A

I

Milk and MIlk ProductsHandbook

Commodities and Export Projections DivisionEconomic Analysis and Projections Department

.

February 1982

rECHNICAL CONVERSION FACTORS

Fat Content Butter Yield of Cheese Yield of Powdered Whc'Countries of Cow Milk Cow Milk /a Cow Milk Ia Milk Yield /a

of Cow 4ilk

…--------------------…----(percent)--------------------------

Industrialized CountriesAustralia 3.7 4.67 9.68 11.4Canada 3.5 4-2, 9.1 12.5Denmark 4.2 5.0 12.0 -France 3.8 - - -Germany, F.R. 3.78 4.4 8.3 - 10.0 13.0Netherlands 3.84 4.0 10.5 11.36aiew Zealand 4.7 5.5 11.2 -Sweden 3.95 4.72 13.9 -uS 3.73 4.5 11.5 12.1

Developing CountriesArgentina 3.4 3.8 8.0 - 12.0 11.9Brazil 3.5 - 7.0 4.6 10.0 12.5Colombia 3.0 - 3.25 - - -Ethiopia 4.0 -Tndia 4.84 14.5 - -Kenya 3.6 3.2 9.7 12.0. Mexlco 4.3 _ _Nigeria 6.0Pakistan 3.0 - 5.0 -Tanzania 4.5 5.0 10.0Turkey - 3.7 18.0 - 33.0Yugoslavia 3.6 3.4

Centrally Planned EconomiesPoland 3.26 3.9 9.0 11.4Romania 3.5 4.2 19.2 -

/a The yield may also be expressed in terms of the quantity of cow milk required toproduce one unit of butter, cheese or milk powder.

Swirce: FAO Technical Cor.version Factors for Agriclturai Commodities, Rome, 1972.

February 1982

TABLE OF CONTENTS

Chapter Page

I. TNTRODUCTION .....................

II. THE PRODUCT ............... , I-1

A. Characteristics of Mi'k and Milk Products II1....

B. Imitation Milk and Synthetic Milk Products II-4

C. Milk Handling Processing and Marketing. II-5

III. PRODUCTION.... III-1

A. Geographical Distribution of Production.o III-1

B. Milk Yields III.. . ....... 111-9

C. Supply Responsespos... III-11

IV. CONSUMPTION.... .. IV-1

A. Changes in Composition and Geographical Distribution.. IV-1

B. Price and Income Demand Elasticities ...... IV-6

V. INTERNATIONAL TRAE ..... V-l

A. Imports and Exports . . ..................... v-1

B. International Arrangements .... V-

C. Government Intervention. . .. V-10

D. International Price... V-12

REFERENCES ......... .. .. VI-l

. List of Tables Page No.

III-Al Fresh Milk Production - Cow, Buffalo, Sheep and Goat ....... ITI-2

11I-A2 Dry Milk Production ................ ...................... .........* ... IP,-3

III-A3 Skim Milk Powder (NFDM) Productiond ..r....... ..... ... ....d. . I-4

III-A4 Evaporated and Condensed Milk Production. c. ...... tio.. 111-5

III-A. Butter and Ghee roduction ............# .. ......... III-6

III-A6 Cheese (All s) Production ......... III-'7

III-Bl Whole Fresh Mic. Yields ................... III-lO

III-Cl Supply Price Elasticities for Dairy Products in

Industrialized Countries .............................. III-12

IV-Al Skim Milk Powder Consumption and Consumption per Head IV-3

IV-A2 Butter Consumption and Consumption per Head ................ IV-4

IV-A3 Cheese Consumption and Consumption per Head ................ IV-5

IT-Bl Estimated Elasticities of Demand for Fluid Milk in Various

Countries .. I .......... IV-7

IV-B2 Demand Elasticities for Dairy Products in Industrialized

Countries ........ IV-8

IV-B3 Expenditure Elasticities for Milk and Milk Products in

Developing Countries ........ IV-9

V-Al Fresh Milk Exports by Country and Region ......... V-3

V-A2 Butter Exports by Country and Regions ........ V-4

V-A3 Cheese and Curd Exports by Country and Region ........ V-5

V-A4 Fresh Milk Imports by Country and Region ..... ... V-6

V-A5 Dry Milk Imports by Countrv and Region ......... V-7

V-A6 Cheese Imports by Country and Region ......... V-8

V-A7 Butter Imports by Country and Region . . V-9

V-Dl Export Unit Values for Dairy Products . . V-14

Figure V-Dl Export Unit Values for Non-Fat Dry Milk,

Butter and Cheese ........ V-15

Vabruary itS?2

INTRODUCTION

The international market for dairy products has been undergoing a

considerable process of structural change which has accentuated the Inherent

instability stemming from its residual nature. Since only a small proportion

of total world dairy production enters international trade (about 3 or 4

percent), relatively small changes In output can have a dramatic effect on

trade flows and prices. This instability has been compounded by the policies

adopted by some major producing and trading countries to protect their

domestic industries. Price support schemes, stockpiling, export subsidies, and

import restrictions aimed at insulating producers from the effects of the

opera-ion of market forces continue to distort and destabilize world trade in

dairy products.

In the post-war period the international dairy market has been

characterized by periodic surpluses. Up to the mid-1960s the US was the major

cause of these surpluses, which resulted from its price support policies.

Since then the EC has been the major source of surpluses. The US has continued

'Its dairy price support policies, with government purchases into stocks and

import constraints continuing to be the main instruments used to prop up

prices. However, its activity on the international market has been largely

confined to getting rid of these surpluses at concessional prices in Central

and South American countries; although the impact of this form of aid has

worldwide consequences. Mexico has been the largest customer for the major

dairy products put into public storage in the US--butter and dried mnilk pow-

der. The dairy policies which will be pursued by the present US administration

are an important unknown at this stage. If, as seems possible, dairy price

support is considerably reduced, this could mean mor, scope for market-

oriented production and trade in developing countries. Such scope would be

enhanced, if, as also is likely if the US moves in a free-trade direction

itself, it negotiates witn the EC to follow a similar path in respect of its

dairy policies.

The EC, whos2 present member countries had been the world's largest

import area ip to the 1960s, has become by far the biggest exporter of milk

products with about 40 percent of total world trade. Developing countries have

virtually ceased to export dairy products.

_ Dairy production in the EC continues to expand despite measures

introduced in 1977 aimed at restraining production and encouraging a shift of

resources out of the industry. Cow numbers are not growing but yield increases

of about 50 kg per cow per year are being realized. Reductions in support

price levels in real terms offer the only long-term solution to the problem of

surplus dairy production within the EC. However, the political problems to be

overcome tn achieve this goal are formidable.

The OPEC group of countries provide the most rapidly growing export

market for dairy products. It is estimated that in 1980 OPEC imports of milk

products accounted for about one-fifth of world imports. Cheese is probably

the most Important dairy export to this gr.oup of countries, and Saudi Arabia

and Venezuela are among the most rapidly growing of these markets.

The most important dairy products traded on world markets are skim

milk pow:der and butter. These two products account for over half of the total

value of world dairy trade. The remainder is principally made up by condensed

milk, whole milk powder and cheese.

Consumption patterns within countries have also changed considerably

in recent decades. Butter consumption in most of the Industrialized economies

has been declining, while consumption of cheese, whole milk powder and the

milk protein products (skimmed milk powder and casein) has generally been

growing. These changes in large part reflect dietary concern about the con-

sumption of animal fats and the relative cheapening of vegetable fats and

( is. In the case of whole milk powder and skimmed milk powder the bulk of the

increase in demand is coming from the developing rather than the indus-

trialized countries. Convenience, in countries where the availability of

refrigeration is low, and cost are important factors affecting this market in

developing countries. Milk powders are available on the international market

at relatively low prices, and the skimmed milk powders can be reconstituted

with milk fat, or with vegetable fats which are often readily available and

inexpensive in developing countries, thus providing a relatively cheap food

item.

In line with the changing pattern of demand there have been corres-

ponding changes in price relativities between the major products. In general,

the price relativities have moved in favor of cheese, whole milk powder and

the milk protein products and against butter and butterfat products.

Fe Druary 1982 II-

II. THE PRODUCT

W A. Characteristics of Milk and Milk Products

Fluid milk from cows forms a very important part of human diets

throughout the world, except in those regions or countries where the popula-

tion has an intolerance of milk, e.g. China, or where social custom constrains

the use of milk, e.g. parts of Africa. Besides its use for fluid milk con-

sumption, milk is also valued for the consumptinn and Industrial use of nilk

products which are derived from the various comopeats of milk. Worldwide,

about 11-12 percent of total mllk supplies are from animal species other than

cattle (water buffalo 5.6 percent, sheep and goats 3.5 percent, and canls,

yaks and reindeer 1.6 percent). 1/

Milk is basically composed of water (87 percent), milk fat (4 per-

cent) and non-fat solids (9 percent). These ratios would apply to milk testing

at 4 percent butterfat. The butterfat content of milk may be 'iigher or lower

than 4 perceint, depending in large part on the breed of dairy cow being milked

and/or the level of nutrition of the animal. The solids-not-fat component also

varies with the diet of the animal.

The milk fat is separated from the fluid milk in the form of cream.

This separation may be cart ed out atther on the farm or in the factory. The

major forms of consumption of milk fat are butter, fresh or sour cream and ice

cream. When milk is separated on the farm, the skim milk (the residue after

removal of the cream) is used as a feed for young cattle, pigs or poultry.

With this form of utilization the solids-not-fat, which is contained in the

skim milk, is unavailable for direct human use. However, with the growing

demand for dairy products based on solids-not-fats, farmers have moved from

selling cream to selling whole milk. Butter (or cream) and nonfat dry milk

solids (roller or spray dried) then become joint products within the dairy

factory.

Nonfat dry milk has been an increasingly important use of milk-

solids-not-fat. As well as direct household consumption, it has many indus-

trial processed food uses such as in bakery, confectionary and processed meat

products.

* 1/ R.E. McDowell, "State of the Dairy Induetry in Warm Climates of LessDeveloped Countries", paper presented at International Conference on HumanLactation: A Workshop, The New York Academy of Sciences, New York, March2-4, 1977.

February 19*2 11-2

Milk can be internattonally tra4ed either i* 4r, .wvpoVA. -oxr C46-densed whole milk form or as dry skimmed milk powder (NFDM). These whole milk

pruducts may be reconstituted to fluid milk by mixing with water. Skimmed milk

powder is reconstituted by mixing with butteroil (anhydrous milk fat) or vege-

table fats and water to obtain a mixture of about 3.5 to 4 percent fat and 9

percent non-fat-solids. Well-reconstituted milk is said to be practically

indiatinguishable from fresh milk. However, to overcome consumer resistance

wher. the reconstituted milk may not be entirely comparable it is mixed with

fresh milk.

Fresh milk is highly perishable, bulky, and easily contaminated (it

is a favorable medium for bacterial growth). Because it is so susceptible to

contamination and adulteration (with water), fluid milk production, treatment

and distribution Is widely subject to controls. To deter spoilage and

contamination from human disease organisms, fluid milk is generally either

processed 1/ by heat treatment ('pasteurization') and/or Thomogen'zation or

ultra-heat-treated (UHT). UHT milk, which has been available in. some countries

since the mid-1960s, does not require refrigeration, and has a long shelf

life. It has overcome many of the diFadvantages of ordinary pasteurized milk

with regard to keeping quality. Homogenization prevents fat separation and is

achieved by mechanically breaking up the fat globules so that they do not rise

to the surface to form a cream layer. This is done by forcing heated milk

through a small orifice at high pressure.

In rural areas of industrialized countries, where raw milk marketing

has virtually disappeared, UHT milk is now often the only type of liquid milk

available to consumers. UHT milk has been introduced especially successfully

in the warmer countries of southern Europe. In Italy, the proportion of UHT

milk to total liquid milk sales rose from 20 percent in 1970 to 45 percent in

1975. In Switzerland and the Federal Republic of Germany the share of UHT milk

increased to 35 and 38 percent, respectively, by 1975. For western Germany

this meant an expansion of UHT milk sales from less than 100,000 tons in 1970

to close to 900,000 tons in 1975. However, in countries such as the United

Kingdom, the US and New Zealand, UHT milk has hitherto been unimportant.

1/ The treatment of milk for the liquid market is termed 'processing'; pro-cessing of milk into other dairy products, including cream, is termedmanufacture'.

February 1982 Il-3

"Toning" is the addition of reconstituted skim milk to locally

produced milk, in order to reduce its fat content to a predetermined standard

(usually 1-2%). Developed in India, toned milk is important in developing

countries where local breeds give milk of a high fat content (zebu up to 6.5%,

buiffalo 7-11%). In this way the local milk supply can be supplemented with

cheap supplies of dried milk. It is desirable to subject the reconstituted

milk to heat treatment, especially where there is a concern about the quality

of the water supply.

Fluid milk is a very important drink in economic terms. As a beverage

it is in competition with tea, coffee, cocoa, fruit juices and soft drinks.

Milk is also considered to be highly important to a communi;y because of its

nutritive role in the diet of infants. However, dietary concern over the

impact of the connumption of animal fats in high-income communities has been

partly responsible for a consistent reduction in per capita consumption of all

forms of milk fat dairy products in such communities in tile post-World War II

period. Consequently, consumption of liquid milk in skimmed or semi-skimmed

form has become increasing'.y po?,ular.

Milk products are numerous and perform a variety of roles in h=n-

0 diets. Consider the forms of consumption of such milk products as butter,

cheese, cream, voghurts, casein and ice cream.

Yoghurt is a product obtained by fermenting milk with acidic sub-

stances. Two types of yoghurt are normally distinguished, natural yoghurt and

prepared yoghurt, which usually includes fruit. However, there are several

other types of soured and fermented milk products which are similar to yoghurt

(e.g. kefir from the Caucasus, ymer from Denmari and taette from Norway). As a

result of the short life of fresh milk pro. ~s, international trade in

yoghurt is relatively small; most traie is confined within the European

countries.

W4ithin the EC the major exporters of yoghurt are France and Germany,

F.R. Of other Western European countries, Austria and Switzerland are also

prominent exporters. Consumption of yoghurt and other cultured milk products

has risen stead!ly in recent years, with the largest gains being in the fruit

yogihurt market. The Netherlands has the highest per capita consumptioll at

about 16 kg per head per annum.

Lactose, sometimes called milk sugar, is extracted from whey, a hy-

,:oduict of cheese manufacturing. Lactose makes up an average of 4.7 percent of

fluid whole cow's milk. It is the most abundant nutrient of cow's milk,

February 1982 II-4

accounting for about 40 percent of total milk solids, with fats -nd protein

each representing about 30 percent. While producing a pleasantly sweet milk

taste of its own, lactose has been found to enhance the natural flavor of

other foods.

Casein is a protein of milk, which is precipitated from the skimmed

milk by heating with an acid or by the action of lactic acid in souring.

Casein Is the chief constituent of cheese. However, it is also produced hide-

pendently and is used for both industrial and nutritional purposes. In indus-

try it is used in making paints, adhesives and plastics. Its main use in

foodstuffs is as a cheap substitute for cheese in pizzas. In the US, the major

importer of casein, its nutritional use now dominates its industrial use.

B. Imitation Milk and Synthetic Milk Products

Substitutes for liquid milk are generally of two types: (a) those

containing one or more milk components, i.e. "filled" milk, in which nonfat

milk solids--either liquid or reconstituted skim-milk--are recombined with

vegetable fat; and (b) "synthetic" milk, in which no milk component is used.

The non-milk products are a combination of vegetable fats or oils,

particularly coconut oil, maize syrup solids, emulsifiers and vegetable pro-

tein (mostly soybean protein). Synthetics may contain sodium caseinate as the

main protein source, which is derived from casein, but they are not regarded

as dairy products. Imitation milks contain lower levels of minerals (espe-

cially phosphorous and calcium) and protein than normal or "filled" milk.

Imitation milks are therefore not usually nutritionally suitable for infants

or children. _/

Substitutes for milk products are common and include the following:

non-butter-fat-based whipped topping as a substitute for whipping cream;

coffee whiteners derived from vegetable fats; mellorine, a frozen product

based on vegetable fats and skim milk powder, which is a competitor of ice

cream; and artificial sour cream.

The factors which seem most important in accounting for the increas-

.ag use of these dairy substitutes are price, convenience and concerns about

health. "Filled" milk may be up to half the price of fluid milk of 3.5 percent

butterfat content. The difference is accounted for by the differing costs of

1/ S.K. Kon, Milk and Milk Products in Human Nutrition, FAO Nutrition.lStudies, No. 27, FAO, Rome, 1972.

.

February 1982 II-5

butterfat and vegetable fats. The substitution of vegetable fats for milk fats

in dairy products is particularly attractive to developing countries. Use can

be made of the subsidized skim miWK powder available on the world market to

six with often abundant, locally produced vegetable fats.

Substitute milk products are said to have greater flavor stability

and keeping quality and hence longer storage life. This factor receives con-

sideration when refrigerated storage facilities are unavailable or in tropical

climates where refrigerated storage facilities are prohibLtively expensive.

The alleged association between animal fats intake and heart and

other disease has obviously accounted for part of the expansion of vegetable

oil-based products.

C. Milk Handling, Processing and Marketing

According to FAQ estima-ces, Ln the developing countries on average

less than a fifth of total milk production was industrially pro vssed around

the mid-1970s, tl';ugh the proportion was well above this average in South

America. Rural manufacture of less perishable milk products, such as butter,

ghee, cheese, fermented end semi-condensed milk is of great importance in many

developing countries but most of the milk in these countries is still consumed

unprocessed or little processed (e.g. fermented) in producer households or

distributed to consumers in areas rather close to the place of product'on. By

contrast, in the most advanced industrialized countries the proportion of milk

industrially processed rose from about 75 percent to well over 90 percent

during the last two decades, while in most East European countries and the

USSR this proportion increased- to 50-70 nercent by the first half of the

1970s. In the northern parts of Europe, in North America and Australasia,

rural nmanufacture of milk products had become insignificant by the 1970s and

so had retail marketing of fresh milk by producers. At the same time, the

trend towards fewer and larger dairy units, with a growing stnare of milk

p.oduced in specialized dairy farms, rather than mixed holdings, has reduced

farm home consumption of fresh milk in high-income countries.

In the industrialized countries, but also in the more advanced

developing countries, the proportion of milk marketed through industrial milk

plants has grown steadily. In the majority of developing countries the market-

ing of locally produced milk is mainly through private middlemen.

Characteristics of Industrialized Ccuntries

Collection and processing of milk in industrialized cotuntries has, to

a large extent, traditionally been organized by producer cooperatives. In nor-

February 1982 II-S

thern Europe, North America and New Ze''ind the bulk of milk collection is in

the hand? of cooperatives or is supervis3d by organizations representing pro-

ducers. Cooperatives also process the bulk of commercial milk production in

New Zealand and in most northern European countries, except .n the United

Kingdom. In that country and in the Ulnited States, a sizable portior of milk

collected by cooperatives is sold to non-cooperative milk processing plants,

with collection cooperatives acting as bargaining agents for the farmers in

the sales of milk to private plants. In some countries the cooperatives'

marketing power has increased to an extent that the issue of maintaining a

competitive marketing environment has been raised.

In most industrialized countries the trend haq been from milk collec-

tion in cans towards collection in bulk by roadtankers with every-other-day

collection gaining importance. This change has gone hand ir. hand with the

rapid installation of milk tan%s with cooling facilities on dairy farms; the

trend to fewer and larger milk production units facilitating this development.

Not infrequently, dairy companies have pl3yed a role in the financing of farm

milk tanks. Most of the road tankers belong to the dairy companies, though

hired transport also oLcurs. In the past, milk for liquid consumption, because

of its perishability and bulkiness used to be produced in reas relatively

near to a consumption center. More recently improved roads, better refrigera-

tion, improved quality of raw and processed products, plus the increased use

OL single-service containers and increased sales through stores, have expanded

the geographic area over which the production of milk marketed as pasteurized

liquid is economically feasl'ule. The introduction of sterilized and IMT

(ultra-heat-treated) milk for liquid constimption has further reduced -he

problems related to liquid milk marketing. Manufacturing of milk into products

such as butter. cheese, dried and condensed milk or casein, has traditionally

been done in more remote areas where milk prices are usually lower.

Like dairy farming, the milk processing sector has undergone dramatic

changes. The trend has been and will continue to be towards fewer and larger

milk plants. For instance, in the United States, the number of liquid milk

processing plants has declined by over three-fourths to below 1,600 during the

last 25 years. In the Netherlands, the number of milk processing plants fell

from 580 in 1950 to 221 in 1975. With Dutch milk collection growing, the

average throughput per plant grew to over 40 million kg by 1975, as against 27

million kg in 1970, 16 million kg in 1965 and only 12 million kg in 1960. The

decline in the number of plants has been accompanled by a rapid merger

Februlary 1982 1I-7

process, resulting in the formation of a relatively small number of large

multiplant firms accounting for an important share of the total mark,t.. Tn

this process, a large number of the less efficient and less favorably locatedt

plants have been closed down, while at the same time new plants have been

built, especially for products for which demand is increasing. The remaining

plants hale often been substantially enlarged and modernized.

Distribution of milk and milk products has also undergone consider-

able change. Milk for liquid consumption had traditionally been delivered

mostly directly from milk plants to retailers, whereas the distribution of

manufactured milk products had been through wholesalers who often performed

such functions as grading, packaging, storing and transport to retailers.

However, in recent years more and more of the large processors have been able

to perform this function themselves. Direct delivery by processors of products

to chain stores and other large scale users has become increasingly common in

the most advanced industrialized countries.

Dairy products retailing had traditionally been done by a large num-

ber of small specialized shops, often combined with door-to-door delivery.

But, under the competitive pressures from the supermarket chains, the number

of dairy shops has declined rapidly. Delivery to the consumer's doorstep also

decreased, though this system is still predominant in many countries, e.g. in

the United Kingdom and New Zealand. In the hope of reversing the downward

trend in milk and milk products consumption, dairy industries of some coun-

tries have attempted to reactivate door-to-door delivery in recent years, most

actively in Switzerland.

The increasing importance of dairy sales in self-service stores and

supermarkets has generated the need for various changes in the products and

product line offered by the processors. It has contributed to the demand for

the constant introduction of new products and packaging methods. The change

In packaging methods is particularly true of milk for liquid consumption. For

example, in the Federal Republic of Germany, 75 percent of liquid milk was

retailed in bulk in 1955. By 1975 this percentage fell to 13 percent. To tht

packaging of liquid milk the glass bottle has been increasingly replaced hv

one-way carton containers or plastic sachets. Because it does not requI.r:

refrigeration and because of its longer shelf life, UHT milk is a much morf'

easily marketable product than ordinary pasteurized milk. It has rapidlv

gAiined importance, partly supplemenitinig but mainly replacing pasteurized milk.

February 1982 II-8

For milk and milk products as a whole, the described trends in mar-

keting and consumption in industrialized countries imply that the milk

producers' share of consumer expediture de-lines as more processing takes

place and a growing number of services are added in the marketing channel.

However, for relatively simple products, such as liquid milk, the efforts to

rationalize processing and distribution have resulted in the farmer's share

remaining remarkably constant at approximately 50 percent during the last two

decades in most industrialized countries, with processing (including

collection and packaging) and distribution accounting for some 25 percent

each.

In eastern Europe and the USSR, there has been the same trend towards

larger production and processing units and diversification of the supply of

milk and milk products. Industries have made great efforts to improve the qua-

lity, range and packaging of dairy products. Generally, however, average milk

plant size, diversification and packaging methods have not yet reached the

same stage as in the most advanced western countries. For instance, in the

USSR the proportion of packaged liquid milk was still only 49 percent in 1975,

and the 5,400 milk plants had an average annual intake of merely 10 million

kg. While private milk production from small plots still accounts for a

sizable proportion of total milk production in many socialist countries,

production units in the collective and state sector have reached a consider-

able size. In the German Democratic Republic for instance, the 2,000 cow dairy

farm is now being aimed at. Large-scale production and processing in the col-

lective and state sector has facilitated vertical integration of the dairy

industry. On the other hand, due to the absence ur the pressures of competi-

tion, the efficiency of milk production and marketing still appears to be

lower than in western industrial countries.

Characteristics of Developing Countries

It is obviously more difficult to produce milk in tropical and b-

tropical environments than in humid temperate zones. For ecological reasons,

milk production at reasonable cost levels is precluded altogether in large

parts of the developing regions. Therefore, markets of these ccuntries will

continue to be supplied by imports. Although import prices have generally been

low, costs of marketing have so 'ar been high, partly reflecting the linita-

tion of the market by consumption habits and, in particular, the low average

purchasing power. However, several of these countries belong to the group of

nations now benefiting by the increased petroleum prices. Incomes are rising

!ebruary 1982 II-9

for direct consumption or after processing by local recombining plants is

increasing correspondingly. The expansion of the market, together with

improved distribution facilities is resulting in a reduction of marketing

costs which may help to raise consumptlin levels further. Markets in the OPEC

member countries therefore sees to provide an increasing outlet for tradi-

tional and possibly new dairy products for exporting countries, though in a

number of these countries there is also some scope for the development of a

relatively high-cost local milk production, especially for liquid milk

consumption.

Traditionally in developing countries, milk which is surplus to

producers requirements has been marketed by a network of marketeers, some-

times specializing in milk purchasing and in converting milk into simple milk

products. These traders usually make contracts with farmers, finance their

inputs in advance and often employ specialized collectors, who, besides

collecting milk or milk products (and sometimes even milking the cows) are

expected to do various services for the producer. Adulteration of milk is

still a common practice under this system and with growing urbanization the

problem has become more acute. Nonetheless, raw milk procurement and distri-

bution by pedlars, was in the past--and in many cases it is still at present--

an efficient way of marketing, using cheap labor and little capital and, with

consumers being accustomed to boiling the milk, the health risk was insigni-

ficant.

However, growing urbanization and demands for better quality milk

products is leading to more organized milk collection and industrial milk

processing. Further, a growing number of developing countries have attached

higher priority to dairy development in recent years, not only because of

balance of payments as well as nutritional considerations, but also because of

the particular role dairy development can play in overall rural development.

The establishment of organized milk marketing systems has been the

concern of the specialized UN agencies, initially mainly UNICEF and FAO, and

later on also the UN/FAO World Food Program (WFP). Initially, the projects

were directed mainly towards providing milk for children and mothers in nutri-

tionally deficient areas. Skim milk powder, imported as food aid, provided the

economic base for many of these projects, enabling them to develop the local

dairy industry and, at the same time, making cheap milk available to vulner-

able groups. In such dairy development projects, supported in particular by

the WFP, an important gap between local raw milk supplies and demand has been

February 1982 11-10

bridged, in that milk powder and butter oil, obtained as food aid, a'. recom-

bined into liquid milk, possibly mixed with local milk, and sold on the

market. The sales proceeds have been invested in the development of domestic

milk production and marketing.

Multilateral and bilateral assistance to dairy development has mostly

been directed to government schemes. The recombining industry, using commer-

cially imported butter oil and or milk powder, has generally been established

either by transnational food companies or Indirectly by assistance from mar-

keting agencies of exporting countries, notably New Zealand and Australia,

which have done so with a view to creating new long-term outlets for their own

dairy industries. In some developing countries, such recombining plants have

also engaged in the development of local milk production and collection.

0

February '982 III

III. IODC¶TTOW

A. Geographical Distribution

Tables III-Al to I:I-A6 present production data for fresh milk and

milk pr^ducts by reglonal groupings and by country. The fastest rates of

growth among these products have taken place in the dry milk powyders--whole

milk powder (7.0%) and skilmed milk powder (5.3%). Whole milk powder has grown

from a relatively small base. The next fac;test in growth has been cheese

(2.7%).

The growth in milk powders is obviously closely related to the price

support policies in the EC as witnessed by the large production increases in

those countries. However, the increase in cheese production has probably been

largely stimulated by the growth in demand for cheese--cheese being the one

dairy product whose income elasticity in industrial countrie is rather high

and not declining.

Butter and fresh milk production expansion has been very slow in

industrial countries--reflecting the low price and income elasticities in

these countries, and the competition from cheapening substitutes. However, in

the developing countries, production of these commodities seems to have grown

faster than the growth in population.

The CPEs have shown considerable growth in all areas of milk prcduc-

tion, but especially in milk powders and cheese.

Ecological conditions are generaliy more favorable for dairy farming

in the temperate zones than in the tropical and subtropical zones. However,

the concentration of milk production in the industrial, temperate-zone coun-

tries is biased upwards because of the agricultural policies pursued by the

major producing countries. The disparities within these countries between

prices for production and consumption have caused large surpluses which have

been subsidized into world markets and thus depressed producer prices in

developing countries.

The industrial countries, along with the centrally planned economies,

account for approximately 80% of total milk production. Rapid rises in yields

have contributed to increasing production levels in the industrial countries

while at the same time cow numbers have declined. Increases in the profitabi-

lity of concentrate feeding and their expanding use as well as the maintenance

of producer prices above free market levels have been the main factors behind

the rise in milk yields in the industrial countries. For instance, in the ITS

the average milk yield per cow is now more than 5,000 kg, about double that oL

25 years ago.

Table I11-A1: FRESH MILK PRODUCTION - COW, BUFFALO, SHEEP AND GOAT

Growth Rate "Country,'Region 1961 1965 1970 1971 1975 1978 1979 1961-79

----------------------- (million mt)-------- - - ~--(S

WORLD 347.8 369.5 398.5 400.6 429.2 456.6 459.8 1.8

Industrialized Countries 285.3 303.1 319.7 320.0 338.6 356.9 361.0 0.6US 57.0 56.3 53.1 53.8 52.3 -5.2 T -6.017Canada 8.3 8.3 8.3 7.9 7.8 7.4 7.1 -0.8

EC 86.6 90.5 93.5 93.4 99.8 107.0 109.4 0.0Belgium/Luxembourg 3.9 3.8 4.0 3.8 3.9 4.0 4. T 0.1Denmark 5.5 5.4 4.5 4.4 4.9 5.3 5.2 -0.4France 24.7 27.7 28.3 28.7 30.9 32.0 33.1 1.3Ireland 2.8 3.1 3.6 3.7 4.3 4.7 4.9 3.2Netherlands 7.0 7.1 8.2 8.4 10.2 11.4 11.6 3.1Germany 20.1 21.3 21.q 21.2 21.6 23.3 24.0 0.6Other EC (Italy, UK) 22.6 22.1 23.0 23.2 24.0 26.3 26.6 0.9

Other Western Europe 15.3 15.6 14.5 14.4 14.8 15.4 16.0 0.3Australia 6.3 7.1 7.8 7.5 6.7 5.6 5.8 -0.7New Zealand 5.3 6.0 5.9 5.8 6.1 5.9 6.3 0.7Other /a 13.7 15.3 19.8 19.8 22.5 25.2 25.9 3.1

Centrally Planned Economies 92.8 104.0 116.8 117.4 128.6 135.2 133.9 2.4USSR 62.7 72.6 83.0 83.1 90.7 94.7 2.5Eastern Europe 29.7 31.4 33.8 34.3 37.9 40.5 40.6 1.8

Developing Countries 62.5 66.4 78.8 80.6 90.6 99.7 98.8 2.8Argentina 4.1 4.3 4.2 4.8 5.6 5.1 5.2 1.6Brazil 5.3 6.9 7.4 7.4 10.0 12.1 10.7 4.2Colombia 1.8 2.0 2.3 2.3 2.1 2.5 2.7 1.8Mexico 2.5 2.5 4.1 4.3 5.2 6.7 6.5 6.1India 20.4 19.7 22.0 23.0 24.0 25.0 25.0 1.5Pakistan 3.8 4.2 8.4 8.7 9.6 10.0 10.0 6.1Kenya 0.7 0.7 0.9 1.0 1.0 1.0 0.9 2.0Tanzania 0.5 0.6 0.8 0.7 0.7 0.8 0.8 2.0Ethiopia 0.5 0.5 0.6 0.7 0.7 0.8 0.8 2.2

/a Spain, Turkey, Portugal, Greece, Israel, Yugoslavia, Cyprus, Malta, Japan.

Source: FAO, Production Yearbook, various issues.

0 *0.

Table III-A2: DRY WHOLE MILK PRODUCTION

Growth RateCountry/Region 1961 196f, 1970 1971 1975 197R 1979 1Q61-79

------ ___________----(-000 mt…) ---------------

WORLD 450 692 966 1,053 1,234 1,608 1,555 7.0

Indtistriali7p,1 Cotintries 390 585 739 810 875 1,170 1,153 5.4llc 25i 26 31 33 29 34' 34 -1.3Canada 12 10 0 0 1 7 7 -6.8

EC 179 246 313 358 376 519 526 6.3Belgium f1.tvtumhotrF 14 26 17 3' 20 23 23 :fiDenmarl 24 29 3Y 44 46 79 77 C.5France ?3 41 73 84 94 139 144 10.0Ireland 14 19 14 11 28 20 3.9Netherlands 41 5( 60 6Q 90 135 13R 6.6Germany 32 Si 74 73 94 93 100 7.5Other EC (Italy. UT() 34 3? 37 21 22 24 -1.9

Other Western Europe 62 13- 157 167 142 168 156 5.3Australia 1 2)(' 25 26 45 78 77 8.2New Zealand 6 - 28 24 21 71 77 17.5Other la J rc 20 24 17 22 20 4.9

Centrallv Planned Economies 83 124 165 178 244 271 256 7.3USSR 55 70 145 158 167 TmEastern Europe 2P 4c 20 20 77 44 41

Developing Coountri;-s 60 107 227 243 359 438 402 11.8Argentina 13 20 25 37 73 55 10.7Brazil 4 17 80 83 117 165 150 18.7Colombia 0 C 8 10 9 12 13 3.6Mexico 4 6 10 12 21 29 30 11.5Pakistar 0 1 0 0 00 0 -Kenya 1 2 3 2 3 3 1 4.2

/a Spain, Turkey. Portugal, C.reece, Israel, Yugnslavia, Cyprus, Malta, Japan.

Sourne: FAO, Production Yearbook, varintis issuiec

Table TII-A3: SKIM MILK POWDER (NFDM) PRODUCTION

-I-- > Crowth RateCountrv/Region 1961 1965 1970 1971 1975 197R 1979 1961-79

…-------------('000 MCt------------- --(1)-

WORLD 1,707 2,249 3,002 3,049 3,979 4,156 4,167 5.3

Industrialized Countries 1,636 2,172 2,963 3,007 3,927 4,104 4 119 5.4(is 961 945 687 f671 477 438 3 -5.4Canada 101 105 169 140 191 133 114 2.5

EC 375 773 1,401 1,389 1,975 2,211 2,1R2 4.2Belgium/Luxembourg 35 60 109 9R 132 145 145 T.3Denmark 6 17 19 24 69 64 52 13.7France 100 332 648 627 782 733 735 9.9Ireland 6 11 34 47 135 170 146 24.0Netherlands 64 70 96 86 185 202 179 7.4Germany 84 202 401 398 567 625 675 11.4Other EC (UK) 80 81 94 109 105 272 250 6.5

Other Western Europe 54 116 208 225 258 283 312 10.3Australia 45 58 104 109 169 93 83 5.RNew Zealand 61 104 152 191 253 185 198 7.5Other /a 0 0 15 15 25 34 38 17.9

Centrally Planned Economies 39 71 227 267 579 727 759 20.0USSR 10 27 63 81 213 306 21.6Eastern Europe 29 44 164 186 366 421 469 17.0

Developing Countries 71 77 39 42 52 52 48 -2.0Brazil 42 39 0 0 0 0 0 -Mexico 1 2 2 3 4 4 5 5.9Kenya 1 1 3 3 3 2 1 7.1

/a Spain, Turkey, Portugal, Greece, Israel, Yugoslavia, Cyprus, Malta, Japan.

Source: FAO, Production Yearbook, various issues.

* * * . .

Table 111-A4: EVAPORATFI) ANT) CONDENSED MILK PRODUCTION

Growth Rate m

Country/Reglor. 1961 i9h- 1970 1971 1975 1978 1979 1961-79

…---____________________( 000 mt)…------------------------

'0WORDI) 4,048 4,29( 4,513 4,605 4,079 4,518 4,567 0.4

Industrtalized Countries 3,635 3,82F 3,837 3,907 3,358 3 664 3,704 -1.6ITS 1,635 1,49S 1,266 1,283 q49 900 1 -3.8Canada 157 161 130 136 109 182 162 -1.0

EC 1,353 1,544 1,511 1,500 1,312 1 415 1,438 0.3Belgium/Luxembourg 22 2P l8 7 9 7 8 -T-W8Denmark 42 39 29 24 15 8 8 -9.4France 105 155 19P 196 142 153 163 1.3Ireland 140 161 74 82 64 77 74 -4.5Netherlands 412 457 496 47R 461 489 514 0.9Germany 391 462 438 461 448 491 483 0.6Other Er (UK, Italv) 241 242 261 252 173 190 188 -1.4

Other Western Europe 104 92 116 112 88 ltO 115 0.5Australia 67 90 71 93 60 77 81 -0.2New Zealand 10 7 1 1 14 8 9 2.1Other /a 61 9R R1 84 152 124 132 4.6

Centrally Planned Economies 248 341 661 698 674 858 851 7.5USSR 172 236 420 440 364 5TZ 530 T.tlEastern Europe 76 lo5 241 258 310 314 321 8.3

Developing Countries 413 471 676 698 721 854 863 4.4Argentina 4 11 8 1o1 --T 0-- 0.1Brazil 17 17 25 29 31 32 34 4.3Colombia 0 0 4 4 4 4 4 4.5India 214 210 215 217 222 222 222 0.4Kenya 0 1 3 3 1 n 0 -0.6

/a Spain, Turkey, Portugal, Greece, Israel, Yugoslavia, Cyprus, Malta, Japan.

Source. FAO, Production Yearbook, various issues.

Table 1I1-A5: BUTTER AND GHEE PRODUCTION

Growth RateCountry/Region 1961 1965 1970 1971 1975 1978 1979 1961-79

9~~~~~~~~

~------------------- - - (-000 at)- -- - -(7) -e

WORLD 5,436 5,884 5,896 5,942 6,516 6,958 6,918 1.4co

Industrialized Countries 4,457 4,882 4,711 4,710 5,164 5,557 5 502 0.1 1US 697 -611 51 520 446 451 0.1Canada 165 157 153 134 133 106 103 -2.7

EC 1,411 1,509 1,541 1,498 1,712 1 925 1 928 1.8Belgium/Luxembourg 94 94 98 92 101 1 0 6 0. 7Denmark 171 166 131 124 133 140 131 -1.3France 405 475 481 474 559 548 566 1.7Ireland 61 65 73 75 84 119 122 3.6Netherlands 97 10- 121 124 204 211 203 5.4Germany 456 501 505 471 521 564 566 0.8Other EC 127 105 132 13R 110 237 234 3.5

Other Western Europe 270 280 228 219 232 233 233 -0.8Australia 185 206 223 203 161 IIl 105 -3.1New Zealand 217 246 218 237 250 226 251 0.6Other /a 149 168 192 195 201 230 242 1.2

Centrally Planned Economies 1,363 1,705 1,638 1,704 2,029 2,275 2 194 3.0USSR 894 1,184 1,067 1,122 1,320 TI472 T40 2.7Eastern Europe 469 521 571 582 709 803 785 2.9

Developing Countrles 979 1,002 1,185 1,232 1,352 1,401 1 416 2.2Argentlna 55 42 27 36 40 29 2';I -2.7Brazil 26 25 45 50 63 90 90 8.4Colombia 4 4 11 11 11 11 12 7.3Mexico 11 14 180 190 230 250 252 4.8India 433 421 490 515 562 570 575 2.2Pakistan 134 152 209 216 238 245 246 3.7Kenya 6 5 5 4 4 4 4 -3.5Tanzania 1 2 2 2 3 3 3 5.0Ethiopia 10 10 9 9 9 9 9 -1.0

/a Includes Spain, Greece, Turkey, Portugal, TIrael, Yugoslavia, Cyprus, Malta, Japan.

Source: FAO, Production Yearbook, various issues.

Table 1II-A6: CHEFSE (ALL KINDS) PRODUCTION

Grovth RateCountry/Region 1961 1965 1970 1971 1975 1978 1979 1961-79

. ._ ~~~~~~~cr------------------------- ( 000 mt) --------- -- -------(

a

'1

WORLD 6,941 7,746 7,714 8,057 9,412 10,720 110012 2.7

Indutstrialized Cotuntries 4,562 5,312 6,572 6,880 8,113 9 325 9 597 4.2us 1,005 1,083 1,329 1,415 1,593 192,2067 ZCanada 71 96 118 135 146 168 187 5.2EC 1,649 1,941 2,334 2,484 2,925 3 201 3 314 4.0Belgilum/Luxembourg 23 35 -3 742 41 43 4 2.5Denmark 122 114 111 120 152 1A3 189 2.6France 484 618 781 819 943 1,010 1,043 4.4Ireland 6 17 29 34 62 50 58 12.4Netherlands 213 219 278 306 373 418 435 4.6Germany 305 376 495 523 619 714 732 5.1Other EC 496 562 600 640 735 783 813 3.0

Other Western Europe 240 269 303 322 382 420 429 3.5Australia 48 48 76 78 101 116 142 5.2New Zealand 101 108 102 102 94 82 90 -1.2Other la 347 416 520 527 636 702 736 3.8

Centrallv Planned Ecnomies 1,101 1,351 1,79O 1,817 2,236 2 63U 2 632 5.3USSR 570 17?350 1,018 1,251 T'TW T.Eastern Europe 531 601 765 799 985 1,120 1,137 4.3

Developing Countries 2,379 2,434 1,142 1,177 1,299 1 395 1 415 -2.1Argentina 134 150 167 188 22 'T '239 ~Brazil 39 39 50 50 53 56 58 2.2Colombia 17 19 39 41 38 43 44 5.5Mexico 60 63 77 78 89 95 95 2.8India 1,427 1,338 0 0 0 0 0 -1.6Kenya 0.6 0.8 0.5 0.5 0.5 0.4 0.4 -4.5Tanzania 0.5 0.5 0.5 0.5 0.5 0.5 0.5 -Ethiopia 0 0 4 4 4 / 4 -0.8

/a Includes Spai, Greece, Turkey, Portugal, Israel, Yugoslavia, Cyprus, Malta, Japan.

Source: FAO, Production Yearbook, various isrues.

February 1982 III-8

Efforts have been taken by moqt of the surplus pr-oducing industria-

lized countries to curtail milk production, because of the rise in stocks as

production has increased faster than consumption. With the exception of the

Urited States, the following producers have adopted levies to penalize over-

production: Canada, Switzerland, Austria, Norway and Finland. Australia has

also discouraged excess production by phasing out most subsidies on manufac-

tured milk, and the EC initiated a program aimed at reducing dairy herds.

TJnder the dairy cow slaughtering program introduced in the EC in 1977,

supposedly slightly over 1 million dairy cows had been taken out of production

by September 1980 when the scheme was discontinued. Nevertheless, total dairy

cow numbers remained unchanged and the growth in EC milk production even

accelerated in 1980. Despite these measures, international prices are expected

to remain lower than domestic prices in most industrial countries. The current

oversupply situation is expected to improve somewhat but full adjustment of

output of industrial coultries to commercial outlets is unlikely in the near

future.

In the CPEs, both production and consunption have been expanding as a

result of increasing yields and cow numbers. In an attempt to encourage domes-

tic consumption of milk, governments have heavily subsidized processing and

distribution costs. Per caput consumption of milk products in the USSR and

eastern Europe is now higher than in the western industrialized countries. The

result of tnese measures in both the industrialized countries and the CPEs has

been a glut of milk and milk products at prevailng prices (which do not

reflect accurately the real production costs).

From the point of view of the developing countries, there have been

some positive effects from the current oversupply situation. Due to over-pro-

duction in the industrialized and centrally planned industrialized countries,

dumping practices have become common. The existing surpluses have enabled

developing countries to purchase milk products at low prices and/or obtain

part of them free through food aid. However, these concessional and food-aid

exports have been vulnerable to fluctuatioL,s in commercial supplies of dairy

products. Food aid has a tendency to increase when supplies are ample and to

decline when supplies are low. The implications for countries trying to combat

malnutrition are obvious.

There are a number of p 'ems associated with the expansion of milk

production in developing countries. tor a long time dairy development was neg-

lected since it wasn't financially attractive; furthermore, governmelt

February 1982 III-9

involvement in the market pl&ce resulted in unremunerative prices for rural

milk producers and there were other price distortions at the retail level

which interfered with the private raw milk trade. Milk plants in the develop-

ing countries (in particular, government plants) have so far been losing

rather than profit-making enterprises. This is said to he due to inadequate

capital, low production levels as a result of slow progress in milk procure-

ment and/or sales, and their bureaucratic inclination (rather than

commercial).

Rural anufacture of Lhe less perishable milk products is important

in many developing countries, but most of the milk in these countries is still

consumed unprocessed or with little processing (e.g. fermented) in producer

households or distributed to consumers in areas close to the place of produc-

tion. By concrast, in the most advanced industrial countries the proportion of

milk industrially processed rose from 75 percent to well over 90 percent dur-

ing the last two decades.

B. Milk Yields

Per qnnum milk yields per cow are shown in Table III-8i for various

countries and regions. The highest yields per cow are attained in those coun-

tries with feeding regimes which use a high proportion of feed concentrates,

suLch as the US, Netherlands and Denmark. However, the most economically effi-

ient dairy industries are in New Zealand and Australia where the industry is

ba-;ed on pasture feeding and yields are much less tharl in say the US.

Yields in developing countries are very much below those in the

ind(itstrial countries and are growing more slowly in genieral. However, this Is

not necessarily of concern, as protection in the industrial countries hem

hiased dairy practice towards the more intensive use of concentrates, and as

well, the factor proportions in developing countries are different from those

in industrial countries.

Table III-BI: WHOLE FRESH MILK YIELDS W

Growth Rate CCountry/Region 1961 .965 1970 1971 1975 1978 1919 1961-79

______-----------(-000------ - (00 k)

WORLD 1.7 1.U 1.9 1.9 1.9 1.9 2.0 0.8

Industrialized Countries 3.0 3.3 3.6 3.9 4.1 4.1 4.1 1.5Us 3.3 3T.8 4.6 4.5 I^ T TIT 5.S1Canada 2.5 2.9 3.3 3.5 3.7 3.1 3.0 1.1

EC 3.3 3.4 3.6 3.6 3.8 4.0 4.0 1.1

Belgium/Luxembourg 3.8 3.7 3.6 3.6 3.6 3.8 3.9 0.1Denmark 3.7 3.9 4.2 4.2 4.5 4.8 4.5 1.5France 2.4 2.8 2.8 2.9 2.9 3.0 3.1 1.0Ireland 2.3 2.3 2.6 2.6 3.0 3.3 3.2 2.3Netherlands 4.2 4.2 4.3 4.4 4.6 5.0 5.0 1.0Germany 3.4 3.6 3.9 3.9 4.0 4.3 4.4 1.3

Australia 2.0 2.3 2.7 2.7 2.8 2.6 2.9 1.9New Zealand 2.8 3.0 2.5 2.6 3.0 2.9 3.1 0.4

Centrally Planned Economies 1.8 1.9 2.2 2.2 2.3 2.4 2.3 1.8USSR 2.0 -9 T.1 2.1 2. 2. 2 i:r TyHungary 2.2 2.2 2.2 2.2 2.3 3.0 3.0 1.4

Developing Countries 0.6 0.6 0.7 0.7 0.A 0.7 0.7 1.1Argentina 1.- 1.9 T1 Fl TBrazil 0.7 0.8 0.7 0.7 0.R 0.9 0.8 0.7Colombia 0.7 0.7 0.9 0.9 0.9 0.9 1.1 2.1Mexico 0.9 1.0 0.5 0.6 0.6 0.7 0.8 -1.7India 0.4 0.4 0.5 0.5 0.5 0.5 0.5 1.2Pakistan 0.3 0.3 0.8 0.8 0.8 0.8 0.8 5.8Kenya 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0Tanzania 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0 0

Ethiopia 0.1 0.1 0.1 0.1 0.2 0.2 0.2 1.1

Fource: FAO, Production Yearbook, various issues.

* * * . .@ 6

February 1982 III-ll

C. Supply Responses

There have been few studies of the supply response of milk and milk

products to changes In the prices of the various commodities. What estimates

are available concentrate on the industrial countries. In Table III-Cl the

supply-price Llasticities assembled for the US Department of Agriculture's

Grains-Oilseeds-Livestock model have been reproduced.

Supply response in the dairy industry is complex because of the many

different markets (fresh milk, butter, cream, etc.) to which milk can be

directed as well as the fact that both beef and veal and milk are primary

nrr'ucts of a dairying enterpriEt. The extent to uhich the dairy sector is

engaged in beef production varies within countries as well as between

countries. Those dairy farms which are oriented towards the fresh milk market,

and which therefore may be in close proximity to large urban areas, are likely

to produce only small quantities of meat (either as veal from young calves or

beef from cows culled from the herd). In other situations, for example, where

land is relatively cheaper because it is not close to urban areas, a beef

raising enterprise may be run in conjunction with dairying, utilizing both the

excess calves as well as skimmed milk (if cream is the form in which the dairy. output is sold) from the dairy enterprise. It is obvious from the above that

the relative price ratio between milk and beef (or veal) will often be an

important variable affecting the supply response for milk.

0

February 1982 III-12

Table III-Cl: SUPPLY PRICE ELASTICITIES FOR DAIRY PRODUCTS

IN INDUSTRIALIZED COUNTRIRS

Elasticity with Respect to Price

Country Milk Butter Cheese

Canada

Total Milk 0.3

Cheese -0.6 0.6

EC

Total Milk 0.35

Cheese 0o.4

Other Western Europe

Total Milk 0.3

Cheese 0.5

Japan

Total Milk 0.8

Oceania

Total Milk 0.4

Cheese -1.0 1.0

Us

Total Milk 0.4

Cheese -0.6 0.6

Source: USDA, Alternative Futures for World Food, Vol. 1, World GOL Model,Analytical Report, Economics, Statistics, and Cooperatives Service,Foreign Agricultural Economic Report No. 146.

February 1982 IV-1

IV. CONSUM rlION

A. Changes in Composition of Consumption and Geographical Distribution

World demand for milk and milk products as a whole has grown rather

slowly over the last two decades, though there has been considerable variation

between the individual countries and between the individual milk products.

Aggregate world use of milk and milk products in human consumption has hardly

kept pace with population growth, while the use of milk and milk products in

animal feeding has been declining at an accelerated pace.

World average per caput consumption of milk and milk products has

recently been about 100 kg of liquid milk equivalent. Among the industrialized

countries, i.e., including industrialized centrally pla..ned economies, per

caput consumption has oeen about 250 kg per year, being ih..st In Australasia

and the northern parts of Europe and lowest in the Mediterranean countries and

Japan. Per caput consumption has been about 300 kg in Eastern Europe and the

USSR--the result of pricing policies which hold milk prices down with subsi-

dies, as well as the impact of increasing incomes. There has been a similar

policy of limiting, by means of subsidies, the effects to consumers of higher

* producer prices in other industrial countries. Nonetheless, per caput consump-

tion has steadily decreased. The downward trend has been particularly

pronounced in the economically most advanced countries with traditionally high

milk consumption levels.

Annual per caput consumption of milk and milk products in developing

countries has been about 50 kg. However, per caput consumption varies greatly

between developing countries (and no doubt within such countries); in most

countries of Africa South of the Sahara and East Africa it is extremely low;

in some countries even below 10 kg. 1/ In countries such as Indonesia, where

per capita milk consumption is among the lowest in Asia, for the rural and

urban poor with incomes adequate only to buy rice and simple side dishes, milk

is a luxury food beyond their means.

There have been substantial differences in the development of demand

for individual milk products in the industrial countries. The general trend

1/ Care Is necessary in interpreting statistics about milk consumption,because, for example, social customs among tribal groups in Africa in somecases place a high value on milk, in others, custom serves to severelylimit consumption of milk. Genetic intolerance of milk may also be presentto a high degree.

February 1982 IV-2

has also been declining consumption of liquid whole milk, cream, and evapo-

rated and condensed whole milk. This has been the result of a fall-off in

demand for food fats and a shift from animal fats towards vegetable fats and

oils, which has been the result of health concerns over consumption of animal

fats as well as lower relative prices of vegetable fats. The rising trend in

demand for protein-rich milk products has benefited cheese especially (includ-

ing cottage cheese) and fermented milk products (particularly flavored

yoghurts).

Generally, the range of milk products offered to consumers, particu-

larly in the high-income countries, has shown an increasing variety and the

proportion of milk products consumed in the form of mixed and convenience

foods has grown rapidly.

Human consumption has accounted for about three-quarters of total

world consumption of milk and milk products in recent years, with the

remainder being used mainly for pig and calf feeding. A small fraction of

total milk solids has been used in the form of casein for technical industrial

purposes. Feed use of milk products has also undergone considerable change. In

the main industrial dairying countries, production of milk was in the past

much more directed towards butter production, with the skim milk used by far-

mers as a cheap protein feedstuff. The increase in the value of the solids-

not-fat component and the decline in value of the butterfat component has

resulted in a rapid decline in the use of liquid skim milk in livestock

feeding. However, within Europe the decrease in liquid milk consumption for

feedstuffs has been offset by an increase in the use of skim milk powder for

feeding meat animals; this has been due to the subsidization of this feed by

the EC.

Data on total consumption and consumption per head for skim milk

powder, butter and cheese are shown in Tables IV-Al, IV-A2 and IV-A3.

.

February 1982 IV-3

Table IV-A1: SKIM MILK POWDER CONSUMPTION AND CONSUMPTION PER HEAD

1975 1978 1979 1975 1978 1979

-------('000 mt) ------ -------(kg/hd)-------

WORLD 2,366 3,860 4,154 0.6 0.9 1.0

Industrialized Countries 2,019 3,427 3,651 5.3 5.1 5.4US 35 435 3_4T 1.6 1.5Canada 81 48 50 2.5 2.1 2.1

EC 1,070 1,843 2,254 4.1 6.9 7.1Belgium/Luxembourg 72 l20 184 Denmark 25 40 59 5.3 8.0 11.6France 370 580 619 7.4 11.0 11.6Ireland 13 20 33 4.2 6.3 10.3Netherlands 185 400 400 13.5 28.8 28.6W. Germany 185 350 341 2.8 5.7 8.9Other 220 333 418 2.0 2.9 3.6

Western Europe 173 150 312 5.6 4.9 10.1Australia 89 50 52 6.5 3.5 3.7New Zealand 10 10 14 3.3 3.3 4.4Other 16 39 70 0.3 0.7 1.3

Centrally Planned Economies 83 580 506 0.7 1.5 1.3USSR n.a. 43 0 - -.3TEastern Europe 83 150 159 0.7 1.3 1.3

Developing Countries 347 433 503 0.2 0.2 0.3Argentina 46 68 70 2.3 2.6 2.6Brazil 105 190 220 1.3 1.6 1.8Mexico 90 70 70 1.5 1.0 1.0India 41 52 52 0.1 0.1 0.0

Source: USDA, Foreign Agriculture Circular, various issues.

0

February 1982 IV-4

Table IV-A2: BUTTER CONSUMPTION AND CONSUKPTION PER HEAD

1975 1978 1979 1975 1978 1979

-------…(000 mt)----- -- (kg/bd)-------

WORLD 5,239 5,735 5,645 1.3 1.4 1.3

Industrialized Countries 4,611 5,011 4,893 6.0 6.3 6.1us 437 451 450 :Tr 2.1 -27Canada 120 96 105 5.3 4.2 4.4

EC 1,694 1,715 1,726 6.8 6.5 6.6

Belgium/Luxembourg 100 110 102 10.0 iTTY iT0.Denmark 41 45 52 8.2 9.0 10.4

France 466 535 513 8.8 10.0 9.7

Ireland 36 40 - 12.0 12.5 -Netherlands 30 40 - 2.2 2.9 -German 423 415 445 6.8 6.8 7.3Other 598 530 530 5.3 4.6 4.6

Other Western Europe 214 218 215 6.9 7.2 6.9

Australia i00 69 70 7.4 5.3 4.9New Zealand 46 49 44 14.8 13.1 13.7

Other 28 39 40 0.5 0.7 0.7

Centrally Planned Economies 1,892 2,316 2,187 5.1 6.1 5.7 0USSR 1,200 15,565 1T,7T ' 3Tg

Eastern Europe 692 751 736 5.9 6.2 6.0

Developing Countries 628 724 752 0.3 0.4 0.4Argentina 32 26 30 1.3 1.0 1.1

Brazil 82 75 90 0.8 0.6 0.7Mexico 8 8 8 0.1 0.1 0.1

India 449 477 477 0.7 0.7 0.7

Source: USDA, Foreign Agricultural Service, Foreign Agriculture Circular,various issues.

.

February 1982 17-5

Table IV-A3: CHEESE CONSUMPTION AND CONSUMPTION PER HEAD

1975 1978 1979 1975 1978 1979

_______(-000 at) ---- --------(kg/hd)--------

WORLD 7,052 8,424 8,376 1.8 2.0 1.9

Inditstrialized Countries 6,470 7,534 7,494 9.9 11.3 11.2US 1,430 1,802 1,779 6.8 8.2 8.0Canada 204 162 166 8.9 6.9 7.0

EC 2,690 3,161 3,151 11.0 12.0 12.1Belgium/Luxembourg §2 116 112 W4 11.8 11.4Denmark 48 51 48 9.4 10.2 9.4France 799 950 925 15.2 17.8 17.3Ireland 9 9 11 2.9 2.8 3.3Netherlands 160 185 195 11.7 13.3 13.9Germany 685 775 780 11.1 12.6 12.8Other 897 1,075 1,080 8.0 9.2 9.3

Total Western Europe 263 300 312 8.5 10.0 10.1Australia 73 88 88 5.4 6.3 6.2New Zealand 15 24 28 4.8 8.0 8.8Other 303 355 355 5.6 6.3 6.3

Centrally Planned Economies 1,438 1,562 1,533 3.9 4.1 4.0USSR 592 750 708 2.3 2.9 2.7Fastern Europe 846 812 825 7.1 6.8 6.8

Developing Countries 582 890 882 0.3 0.4 0.4Argentina 216 TV 23 .5 8.7Brazil 147 237 230 0.1 2.0 1.9Mexico 115 122 122 2.0 1.9 1.8India n.a. 1 1 n.a. 0.0 /a 0.0/a

/a Less than 500 grams.

Source: USDA, Foreign Agricultural Service, Foreign Agriculture Circular,various issues.

0

February 1982 IV-6

B. Price and Income Demand Elasticities

Measurment of consumers responses to changes in the prices of fluid

milk and milk products has a very long history in the field of economics, pro-

bably because the milk industry has such a long history of regulation. There

appears to be general agreement that the price elasticity of demand for fluid

milk in the high-income countries is in the nelghborhood of -0.2. For lower-

income countries the price elasticity for fluid milk is probably larger than

this. Table IV-Bl shows the results of various estimates of demand-price

elasticities for fluid milk for a few countries. Venezuela is the only

developing country among them and the price elasticity is in the range of -0.6

to -1.0.

In Table TV-B2 demand-price elasticities for milk, butter and cheese

are presented. These are reproduced from a USDA source which has collected

estimates for various industrial countries and country groupings. In this

table the demand-price elasticity for fluid milk in Japan is -0.7--well above

the other high-income countries, as is the price elasticity for cheese. How-

ever, fresh milk consumption in Japan on a widespread basis was only realized

after World War II when milk and milk products were made widely available from

surplus stocks in the US. It is expected that the demand-price elasticity for

fluid milk and milk products in Japan will decrease significantly in the

future.

Table IV-B2 presents estimates of income elasticities for this set of

industrial countries. These support the notion that the income elasticity of

most milk products is very low, and in some cases negative, in western indus-

trial countries. Cheese is the main exception. Cheese is the one dairy product

whose consumption continues to show growth in the high-income countries. The

income elasticity of dairy products _s high in Japan, but is expected to

decline in the future in the same way as the price elasticity.

The income elasticities for most dairy products are believed to be

much higher in the developing countries than in the industrial countries,

averaging in the neighborhood of 1.0. Table IV-B3 presents a set of expendi-

ture elasticity estimates for fresh milk, dried milk, cheese and butter for

variouls developing countries. These estimates were made by the FAO in 1972. In

some cases the estimates distinguish between rural and urban consumers, and in

general the elasticities for the urban groups are much lower than for the

rural yroups. 0

February 1982 IV-7

Table IV-Bl: ESTIMATED ELASTICITIES OF DEMAND FORFLUID WHOLE MILK IN VARIOUS COUNTRIES

Price IncomeCountry Elasticity Elasticity

Australia (i) /a n.a. 0.35

(ii) /b -0.19 to -0.23 short run n.a.

Europe and North America /c n.a. -0.30 to 0.30

Israel /d -0.27 to -0.32 0.0 to 0.34

Sweden /e -0.3 0.0

US prewar /f -0.3 to -0.45 n.a.

US /g -0.34 0.2 (not significant)

Venezuela /h -0.72 to -0.77 0.22 to 0.28natural milk natural milk

-0.59 to -1.02 0.48 to 0.55pasteurized milk pasteurized milk

. Sources:/a K.L. Kinsman and j.M. Anderson, "Canberra Miik Consumption; A Study in

Demand" Quarterly Review of Agricultural Economics, 12(1): Jan. 1959, pp.19-23.

/b J.A. Street, "Demand for Milk," Review of Marketing and AgriculturalEconomics, 42(2): June 1974, pp. 100-113.

/c L.M. Goreaux, "Demand for Dairy Products in Some European Countries,"Economic Commission for Europe, Comm. on Ag. Prob. Study Group on Demandfor Ag. Products, 1958.

/d Y. Mundlak, "Long-Term Projections of Supply and Demand for AgriculturalProducts in Israel", Hebrew University Faculty of Agriculture, Falk,Jerusalem, May, 1964.

/e H. Wold and L. Jureen, Demand Analysis, A Study in Econometrics,Stockholm, Wiley, 1966.

/f J.M. Cassels, Study of Fluid Milk Prices, Harvard Univ., Press, Cambridge,Mass., 1937.

/g P.S. George and G.A. King, "Consumer Demand for Food Commodities in theUnited States with Projections for 1980", Giannini Foundation Monograph,No. 26, University of California, Davis, March, 1971.

* /h ConseJo de Bienester Rural, Long Term Forecasts of the Supply and Demandof Agricultural and Livestock Products in Venezuela, Caracas, 1965.

February 1982 IV-8

Table IV-B2: DEMAND ELASTICITIES FOR DAIRY PRODUCTS IN INDUSTRIAL COUNTRIES

Price Elasticities Income ElasticitiesCountries Fluid Milk Butter Cheese Fluid Milk Butter Cheese

Canada -0.2 -0.7 -0.5 -0.1 -0.3 0.6

EC-6 -0.25 -0.7 -0.6 0.2 0.2 0.5

Other Western Europe -0.2 -0.5 -0.6 0.3 0.3 0.6

Japan -0.7 -0.7 -1.69 0.95 1.0 1.25

Oceania -0.2 -0.4 -0.3 0.1 -0.1 0.5

US -0.2 -0.7 -0.5 -0.1 - 0.5

Source: USDA, Alternative Futures for World Food, Vol. 1, World GOL Model,Analytical Report, Economics, Statistics, and Co-operatives Service,Foreign Agricultural Economic Report No. 146.

February 1982 IV-9

Table IV-B3: EXPENDITURE ELASTICITIES FOR MILK

AND MILK PRODUCTS IN DEVELOPITG COUNTRIES

Country Fresh Milk Dried {llk Cheese Butter

Argentina 0.23Chile 0.63 - 1.06 0.89 - 2.22Cyprus 0.33Honduras -Rural 1.25 2.65 0.96 1.55

-Urban 0.69 1.46 0.34 0.92

Hong Kong 0.97 3.31ilungary -Rural 0.53 0.70 0.81

-Urban 0.19 0.52 0.95India -Rural 1.78

-Urban 1.25-Total 1.67

Indonesia -Rural 2.26-Urban 0.87-Total 1.75

Iran -Urban 0.90Kenya -Urban 0.36

Pakistan -Urban 1.13 1.47-Total 2.24 2.02

Philippines-Rural 2.64-Urban 1.30-Total 1.47 - 1.99

Poland -Urban 0.17 0.79-Total 0.14 0.71

Sri Lanka 1.67Sudan -Rural 0.89 1.07

-Urban 0.73 0.81 - 1.44

Tunisia l.t7United Arab Republic 0.90Uganda -Urban 2.01Venezuela -Urban 0.51Vietnam -Rural 2.59Yugoslavia 0.44 1.09 0.45 1.54

Source: FAO, Income Elasticities of Demand for Agricultural Products, Rome,1972.

February 1982 v-1

V. INTERNATIONAL TRADE

A. Imports and Exports

International trade in milk and milk products has risen during the

last two decades. However, a large proportion of total wor_d trade La trade

within the EC. Excluding intra-EC trade, world dairy exports (expressed in

milk equivalent) accounted for less than 5 percent of world milk production In

the first half of the 1970s. This percentage became even smaller when the UK

joined the EC.

For a long time the UK had been the world's leading import market for

butter and cheese, with New Zealand and Australia supplying the major part of

the UK's requirements. Upon its entry into the EC in 1973, all major suppliers

outside the EC, with the exception of New Zealand (which was granted continued

access on preferential terms for a limited, transitional period), lost access

to the UK market. These third-country supplies were replaced by imports from

EC couintries, while the third countries had to seek non-EC markets for their

exports.

Leaving aside EC trade in dairy products, trade in butter, including

* butter oil and milk powder, has been mainly from industrialized to developing

countries and Japan, with the EC, New Zealand and Australia being the main

suppliers. Cheese had been traded mainly among industrial countries, though in

recent years the petroleum-exporting developing countries have become much

more important buyers of cheese and milk products in general. The US, an

important net exporter of dairy products until the 1960s (because of the

generation of large surpluses due to the dairy price supports), has become an

important importer of cheese, casein aaid other dairy products.

Apart from subsidized commercial exports, industrial producing

countries have also made available sizable quantities of milk powder and

butter oil for food aid to the developing countries. Up to the mid-1960s the

IJS was the main donor, since then the EC has become the principal dairy food-

aid supplier. US exports of dairy products are now essentially confined to

concessional exports to countries in Central and South America, with Mexico

being the largest recipient of this aid (which is mainly in the form of milk

powders). The availability (usually on an intermittent basis) of cheap or even

free supplies of milk products on the international markets, while being of

benefit to some consumers in developing countries, obviously has reduced

incentives to develop domestic milk production in those countries that have

potential for dairy farming.

February 1982 V-2

Import and export data, by country and regional groupings, are pre-

sented in Tables V-Al to V-A7. These cover trade in fresh milk (which is O

mainly confined to the EC), dry milk, butter and cheese. The developing

countries are minor participants in trade of dairy products with the exception

of imports of dry milk, of which they take about half of the total and imports

of butter of which their share has recently grown to about one-third.

.

Table 1V-Al: FRESH MllK EXPORTS BY COITNTRY AND REGION

Growth RateCountry/Region 1961 1965 1970 1971 1975 1978 1979 1961-79 1

------------------------…(000 mt)-------------------------) -

WORLD 238 318 447 796 1,360 1,846 2,104 14.9

Industrialized Countries 225 292 435 781 1,326 1,838 2,097 15.5US 3 4 6 6 A a 106.

EC 194 263 386 736 1,302 1,799 2,029 13.9Belgium/Luxembourg 6 18 24 21 135 166 182 3 5Denmark 39 31 27 27 33 57 3R 1.2France 75 138 200 434 342 345 343 9.9Ireland 2 14 6 6 12 9 16 8.6Netherlands 69 60 45 63 64 49 75 0.5Germany 3 1 R1 183 6R2 1,141 1,365 59.6Other (UK, Italy) 0 1 3 2 34 32 12 14.8

Other Western Europe 19 12 9 8 5 5 5 7.2Australia 5 1 1 3 5 1i 15 4.6New Zealand 0 5 5 5 6 6 6 9.6

Other /a 4 5 11 15 0 9 28 11.4

Centrally Planned Economies 0 2 15 8 0 1 2 6.0Eastern Europe n 2F 15 T O 2 i6.0

Developing Countries 13 26 12 15 34 8 7 -0.6Kenya 1 22 10 10 11 T 0 -

/a Includes Spain, Turkey, Portugal, Greece, Israel, Yugoslavia, Cyprus, Malta, Japan.

Source: FAO, Trade Yearbook, various issues.

Table V-A2: BUTTER EXPORTS BY COUNTRY AND REGIONS o

Country/Region 1961 ~~~~~~~~~~~~~~~~~~~Growth Rate

Country/Region 1961 1965 1970 1971 1975 1978 1979 1961-79

2-----------------------('000 mt) --- -- ()- -

WORLD 632 688 909 839 924 1,025 1,262 3.3

Industrialized 588 667 899 819 909 1,000 1,253 4.3

us 3 30 1 43 0 0 0 -

EC 227 232 454 416 621 704 947 8.3

Belgium/Luxembourg 9 14 32 42 63 94 101 20.6

Denmark 120 116 87 77 98 Si 83 -1.6

France 51 30 110 71 7R 81 163 7.6

Ireland 16 21 46 32 57 83 119 10.0

Netherlands 31 35 142 109 180 185 265 13.9

Germany 0 15 35 80 142 122 153 66.6

Other (UK, Italy) 0 1 2 5 3 58 63 25.9

Other Western Europe 34 37 42 29 23 27 27 -1.3

Australia 64 97 98 89 32 32 34 -5.0

New Zealand 168 192 197 192 164 177 191 0.3

Centrally Planned Economies 91 78 107 48 69 60 54 -3.4

USSR PT 7z3 73 24 20 oi aRr -R.2

Eastern Europe 34 35 34 24 49 '3 36 0.3

Developing Countries 44 21 10 20 15 25 9 -4.5

Argentina 14 7 0 6 4 1 0 7nTTBrazil 0 0 0 0 0 6 0 -

India (Nepal) 3 2 1 2 2 2 2 -0.3

Kenya 3 2 2 1 1 1 1 -6.4

4

Source: FAO, Trade .earbook, various issues.

* 0 0

0

Table V-A3: CHEESE AND CURD EXPORTS BY COUNTRY AND REGION

Growth Rate ¢Country/Region 1961 1965 1970 1971 1q75 1978 1979 19l6-79

…--------------___---…('000 mt)-------------------------- ()WORLD 502 601 791 R31 988 1,229 1,368 5.5

Industrialized Countries 492 592 782 820 977 1,198 1,350 5.6us 4 3 3 3 4 5 6 -0.8Canada 9 15 18 16 4 2 3 -10.3

EC 268 330 452 500 688 852 981 7.5Belgium/Luxembourg 2 10 11 10 11 27 28 9.6Denmark 79 75 68 70 100 132 146 3.1France 40 64 98 129 154 198 225 10.4Ireland 2 10 24 28 57 42 61 16.4Netherlands 108 120 173 180 227 249 286 6.0Germanv 12 27 52 58 105 164 186 15.7Other (UR, Italy) 25 24 26 25 34 40 49 3.8

Other Western Europe 71 81 112 109 129 155 160 4.6Australia 18 28 41 38 34 44 52 4.2New Zealand 89 95 ql 93 65 70 64 -1.9Other /a 3 5 5 6 6 8 12 6.3

Centrally Planned Economies 30 35 60 55 47 62 72 4.6USSR 4 5 7 7 8 8 3.7Eastern Europe 26 30 53 48 39 54 64 5.1

Developing Countries 10 9 9 11 11 31 1R 3.3Argentina 4 5 2 5 7 16 5 6.2Colombia 0 0 0 0 1 7 7 -

/a See Table V-Al.

Source: FAO, Trade Yearbook, various issues.

Table V-A4 FRESH MILK IMPOR7q BY COIUNTRY AND REGION

Growth RateCountry/Region 1961 1965 1970 1971 1975 1978 1979 1961-79

----------------------- ('O00 mt)------------------------ -

WORLD 151 231 403 718 1,352 1,916 2,151 18.2

Industrialized Countries 83 146 296 584 1,245 1,821 2,044 19.5ITS 0 5 6 5 8 7 5 9.6

EC 67 112 217 368 1,032 1,786 1,966 20.1Belgium Luxembourg 1 2 9 31 25 37 49 27.5

France 3 1 1 3 25 31 33 22.7Ireland 0 0 0 0 95 69 73 -

Netherlands 4 20 sO 64 181 243 207 33.1

Germany 54 46 52 62 114 113 125 6.R

Other (UK) 5 43 75 208 592 1,293 1,479 37.2

Other Western Europe 11 15 23 29 29 22 33 6.3

Other /a 5 14 50 182 176 6 40 29.3

Developing Countries 68 85 107 134 106 95 107 4.9

Venezuela 31 20 2 2 1 2 -15.7Mexico 0 0 0 0 1 1 1 -Algeria 19 36 63 90 23 1 0 -10.4

Singapore 1 1 4 3 2 2 2 5.3

Uganda 10 21 9 9 28 0 0 2.2

/a See Table V- alU .

Source: FAO, Trade Yearbook, various issues.

e

Table V! A5: flRY MTK IMPORTS BY COUNTRY AND REGION

Growth RateCountry/Region 1961 1965 1970 1971 1975 1978 1979 1961-79 -

OD

…--------------________(-000 mt)…------------- - -- ----

WORLD 515 919 1,318 1,266 1,342 2,391 2,494 7.7

Industrialized Countries 237 540 744 675 681 1,231 1,220 7.9uls 1 1 4 3 0 7 1 9.SCanada 3 3 3 2 2 2 2 -0.1EC 140 318 421 374 470 902 R42 10.5Belgium/Luxembourg 3 48 37 24 35 60 43 9.6Denmark 14 8 26 22 11 4 17 -2.4France 3 5 R 2 9 58 45 9.8Netherlands 33 106 116 113 168 351 363 12.3Germany 18 41 20 23 22 159 66 7.1Other (UK, Italy) 69 110 214 190 225 268 30R 8.7

Other Western Europe 39 92 95 98 59 166 152 7.8Other /a 37 70 99 91 53 76 120 4.5

Centrally Planned Economies 17 56 122 107 96 87 103 9.8USSR 2 20 22 23Eastern Europe 15 33 102 R5 73 60 63 8.3Developing Countries 278 379 574 591 661 1,160 1,274 8.8Brazil 11 22 22 15 14 2T 11 t[vArgentina 0 0 5 2 1 13 20 18.8Colombia 11 11 8 1 4 19 20 3.3India 42 37 26 39 35 37 35 -2.5Venezuela 45 42 18 7 37 103 73 3.0Philippines 19 33 49 53 48 71 101 8.3Kenya I 1 2 2 2 0 2 -6.6 CTanzania 0 0 4 3 8 10 8 9.6 ¢Mexico 13 16 36 48 21 60 90 8.7Malaysia 4 14 40 35 49 66 67 12.6

/a See Table V-A1.

Source: FAO, Trade Yearbook, variotis issues.

Table V-A6: CHFESF. IMPORTS BY COITNTRY AND REGION

Growth Rate

Country/Region 1961 1965 1970 1971 1975 1978 1979 1961-79 bPt

-------------------------(00O mt)…--- …-

WORLD 497 599 776 820 972 1,219 1,348 5.5

Industrialized Countries 434 548 700 734 866 1,021 1,115 5.3

tus 73 62 82 112 113Canada 7 8 14 16 22 21 21 8.4

EC 336 414 486 530 618 706 785 4.5

Belgium/Luxembourg 35 36 48 53 64 85 -92 6.1

Denmark 0 0 3 2 3 4 5 -

France 10 29 31 3i 46 63 61 8.3

Ireland 0 0 0 0 1 2 3 -

Netherlands 0 8 10 11 17 22 27 15.0

Germany 109 126 145 153 179 215 223 3.8

Other (UK, Italy) 182 215 249 280 308 315 374 4.1

Other Western Europe 23 36 73 74 95 118 119 9.6

Australia 2 4 7 6 9 12 12 11.0

Other /a 6 24 16 19 21 36 43 7.5

Centrally Planned Economies 26 27 31 27 1Q 16 22 -2.5

USSR 3 9 i 10 7 6 -7 1.1

Eastern Europe 23 18 21 17 12 10 15 -2.3

Developing Countries 63 51 76 86 106 198 233 7.5

Argentina 0 0 0 0 0 n 5 -Brazil 0 0 0 0 0 7 1Mexico 0 0 0 0 0 3 3

/a See Table V-Al.

Source: FAO, Trade Yearbook, various issues.

* * 0

Table V-A7: BUTTER IMPORTS BY COtNTRY AND REGION d

Growth RateCountry/Region 1961 1965 1970 1971 1975 1978 1979 1961-79

…________________--…(000 mt)…---------- -(%-- -

WORLD 616 688 857 804 1,005 1,056 1,254 3.5

Industrialized Countries 555 595 670 637 811 719 839 2.3IJS O 1 0 0 0 -P - -

Canada 0 0 1 1 5 5 0 -EC 464 516 551 519 71R 623 598 1.7

Belgium/Luxembourg 0 4 40 2R 69 111 114 20.5

Denmark 0 0 0 0 2 1 1 -

France 0 17 3 17 42 76 67 8.0

Ireland 0 0 0 0 1 1 2 0

Netherlands 0 0 16 5 35 54 77 4.2

Germany 28 11 4R 41 27 41 49 4.5

Other (IUK, Italy) 436 4R4 444 428 542 339 288 -2.3

Other Western Europe 8 8 25 26 16 17 13 2.7

Other /a 2 7 14 14 12 R 1R 13.0

Centrally Planned Economies 81 63 79 77 60 66 210 2.5

USSR 8 6 2 2 11 W -174- 19.5

Eastern Europe 73 57 77 75 49 27 -3.9

Developing Countries 61 93 1.87 167 194 337 415 9.5Ethiopia 0 1 2 3 0 0 -

Sri Lanka 2 1 2 1 0 1 1 -5.0

Philippines 1 1 4 6 4 6 9 11.4

Singapore 3 4 7 6 5 6 7 5.9Chile 3 5 7 10 5 6 9 0.5Jamaica 2 3 5 6 4 3 4 2.7Peru 3 6 12 13 12 12 13 6.7

Algeria 9 6 8 5 16 30 25 8.4 C

/a See Table V-Al.

Source: FAO, Trade Yearbook, various issues.

February 1982 V-10

B. International Arrangements

The International Dairy Arrangement, which resulted from the Tokyo

Round of multilateral trade negotiations, entered into force on January 1,

1980. It superceded three arrangements negotiated earlier within OECD and

GATT: Gentleman's Agreement on exports of whole milk powder (OECD), Arrange-

ment Concerning Certain Dairy Products and Protocol Relating to Milk Fat

(GATT).

The objectives of the Arrangement are to achieve the expansion and

greater liberalization of world trade in dairy products under market condi-

tions as stable as possible, on the basis of mutual benefit to exporting and

import!ng countries, and to further the economic and social development of

developing countries. To this end the Arrangement makes provision for a com-

prehensive information and cooperation mechanism. It is accompanied by three

protocols containing specific provisions: in particular, fixing minimum export

prices in respect of certain milk powders, milk fat (including butter) and

zertain cheeses.

In 1980 there were 15 participants to the Arrangement: Argentina,

Australia, Austria, Bulgaria, EC, Finland, Hungary, Japan, New Zealand,

Norway, South Africa, Sweden, Switzerland, US and Uruguay.

C. Goverment Intervention

U.S.

Under Section 22 of the Agricultural Adjustment Act 1933 the Presi-

dent may establish import quotas for agricultural products, after investiga-

tion by the US International Trade Commission. This is the method used to

control the import of dairy products into the US. Quotas are in force in

respect of butter, butter oil, cheese, nonfat dry milk, dried whole milk, ice

cream, frozen and dried cream, dried buttermilk whey, malted milk and animal

fats containing milk or milk derivatives. Of these, cheese is by far the mist

important import item and the administration of cheese quotas has been the

focus of most attention.

The import licensing provisions were revised under the Tokyo Round of

the MTN to allow the EC, the largest exporter of cheeses to the US, to have

greater access. 1/

1/ For details, see USDA Foreign Agricultural Service, Changes in Licensing

for Certain Dairy Imports, July 1981.

February 1982 V-11

The US also maintains a direct price suFport program through a floor

price scheme for manufacturing milk, which indirectly provides price support

for all milk. l/ The floor price set by Congress, is maintained by the govern-

ment purchasing body, the Commodity Credit Corporation (CCC), buying In

butter, cheese and non-fat dry milk powder. Stocks are disposed of mainly

through international food aid and concessional sales to Latin American

countries, principally Mexico.

The US price support scheme has been used more for income-enhancement

purposes than for price stabilization purposes, leading to oversupply and

hence surpluses of dairy products. Tb- extent of governmen, support may be

reduced under the present administration, which would have wiiespread implica-

tions for production and trade in milk products by developing countries.

More than 95 percent of all liquid milk is priced under Federal or

State Government control. 2/ Under the Agricultural Marketing Agreement Act of

1937 federal marketing orders establish tU minimum price paid for liquid milk

in States which place liquid milk produc ion under Federal jurisdiction. Many

States also set wholesale and retail pr es for milk.

3EC

The prices of dairy products within the EC are regulated under the

Common Agricultural Policy (CAP). Internal target (or guide) prices for the

principal products are established each year. The target price is a national

price representing the level to which it is considered desirable for wholesale

prices to rise in order to ensure reasonable farm incomes.

The intervention price is a guaranteed minimum wholesale price. This

is the price at which national intervention agencies are obliged to support

the market by purchasing all supplies of the product offered to them. Only

non-fat dry milk and butter are purchased through intervention. A cheese price

support policy is pursued only in Italy and there only for specified Italian

cheeses.

The threshold price is a minimum duty-paid import price, uniform at

all points of entry into the EC. The import levy to be applied at any point in

1/ For details, see A.C. Manchester, Dairy Price Policy: Setting, Problems,Alternatives, USDA Agricultural Economic Report No. 402, 1978.

2/ For details, see C.N. Shaw and S.G. Levine, Government's Role in PricingFluid Milk in the United States, USDA Agricultural Report No. 397, 1978.

February 1982 V-12

time is calculated by deducting from the threshold price the lowest current

c.i.f. price. Import levies are usually fixed weekly.

A target price for liquid milk delivered at the dairy factory is

fixed annually (refers to milk of 3.7 percent butterfat). Th?re is no inter-

vention policy for liquid milk. From the target price for mill, the threshold

prices are derived for butter and for pilot products of each of 1; groups of

other dairy products. The threshold price includes average manufacturing

margins and transport costs.

Export subsidies or restitutions are paid to exporters for the dif-

ference between prices paid by them on domestic markets and price. received by

them on the world market. Surpluses are also disposed of through international

food aid, and subsidized domestic uses-both human and animal. An important

form of diversion is into animal feeds--surely the ultimate in inefficiency of

food conversion.

The only import quota established for dairy products is a special

quota with New Zealand in respect of butter. The quota presently stands at

94,000 tons for 1981, and 92,000 tons for 1982. New Zealand receives about 75

percent of the EC intervention price.

Developing Countries

For a summary of government intervention in about 30 developing

countries, see FAO (1978). 1/ In general, dairy policy in developing countries

has been oriented towards the needs of urban consumers, resulting in low con-

sumer and producer prices. This has led to pressure for increased imports of

dairy products and then to pressure to develop domestic dairying for import

substittution purposes. Instead of correcting the pricing policy distortions

the general response has been more government intervention in milk production

and processing. Of course, the developing countries are not wholly to blame.

Because of the subsidized imports available from the industrial countries,

border prices of dairy products in the developing countries are artificially

depressed. Investment funds have thus been better used in other industries.

D. International Prices

Due to the narrowness of the international market, prices in interna-

tional dairy trade, especially butter and skimmed milk powder, have fluctuated

1/ FAO, Review of National Dairy Policies and Development Programmes 1976-1978, Sept. 1978.

February 1982 V-13

substantially. Moreover, because the international *arket has been dominated

* by exports of surplus stocks from major producing countries (by the US in the

1950s and 1960s and by the EC in the 1960s and 1970s) prices in international

trade have been substantially lower than they would be in the absence of such

government intervention.

The instability of international prices can be observed from Table V-

Dl and Figure V-Dl, where export unit values for non-fat dry milk, butter and

cheese are shown. These export unit values for dairy products exports from

Australia and New Zealand are believed to be useful indicators of world trade

prices for these products as these two major dairying countries export a

large proportion of their dairy production and hold a major share of world

exports. Dairy product prices have increased sharply since 1977, which has

been largely the result of large-scale disposal of dairy surpluses on the

domestic market in the EC since that time (in large part as animal feedstuffs)

and increased international trade in dairy products. However, in real terms

(see Figure V-Dl), present prices are not as high as they were in the 1974-75

period.

For the foreseeable future the surplus dairy production in the EC

* will continue, keeping down prices in international trade and forcing

irrational pricing policies on developing countries. There are some signs that

support of dairy prices could be reduced or even eliminated in the US under

the present administration. It is conceivable that the US could do so and at

the same time obtain agreement from the EC to follow a similar path.

February 1982 V-14

Table V-D1: EXPORT UNIT VALUES FOR DAIRY PRODUCTS

Non Fat Dry Milk /a Butter /b Cheese /b

1961 225.4 718.5 563.21962 203.6 672.5 512.61963 199.2 681.0 518.01964 205.6 696.2 535.01965 298.3 778.3 575.4

1966 301.8 774.1 594.71967 301.0 695.5 658.91968 241.4 672.6 582.41969 185.8 604.6 611.4197, 190.4 593.7 536.8

1971 238.0 603.0 557.41972 472.9 1,003.7 790.41973 548.6 1,067.8 953.61974 670.0 1,094.0 1,122.31975 877.4 1,420.0 1,385.3

1976 611.4 1,112.2 1,407.31977 436.3 1,294.7 1,233.21978 537.6 1,564.8 1,416.31979 664.2 1,629.9 1,521.41980 900.0 /c 1,800.0 /c1981 1,050.0 7c 1,800.0 7E9

/a New Zealand exports of non-fat dry milk.

/b Australian exports of butter and cheese.

/c Estimated by EPDCE.

Source: FAO, Trade Yearbook, various issues.

.

February 1982 V-15

Figure V-Dl: EXPORT UNIT VALUES FOR NON-FAT DRY MILK, BUTTERAND CHEESE IN CURRENT AND CONSTANT TERMS /a

Current Values

isao 1 -.

Non-Fat Dry Milk

0 1 ., ., I, . ,*} .I I -oax CS 65 17 08 71 73 75 77 79 81

Constant Values(1975 100)

1;00- 140

1I00 - utter 10low

Xon-Fat Dry Milk 2

81 0 3 ' 5 e a's 7g 'T' S i7 79 8 1

/a Deflated by the Bank's US GDP Deflator for OECDNorth.

Source; Same as for Table V-D1.

February 1982 vI-1

REFERENCES

Commonwealth Secretariat, Meat and Dairy Products, (Published twice yearly,London). Provides trade, by destination and source, cow numbers, milkand milk products, production and stocks for several years. Alsocurrent prices In international trade for various milk products.

FAO, Productlon Yearbook, (Annual, Rome). Production, cow numbers, yield percow.

, Trade Yearbook, (Annual, Rome). Trade in value and volume.

GATT, Status Report on world Market for Dair1 Products, (Published yearly*ince IM, Geneva). Several year data on-production, consumption,trade and stocks, and current prices in international trade for somedairy products.

USDA, Foreign Agricultural Service, Foreign Agriculture Circular, (Publishedquarterly, Washington, D. C.). Several years data on production,consumption, consumption per head, and trade.