Milking it

Latin American milk production exposed to lower prices.

The diary market in developed countries is in marginal decline as a senior executive at a global dairy company explained, “There won’t be incremental increases in consumption of milk in Europe or any developed country as the markets are matured and consumer tastes are changing, this is a serious, long-term issue for the industry.”

A partner at a strategy consultant in the dairy industry saw many dairy companies moving towards new trends and consumer tastes, “Businesses are starting to restructure and the strategies are all the same: focus on scale, efficiency, cost and margins for the stagnating milk market and look for new products to make incremental gains in profitability. This means the addition of products that are completely unique and differentiated with strong brands.”

“The strategies are all the same: focus on scale, efficiency, cost and margins for the stagnating milk market and look for new products to make incremental gains in profitability.”

Partner, strategy consultant, dairy industry

Despite this, the industry executive pointed towards the last frontier of dairy consumption, “The only growth in milk production is in developing countries with a growing middle class like India, parts of Asia and Latin America.”

“The only growth in milk production is in developing countries with a growing middle class like India, parts of Asia and Latin America.”

Executive, dairy industry

In reality, milk production in Latin America decreased 0.2% in 2020 according to the Food and Agriculture Organisation of the United Nations. The main cause for this minor drop was Brazil’s significant 3% decrease due to droughts in the country. However, large exporters like Argentina and Uruguay registered 2.2% and 3.4% production increases compared to 2019.

Latin American dairy producers are mostly divided in two groups, large multinational groups and small farming producers. As the COVID-19 pandemic hit Latin America, large producers shifted milk supplies destined for the production of the heavily affected food service to retail products. Artisanal dairy producers, with fewer processing alternatives, were forced to dump milk inventories.

Various supply and demand challenges suggest the challenging market conditions for Latin American milk producers will continue. With some analysts expecting a prolonged period of low milk prices, the short term doesn’t hold much hope of improvement. This has led the Argentinean Dairy Chain Observatory (ADCA) to warn of stalemate in Latin America’s dairy supply chain due to the COVID-19 pandemic and associated economic crisis.

To improve the longer term resilience of the industry, the Inter-American Institute for Agriculture Cooperation (IICA) has launched an initiative to make milk production more sustainable. IICA wants to replicate in South America the advances that the US has had in milk production efficiency with decreases of 30% in water, 20% in pastures and 19% in CO2.

 

 

 

 

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