Bjørn Gunnar Hansen

Changing global dairy markets:
Comparison of dairying worldwide & farm
economics
Bjørn Gunnar Hansen, member of the IFCN Dairy Research Network
TINE SA, cooperative dairy company
21/06/2016
© IFCN 2016
Agenda
1. The IFCN network concept
and the dairy world
2. Milk production, demand and
comparison of farms 2014
3. The costs, milk and feed
prices worldwide
4. Summary
21/06/2016
© IFCN 2016
IFCN - The Dairy Research Network
The International Farm Comparison Network
A network of researchers, companies and the IFCN center in Köln
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© IFCN 2016
Working internationally can be challenging
A joke (?) about a world-wide survey by the UN
1. The only question asked was:
"Would you please give your honest opinion about
solutions to the food shortage in the rest of the world?"
2. The survey was a huge failure because:
In Africa they didn't know what 'food' meant,
In India they didn't know what 'honest' meant,
In Europe they didn't know what 'shortage' meant,
In China they didn't know what 'opinion' meant,
In the Middle East they didn't know what 'solution' meant,
In South America they didn't know what 'please' meant,
And in the USA they didn't know what 'the rest of the
world' meant.
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© IFCN 2016
Status of the IFCN Network in 2016
Research partners in 100 countries
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Supporting partners (> 100)
© IFCN 2016
Dairy is about a large number of people
1. The dairy farming community in 2014 – 600 millions of people involved
living on 121 million dairy farms
2. The impact of dairy employment - 119 mill full time jobs (IFCN est.)
direct (48) and indirect (71)
Indirect means milk collection, processing, retailers, farm inputs etc.
119 mill equals the population of Germany, Australia, Norway and Sweden.
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21.06.2016
IFCN 2015
2016
©©IFCN
Agenda
1. The IFCN network concept
and the dairy world
2. Milk demand, production and
comparison of farms 2014
3. The costs, milk and feed
prices
4. Summary
21/06/2016
© IFCN 2016
What is the world average milk
consumption per capita?
21/06/2016
© IFCN 2016
The demand for milk
• Per capita average consumption is 105 kg/ year
EU approx. 300, China 31, Indonesia 12
• Demand is driven by:
a) population growth
b) per capita consumption growth
• Demand is growing 10 – 20 mill. t /year = annual NZ milk volume
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© IFCN 2016
Which country produces the most milk?
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© IFCN 2016
Status of milk production 2015 in mill tons ECM
29
EU-28
166
91
32
46
165
34
11
11
25
Only 62 % reaches processors
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© IFCN 2016
Milk surplus and deficit world-wide 2014
-5.2
5.4
15.8
-9.6
2.0
22.1
2014 world surplus: 0.7% = 5 mill t ME
12/01/2015
IFCN 2015 | 12
FOR INTERNAL USE ONLY ©
We are in a growing business
National supply change 2015 vs 2014 in mill t ECM
-0.01
EU-28
4.0
1.0
-0.7
0.3
0.8
7.1
-1.4
0.2
0.1
0.3
Source of data: IFCN data base, National statistics, FAO.
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Source: D3.2 - Dairy Sector Analysis with Base Line Projection
2025
© IFCN 2016
21/06/2016
28
26
24
22
20
18
16
14
12
10
8
6
4
2
0
Change in Milk production / year
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
mill. t ECM / year
World milk production growth alternates
from + 8 to + 25 mill t/year since 2000
Source: D3.2 - Dairy Sector Analysis with Base Line Projection 2025
© IFCN 2016
Where are dairy farms located?
21/06/2016
© IFCN 2016
Milk is produced in many different ways
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© IFCN 2016
Informal milk: The value chain for milk
in Pakistan
98 %
12/01/2015
IFCN 2015 | 17
FOR INTERNAL USE ONLY ©
What is the world average milk production
per day?
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© IFCN 2016
Average size of dairy farms in 2014
Ø farm size world: 3 cows
13 countries with Ø farm size >100
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© IFCN 2016
A global picture of dairy farm structure
Analysis covers 95% of the countries in the world
% Share in dairy farm size classes
100 %
3%
5%
6%
90 %
80 %
23%
14.6
%
15%
25.6%
70 %
11%
60 %
50 %
29%
40 %
73%
30 %
17%
59.8%
20 %
31%
10 %
0%
Dairy Farms
21/06/2016
Dairy cows
Source: D3.2 – IFCN Dairy Sector Database
© IFCN 2016
Change in average no of cows 19962013 (%)
250
200
150
100
50
0
-50
-100
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© IFCN 2016
A closer look at farm economics on typical farms in
some countries in 2014
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© IFCN 2016
Forage area, ha per farm
180
160
140
120
100
80
60
40
20
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AU300
DE79S
DK150
SE70
NO20
FI25
0
© IFCN 2016
Milk output tons ECM/ farm
2000
1800
1600
1400
1200
1000
800
600
400
200
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AU300
DE79S
DK150
SE-70
NO-20
FI-25
0
© IFCN 2016
Milk yield in kilogram ECM per cow
12,000
10,000
8,000
6,000
4,000
2,000
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AU300
DE79S
DK150
SE-70
NO-20
FI-25
0,000
© IFCN 2016
Labour productivity kg ECM/ hour
350
300
250
200
150
100
50
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AU300
DE79S
DK150
SE-70
NO-20
FI-25
0
© IFCN 2016
Farm milk price EUR/100 kg ECM
60
50
40
30
20
10
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AU-300
DE-79S
DK-150
SE-70
NO-20
FI-25
0
© IFCN 2016
Cattle returns EUR/100 kg ECM
12
10
8
6
4
2
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AU300
DE79S
DK150
SE70
NO20
FI25
0
© IFCN 2016
Subsidies, what are they?
• Linked to milk production= Coupled
• E.g. in Norway support per cow, per hectar, etc.
• E.g. in Switzerland preservation of cultural landscape,
boost of biodiversity, provision of animal welfare etc.
• Paid as direct aid to the farmer = Decoupled (often based
on the amount of land farmed, and not directly linked to prioduction)
• In the EU, some parts of US, China, Japan
• E.g.
o EU: Farming in less favourable areas, organic farming,
grassland farming, nature protection etc.
o Germany: Payment per litre of diesel used
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© IFCN 2016
Direct subsidies, EUR/ 100 kg ECM
Decoupled direct subsidies
Coupled direct subsidies + VAT surplus
40
35
30
25
20
15
10
5
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AU300
DE79S
DK150
SE-70
NO-20
FI-25
0
© IFCN 2016
Costs of milk production only EUR/100 kg ECM
Cost P&L - non milk returns
Opportunity costs
Quota costs
Milk price
80
70
60
50
40
30
20
10
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AU300
DE79S
DK150
SE-70
NO-20
FI-25
0
© IFCN 2016
Capital input, 1000 EUR/ cow (land,
livestock, quota, machinery, buildings)
10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
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AU-300
DE-79S
DK-150
SE-70
NO-20
FI-25
0,000
© IFCN 2016
Low cost cowshed in Australia
21/06/2016
© IFCN 2016
Three profit measures
• Farm income: Returns of the dairy enterprise
included decoupled subsidies minus costs from
the account
• Entrepreneur’s profit: Total returns excl
decoupled payments minus costs from the
account plus opportunity costs. Opportunity costs
is the market value of labour, land, capital and
quota.
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© IFCN 2016
Farm income excl. decoupled subsidies
EUR/ 100 kg ECM
50
45
40
35
30
25
20
15
10
5
21/06/2016
AU300
DE79S
DK150
SE70
NO
-20
FI25
0
© IFCN 2016
Entrepreneur’s profit excl. decoupled
subsidies, EUR/ 100 kg ECM
10
5
0
-5
-10
-15
-20
21/06/2016
AU-300
DE-79S
DK-150
SE-70
NO-20
FI-25
-25
© IFCN 2016
Agenda
1. The IFCN network concept
and the dairy world
2. Milk production, demand and
comparison of farms 2014
3. The costs, milk and feed
prices worldwide
4. Summary
21/06/2016
© IFCN 2016
Agenda
1. The IFCN network concept
and the dairy world
2. Milk demand, production and
comparison of farms 2014
3. The costs, milk and feed
prices worldwide
4. Summary
21/06/2016
© IFCN 2016
Cost of milk production only in average sized
typical farm types in 2014 (US-$ / 100 kg ECM)
Germany
south
Opportunity costs (own labour, land, capital))
US-$ / 100 kg milk (ECM)
Costs of the profit and loss account – none milk
returnshung - Nebenerlöse
Quota costs
US-WI
India
BR
CH/,
Japan
NL
Germany
north/east
China
NZ
AR/UY/CL
„Africa“
World milk price 4/2016
Comment: Average sized farms in the countries, analysed year: 2012 ECM: energy corrected milk (4% fat, 3.3% protein). For the conversion on the left hand side exchange rate used : 1€ = 1.324 US-$.
21/06/2016
Source: IFCN database - D5.1 - Dairy Farm Analysis Database 2015
© IFCN 2016
What about the world market feed and
milk prices?
The IFCN feed price indicator
Weighted world market prices for
Soybean
30%
Corn or barley
70%
The IFCN milk price indicator
Weighted world market prices for
SMP & butter
35%
Cheese & whey
45%
Whole milk powder 20%
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© IFCN 2016
What do you notice in this figure?
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© IFCN 2016
Transmission of milk price to national level
Germany
US-$ per 100 kg milk 4% fat, 3,3 % protein
USA
New Zealand
31$
36$
20$
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Source: D3.4 - IFCN Monthly real time data
© IFCN 2016
Understanding the price waves is crucial
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© IFCN 2016
How can dairy farmers adapt?
• Both prices show business cycles of 32 months
• The feed price is the leading variable
• Farmers who correctly anticipate the price cycles could
depopulate the milking barn for a year or so while retaining
young- stock to repopulate later, or cull individuals that do
not cover their marginal costs
• Farmers who plan to expand can time their expansion
optimally
• Read more in the forthcoming issue of the Agribusiness
journal
21/06/2016
© IFCN 2016
Have the prices reached the bottom?
USD/ 100 kg
21/06/2016
© IFCN 2016
So what’s your guess for the rest of 2016?
Fortunetellers
have updated
their
technology…
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© IFCN 2016
Forecasts in USD/ 100 kg from May on
30
25
20
15
Milk price
Feed price
10
5
0
Jan
21/06/2016
Feb Mar Apr May Jun
Jul
Aug Sep
Oct Nov Dec
© IFCN 2016
Summing up
1. Dairy is a growing business
2. Milk is produced in many different ways worldwide
3. Production is dominated by small farms
4. A huge variety in agricultural policy, costs and returns
5. The milk price is recovering and farmers who anticipate the long
waves can adapt
21/06/2016
© IFCN 2016
Thanks for your attention!
21/06/2016
© IFCN 2016