November 22, 2006

 

USDA: US dairy finds itself at global crossroads
 

 

Current dynamics in world dairy markets and the potential for global and domestic trade policy reform are bringing the US dairy sector to a new crossroads as it faces competitive forces from outside its borders, says the USDA in its November 14 report.

 

Those forces, namely demand for new products, changes in technology, rapid economic growth in emerging developing countries, particularly in Asia, and the increasing role of multinational firms in domestic and global dairy markets are leading to increased dairy consumption, more opportunities for dairy product trade, and foreign direct investment benefiting both US consumers and producers.

 

The changing characteristics of world dairy markets have implications for the competitiveness of US and international dairy industries and the role of policies in a global context, says the report. Understanding how the US dairy sector might respond to liberalisation of global dairy trade policies given the dynamics of current market forces will aid in assessing future domestic and international trade policy reforms.

 

As a sign of the worldwide dairy industry's vibrancy, dairy product launches more than doubled from 2000 to 2004, compared with the previous 5 years.

 

The leading dairy trading areas today are the European Union,  Australia, and New Zealand.

 

The growing demand for milk in developing countries has affected trade patterns, according to the USDA report. For example, in 1980, the EU was the single largest importer of New Zealand dairy products, accounting for 30 percent of the country's exports; by 2004, that share had declined to 8 percent. Over the period, exports to the EU remained nearly unchanged, while exports to China and other developing countries spiked.

 

In some countries, per capita consumption of milk is rising but is still extremely low, compared with the rest of the world, says the agency report. In China, milk production has risen but not at a rate sufficient to meet demand where it is needed the most. The lack of coordination between milk producers and dairy processors in China remains a problem.

 

As in other dairy-resource-scarce countries, the mismatch between domestic supplies and demand fuels increases in imports.

 

The share of global milk production entering world trade is low, at 7 percent, compared with shares of other farm commodities, such as wheat or soy at 30 to 40 percent, says the agency report.

 

Dairy policies still influence the flow of products globally. For individual countries, providing an adequate supply of milk to satisfy domestic market needs is often the first priority. Thus, domestic dairy policies and programmes are generally mechanisms to promote milk production, but in some cases they promote surplus production above domestic needs. Those surpluses are available for export and, in some countries, such as in the EU, Canada, and the US, they have been subsidised.

 

Additionally, almost all countries have trade policies in place that impede dairy imports.

 

For the full USDA report, click here