FEED Business Worldwide - June 2012

 

 

by Eric J. BROOKS

 

 

Once a quintessentially western protein line, developing countries now generate over 80% of the annual increase in world dairy demand. In particular, Asian's preferences are redefining the world dairy sectors characteristics. While today's soft market will dissipate, Asia's new importance to the world dairy market is turning it towards simpler products and low fat, high protein lines. It is creating a world market that will put more emphasis more milk, yogurt, whey or fast food toppings, less on butter, whole milk powder or high-end cheeses.

 

Of course, there is also a long-run component to such trends: The more cheeseburgers that McDonalds customer in Beijing is eating today, the more likely he is to be eating blue cheese or camembert in ten years.

Going forward, after growing by 1.6% in 2011, Rabobank expects world dairy demand to increase at a 3% annual rate from 2012 to 2015. However, with wealthy country demand only rising at a zero to 1.5% annually and developing countries demanding up to 5% more annually, 82% of dairy demand growth will come from developing countries. Moreover, 42% of that 82% is coming from just China and India alone. With Southeast Asia accounting for much of the remaining growth, world dairy's future will reflect Asian market preferences.

 

 

 

And East Asians do not have a cultural tradition of consuming cheese. Instead, developing country consumption of higher-end dairy goods will be mostly keynoted by milk, milk-based beverages, infant formula, condensed milk, creams used in coffees, yogurts and most especially infant formulas.

 

This will create a situation where over the next five years, world dairy milk consumption will rise by up to 5% annually, Rabobank expects cheese consumption to lag at a 1.6% annual pace.

 

The only high-end, high fat dairy line that will experience fast growth are those cheeses used by b2b end-users, rather than consumers. For example, cheeses used in fast-food products such as pizzas and hamburgers, or milk/cream combinations used by high-end coffee outlets.

 

 

 

 

This B2B driven growth of high-end dairy products will most especially boost demand for whey, which is used by many processed foods and baked goods whose developing country consumption is rising rapidly. As a low-fat substitute, whey's future is assured, as it will be increasingly consumed by the rising number of health conscious consumers in developing countries. Whey's use in infant formula will further spur its demand, as the latter's consumption is growing strongly throughout the developing world.

 

But shifting market demographics and consumer preferences is only half of dairy's story. With consumption growing in Asia and productive capacity in Australia, New Zealand and America, this year's soft dairy market conceals a widening mismatch between dairy demand and supply. This means that in the future, a rising proportion of milk will be internationally traded, with developing country demand jacking up prices in home markets.

 

Moreover, with export demand getting ready to take off, New Zealand, which supplies two-fifths of all exports, is approaching peak capacity. Hence, along with the demographic and product shifts, a soon-to-be-tapped out world market is seeking a new export champion.

It is perhaps a short-term irony that such bright prospects notwithstanding, the world dairy industry is currently experiencing an oversupply situation and an unprecedented call to restructure its output. We look at all these market dynamics and the role leading producers, importers and exporters play in the pages to come.