A varied panel of local and international delegates and speakers, including Zenith International’s market intelligence director Esther Renfrew, gathered for three days in the capital city of Minas Gerais state.
Minas is responsible for around 25% of total milk output at over 7.5bn litres for 2009, making it the largest producing state in the country. Brazil produced over 27bn litres in 2009 and is now placed among the world’s largest producers, albeit only exporting a small percentage of its output.
Although this event is meant to be Pan-American, it can be said that, in practice, this is a Latin American event, with few delegates from Canada and the US attending. Perhaps this is due to the protective nature of the dairy markets in North America and the fact that only a selected group of dairy companies from the north are invested in South America.
On the other hand, other Mercosur members such as Argentina and Uruguay regard Brazil as a key exporting destination and thus attended in mass. One could feel a slight tension coming from the Argentinean and Uruguayan camps due to the fact that Brazil raised some of its dairy tariffs in 2009 for other Mercosur members in a controversial move that disregarded existing commercial agreements, but that on the other hand was designed to safeguard local companies.
According to Rodrigo Sant’Anna Alvim, president of the National Committee for Milk and Dairy Livestock of Brazil, the financial crisis of 2007-09 brought some tougher conditions for the international dairy market.
In total, 140 new, protectionist measures were adopted by individual countries, anti-dumping investigations surged by 18% and rich countries intensified their use of subsidies for local producers. All of this has affected exporting nations and caused exports to suffer.
Up to 2004, Brazil had always been a net importer of dairy, as production struggled to cover local demand. However, this started to change, and from 2004-08, the country became a net exporter of dairy products. Difficult conditions in 2009 meant that Brazil imported more than it exported, due in main to a strong currency, tougher exporting conditions and the very high price of milk in Brazil. Despite this, demand in the local market increased significantly as more class C consumers saw their incomes grow, and demand for dairy products internally absorbed what couldn’t be sent abroad.
The key message from this congress is that Brazil is preparing itself to become a major player in the international dairy market. Several factors favour such an ambitious move: having vast amounts of available land, plentiful water resources and favourable climate conditions year-round are obvious ones.
Furthermore, its dairy plants are becoming more technologically advanced, and new investments from internal and international dairy groups (Batavo, Itambe, Danone and Nestlé to name a few) mean that the country is adding processing capacity fast.
Yield per cow is still low by international standards at just 1,277 litres per cow per year, and better practices will contribute to significant increases in output. Last but not least, the domestic market is set to boom as income levels grow and per capita consumption catches up to that of other nations. It currently stands at just 142 litres, while some European countries consume more than 300 litres.
As Australia, the US and Argentina are all set to see their output decline in 2010, Brazil will be ready to fill the gap, provided that trading conditions allow for its products to be sold abroad and that currency fluctuations don’t hurt its competitiveness.
Looking further ahead, the signs from the 11th Pan-American Dairy Congress are that the largest country in Latin America could become one of the main players on the international dairy arena.
It would be foolish to ignore its potential.
Andres Padilla is Zenith International director Latin America.
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