3-point plan for the global dairy market

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The global dairy landscape is undergoing a period of enormous change as new supply patterns have emerged; concerns over supply security and product integrity have come to the surface and high, volatile pricing continues to be a major issue for the industry.

However, as Bill Cordingley, Rabobank, points out, where there is a crisis in the dairy market, there is also opportunity.

“What we are seeing the industry go through is a real transition to saying ‘how do we get the milk that is being produced to the mouths that want it and need it?’” Cordingley said. “Do we do it locally? Do we do it in the places that have traditionally been very effective at dairy production? Or do we do a combination? I think that is probably where the answer lies.”

Cordingley, who serves as the head of food and agribusiness research and advisory in North and South America for Rabobank International, gave his outlook recently at Alltech’s Global 500 convention for beef and dairy producers in Dublin, Ireland.

1. Divergence in supply and demand
Large milk-producing markets such as the European Union and North America Free Trade Area are currently experiencing a slow growth phase, while emerging markets such as India, Africa and China are in a high growth phase.

“We have a structural issue of where it is grown, where it is effectively grown and where it needs to be as an end product,” Cordingley said. “We are seeing a divergence in demand and supply outlook in each of these regions that creates that volatility and difficulty that puts 300 farmers out of business in California this year, but leaves China drastically short of milk at the same time.”

Cordingley said this demonstrates the industry’s complex task to get milk from where it is produced to where it’s consumed in the right form and in a safe way.

The challenge that dairy-surplus countries must face: Are they producing a product that the dairy-deficit areas need? Do they have the interest in export markets? The answer may be “yes,” but do they have the infrastructure to export to these markets?

2. Supply chain response
As dairy producers rush to secure feed, accumulate land for feed production in intensive farming regions and divest into cross-border transactions, processors and traders are building farms or aligning with them.

One example of this is Almarai, Saudi Arabia’s largest food producer, that acquired Fondomonte SA, a company that owns and operates three farms in Argentina, for $83 million in 2011, with the ultimate goal to expand their supply chain and access to feed for its dairy herd and poultry business.

“We are seeing producers move downstream and others are contemplating it,” Cordingley said.

3. Implications for large-scale producers
According to Cordingley, large-scale producers are well-placed to harness the opportunities as they are able to work with banks on long-term plans and structured pricing solutions, compete on risk management and invest in offshore prospects. However, these large-scale farmers also need to have a view beyond the farm gate out into the marketplace.

“If I’m a farmer, should I double down here or invest somewhere else? Where in the world do I want to do dairying?” Cordingley questioned the audience. “The growth here is in the developing world. In the end, trade is not the solution. It’s not the full solution. Local production will be the longer-term solution.”

While growth is important for sustainable business development, growth won’t necessarily be in Australia or the Midwestern United States, but will be in developing economies.

“The question is how do you bring your know-how, skills, and technology to take advantage of that in a way that doesn’t blow up the farm, metaphorically speaking?” Cordingley said. “It’s difficult, but it’s an opportunity and it’s there.”



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