Dairy prices up in 2019, says FAO

International dairy prices, measured by the Food and Agriculture Organisation of the United Nations (FAO) dairy price index, averaged 3% higher in 2019, compared to a year earlier when they fell by 4.6%. Dairy prices rose (24%) between January and May 2019 before retreating during the second half of the year. Global milk production in 2019 reached 852 million tonnes, an increase of 1.4 % from 2018, mainly resulting from production increases in India, Pakistan, Brazil, the European Union, the Russian Federation and the US, partially offset by declines in Australia, Turkey, Colombia, Argentina and Ukraine.

The rise during January to May was primarily driven by limited availability of exports from Oceania in the face of strong global import demand. Dry weather conditions in Oceania, especially in Australia, led to poor pasture quality and water scarcity. Unusually high temperatures during the summer months in Europe also reduced the pasture quality and the availability of animal feed, moderating milk production expansion.

Across the key global regions, Asia registered the largest expansion, followed by Europe, North America, South America, Africa, Central America and the Caribbean, but declined Oceania.

In dairy products, the annual average value for SMP registered the highest year-on-year increase (32.7%), followed by those of cheese (7.8%) and WMP (3.8%), partially offset by a decline in butter prices (-15.7%). SMP prices increased, although its average value remained low compared to other dairy products. Firmer prices in 2019 were mostly driven by strong import demand ,while supplies were tight, especially from the European Union, where slow growth in milk deliveries forced producers to limit spot supplies in order to fulfil long-term export commitments. Oceania’s exports rose but was not adequate to contain price increases.

Cheese prices too strengthened, especially in the first half of the year, reflecting seasonally limited export availabilities from Oceania, as well as the European Union, with strong import demand from Asia. Cheese prices fell from June onwards as global export availabilities improved.

WMP prices also increased in the first months in 2019, followed by a period of weakening, mostly on recovery in export availabilities in Oceania; in tandem with the region’s seasonal production cycle. Limited export supplies from Europe during that time also lent support to prices. Despite high optimism for a significant rise in WMP exports with weather conditions in New Zealand becoming favourable for milk production, milk production started falling faster than had been anticipated, resulting in higher prices towards the end of the year.

By contrast to other dairy products, global butter prices fell significantly in 2019 (by 15.7%) on mounting supplies in Europe, Asia, Oceania and South America, notwithstanding some declines in North America. Contributing to the downward pressure on butter prices, import demand also stayed weak in 2019, especially from Asia and some countries in South America and Africa.

In Asia, milk output in 2019 increased by 10 million tonnes, or by 2.9% from 2018, to nearly 360 million tonnes, with over 90% of coming from India and Pakistan. India’s milk production continued to increase driven by rising demand, induced by high demand for processed food stemming from fast growing urbanisation. Production growth is facilitated by rising milk collection and processing, especially by dairy co-operatives, along with rising output of relatively more organized sector that adopts modern output expansion methods such as artificial insemination. Pakistan is the fourth largest milk producer in the world and, in 2019, its production is estimated to have expanded further by about 3%, mostly due to rising dairy cattle numbers, but also due to rising dairy cattle population. China’s milk output increased further in 2019, following a rebound already in 2018.

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