The U.S., Europe, Oceania, South America and China make up over 80% of global dairy trade. Some of these regions are poised to grow in milk production to meet the world’s growing demand for dairy.
At a 2024 World Dairy Expo breakfast event, Rabobank’s global dairy analysts provided an overview of the major dairy regions across the world in terms of their milk production capabilities and trade outlook.
Mary Ledman, global dairy strategist, said Europe accounts for 30% of global dairy trade. New Zealand and Australia provide another 30%. The U.S. is half that at 15%. Along with South America, these regions make up over 80% of global dairy trade.
Over the last three years, milk production in these regions has not grown. “We’ve seen growth in these areas at less than three-tenths of a percent – a fraction of the growth that they experienced in the last decade,” Ledman said. “Still, the world market has been supplied by enough milk, and that’s largely because of the transformation that China has experienced in the last five years.”
China moved from 70% to 85% self-sufficiency, which had a domino effect on global dairy markets. But now that the farmgate milk price in China is starting to fall, that growth in production is expected to slow down.
Over the next 10 years, global demand for dairy is expected to grow from 95 million metric tons (MMT) to 115 MMT. Declining milk production in the European Union and Oceania (Australia and New Zealand) regions is expected to be met by production increases in the U.S. and South America to maintain the current milk supply over the next decade. That means a 20 MMT opportunity still exists to fulfill anticipated global consumer demand.
U.S.
Milk production:
2023 vs. 2011: +14 MMT
2023 vs. 2035: +19 MMT
Lucas Fuess, senior dairy analyst for North America, noted it is exceptionally rare to see a stagnation in U.S. milk production as we have experienced over the past three years. While there is constant volatility in milk prices, one of the steadiest charts in all of U.S. agriculture is milk production growth. This can be mostly attributed to improvements in milk per cow, driven primarily by genetics.
The U.S. is at a multiyear low in cow numbers, but those numbers tend to only swing by about 150,000 from high to low. Fuess said, “While cow numbers matter on a year-to-year basis, when we think about long-term growth and future growth in the U.S., we’re thinking about yield primarily.”
Looking to the future, he estimated a 1.5% increase per year in milk production growth. There are bright spots on the horizon, he said, noting Class III milk prices over the past couple of months have risen, and when coupled with margin recovery, a return to profitability should bring a return to milk production growth.
Europe
Milk production:
2023 vs. 2011: +16 MMT
2023 vs. 2035: -10 MMT
With the removal of the EU milk quota in 2015, milk production in the region has grown quite a lot in the last decade, reported Daniëlle Duijndam, dairy analyst in the Netherlands. In addition to the major milk-producing countries ramping up production, Ireland shifted from beef to dairy, and Poland increased in milk per cow, allowing both countries to contribute a lot more milk to the EU milk pool.
Like the U.S., milk production in Europe has been at a standstill for the last couple of years. However, Duijndam said, “Looking forward, we expect European milk production to decline.”
Dairies are facing challenges in farm succession and labor. They are also concerned about the European Green Deal that sets strict targets on climate, biodiversity, water and animal welfare. Extra measures can also be taken on a national level as member states have the ability to enact stricter legislation on matters that are important to them.
“For example, the country I’m from, the Netherlands, we’re facing quite strict regulation on nitrogen and water quality. We even have buyout programs from the government to get part of the herd – I’m talking about dairy, pork, poultry and veal – to remove the number of livestock in general,” Duijndam explained.
Oceania
Milk production:
2023 vs. 2011: -0.3 MMT
2023 vs. 2035: -0.4 MMT
A consecutive-year drought coupled with a shift from irrigated crops for dairy feed to permanent crops such as almonds, citrus and grapes, has led to a drop in Australia’s milk production. Drought relief came in 2023, but the industry remains challenged by low confidence levels, loss of equity and labor supply. Michael Harvey, senior analyst for dairy and consumer foods in Australia, said the margins for farmers are pretty good right now and the industry is starting to stabilize, resulting in some growth in milk production (about 1%-3%).
When compared to other countries, Australia is a much smaller milk producer, but in exporting 30% of its milk supply, the country is very integrated with the global market. It is also a large importer of European cheese and butter and U.S. cheese for industrial use and the food service sector. The manufacturing footprint in Australia is moving away from ingredients such as milk powders and butter to focus more on cheese to fulfill the domestic market and growing export demand for cheese in Southeast Asia and China.
New Zealand makes up the largest portion of the milk supply in the Oceania region and 25% of the global dairy trade, noted Emma Higgins, senior analyst for agriculture in New Zealand.
A largely grass-based production system, milk production relies on good weather, which can be quite variable for this island country. Following big growth to the dairy herd and high farmgate prices in 2013-14, milk production is now tapering as the industry is challenged by the weather, environmental regulations and access to water. “We’re looking at an environment where we’re likely to see fewer hooves on farm, and the challenge will be whether or not we can invest consistently to continue to see those higher yields come through,” Higgins said.
South America
Milk production:
2023 vs. 2011: +2 MMT
2023 vs. 2035: +5 MMT
As one of the largest countries in the world, Brazil is a global superpower in agribusinesses such as corn, soybeans, beef, poultry, sugar, ethanol, oranges, and pulp and paper products, but not dairy. Andrés Padilla, senior analyst for beverages, dairy, and food and agribusiness supply chains sectors in Brazil and South America, cites two reasons why dairy is not a top commodity for Brazil. First, trade agreements allow Brazil to import dairy products at no cost from other South American countries, so it imports dairy from Argentina and Uruguay. Plus, the success of the other commodities has drawn investment interest over dairy.
The Brazilian dairy industry produces one-third the amount of milk produced in the U.S. but from 10 times more farms. “That’s starting to change because the average dairy farm is starting to get bigger,” Padilla said. “The productivity is increasing, and that really means that we’re going to start to see some additional growth in our milk production in coming years.”
Farmers looking to be more efficient are investing in more genetics to be able to grow more, be more competitive and fill the country’s love of dairy products.
Argentina has been challenged by macroeconomic instability, inflation and a lack of logistics in some regions, but Padilla said he thinks their dairy industry will start to grow again.
“I think it’s a region that has a lot of potential in the world, but for now, it’s a region that only contributes 5% to global dairy trade. As I said before, most of the excess milk that Argentina and Uruguay produce ends up being consumed in Brazil,” Padilla said.
China
Milk production:
2023 vs. 2011: +11 MMT
2023 vs. 2035: +8 MMT
China is the world’s largest uptaker of milk and dairy products, but recent domestic challenges have lessened its need for these products. Michelle Huang, dairy analyst in China, said she anticipates import volume to be down by 12% this year and the trend will continue into 2025.
“The reason for the declining import volume is largely caused by an oversupply situation together with a weaker domestic demand for dairy consumption,” Huang said.
The oversupply has lowered the milk price farmers receive. Along with elevated feed costs in China, small- to medium-sized farms (100 cows or less) are going out of business, larger farms are feeling the pressure and culling cows, and farm consolidation is occurring. With fewer dairy herds, Huang said she expects production to decline slightly in the next few years.
Longer term, China lacks natural resources and faces a high cost of production with feed costs at 70% of the cost to produce milk. When neighboring countries, such as New Zealand, can make milk cheaper, it’s not economical to have all the country’s milk domestically produced.
Huang said there is potential for the Chinese to consume more dairy products, but it will be more like 2% growth – less than the 6% annual growth from the past decade. She also thinks there will be a shift from volume to value growth as consumers will look for more butter and cheese than ingredient products.
“A key message I want to deliver here is that China will continue to be an import country for dairy products, but the level of import volume will be much less than the peak time in 2021,” she said.
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