There is no easy way to meet global dairy demand needs. This is the view of Hayley Gourley of Rabobank, New Zealand, who spoke at the Biomin World Nutrition Forum held in Cape Town late last year.
She explained that dairying in countries with developing economies is very different to dairying in countries with developed economies. “Unprecedented economic growth in emerging markets is driving demand for dairy products, which is largely met by imports. In dairy exporting nations with developed, mature economies, traditional systems are under pressure.
“As well as potential limits on the quantity of dairy products available, there are increasing requirements from consumers for specific product quality attributes. Dairy value chains across the globe are considering the possible consequences of these forces. The only certainty is that milk producers and feed suppliers will have to change,” she added.
For more than a decade, dairy demand growth has been much stronger in developing and emerging economies than in the traditional dairy consumption strongholds of the EU and the US. Asia, Latin America, North Africa and the Middle East have led demand as consumers from those countries enjoyed higher disposable incomes and began to add more protein to their diets. Most of these countries cannot supply their own dairy needs.
“This mismatch between production capability and demand growth has led to the current, ongoing, reliance on imported milk and dairy products to meet consumer needs. Even in countries where governments have committed to increasing milk production, and subsidised or price-controlled feed is available, production costs are high, and imports remain attractive unless prohibitive import trade barriers are in place.”
Countries with the fastest growth in consumption need growth in the traded volume of dairy products to overcome the lack of comparative advantage in milk production.
“Dairy has historically been one of the most protected agricultural product categories, with high trade barriers and the use of quotas and other non-tariff trade barriers. While globalisation during recent decades has reduced some trade impediments, the current nationalist approach of many nations could limit the potential volume of dairy trade relative to the demand and supply fundamentals,” said Gourley.
Despite the need for increased trade in dairy products, consumers have a considerable range of quality requirements. Dairy is often a more discretionary (want to have, rather than need to have) food purchase than grains and carbohydrates, and therefore attributes such as organic, grass-fed and rbST-free milk may be sought out.
Milk producers can no longer focus solely on volume growth. Whether the milk is destined for domestic or international markets, consumers are demanding qualities beyond the usual food safety and standard expectations.
Pressure on traditional systems
Consumers and communities with certain expectations of the livestock farming sector are challenging traditional milk production systems, regardless of the type of operation. Consumers now take a greater interest in how their food is produced.
This presents an array of questions for the dairy sector, including:
- What is the business trade-off between high volume, intensive feed systems and lower volume, extensive pastoral systems?
- Should cows be farmed inside or outside?
- How should animal health and nutrition needs be met while meeting consumer demand specifications?
Southern case study
New Zealand has enjoyed a comparative advantage in milk production globally due to its extensive pasture-based production system.
However, with a small arable area and few feed sources other than pasture, intensification required cost-effective solutions. Palm kernel expeller (PKE) provided the solution and imports have increased fourfold in the last decade. As a relatively inexpensive (including freight) alternative to imported grains, PKE solved temporary feed shortages, caused by climatic events, and gained widespread use.
But increased reliance on PKE (and other feeds) has come at a price. New Zealand’s milk production cost advantage has been eroded, driven by feed and other cost increases. Altered milk composition has led to Fonterra, a multinational dairy co-operative owned by around 10 000 New Zealand farmers, limiting the proportion of PKE that may be used. PKE is tested and measured and demerits are applied to producers who supply milk in excess of specified levels.
New Zealand dairy farmers face other difficulties as the environmental impacts of more intensive land use are felt nationwide.
Feed and nutrition suppliers
Feed companies supplying the dairy sector need to understand the competing and conflicting challenges faced by milk producers.
More nuanced consumer requirements cannot be easily accommodated in traditional milk production systems without incurring higher costs. But the willingness and ability of consumers in developing economies to pay for products is not always evident. Producers will need to prioritise nutrients that add value, while retaining profit.
Nutrition that adds value will have a competitive advantage and solutions that help to lower greenhouse gas emissions and reduce the impact of effluent, will pay dividends.
The scenario in India
Rahul Kumar of Lactalis in India presented a birds’ eye view of the Indian dairy sector and the hurdles it will face beyond 2025.
India has produced more milk than any other country on earth for the past 25 years. The country’s 70 million dairy farmers, with an average herd size of five cows, produce roughly 18% of total global milk supply.
India’s national herd of about 300 million bovine animals consists of 42 million crossbred cows, 110 million buffalo and 150 million indigenous cattle. The average daily milk yield of a crossbred cow is 6,5 litres, that of an indigenous cow 2,2 litres, and that of a buffalo 4,5 litres. The sub-optimal milk yield of such a huge bovine population is a challenge, Kumar said.
Milk production in India has grown from 20 million tons in 1970 to 180 million tons in 2018; it is estimated that by 2020 production will reach 210 million tons.
With a population of 1,3 billion people, India is the world’s biggest dairy consumer. Indians will consume more milk and milk products because of improved income and the adoption of better food habits in the decade ahead.
The estimated value of India’s milk business is $60 billion. Milk contributes 30% to India’s agricultural GDP and affects the lives of nearly 70 million marginal farmers.
Although the country consumes most of its own milk, there are export opportunities to other countries in Southeast Asia. In China, the demand for dairy products, particularly for use in infant formula, keeps growing.
The predicted 6 to 8% per annum increase in demand for dairy until 2030 presents the Indian dairy sector with a real opportunity for growth. By 2025, the country should produce about 240 million tons of milk annually, which means that productivity per animal must improve.
By 2025, India is likely to face the following major issues:
- Production of enough milk to meet demand, despite shrinking resources such as land for fodder, available crop residues for feed, and enough water.
- Improvement of feed quality through enrichment with better ingredients and rumen supplements.
- Growing the financial capacity to produce 100 million tons of animal feed, which is considerably more than the current 15 million tons.
It will be virtually impossible to produce an extra 10 million tons of milk per annum for the next decade using the same productivity, rumen efficiency and management. Improved feed and animal management is essential for improved milk production. Increasing animal numbers to meet the demand for milk would, however, have catastrophic effects on costs and resource use.
High feed to milk conversion ratios, scientifically formulated feed and meeting international milk hygiene standards are all critical aspects of future scenario planning. In addition, better feed, fodder and land use management, and a switch to larger-scale dairies with more cows in milk is essential. This will enable the sector to attain economies of scale and thus achieve more cost-effective production. – Izak Hofmeyr, Farmbiz