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America’s Role in the Emerging Global Dairy Market Philip Turner 24 May 2005 Washington DC.

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Presentation on theme: "America’s Role in the Emerging Global Dairy Market Philip Turner 24 May 2005 Washington DC."— Presentation transcript:

1 America’s Role in the Emerging Global Dairy Market Philip Turner 24 May 2005 Washington DC

2 2 Fonterra is the world’s leading dairy exporter... Private cooperative owned by 12,000 farmers Assets $8.3 bn, revenue $7.8 bn World’s largest dairy exporter – second largest processor of milk after DFA Collects 40 billion pounds of milk NZ base produces 2% of world milk – less than California and Wisconsin Increasingly procures product around the world - Latin America, Australia, US Through Dairy America, one of the largest dairy exporters from the US In US: in bn pounds milk worth over $300m

3 3 We see excellent prospects for growth in world dairy consumption Total annual demand growth exceeds NZ’s annual milk production Average Annual Growth in Dairy Demand

4 4 But only a fraction of world demand is met through trade... Exports 7% Dairy Exports as a Share of the Total Global Dairy Market (2004) Consumed Domestically 93%

5 5 This partly reflects barriers to trade and subsidised support for dairy Butter Tariffs (%) The EU spends $1.83 billion per year (2003) on dairy export subsidies Domestic Support for Dairy Farmers ($bn per year) PSE 51% PSE 45%

6 6 Happily, growth is strongest where trade barriers are lowest Tariff Protection Consumption Growth Consumption Growth: ZMP, Rabobank, 2004; Average annual change 2003 to 2010 Tariff Protection: Average outside tariff quota rate for chapter 4 dairy products (EU, US, Japan- average OTQR AVE for SMP, WMP, Butter and Cheddar Cheese) Dairy Consumption Growth versus Tariff Protection

7 7 Demand by value will continue to be dominated by developed countries... Dairy Consumption 2008 (USD millions) Western Europe North America Austra- lasia Latin America Eastern Europe Africa / Middle East Asia / Pacific

8 8...but the main growth will come from the developing world Growth of Dairy Consumption 2008 USD millions CAGR Western Europe North America Austra- lasia Latin America Eastern Europe Africa / Middle East Asia / Pacific

9 9 Milk Powder Consumption 2003 (kg per capita) There is enormous scope for growth in per capita demand... Source: Fonterra Internal Analysis

10 10 Domestic demand growing at CAGR of 9.3% Domestic milk supply growing at CAGR of 7% Supply gap of over 20 Million MT ME by 2020 China will be a powerful engine of demand growth as incomes and urbanisation increase Supply versus Demand – China

11 11 Since supply of milk is constrained... EU supply will reduce due to : –CAP reform –accession –the end of export subsidies through WTO Oceania will grow less quickly than in the past: –New Zealand milk growth slower due to competition for land use and rising costs –Australian supply will be limited by water Result will be more dairy products traded and consumed, at higher and more stable prices

12 12 Strong demand will open the door to new exporters Existing suppliers will be unable to fill the gap... EU in retreat Oceania to grow more slowly So where will the milk growth come from? Argentina / Brazil / Chile / Uruguay? Ukraine / Eastern Europe? India / Pakistan? USA?

13 13 In Latin America, unlike China, supply will exceed demand – it will be a bigger force in exports Domestic Milk supply growing at CAGR of 4% Surplus supply of over 15 million MT ME by 2020 Domestic demand growing at CAGR of 2% Projected Mercosur Supply versus Internal Demand

14 14 How does the US fit into this picture? Change is occurring in the US industry already: On-going shift of milk production and processing towards the west and south west Consumer demand driven by health – particularly obesity – presenting both opportunities and threats A significant threat from soy for market share Doha Round / budget pressure will force US to end its subsidised exports and may affect its domestic support model Higher (on average) and more stable world prices will promote US dairy exports

15 15 Though the US is a minor player in the world market, US dairy exports have been rising steadily US Dairy Exports Value (USD m) 202,908 MT465,437 MT566,900 MT833,549 MTQty 322% increase in value over 14 years

16 16 With recent growth particularly in non-fat dried milk powder US Dairy Exports Volume 2004 (tonnes) 75%21%18%21% % growth

17 17 The US has significant opportunities to exploit growth in world dairy demand Strong demand + more trade + supply changes = opportunity for US US exchange rate a factor but not a driver US industry, like Fonterra, needs market access barriers to come down – e.g. Canada, European Union, Japan Increasingly the US industry is poised to respond to the opportunity

18 18 US is currently a minor player in the world market

19 19 Whether it takes the opportunity to become a significant player globally largely depends on the US dairy industry

20 20


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