Changing global dairy markets: Comparison of dairying worldwide & farm economics Bjørn Gunnar Hansen, member of the IFCN Dairy Research Network TINE SA, cooperative dairy company
Agenda 1. The IFCN network concept and the dairy world 2. Milk production, demand and comparison of farms 2014 3. The costs, milk and feed prices worldwide 4. Summary
IFCN - The Dairy Research Network The International Farm Comparison Network A network of researchers, companies and the IFCN center in Köln
Working internationally can be challenging A joke (?) about a world-wide survey by the UN 1. The only question asked was: "Would you please give your honest opinion about solutions to the food shortage in the rest of the world?" 2. The survey was a huge failure because: In Africa they didn't know what 'food' meant, In India they didn't know what 'honest' meant, In Europe they didn't know what 'shortage' meant, In China they didn't know what 'opinion' meant, In the Middle East they didn't know what 'solution' meant, In South America they didn't know what 'please' meant, And in the USA they didn't know what 'the rest of the world' meant.
Status of the IFCN Network in 2016 Research partners in 100 countries Supporting partners (> 100)
Dairy is about a large number of people 1. The dairy farming community in 2014 600 millions of people involved living on 121 million dairy farms 2. The impact of dairy employment - 119 mill full time jobs (IFCN est.) direct (48) and indirect (71) Indirect means milk collection, processing, retailers, farm inputs etc. 119 mill equals the population of Germany, Australia, Norway and Sweden. 21.06.2016 21/06/2016 IFCN 2015 2016
Agenda 1. The IFCN network concept and the dairy world 2. Milk demand, production and comparison of farms 2014 3. The costs, milk and feed prices 4. Summary
What is the world average milk consumption per capita?
The demand for milk Per capita average consumption is 105 kg/ year EU approx. 300, China 31, Indonesia 12 Demand is driven by: a) population growth b) per capita consumption growth Demand is growing 10 20 mill. t /year = annual NZ milk volume
Which country produces the most milk?
Status of milk production 2015 in mill tons ECM 29 91 EU-28 166 46 32 165 34 11 11 25 Only 62 % reaches processors
Milk surplus and deficit world-wide 2014-5.2 5.4 15.8-9.6 2.0 22.1 2014 world surplus: 0.7% = 5 mill t ME 12/01/2015 FOR INTERNAL USE ONLY IFCN 2015 12
We are in a growing business National supply change 2015 vs 2014 in mill t ECM -0.01 1.0 EU-28 4.0-0.7 0.8 0.3 7.1-1.4 0.1 0.2 0.3 Source of data: IFCN data base, National statistics, FAO. 21/06/2016 Source: D3.2 - Dairy Sector Analysis with Base Line Projection 2025 IFCN 2016
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 mill. t ECM / year World milk production growth alternates from + 8 to + 25 mill t/year since 2000 28 26 24 22 20 18 16 14 12 10 8 6 4 2 0 Change in Milk production / year 21/06/2016 Source: D3.2 - Dairy Sector Analysis with Base Line Projection 2025 IFCN 2016
Where are dairy farms located?
Milk is produced in many different ways
Informal milk: The value chain for milk in Pakistan 98 % 12/01/2015 FOR INTERNAL USE ONLY IFCN 2015 17
What is the world average milk production per day?
Average size of dairy farms in 2014 Ø farm size world: 3 cows 13 countries with Ø farm size >100
A global picture of dairy farm structure Analysis covers 95% of the countries in the world % Share in dairy farm size classes 100 % 90 % 80 % 70 % 60 % 23% 3% 5% 6% 15% 11% 14.6 % 25.6% 50 % 40 % 30 % 20 % 10 % 73% 17% 29% 31% 59.8% 0 % Dairy Farms Dairy cows 21/06/2016 Source: D3.2 IFCN Dairy Sector Database IFCN 2016
Change in average no of cows 1996-2013 (%) 250 200 150 100 50 0-50 -100
A closer look at farm economics on typical farms in some countries in 2014
FI- 25 NO- 20 SE- 70 DK- 150 DE- 79S AU- 300 Forage area, ha per farm 180 160 140 120 100 80 60 40 20 0
FI-25 NO-20 SE-70 DK- 150 DE- 79S AU- 300 Milk output tons ECM/ farm 2000 1800 1600 1400 1200 1000 800 600 400 200 0
FI-25 NO-20 SE-70 DK- 150 DE- 79S AU- 300 Milk yield in kilogram ECM per cow 12,000 10,000 8,000 6,000 4,000 2,000 0,000
FI-25 NO-20 SE-70 DK- 150 DE- 79S AU- 300 Labour productivity kg ECM/ hour 350 300 250 200 150 100 50 0
FI-25 NO-20 SE-70 DK-150 DE-79S AU-300 Farm milk price EUR/100 kg ECM 60 50 40 30 20 10 0
FI- 25 NO- 20 SE- 70 DK- 150 DE- 79S AU- 300 Cattle returns EUR/100 kg ECM 12 10 8 6 4 2 0
Subsidies, what are they? Linked to milk production= Coupled E.g. in Norway support per cow, per hectar, etc. E.g. in Switzerland preservation of cultural landscape, boost of biodiversity, provision of animal welfare etc. Paid as direct aid to the farmer = Decoupled (often based on the amount of land farmed, and not directly linked to prioduction) In the EU, some parts of US, China, Japan E.g. o EU: Farming in less favourable areas, organic farming, grassland farming, nature protection etc. o Germany: Payment per litre of diesel used
FI-25 NO-20 SE-70 DK- 150 DE- 79S AU- 300 Direct subsidies, EUR/ 100 kg ECM 40 35 30 25 20 15 10 5 Decoupled direct subsidies Coupled direct subsidies + VAT surplus 0
FI-25 NO-20 SE-70 DK- 150 DE- 79S AU- 300 Costs of milk production only EUR/100 kg ECM 80 Cost P&L - non milk returns Opportunity costs Quota costs Milk price 70 60 50 40 30 20 10 0
FI-25 NO-20 SE-70 DK-150 DE-79S AU-300 Capital input, 1000 EUR/ cow (land, livestock, quota, machinery, buildings) 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0,000
Low cost cowshed in Australia
Three profit measures Farm income: Returns of the dairy enterprise included decoupled subsidies minus costs from the account Entrepreneur s profit: Total returns excl decoupled payments minus costs from the account plus opportunity costs. Opportunity costs is the market value of labour, land, capital and quota.
Farm income excl. decoupled subsidies EUR/ 100 kg ECM FI- 25 NO -20 SE- 70 DK- 150 DE- 79S AU- 300 50 45 40 35 30 25 20 15 10 5 0
FI-25 NO-20 SE-70 DK-150 DE-79S AU-300 Entrepreneur s profit excl. decoupled subsidies, EUR/ 100 kg ECM 10 5 0-5 -10-15 -20-25
Agenda 1. The IFCN network concept and the dairy world 2. Milk production, demand and comparison of farms 2014 3. The costs, milk and feed prices worldwide 4. Summary
Agenda 1. The IFCN network concept and the dairy world 2. Milk demand, production and comparison of farms 2014 3. The costs, milk and feed prices worldwide 4. Summary
US-$ / 100 kg milk (ECM) Cost of milk production only in average sized typical farm types in 2014 (US-$ / 100 kg ECM) Opportunity costs (own labour, land, capital)) Costs of the profit and loss account none milk returnshung - Nebenerlöse Quota costs US-WI Germany north/east NL Germany south China CH/, Japan India BR NZ Africa AR/UY/CL World milk price 4/2016 Comment: Average sized farms in the countries, analysed year: 2012 ECM: energy corrected milk (4% fat, 3.3% protein). For the conversion on the left hand side exchange rate used : 1 = 1.324 US-$. 21/06/2016 Source: IFCN database - D5.1 - Dairy Farm Analysis Database 2015 IFCN 2016
What about the world market feed and milk prices? The IFCN feed price indicator Weighted world market prices for Soybean 30% Corn or barley 70% The IFCN milk price indicator Weighted world market prices for SMP & butter 35% Cheese & whey 45% Whole milk powder 20%
What do you notice in this figure?
US-$ per 100 kg milk 4% fat, 3,3 % protein Transmission of milk price to national level USA Germany New Zealand 31$ 36$ 20$ 21/06/2016 Source: D3.4 - IFCN Monthly real time data IFCN 2016
Understanding the price waves is crucial
How can dairy farmers adapt? Both prices show business cycles of 32 months The feed price is the leading variable Farmers who correctly anticipate the price cycles could depopulate the milking barn for a year or so while retaining young- stock to repopulate later, or cull individuals that do not cover their marginal costs Farmers who plan to expand can time their expansion optimally Read more in the forthcoming issue of the Agribusiness journal
Have the prices reached the bottom? USD/ 100 kg
So what s your guess for the rest of 2016? Fortunetellers have updated their technology
Forecasts in USD/ 100 kg from May on 30 25 20 15 10 Milk price Feed price 5 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Summing up 1. Dairy is a growing business 2. Milk is produced in many different ways worldwide 3. Production is dominated by small farms 4. A huge variety in agricultural policy, costs and returns 5. The milk price is recovering and farmers who anticipate the long waves can adapt
Thanks for your attention!