One Billion Liters: Brazil Becoming a Global Milk Power

Brazil's milk cow grazing Brazil is going to have record-high exports of dairy products in 2008. According to the evaluation of the analyst at the National Food Supply Company (Conab), Maria Helena Fagundes, based on projections made by sector organizations, the equivalent to 1 billion liters of milk should be shipped, generating revenues of up to US$ 750 million.

In the first half, foreign sales totaled US$ 226.8 million, whereas last year's exports totaled US$ 263 million. "The trend for the second half is for sales to grow even further. This is a widespread phenomenon in foreign trade, demand rises as a result of year-end parties and cold weather in the Northern Hemisphere," said Fagundes.

The figures include items such as whole milk powder, condensed milk, dairy cream, evaporated milk, butter and cheese, among others. Milk powder and condensed milk, according to the analyst, answer to 75% of exports. Imports of products in the sector, according to her, should total approximately US$ 200 million this year, resulting in a US$ 550 million surplus for Brazil.

The country's share of the sector's global trade is still small, lower than 2%, according to Maria Helena. However, it must be remembered that for a long time, the Brazilian balance of trade for dairy products showed a deficit. As the national economy opened up, in the early 1990s, large multinational companies began operating in the local market and, up until 2002, there were no regulations preventing entry of imported products subsidized by their countries of origin.

"Dairies are the most subsidized products in the world. In the countries of the organization for Economic Co-operation and Development (OECD), the sector absorbs a significant share of the US$ 1 billion spent on subsidies," stated Maria Helena.

It was not until after Brazil adopted antidumping measures and set a price commitment with its Mercosur partners that the domestic industry started to react.

The balance of trade started running a surplus in 2003, with the exception of 2006, when a deficit was shown once again, as a result of low prices paid to producers, which prevented production from expanding more strongly.

Presently, according to the analyst, the international scenario is favorable to Brazil, as leading global suppliers, such as Australia and New Zealand, have little production surplus available for exports, partly due to drought. The European Union (EU), another heavyweight producer, has been gearing its products toward the domestic market, especially new member countries from Eastern Europe, which are undergoing rapid economic growth.

Furthermore, says Maria Helena, rising prices of inputs, especially raw materials for animal feed manufacturing, drive up production costs in European countries. In Brazil, a large share of the herd is raised on pasture, even though there is price pressure as well, due to the rising costs of fertilizers for grazing land, mineral salts for complementing the cattle feed and fuels for transporting the products.

She added that countries such as New Zealand and Australia are investing more in exports of finished goods and less in those of basic goods, thus enabling Brazil and other "emerging" supplier nations, such as Argentina and Uruguay, to maintain their spaces in the international market. "I do not believe this to be merely an occasional trend," asserted Maria Helena.

Currently, Brazil produces some 30 billion liters of milk per year, and exports answer to just 3% of that total. To the analyst, Brazil is capable of meeting the rising demand, but the way in which the market will behave in the long run will depend on variables such as production volume in other exporting nations, the cost of inputs and prices paid to producers.

She claims, however, that it is unlikely that the sector's balance of trade is going to decrease from its current level. "I believe that this situation has come to stay, same as with other agricultural products," she declared. "Brazil is on its way to becoming a leading dairy exporter country," she stated.

Brazil exports milk and dairy products to more than 100 different nations, the leading destinations being in Latin America, Africa and the Middle East. The Arabs constitute an important market. "Ever since exports started gaining strength, the Arabs have demanded Brazilian products and sustained their status as important clients," said Fagundes.

Countries in the region imported the equivalent to US$ 48.5 million in dairy products from Brazil in the first half, according to data supplied by the Brazilian Ministry of Development, Industry and Foreign Trade.

In the case of milk powder, for instance, Sudan, Algeria, Mauritania and Saudi Arabia rank, respectively, in the 3rd, 5th, 6th and 8th positions in the ranking of leading buyers from Brazil.

Tunisia is the 4th largest market for diary cream. Egypt, Yemen and Kuwait are, in that order, the three major butter importer countries, and Saudi Arabia is the 2nd leading buyer of mozzarella cheese.

Anba – www.anba.com.br

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