Cheese exports hold the key to growth in major dairy production regions around the world. A slew of reports in recent months has highlighted the opportunities for developed countries to increase cheese production, with developing countries in the Middle East and Asia forecast to grow cheese imports.
The latest report was released by the International Dairy Federation at the World Dairy Summit in Daejeon, South Korea, on October 16.
The IDF World Dairy Situation 2018 report said key export regions, such as Oceania, the United States and the European Union, would see cheese production grow in years to come as they had to keep up with accelerating import demand in Asia, with Japan, the Republic of Korea and China being important destinations.
The report, which was put together by IDF experts from dairy-producing countries around the world, also revealed that there had been above-average global milk production growth in 2017 on the back of better prices. The strongest growth was recorded in India, Pakistan, Turkey, Australia, Poland and the United Kingdom.
It also found there was greater import demand by China last year due to a shortfall in milk production. The East Asian country regained much of its strength as the number one dairy importer in the world after local stock positions normalised in 2016. The demand growth is in UHT milk, mozzarella and cream cheese.
The IDF report backed up a recent report from Rabobank that said dairy-exporting regions were fighting to win market share in Asia’s cheese market.
The Rabobank report – Asia’s Fast-Moving Cheese Markets – Australia’s Race to Win – said Asia offered «a compelling growth opportunity» for Australian dairy exporters in the medium term.
But it warned other exporting nations — with a much larger production base and export potential — were also looking to expand their presence in the Asian region.
Rabobank senior dairy analyst Michael Harvey said competition was set to intensify as leading cheese manufacturers in New Zealand, the US and Europe invested in production capacity.
«Over the next three years, we will see this new processing capacity come online, which potentially be more than sufficient to service the Asian markets,» he said.
Australia needed to play to its strengths and focus on maintaining and growing market share in the high-end segments of the market.
Citing investment in dairy innovations and formulations as the way forward, Mr Harvey said tailored products could include improved functionality and desirability (to suit local cooking styles), clean label initiatives, nutritional demands (such as additive free, sodium reduced) and the development of snacks tailored to local consumers.
«But much of Australia’s ability to grow exports into the Asian region will hinge on the sustainable growth of our milk supply,» he said.
«And, while possible, growth prospects are up against hard constraints and seasonal impediments at the moment.»
The concerns about Australia’s exports were backed up by an Organisation for Economic Co-operation and Development and Food and Agriculture Organisation report released in July.
The OECD-FAO Agricultural Outlook 2018-2027 report forecasts world milk production to increase by 22 per cent in the next 10 years. But most of that growth would come from Pakistan and India and most would be consumed domestically in those countries as fresh dairy products.
Overall growth in world milk production was expected to average 1.8pc per year for the next 10 years, compared with 2.1pc per year during the previous decade.
The report said the four major exporters of dairy products were New Zealand with a share of 32pc, the EU (24pc), the US (12pc) and Australia (6pc).
It forecast a decline in export share for Oceania (New Zealand, Australia) from 38pc to about 33pc in 2027. Export shares were forecast to increase slightly for the US, the EU and Argentina.
The OECD-FAO report said world prices of dairy products would be supported by strong but slowing demand increases for milk and dairy products.
The dominant destinations for dairy exports would be developing countries, with the Middle East and North Africa region accounting for 24pc of world imports in 2027, South East Asia for 12pc and China for 13pc.
The report said China would remain a major importer of dairy products and was projected to increase its imports over the next decade but at a slower pace. But it said there was uncertainty about China’s role as an importer. «Small variations in domestic production and consumption can have a significant impact on the world market, as shown in 2011-2015 period when the country’s imports of whole milk powder expanded and then decreased rapidly,» it said.
Rabobank sees China as a key opportunity. «China is where the growth opportunities lie for Australian cheese exports, with China’s annual cheese imports set to potentially double by 2023,» Mr Harvey said.
China’s cheese imports grew at a rate of more than 20pc per year between 2012 and 2017.
Mr Harvey said in the same period imports from the ASEAN-5 countries of Indonesia, Malaysia, Thailand, the Philippines and Vietnam grew by 10pc per year.
Growth was slower in Japan and Korea (at an annual rate of 2pc), but these two countries, together, import three times more cheese than China (importing 340,000 tonnes in 2017, compared with China’s 100,000 tonnes).
But while the outlook was strong there were «downside risks», including the trade war between China and the US and margin pressure on retail foodservice chains.
The Rabobank report said while Australia was well-placed to be an integral part of global quick service restaurant supply chains, «the competitive environment is rapidly changing as other exporters also look to expand their presence in the region».
«New Zealand has set the pace in terms of growing cheese exports to Asia, and now supplies half of China’s cheese import requirements,» Mr Harvey said.
«While in the Northern Hemisphere, a number of countries have expanded cheese production to absorb the oversupply of milk and to generate better returns from cheese versus milk powder.»
Mr Harvey said to succeed to succeed in its industry-wide Asian strategy for cheese and whey-derived nutritionals, Australia must play to its strengths, as a reliable supplier of high-quality product.
The immediate priority for Australia to increase its cheese exports lay with the industry sustainably increasing milk production and improving plant utilisation. While possible, and Rabobank forecasts a modest growth in milk supply in the next five years, there were many headwinds to achieving this, particularly in light of the current season, Mr Harvey said.
