Overview of Argentina’s dairy industry
Cows grazing green Argentine countryside
The competitiveness of the Argentine dairy industry continues to be affected by chronic political, economic, and institutional instability in the country, according to the US Foreign Agricultural Service. Government policies include trade interventionism and a heavy tax burden, continue to generate uncertainty, and complicates operational planning resulting in reduced investment. Nevertheless, a 4% increase in 2021 total milk output compared to 2020 is projected. Good weather is the principal driver of this increased production, allowing farmers to reap production gains from their limited investment in nutritional and technological inputs aimed at improving the comfort of dairy cows.
The economic effects of the Covid-19 outbreak drove the Argentine economy further into recession, affecting demand trends. Though GDP growth has resumed after three years of recession, fluid milk consumption is now projected to drop sharply as the buying power of ordinary Argentines erodes through lack of income due to job losses, exhaustion of savings, and high inflation decreasing their purchasing power. The Argentine government has attempted to support continued consumption through a variety of measures, including by fixing prices of a wide range of products, including certain dairy products, in an effort to restrain inflation for staple food products. While the Argentine peso continues to lose value in the parallel market and has surpassed $200 per dollar, the official exchange rate remains artificially strong at $106 pesos per dollar, resulting in economic distortions affecting the relative values of imported inputs and exported products.
This scenario is not very different from the one in the 2020/21 financial year, when the economic results of the dairy farms were not bad, but much worse than in the previous years. While domestic consumption is not be expected to quickly recover, exports are in a position to remove the threat of highs stocks in the domestic market, especially in a world in which the other main exporting countries are unable to increase their milk production sufficiently to meet continued firm global demand.
According to the Observatorio de la Cadena Lactea (OCLA – Dairy Supply Chain Observer) data, the domestic market is the destination for 74.7% of the national milk production and the rest, 25.3%, to exports. Of what is destined for domestic consumption, most is marketed through the retail channel (96%), while the rest is sold to industrial buyers and is marketed through industrial and institutional channels (2% each).
The FAS is adjusting the calendar year 2021 consumption numbers from USDA’s figures of 1,825 million tons to 1,710 MT and maintains the same estimate for consumption of 2020. Argentine domestic demand fell in 25.1% 2021 due to a contraction in GDP, and it does not anticipate any recovery during 2022.
Covid-19 quarantine-related closure of many restaurants in the greater Buenos Aires area that dramatically reduced demand for mozzarella cheese, are beginning to recover as these restaurants have reopened.
Total exports for 2021 are estimated at 313 MT, almost 11% higher than 2020.
According to contacts, though exports in 2021 are higher than those of 2020, they show a strong monthly oscillation due to several factors. They started very high in January due to the Brazilian production problems in December 2020, which accumulated in January, then normalised in February, and grew strongly again in March due to the improvement of prices. From then on the industry faced some logistical problems, both internal (difficulties in ports and administrative challenges) and external (availability of containers/ships) that delay exports and produce low months and high months.
The main export product for Argentina is whole milk powder. In a context of an estimated 4% production growth, with a sharp drop in domestic demand and an international market in demand with very firm prices, it is logical that the main destination for growth should be this product for export. Approximately 38.2% of the volume exported in 2021 for the first 10 months was in the form of WMP. Post estimates total exports of this product for 2021 at 142 MT. Algeria accounted for 73.4% of the total volume exported, followed by Brazil. Williner is the company that exported 16.2% of the total for this period, followed by NOAL with 14.2%, and Mastellone Hnos. with 10.6%. The average export price in October was US$3,530 per ton.