The world is preparing for a significant shift in agriculture, as the goal to sustainably feed a growing population takes centre stage.
At the International Dairy Federation’s 2023 World Dairy Summit in Chicago in the United States in October, leading analysts unveiled a long-term outlook on dairy markets, shedding light on the fundamental drivers of dairy supply and demand.
According to the 2023-2032 Agricultural Outlook report of the Organisation for Economic Co-operation and Development and the Food and Agriculture Organization of the United Nations, global agricultural and food production is set to grow over the next decade, albeit at a slower rate compared to the previous period, largely due to ongoing demographic trends.
OECD trade and agriculture directorate Lee Ann Jackson said the report highlights the peak and subsequent slow decline in international dairy prices since mid-2022 and the 2.2% surge in milk production during 2022.
The report also shows that fresh dairy products were the most consumed dairy products across various regions with projections indicating a 0.8% annual increase in dairy consumption, expected to reach 15.7kg per capita by 2023.
This growth rate is lower than the 1.3% per annum projected for all commodities covered in the outlook. However, global milk production is expected to surpass other major agricultural commodities, with an annual growth projection of 1.5%.
She explained India and Pakistan are expected to contribute significantly to this increase.
The European Union, the second largest dairy producer globally, is predicted to witness a slight decline in production, because of both the way demands are changing and the expected move toward more sustainable agricultural policies.
Leading exporters including the EU, the US and New Zealand, are projected to account for 65% of global cheese exports, 70% of whole milk powder exports, 70% of butter exports, and 80% of skim milk powder exports by 2032, she said.
The EU is expected to remain the main exporter of cheese, followed by the US and NZ, which is predicted to maintain its position as the primary exporter of butter, with a forecast market share of 40% in 2032, and a 60% share in whole milk powder in the same year.
While price volatility remains a pertinent issue in dairy markets, fluctuations are predominantly influenced by shifts in export and import behaviours, coupled with energy and fertiliser costs.
Despite nominal price increases, adjusting for inflation reveals stable or marginally decreasing real prices, highlighting the importance of keeping an eye on market fluctuations.
Acknowledging the assumptions underpinning the report, Jackson emphasised the significance of monitoring evolving factors, including shifting consumer trends towards plant-based alternatives and climate-conscious production practices.
She emphasised the need to stay on top of these issues, especially with global uncertainties such as ongoing conflicts and possible changes in trade agreements, which can have a big impact on the dairy industry.
Building on the projections from the outlook, Rabo AgriFinance global sector strategist Mary Keough Ledman addressed the global demographic shift and its implications for the dairy industry.
Consumer behaviour is also changing with more shopping taking place digitally. Promotions at a retail level are not as effective as they have been previously, she said.
She emphasised the projected growth of the global population by 705 million over the next decade, with substantial concentrations in Africa, India and Pakistan.
With India and Pakistan striving for self-sufficiency, China and the US are expected to emerge as the two primary growth markets for dairy, but they get there in different ways.
The US already consumes large amounts of dairy per capita, but its population growth will drive further dairy consumption, whereas the forecast for China is that there will be a decrease of 9.3 million people over the next decade. Per capita consumption will drive its increase.
The population in China under 20 years old will decline by 61 million and the population over 50 will increase by 100 million, and this trend will continue in the following decade.
Ledman said there is a need to redirect focus toward catering to the dietary needs of an aging population. She encouraged a forward-thinking approach and stressed the significance of considering consumer demands in the form of functional ingredients to meet the evolving needs of the demographic landscape.
Other drivers influencing consumption were also discussed. As incomes rise, dairy consumption tends to increase, and dairy products have been occupying a larger share of overall diets. While taste remains a significant purchasing factor globally, health considerations are also playing a crucial role.
There has been an evolution of protein awareness among consumers, and protein is going beyond athletes and nutrition support. Other health claims, such as those related to probiotics, are gaining increasing awareness, and the understanding of the type of protein being consumed is also becoming important. In this aspect, dairy products have an advantage.
In China, the government has actively promoted milk consumption due to its nutritional value. And although the Chinese government is trying to increase milk production, China will not stop buying milk from the rest of the world; the mix is just likely to change. There is confidence in the rapid growth of Chinese consumption beyond fresh dairy products and the domestic supply base.
The removal of trade barriers has the potential to increase overall milk consumption. Unfortunately, NZ does not currently have a choice in this matter, which is driving extensive research and development efforts to identify future opportunities in the industry.
This article first appeared in the December edition of our sister publication, Dairy Farmer. Samantha Tennent attended the event with support from WelFarm and the International Dairy Federation.