Dairy farming in the world Status and trends

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1 Dairy farming in the world Status and trends Henrike Burchardi, Torsten Hemme IFCN Dairy Research Center dia Pakistan Pakistan China Ukraine

2 Milk Prices in 2006 Farm gate milk price= 80% cost to produce a dairy product! Milk price in US-$ / 100 kg milk ECM > < < < < 25 20

3 Milk-Feed Price Ratio 2006 kg compound feed to buy for selling 1 kg milk 3,2 Milk yield: kg/cow Milk price: 35 $/100 kg Feed price: 11 $/100 kg Calculation: Milk-feed ratio: Milk price / feed price estimate of IFCN IFCN feed price indicator: 0.3 kg soya bean meal kg corn/barley milk-feed price ratio (2006) 0.5 <= 1 >1 <= 1.5 >1.5 <= 2 >2 <= 2.5 >2.5 no data 1,4 Milk yield: 4000 k Milk price: 23 US Feed price: 16 US

4 World Dairy Prices in US-$ / t Commodity Prices Skim milk powder (SMP) Butter US-$ per 100 kg ECM Farm Gate Milk Price IFCN milk price indicator yearly 2006 monthly 2007 monthly yearly 2006 monthly 2007 monthly

5 Reasons: A shift in supply / demand Surplus / deficit and self sufficiency of milk and dairy products 10 New EU Members EU-15 Self sufficiency in % <= <= <= <= <= <= 150 > 150 Milk Surplus in mill t Milk ME Milk Deficit in mill t Milk ME

6 The Demand Side Drivers and Shocks Drivers for milk demand growth - Growth of population => % / year - Growth of income => Increase per capita consumption - Shift in lifestyle => Increase per capita consumption (cheese) - High oil prices => More money in main dairy import regions - Market dynamics => Strong demand for cheese (EU) - China issue => Consumption growth 9 > 24 kg milk / capita Shocks Have there been any? Stocks building of buyers as product availability was not insured? Others?

7 Why was Supply not Catching up? Drivers and Shocks Drivers - Policy on farming => EU Quota + decoupling => UK/FR/SE not fill quotas - Policy on farming => Abolishment of fresh milk quotas in Australia (?) - Policy hindering exports => Argentina, India - Policy promoting bio fuels => Higher demand energy crops / for land - High oil prices => Higher demand energy crops / for land Feed price increase (9/07) => Production costs +3-5US-$/100 kg milk - Restructuring of the Sector => Russia and Ukraine (?) - Lack of trust / commitments in the dairy chain =>not enough investment Shocks - Climate => Lower production in Australia, Argentina, parts of China, EU - Stocks = 0 in EU / USA

8 World Dairy Prices in US-$ / t Commodity Prices Skim milk powder (SMP) Butter US-$ per 100 kg ECM Farm Gate Milk Price IFCN milk price indicator Philippines Germ Chin Thaila India Pakista Sri Lanka Belarus yearly 2006 monthly 2007 monthly yearly 2006 monthly 2007 monthly

9 60 Future Dairy Prices the Coming Years Three Scenarios World Milk Price Indicator Scenario A 50 US-$ per 100 kg milk Scenario C 10 Scenario B yearly 2006 monthly 2007 monthly 2008 monthly Coming years monthly / yearly (?)

10 Outline IFCN Concept 1. Analysis: Milk production trends 2. Analysis: Cost of milk production now Summary

11 Create a better understanding of milk production world-wide Mission IFCN Dairy Network IFCN = International Farm Comparison Network

12 IFCN Dairy Network The concept + methods The concept A global network of dairy farm researchers The method: Ongoing approach of merging data + people globally Concept of typical farms and a standard software TIPI-CAL he researchers and their institutions participating Iran

13 IFCN November - Conference Current Status of the IFCN Network Institutional Partners Agribusiness Partners 38 countries in the farm comparison + 35 countries country profile analysis

14 What are the values of the IFCN? IFCN is an open scientific system for the exchange of ideas and the creation of knowledge and information. IFCN is independent from third parties (policy makers, lobby groups, industry) and committed to truth, science and reliable results.

15 The Annual IFCN Outputs: IFCN Dairy Report World Dairy Maps Content (Example 2007 report) Comparison of typical farms 2. Milk price developments (Monitoring) 3. Milk production fact sheet per country 4. Special studies (Summary on 2 pages)

16 IFCN Dairy Research Center in Kiel The people in IFCN Research Center 2007/08 We are closely linked to the (CAU) University of Kiel

17 The Basic Win-Win Idea of the IFCN Key idea: Send in 2 farm types and get the world back. Country A Country B Country C Country D Agribusiness Agribusiness Agr. Policy Research Funding Agr. Policy Research Funding Support/ feedback Support/ feedback Farm level researcher Farm level researcher IFCN: Data Models, Knowledge, Contacts IFCN: Data Models, Knowledge, Contacts

18 Method - What is a typical farm? Imagine a foreign visitor who is asking you to recommend a typical meal of your region and you recommend a (statistical) average of the meals in your region Specification of a typical farm: A typical farm represents a farm type in a region and has average management / performance. Choosing farm types: 1st average size, 2nd larger farm types The typical farm is build and validated based on panels (Farmers, advisors knowledge) and farm accounting statistics.

19 Germany Milk Production Farm structure Milk production 2004 in tons Ø Farm size cows Cow s per size class Farms per size class 80, 85 cows 30 cows 650 cows Ø Farm size 200 cows (either 60 or 600 cows) Milk production in tons , , , > Ø Farm size cows

20 Outline IFCN Concept 1. Analysis: Milk production trends 2. Analysis: Cost of milk production now Summary

21 Milk Production Volume Map EU-25 Milk production in Mill. tons 2005 ECM = 4% fat, 3,3 % protein

22 The most important dairy regions IFCN world density map milk / km 2 land Milk production tons per km² total land 0 <= 5 5 <= <= <= <= <= 999

23 Cows move Analysis: The trend is your friend Change in Milk Production per year No. 1 Region: China - Inner Mongolia 57% growth per year Ø annual decline or growth in % Growth in milk poduction per country % < to to to to to 5 > 5

24 Change in Milk Production by Volume per Year ,8 1,0 China 3,2 Mill. 0,7-0,3 India 3,0 Mill. t 0,1 0,6 Increase in Mill. tons per year Decrease in Mill. tons per year

25 Summary Analysis 1: The trend is your friend Centers of milk production now Europe, South Asia, USA north east, west, NZ/AU-Victoria, Japan, Korea Growing traditional dairy regions USA- West, NZ, Pakistan, India Russia: Bashkortostan, Tatarstan Growth of milk production in new regions: China, Parts of Brazil, Thailand, Vietnam, Kazakhstan, Uzbekistan, Northern Africa Caucasian countries

26 Outline IFCN Concept 1. Analysis: Milk production trends 2. Analysis: Cost of milk production now Summary

27 Number of dairy farms world wide IFCN Estimate for 2005: 150 million farms 1.5 mill EU mill 1.29 mill million

28 Dairy Farm Size Map Ø farm size per country ? million dairy farms World average farm size 2,4 cows / farm Cows per farm 0 <= <= <= <=

29 Examples of typical dairy farms IFCN Dairy Report 2007 Ireland 51, 98 cows/farm Ukraine 2, 641 cows/farm USA WI 80, 350, cows/farm China 12/300, 1000 cows/farm USA West 1710, 3000, cows/farm Brazil 20, 50 cows/farm India PU 2, 16 cows/farm New Zealand 292, 610 cows/farm

30 IFCN comparison of larger farm types Cost of milk production only in 2006 (excl quota cost) World farm milk price level Oct Mexico Brazil-RS EU Countries 35 USA India 30 Ukraine World farm milk price level US-$ per 100 kg milk ECM CM-20 UG-13 AR-1700 UA-641 BY AU-620WA PK-10 IN-16PU CL-355 BG-34 CZ-428 BD-10 NZ-610 CN-1000 BR-50RS PE-15 ZA-366 US-350WI IE-98 IL-270 TR-15 ES-105GA MA-12 PL-65 UK-195 NL-96 SE-195 AT-40 DE-650E MX-1638 DK-180 FR-60 IT-229 LU-69 CA-98 FI-60 NO-31

31 Comparing Typical Farms European countries vs. USA, NZ, India and AR Denmark Switzerland Finland Poland Germany USA, NZ, India, Argentina t milk (ECM) per cow per year DK-100 DK-180 CH-20 CH-60 FI-24 FI-60 PL-15 PL-65 DE-80N DE-650E US-350WI NZ-294 IN-2PU

32 Cost of milk production only European countries vs. USA, NZ, India and AR Quota costs (rent and opportunity costs) US-$/100 kg milk (ECM) Opportunity cost (excl. quota) Costs from P&L account - non-milk returns DK-100 DK-180 Denmark CH-20 CH-60 Switzerland FI-24 FI-60 PL-15 PL-65 DE-80N DE-650E US-350WI NZ-294 IN-2PU AR-1700 Finland Poland Germany USA, NZ, India, Argentina

33 US-$/100 kg milk (ECM) Cost of milk production only European countries vs. USA, NZ, India and AR Quota costs (rent and opportunity costs) Opportunity cost (excl. quota) Costs from P&L account - non-milk returns Milk price 10 0 DK-100 DK-180 Denmark CH-20 CH-60 Switzerland FI-24 FI-60 PL-15 PL-65 DE-80N DE-650E US-350WI NZ-294 IN-2PU AR-1700 Finland Poland Germany USA, NZ, India, Argentina

34 Wage level in US-$/hour European countries vs. USA, NZ, India and AR Factor 40 Factor 20 Denmark Switzerland Finland Poland Germany USA, NZ, India, Argentina US-$ / hour of labour used on the farms DK-100 DK-180 CH-20 CH-60 FI-24 FI-60 PL-15 PL-65 DE-80N DE-650E US-350WI NZ-294 IN-2PU AR-1700

35 Labour productivity in dairy farming European countries vs. USA, NZ, India and AR 300 Target: >300 kg/h Denmark Switzerland Finland Poland Germany USA, NZ, India, Argentina Kg milk (ECM) / hour DK-100 DK-180 CH-20 CH-60 FI-24 FI-60 PL-15 PL-65 DE-80N DE-650E US-350WI NZ-294 IN-2PU AR-1700

36 Summary Analysis 2: Cost of milk production Cost of milk production in larger farm types Range from 6 60 US-$ per 100 kg in 2006 Low cost regions in 2006 below 25 US-$/ 100 kg milk 1. Eastern Europe (UA, BY, CZ, BU) 2. South America (AR, BR, CL, PE) 3. Asia (India, Pakistan, China, Bangladesh) 4. Oceania (Australia, New Zealand) 5. Africa ( Cameroon, Uganda) Cost levels in USA and EU-15 USA: 25,5 US- $/ 100 kg milk EU-15: Most countries US-$, Ireland 27 US-$

37 IFCN Brainstorming Future Farm Types Milk Yields (kg/ cow/ year) Yield: kg Size: 5000 cow Herd Sizes (cow / farm)

38 What is a future farm type? or what is the right dairy farming system - An Economic View? 1000 US-$ / Year 1. Meet Income goals Farm now Target Income Household Income Idea A Idea B Idea C US-$ / 100 kg Milk Farm now 2. Compete international Idea A Milk price Cost of Milk Production Idea B Idea C 3. Compete locally for Land Labour 4. Meet standards + be environmental sustainable US-$ /ha XX XX XX XX XX XX XX XX XX XX 0 Farm now Land rent Return to land Idea A Idea B Idea C US-$ / hour Farm now Wage level Return to labour Idea A Idea B Idea C

39 Summary So far milk is produced in almost all regions of the world and this will also be the case in the future! Key question: Who will gain/loose market shares + how fast? The criteria for a winning region - my view a) stable economic and political frame conditions b) trust between farmers and processors c) farming systems able to compete international + locally d) ability, willingness and speed to adjust Why not seeing it like sports There is a race and we have a judge the consumer

40 Thanks for Your Attention in the Name of the IFCN Researchers