america’s role in the emerging global dairy market philip turner 24 may 2005 washington dc
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America’s Role in the Emerging Global
Dairy Market
Philip Turner24 May 2005
Washington DC
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Fonterra is the world’s leading dairy exporter...
• Private cooperative owned by 12,000 farmers
• Assets $8.3 bn, revenue $7.8 bn
• World’s largest dairy exporter – second largest processor of milk after DFA
• Collects 40 billion pounds of milk
• NZ base produces 2% of world milk – less than California and Wisconsin
• Increasingly procures product around the world - Latin America, Australia, US
• Through Dairy America, one of the largest dairy exporters from the US
• In US: in 2004 1 bn pounds milk worth over $300m
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We see excellent prospects for growth in world dairy consumption
14.0%
5.0%3.5% 3.0%
1.0% 1.0%2.0%
China SouthEast Asia
MiddleEast/NorthAfrica
LatinAmerica
NorthAmerica
EU-25 TotalWorld
Total annual demand growth exceeds NZ’s annual milk production
Average Annual Growth in Dairy Demand2003 - 2010
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But only a fraction of world demand is met through trade...
Exports7%
Dairy Exports as a Share of the Total Global Dairy Market(2004)
Consumed Domestically
93%
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This partly reflects barriers to trade and subsidised support for dairy
Butter Tariffs(%)
The EU spends $1.83 billion per year (2003) on dairy export subsidies
Domestic Support for Dairy Farmers($bn per year)
660
140 115
Japan EU US
24
11
EU US
PSE51%
PSE45%
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Happily, growth is strongest where trade barriers are lowest
244%
72%54%
24% 15%24% 12%1.0%2.0%
5.0%
14.0%
1.0%
6.0%3.0%
Japan EU US Sub-Saharan
Africa
LatinAmerica
China SouthEast Asia
Tariff Protection Consumption Growth
• Consumption Growth: ZMP, Rabobank, 2004; Average annual change 2003 to 2010• Tariff Protection: Average outside tariff quota rate for chapter 4 dairy products (EU, US, Japan-
average OTQR AVE for SMP, WMP, Butter and Cheddar Cheese)
Dairy Consumption Growth versus Tariff Protection2003 - 2010
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Demand by value will continue to be dominated by developed countries...
100,000
58,000
42,00035,000
20,00012,000 8,000
WesternEurope
Nth AmericaAustralasia LatinAmerica
EasternEurope
Africa/MiddleEast
Asia/Pacific
Dairy Consumption 2008(USD millions)
WesternEurope
NorthAmerica
Austra-lasia
LatinAmerica
EasternEurope
Africa /MiddleEast
Asia /Pacific
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100,000
58,000
42,00035,000
20,00012,000 8,000
3.25
4.504.50
3.503.00
1.501.25
WesternEurope
Nth America Australasia Latin America EasternEurope
Africa/MiddleEast
Asia/Pacif ic
...but the main growth will come from the developing world
Growth of Dairy Consumption
2008 USD millions CAGR 2003-08
WesternEurope
NorthAmerica
Austra-lasia
LatinAmerica
EasternEurope
Africa /MiddleEast
Asia /Pacific
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0.2
0.3
0.4
0.5
0.8 0.8
China Indonesia Thailand Philippines Malaysia Singapore
Milk Powder Consumption 2003(kg per capita)
There is enormous scope for growth in per capita demand...
Source: Fonterra Internal Analysis
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10
0
10
20
30
40
50
60
2002 2020
mill
ion M
T (
milk
equiv
ale
nt)
Domestic demand growing at CAGR of 9.3%
Domestic milk supply growing at CAGR of 7%
Supply gap of over
20 Million MT ME by 2020
China will be a powerful engine of demand growth as incomes and urbanisation increase
Supply versus Demand – China
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Since supply of milk is constrained...
EU supply will reduce due to :
– CAP reform
– accession
– the end of export subsidies through WTO
Oceania will grow less quickly than in the past:
– New Zealand milk growth slower due to competition for land use and rising costs
– Australian supply will be limited by water
Result will be more dairy products traded andconsumed, at higher and more stable prices
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Strong demand will open the door to new exporters
Existing suppliers will be unable to fill the gap . . .
EU in retreat
Oceania to grow more slowly
So where will the milk growth come from?
Argentina / Brazil / Chile / Uruguay?
Ukraine / Eastern Europe?
India /Pakistan?
USA?
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In Latin America, unlike China, supply will exceed demand – it will be a bigger force in exports
30
35
40
45
50
55
60
65
2002 2020
Mill
ion M
T (
milk
equiv
ale
nt)
Domestic Milk supply growing at CAGR of 4%
Surplus supply of over
15 million MT ME by 2020
Domestic demand growing at CAGR of 2%
Projected Mercosur Supply versus Internal Demand
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How does the US fit into this picture?
Change is occurring in the US industry already:
• On-going shift of milk production and processing towards the west and south west
• Consumer demand driven by health – particularly obesity – presenting both opportunities and threats
• A significant threat from soy for market share
• Doha Round / budget pressure will force US to end its subsidised exports and may affect its domestic support model
• Higher (on average) and more stable world prices will promote US dairy exports
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Though the US is a minor player in the world market, US dairy exports have been rising steadily
353
795
1,018
1,490
1990 1995 2000 2004
US Dairy Exports Value(USD m)
202,908 MT 465,437 MT 566,900 MT 833,549 MTQty
322% increase in value over 14 years
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With recent growth particularly in non-fat dried milk powder
258,447
208,165
61,277
16,059
Non-fat driedmilk powder
Whey Products Cheese Whole MilkPowder
US Dairy Exports Volume 2004(tonnes)
75% 21% 18% 21%% growth2003-04
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The US has significant opportunities to exploit growth in world dairy demand
• Strong demand + more trade + supply changes = opportunity for US
• US exchange rate a factor but not a driver
• US industry, like Fonterra, needs market access barriers to come down – e.g. Canada, European Union, Japan
• Increasingly the US industry is poised to respond to the opportunity
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US is currently a minor player in the world market
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Whether it takes the opportunity to become a significant player globally....
...largely depends...largely dependson theon the
US dairy industryUS dairy industry
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