Global Milk Production To Rise In 2022, But Dairy Trade Expected To Contract

World milk production is forecast to expand in 2022, albeit slowly, but global dairy trade could contract, according to the Food Outlook report released earlier this month by the Food and Agriculture Organization (FAO) of the United Nations.

World milk production in 2022 is forecast at 930 million tons, up 0.6 percent from 2021, the slowest growth pace in the last two decades, the report said. Much of the expansion is foreseen to originate in India and Pakistan on rising dairy herds, although at slower growth rates than in earlier years due to animal disease outbreaks and extreme weather events, and in China, sustained by large-scale dairy operations.

These predicted production increases will likely be nearly offset by possible output contractions in several countries. Most notable declines are anticipated in Ukraine, impacted by the ongoing war with Russia, and in Brazil, the European Union (EU), Turkey, New Zealand and Australia, owing to extreme weather events, labor shortages and high input costs, leading to squeezed profit margins.

Global trade in dairy products in 2022 is forecast at 85 million tons (in milk equivalents), down 3.4 percent from 2021, which would represent the first decline in nearly two decades, according to the report. The anticipated trade contraction is primarily attributable to a likely 15 percent drop in imports by China, mostly of whey and milk powders, starting from April, on high inventories, rising domestic milk production and lower foodservice sales related to COVID-related measures.

Dairy imports are also forecast to drop significantly in Vietnam, Russia and Bangladesh, reflecting lower consumer purchases, and in Sri Lanka, because of limited foreign exchange availability. By contrast, imports by the Philippines, Indonesia and Mexico are expected to increase markedly, partially offsetting the declines expected elsewhere.

On the supply side, New Zealand, the EU, Belarus and Turkey may register steep decreases in dairy exports, which could be partially compensated by higher shipments from the US, India, Argentina and Mexico, the report noted.

The FAO Dairy Price Index rose steadily since May 2020, except for four months from June to September 2021, reaching near-record highs in June 2022, only 4 percent below the all-time high that the index reached in December 2013.

This episode of price increase was mainly driven by the tightening of global markets on the back of lower supplies from Western Europe and Oceania, the report explained. Since June, however, international dairy prices have been declining, underpinned by lower global import demand, notwithstanding the continued tight supply situation in several leading exporting countries.

The report also noted that the world food import bill is expected to rise to US$1.94 trillion in 2022, higher than previously expected. The new forecast would mark an all-time high and a 10-percent increase over the record level of 2021, although the pace of the increase is expected to slow down in response to higher world food prices and depreciating currencies against the US dollar. Both weigh on the purchasing power of importing countries and, subsequently, on the volumes of imported food.

The bulk of the increase in the import bill is accounted for by high-income countries, due mostly to higher world prices, while volumes are also expected to rise. Economically vulnerable country groups are being more affected by the higher prices.

For example, the aggregate food import bill for the group of low-income countries is expected to remain almost unchanged even though it is predicted to shrink by 10 percent in volume terms, pointing to a growing accessibility issue for these countries.

“These are alarming signs from a food security perspective, indicating importers are finding it difficult to finance rising international costs, potentially heralding an end of their resilience to higher international prices,” the report stated.

The report warns that existing differences are likely to become more pronounced, with high-income countries continuing to import across the entire spectrum of food products, while developing regions are increasingly focused on staple foods.

The FAO report also assesses global expenditures on imported agricultural inputs, including fertilizers. The global input import bill is expected to rise to US$424 billion in 2022, up 48 percent from 2021 and as much as 112 percent higher than in 2020.

Higher costs for imported energy and fertilizer are behind the foreseen increase
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