Global dairy trade enters a phase of slump

“Last year, we received prices of around 50 cents a litre, which is now down to 35 cents (Rs 11.47 a litre at Rs 32.78-to-an Australian dollar).”

Melbourne, March 10

After the unprecedented boom of the last two years, the global dairy trade has entered a slump phase amidst weakening market conditions.

Especially affected are Australia and New Zealand, which, unlike India, have small populations and limited domestic markets for dairy products. Given the extent of dependence on exports — 60 per cent of manufactured products in the case of Australia and 95 per cent for New Zealand — the sharp decline in product prices have hit their dairies the hardest.

Average prices

In 2007-08, global prices averaged $4,204 a tonne for skimmed milk powder (SMP), $4,027 for butter and $5,073 for cheese. The Australian Bureau of Agricultural and Resource Economics (Abare) forecasts these to drop to $2,200, $2,450 and $3,275 this year and further to $1,625, $1,750 and $2,625 in 2009-10.

The effects of this are already being felt on the farms. “Last year, we received prices of around 50 cents a litre, which is now down to 35 cents (Rs 11.47 a litre at Rs 32.78-to-an Australian dollar),” said Mr David Lee, a farmer from Bungaree, 15 km from Ballarat city.

Mr Lee is a typical Australian dairy farmer with a herd of 300 in-milk cows (besides 70 yet-to-calve animals), each giving 27 litres daily on an average. The animals are mostly fed on rye grass and white clover in a 1,100-acre farm, of which 100 acres are set aside for growing potatoes, 70 acres for lucerne grass and 40 acres for forage maize. The feed ration also includes canola meal, lupin, peas, citrus pulp, wheat grain and hay.
Break-up of account

“To obtain 27 litres a cow, I have to spend about $9 every day, which includes $6 for feed and the rest for maintenance and other costs. That comes to 33 cents a litre, which my current milk price just about covers,” Mr Lee told visiting Indian journalists at his dairy farm, which also has a rotary milking system (that can machine-milk 36 animals at a time over 8 minutes) and bulk cooling tanks that can store up to 13,000 litres at four degrees Celsius.

The dip in farm-gate prices of milk is being mainly attributed to the global economic slowdown, which has impacted consumption of dairy products even as production in New Zealand and Australia are recovering from the severe drought of 2007-08.

The situation has been exacerbated by the reactivation of export subsidies by the European Union (EU) in late-January.

This, alongside its old policy of supporting dairy producers through intervention purchases at guaranteed prices, is expected to result in a fresh built-up of stocks (after having been exhausted in 2007 for the first time in decades).
Subsidises supplies

With the US, too, threatening to follow suit, there are now fears of large-scale release of subsidised dairy supplies onto the world market, which could further depress prices. New Zealand, the EU and Australia together account for over 80 per cent of global dairy exports, with the US occupying the No. 4 slot.

“Unlike the EU and the US, our industry does not receive any production or export subsidies,” claimed Mr Phill Goode, Manager (International Policy), Dairy Australia.

The availability of abundant pasture lands makes both New Zealand and Australia low cost milk producers almost on par with India.

Between 1980 and 2008, the number of dairy farms in Australia has shrunk from 21,994 to 7,953, with the average herd size going up from 85 to 214.

The current crisis is likely to trigger a further restructuring and consolidation within the industry.

The 7,953 farms in Australia produced almost 9.4 million tonnes of milk last year. Contrast this to the three mt supplied by the 2.5 million farmers affiliated to the Gujarat Cooperative Milk Marketing Federation (Amul)!

Hindu businessline

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