Market Update July 17, 2023

Hi everyone,

Welcome to the OpenDairy market update.

In the last few years, all eyes have been pointed at the United States when it comes to milk production growth. In order to keep up with 1% demand growth per year, milk production needs to grow at a similar rate in the main producing regions.

The high yields per animal, low costs and availability of dairy farming land makes the US the most obvious reason for production growth. Let’s have a look at how production developed over the last few years.

As you can see at this chart, the growth figures from the main producing regions are not so impressive. Europe and the US grew their milk production by just 1-3% over the last 4 years. New Zealand output even declined over the years. But looking at China’s local milk production, we see a staggering growth of 18,6% in just 4 years. Let’s put that in perspective. Many of us tend to forget the size of the Chinese production. It’s almost twice the size of the New-Zealand milk production, and with approximately 8,5% growth in Q1 2023, we expect it to become even bigger this year.

To put things in perspective, a growth of 8,5% in China equals 2,3% in Europe or 3,25% in the US or a mind blowing 15,62% in New Zealand. This is a market where China was, and is, New Zealand’s number one customer. Demand is a lot harder to model. We have seen the dairy demand is still very elastic in most parts of the world. The recent spike in prices has caused a serious decline in consumer demand, especially in developing countries. When looking at this map, we see that the traditional dairy producing regions are still consuming way more dairy than the importing regions.

A typical Dutch person still consumes 10 times more dairy than a Chinese consumer. The difference is, the high consumption regions show a decline in per capita consumption, whereas there is still upside for many developing countries. The big question is how that demand will develop further. The image of dairy products has worsened over the last decade and alternatives are gaining market share.

The coming years will show us how much upside there still is in demand from developing countries. Supply on the other hand is easier to influence, and not always a game of economics. When governments want to increase self-sufficiency, political motives prevail. The way it seems right now, is that production is outpacing demand.

Will dairy demand stabilize, or continue to grow at the 1-2% per annum modelled by many analysts? This will determine whether we need any production growth at all.

Thank you for your attention, we welcome your questions and remarks.

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