Competitiveness of different dairy production systems

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1 37th ICAR Conference 2nd of June 2010, Riga, Latvia Competitiveness of different dairy production systems Kees de Roest Research Centre for Animal Production, Italy Torsten Hemme Chairman IFCN, Kiel

2 Agenda points World milk production and world market price IFCN concept Supply and demand of dairy products Competitiveness of dairy systems (production costs and returns to labour) Special cases: Parmesan cheese, dual purpose breeds and robust/high yielding cows

3 World milk production (mln t) var % EU ,2 150,9-1,5 India 91,1 108,8 19,4 Usa 77,5 85,5 10,3 China 27,0 44,4 64,4 Pakistan 28,6 37,3 30,4 Russia 32,2 32,8 1,9 Brazil 24,3 29,5 21,4 New Zealand 15,0 16,2 8,0 Ucraine 13,7 11,1-19,0 Turkey 10,7 12,3 15,0 Argentina 8,1 10,6 30,9 Austrialia 10,1 9,4-6,9 Mexico 10,0 11,2 12,0 Others 126,9 139,0 9,5 Total 628,4 699,0 11,2

4 Milk surplus and deficit areas EU 10 new EU 15 Self-sufficiency in % Milk surplus in mill t milk equivalent Milk deficit in mill t milk equivalent 22mm bei + und <= <= <= <= <= <= 150 > 150 no data Milk surplus in mill t Milk deficit in mill t Source: IFCN dairy sector model methods + data still under refining

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6 Import dairy products China Share in world trade var Jan-Apr var. 2009/2008 SMP 6,4% 28% 87% WMP 8,8% 301% 64% Butter 3,8% 109% 80% Cheese 1,3% 22% 88% Source: CLAL

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8 What drives the world milk prices? Crisis and shocks Fall of Berlin wall Strong GDP growth In emerging markets + rising oil prices Bankruptcy of Lehman Brothers US-$/100kg milk (ECM) Introduction of EU Milk quota system Black monday Marrakeschagreement Dot-com crisis Russia crisis USA-11 Sept Argentina crisis SARS Germany Milk boycott Melamine milk crisis Gulf war 1 Iran - Iraq Gulf war 2 Irag-Kuwait Asia crisis BSE crisis Gulf war3 Global financial crisis Global economic crisis Explanations: *2008 Average from Jan08-Nov08; BSE: Bovine spongiform encephalopathy ; SARS =Severe acute respiratory syndrome Source: Master thesis by Anika Slabon, University of Göttingen, IFCN Dairy Report 2008, pp

9 IFCN a way to understand a complex, fast changing, global dairy world

10 The IFCN is a global dairy research network - founded in 1997 focus on milk production

11 USA Our Mission: Create a better understanding of milk production world-wide India China Ethiopia Brazil

12 Status of the IFCN 2010 The IFCN represents 95% of world milk production nstitutional Partners IFC_Logo_Eng_7469_Horz_v9 [Konvertiert] esearch Partners In IFCN Dairy Report 2009 Process in 2010 (expected) Working on progress

13 Kenya USA Milk supply Sources: IFCN Dairy Research Argentina Center

14 Milk production volume 2008 & shares of delivered and informal milk EU-12 new 29,2 28,8 10,5 81,3 EU ,1 38,4 38,6 27,2 120,8 Milk production 2008 in mill t ECM Delivered 2008 Informal ,5 Milk delivered world wide: 60 % 16,4 117,79 35,00 5,50 Explanations: Bullets show the total amount of milk production, e.g. EU-15 with 121,1 mill t ECM milk production in 2008 Sources: IFCN Dairy Research Center, National statistics

15 Change in milk production Countries and regions in US, CA, MX, BR, RU, TR, CN, IN, PK, AU + annual change - annual change Milk production decreased (in mill tons/year) Milk production increased (in mill tons/year) 2.000,00 1 mill tons/year 650,00 0,4 mill tons/year 100,00 0,05 mill tons/year Source: IFCN Dairy Report 2009

16 Winning an loosing regions in Europe Milk production decreased + annual change - annual change 0,4 mill tons/year 650,00 0,15 mill tons/year 100,00 0,01 mill tons/year 2.000,00 Milk production increased Source: IFCN Dairy Report 2009

17 International Dairy demand Kenya Africa Sources: IFCN Dairy Research Center Malaysia

18 Per capita consumption of milk EU 12 new > 200kg 256kg EU kg 32kg 60kg 244kg 8kg 105kg 140kg 201kg Per capita consumption in kg Source: IFCN Dairy Research Center

19 Growth in milk supply and demand Status what we knew in February 2010 mill t milk equivalents Next 5 years Supply > Demand Next 5 years Demand > Supply?? Possible change in additional stocks (other countries, companies) Change in stocks year end (Butter/SMP in the US/EU as documented, 2009 oct figures) Change in milk consumption ( calculated, est. for 2009) -10 Change in milk production (cows & buffalos) Scenario for 2010: world market milk price 35 US-$/100 kg, world market feed price: 24 US-$/100 kg, no shocks Sources: IFCN Dairy Research Center, stock change beyond EU/US public once very difficult to measure

20 IFCN forecast done in 11/2008 IFCN conference World milk price US-$ per 100 kg Hope Scenario Rollercoaster Scenario monthly Jan 06 Mrz 06 Mai 06 Jul 06 Sep 06 Nov 06 World milk price based on SMP+butter 2007 monthly Feb 07 Apr 07 Jun 07 Aug 07 Okt 07 Dez monthly 2009 monthly Aug 09 Back to old level Scenario Future months /years Source: IFCN dairy sector model 10/2009

21 1. Production costs Farm size Technical efficiency 2. Farm gate price Factors determining competitiveness Valorisation of milk in the supply chain Market protection (external market barriers), milk quota 3. Returns to labour and capital invested compared to other sectors in the economy

22 Dairy farming systems Grazing systems, regular rainfall, low concentrate use (New Zealand, Ireland, Brittany) High tariff protected systems with or without milk quota (Canada, Norway, Switzerland and EU-27) Unevenly distributed rainfall, high use of concentrate, zero grazing (feedlot) (California-Idaho, Italy) Very small scale production primarily for informal markets (India, Pakistan, other Asian countries, Africa) Special cases: Protected Designation of Origins (Parmesan cheese, Comté etc. etc)

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30 Special cases: 1. Parmesan cheese production 2. Dual purpose vs High yield cows 3. Robust cows vs High yield cows

31 PDO's shares on the whole cheese production in Italy Production (tonnes) % production % milk Grana Padano 159, Parmigiano Reggiano 118, Gorgonzola 48, Mozzarella Campana 29, Pecorino Romano 23, Asiago 23, Provolone Valpadano 12, Taleggio 9, Other PDO cheese 27, TOTAL PDO 453, Other cheese 680, Fonte: Osservatorio Latte - ISMEA

32 Product specification of Parmigiano-Reggiano cheese Milk only from a delimited area Feed regime of cattle does not allow use of silage At least 70% of roughage should come from delimited area Limited list of concentrates can be used Milk cannot be cooled below 18 C Only raw milk can be used for processing to cheese Milk is collected twice a day Cheese is being produced 365 days a year

33 Source: CRPA-Reggio Emilia Parmigiano-Reggiano supply chain 12 months cheese tonns produced by: cooperatives dairies - 60 private dairies - 73 farm dairies 24 months cheese tonns (89%) ripened and traded by 200 ripeners/wholesalers (top 4 companies account for 25-30%) tonns (11%) ripened and traded by cheese dairies (wholesale market and direct sales to consumers) 24 months cheese Food industry 3% Ho.Re.Ca. 6% Export 22% Small retailers 13% Multiple retail chains 50% Direct sales to consumers 6%

34 Price development of PR cheese 9,00 8,50 8,39 8,47 8,37 8,32 8,56 8,00 8,16 8,10 7,95 Prezzo nominale (euro/kg) 7,50 7,00 6,50 7,80 7,63 7,39 7,17 6,93 6,80 6,77 6,56 6,45 6,40 6,78 6,99 7,417,39 7,03 7,08 7,00 6,93 6,79 6,96 7,66 7,44 7,43 7,22 7,13 7,03 7,77 7,24 7,45 7,30 7,47 7,34 7,25 7,23 7,15 7,49 7,29 7,33 7,32 7,27 7,66 7,31 6,00 5,50 5,00 gen-05 gen-06 gen-07 gen-08 gen-09 gen-10 Produzione a marchio 2004 Produzione a marchio 2005 Produzione a marchio 2006 Produzione a marchio 2007 Produzione a marchio 2008 Produzione a marchio 2009 Source: CRPA-Reggio Emilia

35 Milk price for milk destined to PR cheese /kg contracts Price PR 8, Prezzo butter 1,15 $/kg Milk price calculation Cheese yield kg/100 kg 7,0 61,81 Butter kg/100 kg 1,5 1,73 Totale 63,53 Proc. Costs /100 kg 15,36 Milk price /100 kg 48,17 Milk reference price ,17 59,24 Source: CRPA-Reggio Emilia

36 Milk price for industrial and PR milk 70 Industrial milk PR milk $/kg Source: CRPA-Reggio Emilia

37 Two different dairy systems in one region (Friuli) Milking cows % Breed Holstein Friesian Simmenthal Milk production per cow (kg/cow) % Total milk production in kg % Land area (ha) % Fat content in % 3,86 3,92 101% Protein content % 3,43 3,46 101% Labour productivity (kg milk/h) % Source: CRPA-Reggio Emilia

38 Profit/loss account of two dairy systems FRIULI V.G. FRIULI V.G Holstein Friesian Simmenthal /100 kg Totale /100 kg Totale Total returns 50, , % Gross production costs 54, , % Net production costs 46, , % Profit/Loss -3, , Direct costs 35, , % Margin (Returns - Direct costs) 14, , % Returns to labour (Euro/h) 8,19 5,91 72% Source: CRPA-Reggio Emilia

39 Comparison between dual purpose and high milk yield cow (1) ROBUST DUAL PURPOSE COW HIGH OUTPUT COW Milk income Milk sold Calving interval Annual /cow Milk sold Calving interval Annual /cow Lactation income , ,76 Annual income , ,08 Feed costs DMI 19 kg t DM/cow Costs per ton t DM/cow Costs per ton Concentrates , ,00 Forage (DM) , ,55 Margin over feed 699,12 715,53 Source: Neil Darwent, European Farmers Network

40 Comparison between dual purpose and high milk yield cow (2) ROBUST DUAL PURPOSE COW HIGH OUTPUT COW Calf sales Value per Annual Value per Annual Calves sold head /cow Calves sold head /cow , ,00 Replacement costs Culling rate 20% Culling rate 28% Heifer costs Heifer costs Cull value 600 Cull value 400 Net cost 400 Net cost 600 Net margin per cow 715,92 589, Cow herd , ,97 Source: Neil Darwent, European Farmers Network

41 Europe Question is in what region you are in? St Petersburg Moskow Surplus in mill tons Deficit + annual change in mill tons - annual change 4 mill tons 1 mill tons 2.000,00 650,00 100,00 Source: IFCN Dairy Report 2009 * In Ireland, NL and DK the milk consumption per capita is linked to neighbour countries to get a realistic self-sufficiency and surplus/deficit: IE UK, NL BE, DK SE

42 Thank you for your attention