DEMAND FED

Six regions – the European Union, United States, New Zealand, Australia, Argentina and Brazil – supply 80 per cent of the global dairy trade. Unusually for a commodity trade dependent on weather, all of them over the past year have benefited from good conditions that have pushed production up – and prices down.

“It’s unique to see production so strong in all major producing regions all at once,” Rabobank International dairy analyst Michael Harvey says.

In April, for example, European Union production was 2.1 per cent higher than in the same month a year earlier. In the US the figure was 2 per cent, in New Zealand 10 per cent and in Australia, production was 3.9 per cent up on the previous year.

Prices have fallen accordingly. The US Department of Agriculture’s spot price for whole milk powder – one widely used benchmark – was 29 per cent down in the first week of June to $US2850 a tonne from a year earlier. The fall in prices is likely, in turn, to spark a further growth in demand.

“The rate of price recovery will depend on the amount of excess stock accumulated during [the first half of 2012], the time it takes supply growth to lose momentum and the prospects for any demand improvement,” Rabobank reports.

This doesn’t alter the picture of growth for the global dairy product market, with growth over a five-year horizon of 2.4 per cent but shows that it is one prone to ups and downs.

A further consideration is that the swings in demand are more prone in developing than in developed markets. Although new markets such as south-east Asia show the fastest growth, they are also more affected by economic downturns as dairy consumption is a less-established part of diets than in developed countries and also because disposable income is lower. So slower rates of growth in some countries will put a break on dairy consumption.

“Sales in emerging markets are still generally expanding, though ... the rate of growth is uneven,” the bank says. “Sales growth appears to be slowing somewhat in China, while companies reported declining sales volumes in Malaysia and Brazil.”

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