NI should benefit from growing dairy demands

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Northern Ireland’s milk sector looks set to benefit from a growing international demand for dairy products.

Over the next decade (2019-2028), global consumption of fresh and processed dairy products is expected to increase by 2.1% and 1.5% per year respectively, according to the latest outlook from the Organisation for Economic Co-operation and Development (OECD).

Rising consumption of dairy in developing countries is expected to drive the majority of global growth. Urbanisation and the growth of middle classes will drive this increase in demand, as higher incomes enable consumers to spend more on food, while rising populations increase the number of consumers. On a per capita basis, consumption of fresh and processed dairy is estimated to see annual increases of 1.6% and 0.8% respectively.

In contrast, consumption growth in developed countries may well be more muted. Growth in the consumption of fresh dairy products is only forecast to rise by 0.3% per year over the next decade. However, on a per capita basis, consumption is expected to remain relatively flat.

Meanwhile, consumption of processed dairy products is forecast to increase by 1.0% a year in developed countries over the period. This will mostly be due to rising cheese consumption, although the use of skimmed milk powder (SMP) and whole milk powder (WMP) in manufactured products looks set to increase as well.

Compared to the previous outlook, covering the period from 2018-2027, global consumption growth has been revised down 0.3 percentage points. Alongside this, there are also expectations of tighter global milk supplies, with global milk production also revised down 0.3 percentage points in the latest outlook.

All of this will come as good news for the local dairy sector. Northern Ireland already exports 80% plus of the dairy products produced.

There will also be enhanced pressure on the sector to find new export markets post-Brexit.

As one might expect, demand in China will account for a high proportion of the envisaged increase in global dairy demand levels over the coming years.

Consumption of dairy products in China is expected to increase by 2.5% this year alone to 33.7 million tonnes, according to USDA forecasts.

The Chinese dairy industry has undergone large transformations since the melamine dairy scandal in 2008.

Distrust for some domestic dairy products has led to a consolidation of dairy farms into larger operations.

The number of dairy farms with less than 300 head has dropped 49% to 56,000, from a peak of 114,000 in 2011.

The consolidation has resulted in milk quality levels improving, enabling milk prices to increase.

Better returns for producers has also improved milk production levels. Forecasts for this year put China’s milk production at an increase of 2.3%.

Though large investments in the production chain have been made, China’s thirst for dairy will still surpass its production capacity.

As such, the country continues to rely on imports to meet this demand.

However, not all dairy products saw the same levels of demand.

Whey imports fell 28% for the first six months of this year as its main destination, China’s pig herd, undergoes vast reductions.

For the year to date to June, China’s imports of dairy products, excluding whey, increased 25% against the first half of last year.

The growth was driven by milk powders, with SMP and WMP imports up by 29% and 30.5% respectively over the same period last year.

The EU has stepped up its exports to the region, gaining share. Currently, Germany leads the pack, accounting for 12% of China’s dairy imports this year. However, courtesy of its free-trade access, New Zealand remains the largest source, accounting for 52% of dairy imports into China.