Page 35 - Food & Drink Magazine Jan-Feb 21

favoured cheese production, which lifted by 2.3 per cent to 371,000 tonnes. In contrast, output of milk powders dropped, with skim milk powder (SMP) falling 20 per cent to 141,000 tonnes and whole milk powder (WMP) dropping eight per cent to 43,800 tonnes. Close attention remains on the production shifts in the new season given the increase in milksolids, and weakness in end-user demand for cheese and butter due to market shifts during the global pandemic. The export data provides some context. In the first quarter of the new season, total Australian dairy exports are up 12 per cent on a volume basis. In the same period, SMP exports are 50 per cent higher year-on-year and liquid milk exports are also up 12 per cent.
LIGHT AT THE END
OF THE TUNNEL?
As a challenging 2020 ends, more optimistic projections set the
tone for 2021. Rabobank expects the global economy to contract by 3.8 per cent in 2020 and recover by 4.5 per cent in 2021. China is the only major economy expected to grow in 2020. There is positive news on the arrival of effective COVID-19 vaccines, although availability and distribution will vary globally.
Several factors in 2021 aid positive consumer sentiment in key dairy markets, including effective vaccines, less political uncertainty after the US election, a weaker US dollar that aids commodity prices, and projections for economic growth in most regions after the 2020 recession.
Supply growth is slowing across primary export regions. Milk production gains across the global Big-7 dairy exporters surprised in 2020, with growth at its highest level since 2017 (4.5 billion litres). However, Rabobank is projecting a more moderate growth rate in 2021, albeit positive across all regions,
totalling 2.7 billion litres. The duration of the second
COVID-19 wave and the arrival of vaccines are key to stabilising Q1 2021 demand in foodservice. While there is optimism regarding vaccines and gradual control of the pandemic, there are increasing restrictions on foodservice outlets as COVID-19 cases are on the rise overseas. Retail sales should strengthen further as more meals are consumed at home. Nevertheless, a full recovery in dairy demand is contingent on reaching pre-COVID-19 sales.
RISKS LINGERING
The impact of less government interventions could be significant in 2021. A key reason for strong demand and healthy trade during the COVID-19 pandemic has been government actions in many countries during 2020. It is likely that fiscal constraints will prompt governments to scale back dairy purchases and cash payments to consumers in 2021.
This could limit demand growth and impact global prices in 2021 if the economic recovery does not materialise.
INDUSTRY CONSOLIDATION
Locally in Australia, 2020 saw another major shift in consolidation of the processing sector following details of Bega Cheese acquiring the Lion Dairy and Drinks business, making Bega Cheese a much bigger player in Australian dairy. The acquisition will see Bega Cheese lifts its annual milk intake by 75 per cent to 1.7 billion litres, meaning it will rival that of Saputo Dairy Australia and Fonterra Australia. ✷
✷ ABOUTTHEAUTHOR
DAIRY BUSINESS
Michael Harvey is a senior dairy analyst with more than 15 years’ experience. Prior to
joining Rabobank in
2011 he was part of the trade and strategy team at Dairy Australia.
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