Dairy World & Recent Market Trends Competitiveness and internationalization of livestock sectors. Ministry of Agriculture and Fisheries, Food and Environment, Spain 20.3.18 Amit Saha IFCN Senior Researcher; Dairy economist Amit.Saha@ifcndairy.org 22/03/2018 IFCN 2017 1
World milk price is still very volatile IFCN Combined World Milk Price Indicator? 22/03/2018 IFCN 2017 2
Agenda 1. The IFCN Network Concept 2. Globalization of dairy sector 3. Dairy markets & its drivers 4. Farm competitiveness 5. Sum up 22/03/2018 IFCN 2017 3
IFCN - The Dairy Research Network Mission: We create a better understanding of the dairy world by providing comparable data, knowledge and inspiration. The IFCN Network approach consisting of three pillars - the IFCN Research Network of researchers - the IFCN Supporter Partner Network of companies/institutions - the IFCN Research Center with > 15 dairy economists 22/03/2018 IFCN 2017 4
IFCN Network 2018 IFCN Country Data Partners 110 Countries, 98% of world milk production covered IFCN Supporter Partners >120 New companies in 2017/18: Milcobel, DZ Bank, AGCO, Cobank, KDD, Kalleh, Leiber, Etex, TopCon, Novozyme, Nordic dry, Kemin, Aavin, Randox, smaxtec IFCN Institutional Partners New institutions 2017: GASL, WWF, NDDB 22/03/2018 IFCN 2017 5
Agenda 1. The IFCN Network Concept 2. Globalization of dairy sector 3. Dairy markets & its drivers 4. Farm competitiveness 5. Sum up 22/03/2018 IFCN 2017 6
Who is importing what? Dairy imports by product groups in 2015 22/03/2018 Source: IFCN Dairy Report 2016, page 81 IFCN 2017 7
Key driver: Milk surplus & deficit by region ME = milk equivalents 22/03/2018 ME = Milk equivalents, based on fat and protein only IFCN 2017 8
Status of milk production & delivery in 2016 28 92 EU-28 167 47 33 171 10 34 10 24 1. The top 3 regions: South Asia, the EU, USA 2. Top 4 6 regions: Oceania, Brazil, China, Russia 3. Share of milk delivered 2016 in the world: 62% 22/03/2018 Source: D3.2 - Dairy Sector Analysis with IFCN Long-term Dairy Outlook 2026, status 3/2017 IFCN 2017 9
IFCN Top 20 milk processors list 2016 Data related to the mainly 2015 Rank 2016 Company name Origin & main operation countries Milk intake, in mill. t ME Estimated turnover per kg milk, in USD Market share in % of world milk production 1 Dairy Farmers of America USA 28.1 0.5 3.6% 2 Fonterra New Zealand/ others 22.1 0.6 2.8% 3 Groupe Lactalis France/others 15.1 1.3 1.9% 4 Arla Foods Denmark/Sweden/UK 14.2 0.8 1.8% 5 Nestlé Switzerland/others 14.0* 1.9* 1.8% 6 FrieslandCampina Netherlands/others 12.6* 1.0* 1.6% 7 Dean Foods USA 10.3 0.8 1.3% 8 DMK (incl.doc Kaas) Germany/Netherlands 7.8 0.9 1.0% 9 Saputo Canada/USA/others 7.7 1.1 1.0% 10 California Dairies USA 7.7 0.5 1.0% 11 Danone France/others 7.5 2.4 1.0% 12 Yili Group China 6.8* 1.4* 0.9% 13 Amul (GCMMF) India 6.5 0.8 0.8% 14 Müller Germany/UK/others 6.3 1.2 0.8% 15 Glanbia Group Ireland/USA/others 6.1 0.7 0.8% 16 Agropur Canada/USA 5.8 1.0 0.7% 17 Land O' Lakes USA 5.8* 0.7* 0.7% 18 Mengniu China 5.8 1.4 0.7% 19 Groupe Sodiaal France 5.2 1.1 0.7% 20 Schreiber foods USA 4.5* 1.1* 0.6% Sum of Top 20 200 1.0 25.4% * IFCN estimation 22/03/2018 IFCN 2017 10
USD/100kg ECM Transmission from world to national milk price USA Spain 1. The world milk price influences national milk prices 2. Each country follow the red line - 3. But we have special patterns like e.g. USA: 2014 + 2015 EU/Spain: 2007;2017/18 22/03/2018 Source: IFCN Monthly Real Time Data IFCN 2017 11
Rotterdam declaration: 1 billion people FAO: It is likely that the dairy sector supports the livelihoods of up to one billion people worldwide. Mathematics on dairy farms 1. 120-130 mill dairy farms 2. 5 people/ farming family => > 600 million people 2009 IDF summit 0,7-1 bill people on farm 3.09 mill Mathematics supply chain 1. 71 mill Jobs in the dairy chain (Range = 36-258 mill) 2. 5 people/ family => >355 million people 2010 FAO/IFCN >750 mill on farm 2015 IFCN work for GDP > 950 mill One Billion people = > 600 mill farm + >355 mill chain + XXX induced jobs / spin offs 22/03/2018 IFCN 2017 12
Agenda 1. The IFCN Network Concept 2. Globalization of dairy sector 3. Dairy markets & its drivers 4. Farm competitiveness 5. Sum up 22/03/2018 IFCN 2017 13
USD/100kg ECM 4% fat 3.3% protein World milk price trend 2006 01/2018 IFCN Combined World Milk Price Indicator 1 2 3 4 5 The method: The price is the milk value at farm gate based on commodity prices on the world market Long-term average: 2007-16: approx. 38 USD/100kg ECM? The patterns of the past (simplified) 1. The 1 st Rollercoaster 2007 2009 Length: 3 years; +/- 50% fluctuation 2. The 1 st Zigzag 2010 Length: 1 year; +/- 10% fluctuation 3. The Dynamic Wave 2011 2012 Length: 2 years; +/- 25% fluctuation 4. The 2 nd Rollercoaster 2013 2016 Length approx. 4 years; +/- 50% fluctuation 5. The 2 nd Zigzag 2017/18 Length: so far 12 months; +/- 10% fluctuation 6. New cycle? When and what? 22/03/2018 Source: D3.4 - IFCN Monthly Real Time Data and Farm Economics January 2018 IFCN 2017 14
What drives dairy economics? Why short term outlook How IFCN can support you with real time data 22/03/2018 IFCN 2017 15
2017e World milk production change 1997-2016 The indicator used: All milk = milk from all types of animal, standardised to 4% fat, 3.3% protein? Situation 2016: 846 mill t milk production + 9.9 mill t growth (+ 1.2%) = lowest growth since 1998 The trends for the last 10 years: 17 mill t / 2.3%/year Ø growth 3 crisis years: 2009; 2012; 2016 2014 record production year: + 25 mill t 22/03/2018 IFCN 2017 16
Current dairy world situation December 2017 February 2018 IFCN Estimates World milk and feed prices in USD / 100 kg ECM Source: Data product 3.4 IFCN Monthly Real Time Data, 15.02.2018 22/03/2018 IFCN 2017 17
Milk demand per capita 2016 The indicator: There is a comparable milk demand indicator Milk demand ranges from 13 kg in Indonesia to over 300 kg per capita in EU countries 22/03/2018 Source: D3.2 - Dairy Sector Analysis with IFCN Long-term Dairy Outlook 2026 IFCN 2017 18
1000 t ME Dairy import changes in 2017 vs 2016 Monthly total dairy commodities imports volume by top dairy net importers in milk equivalents Total world dairy imports 0.5-0.3 0.7-0.5-0.3 % change to previous year 2014 +6% 2015-1% 2016 4% Jan-Sep 2017 +2.4% 0.7 China: Imports are recovering Russia: Imports still not back on pre-ban level Algeria/ Egypt: Imports show downward trend with current devaluation against USD 22/03/2018 Source: D3.2 - Dairy Sector Analysis with IFCN Long-term Dairy Outlook 2026, status 8/2017 IFCN 2017 19
Agenda 1. The IFCN Network Concept 2. Globalization of dairy sector 3. Dairy markets & its drivers 4. Farm competitiveness 5. Sum up 22/03/2018 IFCN 2017 20
Farm comparison analysis in 2017 Why? Better understand and predict a specific segmentation of farm classes, we define the typical farm class. Participating countries 2017 Method concept a) Typical farm concept b) Model TIPI-CAL c) Validation loops & quality check d) The cooperation between researchers Coverage: 52 countries; 89% of world production, 159 typical farm types A typical farm type represents in each country a certain production system and x% farm and y% cows Time period: data for calendar year 2016* * Seasonal data for New Zealand 22/03/2018 IFCN 2017 21
Examples of typical farm types PL-16E PL-65S UA-200 UA-550 ID US-80WI US-500WI ES-65NW ES-93S DE-30S DE-139N CN-200 CN-1450 KE-2 KE-10 IN-2N IN-20N NZ-369 NZ-1052 BR-23S BR-60S Legend: Countries where IFCN Typical farms are analyzed ES-65NW: Typical Average size family dairy farm in Galicia region, North West Spain- herd size of 65 cows 22/03/2018 Source: D3.2 - Dairy Sector Analysis with Long-term Outlook 2026 IFCN 2017 22
Cost of milk production 2016 On average sized typical farms in USD/100 kg milk (ECM) Low cost (< 30 USD): New Zealand, Ukraine, Mexico, Chile and Peru, South Africa Moderate (30 50 USD): Australia, parts of L-America & Europe, US, S-Asia, Russia High cost (>50 USD): Canada, Japan, Switzerland, Scandinavia, China 22/03/2018 IFCN 2017 23
USD / 100 Kg Milk (ECM) USD / Hour Cost and labour competitiveness 2016 Sustainable farming systems needed Economic Drivers: Milk price, cost of production, labour returns Policy drivers: Farm support Larger sized farms are more sustainable but need policy support in EU 22/03/2018 IFCN 2017 24
Cost trend analysis of typical farms For 6 countries 2000-2017 Spain, USA, New Zealand China, India, Brazil Costs in the ES, DE and NZ decreased from 2014 onwards Drivers for cost ( ) in ES: low feed price, euro devaln Costs are stabilizing in the range of 30-40 USD per 100 kg milk (ECM) Exception: NZ:below 30 USD CN: 60 to 50 USD Cost estimations in 2017 similar to 2016 except IN, BR Precursor for increased production in 2017 ->better milk price at 36 USD 2017e: estimated for 2017 22/03/2018 Source: IFCN Farm Economic Data D5.1 IFCN 2017 25
Benchmarking ideas is possible and can be used identify value creating startegies Economic sustainability Environmental sustainability Social sustainability DE-N = Base, farm now; S1 S5 = 5 different scenarios / ideas Indicator: Costs from profit and loss account non-milk returns + opportunity costs Indicator: Green House Gas Emissions calculated with a partial Life Cycle Assessment for milk production until the farm gate Indicator: Farm income (including decoupled subsidies) per hour family labour input in relation to the national minimum wage rate 22/03/2018 IFCN 2017 26
Agenda 1. The IFCN Network Concept 2. Globalization of dairy sector 3. Dairy markets & its drivers 4. Farm competitiveness 5. Sum up 22/03/2018 IFCN 2017 27
Our key messages today 1. Dairy Globalization: Most likely to continue at a much faster pace, new local and global markets and growth on the anvil 2. Dairy Story: 1 Billion+ people livelihood relate to dairy 3. Dairy markets: Price volatility is a reality-real time information is the key; Demand driven markets likely to remain bearish in 2018 4. Farm economics: Stable margin in 2017 estimated leading to increased milk supplies. Milk production costs stabilizing at 35-40 USD per 100 kg ECM. 22/03/2018 IFCN 2017 28
Thank you for your attention Network of IFCN Researchers Network of IFCN Supporters IFCN Dairy Research Center A great number of people have collaborated since the year 2000 to make this presentation possible. 22/03/2018 IFCN 2017 29