NEW YORK — Rabobank dairy analyst and food and agribusiness research and advisory Managing Director Debbie Perkins said in a recent podcast that interest in the dairy market is at an all-time high because, “we saw record prices in the international market at the end of 2007 as well as high prices in the U.S. domestic market.”
However, this may not equate to continued expansion in the market as feed prices, labor costs and energy costs continue to rise. In fact, industry growth in has slipped from an average of 3 percent in the second half of 2007, to 2 percent during the January to April 2008, time frame.
“There has been a lot of concern in the sector as to whether the over production that could occur as a result of farmers expanding would mean the prices could come down,” said Perkins.
Instead, the increased costs are likely to lead some farmers to reduce their herds, and it means “we will see a significant reduction in milk production growth for the second half of 2008.”
On the demand side there are areas of the dairy sector that are growing.
“We’re seeing the strongest growth in some of the newest categories to the dairy sector such as yogurt and specialty cheeses,” said Perkins.
In terms of cheeses, U.S. consumers are beginning to demand a higher quality and larger variety of cheese, and, for yogurt, growth is coming from new product development — such as drinkable yogurts.
Another area where the U.S. dairy sector is experiencing growth is in its exports.
“The U.S. share of production that is being exported has increased from about 5 percent in 2002, up to 10 percent in 2007,” said Perkins.
One reason for the growth is the increased production. While some of that goes to the domestic market, there is additional supply available for export.
Additionally, there has been strong demand on the international market — especially in developing countries with increased populations.
However, “key exporters such as the European Union, Australia and New Zealand have not been able to increase their production to meet the increased demand,” said Perkins.
While international success for U.S. dairy producers is influenced by what happens in other key regions, in the long-term, there is a “great opportunity for the United States, but, if they are to succeed, they really have to make it a focus,” said Perkins.
To do that, companies would have to make changes. For example, they would need to alter their packaging to metric measurements to match buyer expectations.
“The U.S. can’t afford to see the international market as somewhere to dump their extra supply. They need to make it a focus. And, if they do that, they have a good opportunity to be successful in the longer term,” said Perkins.