Brazil Dairy and Products Annual Dairy Report 2008

Brazil’s fluid milk production is forecast to increase by five percent in 2009 to 30 billion liters down from an eight percent increase in production this year, mostly due to projected record exports of dairy products and moderate growth of the domestic market, reports USDA, Foreign Agricultural Service. A link to the full report is provided below.

12 December 2008

3 minute read

Report Highlights

The impact of the world financial crisis on Brazil’s dairy sector is unclear at this moment, although the current devaluation of the Brazilian currency is favoring dairy exporters. However, concerns remain about the increased costs of production combined with the recent decline in milk prices paid to producers.

Executive Summary

Post projects a moderate growth in milk production in 2009 after strong growth in the current year due to record producer prices combined with increasing productivity and higher domestic and export demand.

The forecast for moderate growth in milk production in 2009 is based on higher export demand boosted by a higher devaluation of the Brazilian currency and a moderate economic growth which will likely maintain the current level of consumers’ real income.

However, there are some concerns within industry regarding the overall impact of the current world financial crisis on the Brazilian economy next year. These concerns include a possible increase in input costs for dairy production and shortage of credit for investments by major dairies, combined with a recent decline in milk prices received by producers.

Commodity Outlook, Fluid Milk

Production

Post forecasts fluid milk production in 2009 to increase to 30.3 billion liters, up 5 percent from the current year. The most important factor boosting milk production is the increase in exports due to the devaluation of the Brazilian currency and expected flat domestic consumption. The increase in production also reflects higher productivity, mostly derived from higher investments from milk producers associated with large Brazilian companies, and assumes good weather conditions in the major producing areas.

However, prices received by milk producers have begun to decline in the last quarter of 2008 due to current excess production. It is also uncertain how the current world financial crisis could impact the Brazilian economy in 2009 and affect milk and dairy production. One of the positive effects so far for dairy exporters is the current devaluation of the Brazilian currency which will likely boost exports of dairy products and reduce imports. However, the rising cost of milk production combined with declining milk prices received by producers may impact on the overall chain of milk and dairy production in 2009.

Consumption

Total consumption of fluid milk is forecast to increase by 3 percent in CY 2009. The increase is derived mostly from consumption for industrial use. The increase in the employment rate and in the purc hasing power of Brazilian consumers is expected to be moderate next year due to the impact of the world financial crisis on the Brazilian economy.

According to trade sources, consumption of Ultra High Temperature (UHT) milk will continue to increase in 2009, and is expected to reach 92 percent of total fluid milk consumption in Brazil. The increase in consumption of UHT is due to several factors, including greater convenience to consumers, carton packaging (not glass or plastic), no need for refrigeration, and competitive pricing. Brazilian supermarkets sell predominantly UHT milk, leaving “C” and “B” type refrigerated fresh milk to be sold by the traditional mom-and-pop bread and convenience stores, but at lower volumes.

An important aspect of domestic fluid milk consumption is the increasing competition from non-dairy products, such as soymilk and other specialty lactose-free products. As more companies enter this specialty market, prices decline and consumption increases. Health concerns are behind the major increase in these non-dairy products.