.7% (8.3%)
2: Indian sub-continent, 4.2% (4.4%)
3=: Middle East, 4.0% (3.9%)
3=: Mid + Southern Africa, 4.0% (3.5%)
5=: North Africa, 3.8% (3.5%)
5=: South East Asia, 3.8% (2.4%)
Source: Rabobank |
"This is important for dairy," Rabobank said.
"Consumers in cities have better access to chilled distribution chains, they are more likely to be exposed to the marketing of dairy products, and refrigerator ownership is much more common."
The internet and television would also spur dairy consumption by promoting Western dietary habits among consumers in developing countries.
"Rising income brings the ability to afford Western products, and companies are quick to foster this potential," the report said.
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