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IN MANY CASES, the dairy situation in Latin America (Mexico, Central America, the Caribbean, and South America) forms merely a footnote to other, more established regions.
But as the world shifts, Latin America’s dairy producers and exporters will have an increasingly important role to play –and those who understand their unique characteristics will find themselves with a powerful first mover advantage.
Latin America produced 85 million metric tons of milk in 2013, accounting for 13 per cent of global supply.
Most are probably not surprised to find that this puts the region in fourth place behind Europe, Asia, and a revised North America that includes the United States and Canada. But what is interesting is the rate at which production in the region is expanding.
When we consider the compound annual growth rate of each region between 2004 and 2013, we see that milk production in Latin America has been growing at an average of 3.2 per cent per year.
The region has a strong presence in certain products. Most obvious is whole milk powder. Latin American production of dried whole milk reached 1.3 million metric tons in 2013.
Not only does this volume represent just over 38 per cent of global production, but it also makes Latin America the leading global producer – even greater than Australia and New Zealand whose combined production was just over one million metric tons.
Furthermore, Brazil and Argentina are the second and third largest individual producers, respectively, with Mexico and Chile also securing places in the top ten.
What really influences a country or region’s role on the global dairy stage is the extent to which it participates in global trade.
Despite producing over a third of global dried whole milk in 2013, Latin America only accounted for 12 per cent of exports, lagging behind both Oceania and Europe. What is driving this gap between production and exports?
While Latin America’s dairy industry has been rapidly growing, so has the population and relative wealth of the region.
Over the same period that we considered for milk production, Latin America’s population grew at an average rate of 1.1 per cent per year.
At the same time the region enjoyed GDP growth above global levels. These factors support the theory that dairy consumption grew alongside milk production and explains that even if dairy commodity production is significant, it doesn’t always translate into large export volumes.
Or put another way, not only is Latin America an important region for dairy production, it is also an important region for dairy consumption.
To be sure, the road to Latin America’s increased prominence in global dairy markets will be long and varied.
The region still struggles from a variety of socioeconomic and political factors that give it a distinct risk profile. Nevertheless, ignoring the region would be a mistake. Latin America has been one of the fastest growing dairy supply regions over the last decade and possesses a combination of characteristics that uniquely position it to continue this growth into the future.
Furthermore, the region’s evolving consumer base will influence global trade trends with a growing population in search of higher value dairy products.
While the full scope of Latin America’s potential will come into focus over time, one thing is clear - those who understand the region will enjoy a distinct competitive advantage in the future.
Quarterra is an international food and agriculture advisory firm.