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How Protectionism Could Shake Up the Global Dairy Trade

Protectionism is on the rise. Is your farm ready for the shake-up in global dairy trade? Here’s what you need to know now.

Summary: Feeling uneasy about the future of dairy trade? Rising protectionism is the latest curveball thrown into an already complex global market. Recent moves by China and Colombia to investigate subsidies in Europe and the U.S. could have far-reaching consequences on the dairy industry. Are you prepared for how these developments could impact your farm’s bottom line? “As a dairy farmer, understanding the implications of these trade investigations is crucial for navigating the upcoming challenges.” The global dairy trade is a complex industry with major players from Central Europe, North America, Oceania, and Asia. Exporters like New Zealand, the European Union, and the United States dominate the market, while importers like China, Mexico, and Southeast Asian nations rely on imports. International trade agreements like the US-Colombia Trade Promotion Agreement (TPA) help reduce tariffs and set trade norms, but they are often criticized for potentially favoring one side. China’s Ministry of Commerce is investigating European agriculture subsidies, which could impact the global dairy sector. The European Union’s participation could result in excess output in Europe, potentially pushing down global prices and harming farmers worldwide. A growing trend of protectionism is affecting global trade relations, with Colombia’s dairy farmers alleging that these subsidies enable artificially cheap U.S. milk powder, undermining domestic dairy pricing and putting pressure on the sector. Dairy farmers need to diversify markets, form cooperatives, advocate for fair trade policies, stay informed, leverage technology, build strong relationships with local suppliers and customers, and consider value-added dairy products.

  • Rising protectionism poses a new challenge to the global dairy trade.
  • China and Colombia are investigating U.S. and European dairy subsidies.
  • These investigations could impact global dairy prices and affect your farm’s profitability.
  • Understanding trade agreements and their criticisms is crucial for staying informed.
  • Diversifying markets and forming cooperatives can help mitigate risks.
  • Staying updated on global trade developments is essential.
  • Leveraging technology and forming strong local relationships can offer stability.
  • Consider producing value-added dairy products to enhance your market position.
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Are you ready to take charge in the face of increased protectionism in the global dairy trade? As dairy producers, you have the power to navigate the changing landscape as governments scrutinize international subsidies. The recent probes by China and Colombia may alter long-standing trade agreements and market dynamics, but with the right strategies, you can steer your business through these challenges.

Take the European Union as an example. The EU, a significant player in the global dairy market, has been a major exporter of dairy products. However, the EU’s decision to impose tariffs on Chinese electric automobiles has sparked a retaliatory investigation by China’s Ministry of Commerce into Europe’s agricultural subsidies. This action, initiated at the request of Chinese dairy farmers, could have significant repercussions for European dairy exports.

On the opposite side of the world, Colombia’s government is scrutinizing U.S. funding. Colombian dairy farmers blame programs such as the Dairy Margin Coverage and the USDA’s Dairy Donation Program for the low cost of milk powder from the United States. With so much money flooding into the dairy business in the United States, Colombian farmers are concerned about their livelihoods.

The Global Dairy Showdown: How Major Players and Trade Agreements Shape the Market

The global dairy trade is a thriving business with participants from Central Europe, North America, Oceania, and Asia. Significant exporters, such as New Zealand, the European Union, and the United States, dominate the market, selling dairy products such as milk, cheese, and milk powder to nations across the globe. Fonterra Cooperative Group, based in New Zealand, is one of the world’s major dairy exporters, significantly impacting market trends.

Key importers include China, Mexico, and Southeast Asian nations, who depend on imports to fulfill rising demand. China, in particular, has experienced increased dairy imports to meet local demands due to growing consumer demand and limited domestic production capacity. Geographic indications (G.I.s) in the E.U. and cheese imports from the United States considerably impact commerce.

The US-Colombia Trade Promotion Agreement (TPA) is a crucial international trade accord. This agreement, which came into force in 2012, has significantly influenced the global dairy trade. It has led to a considerable increase in U.S. milk powder shipments to Colombia, affecting the Colombian dairy market. Such agreements, while aiming to balance advantages between exporting and importing countries, are often criticized for potentially favoring one side.

These agreements affect trade flows and domestic industry. For example, the TPA has permitted the continual supply of U.S. dairy into Colombia, which some argue undercuts local farmers. This conflict demonstrates the delicate balance necessary to preserve fairness and competitiveness in the global dairy market, emphasizing the importance of continuing reviews and discussions.

China’s Investigation into European Subsidies: A Game-Changer for Global Dairy Trade? 

China’s Ministry of Commerce has begun extensively examining European agriculture subsidies. This initiative, spearheaded by Chinese dairy producers, seeks to determine if these subsidies provide European farmers an unfair competitive advantage. Experts fear that the inquiry might substantially impact the global dairy sector.

Beijing’s investigation followed the European Union’s decision to slap tariffs on most electric cars imported from China, intensifying trade tensions between the two industrial powerhouses. European dairy farmers have concerns about their market share in China and global commerce.

Stanford University economist Roger Noll states, “Trade barriers can disrupt established supply chains, leading to inefficiencies and reduced market access for many producers.” The European dairy sector, which already accounts for a sizable share of global dairy exports, may experience a fall in global competitiveness if China imposes more taxes or restrictions based on the investigation’s findings.

Data demonstrate that the European Union is a significant participant in the global dairy industry, with exports continuously increasing over the last decade [source]. Any interruptions caused by China’s discoveries might result in excess output in Europe, possibly pushing down global prices and harming farmers throughout the globe.

This inquiry into U.S. and European subsidies is part of a broader trend of growing protectionism, which has the potential to significantly alter global trade relations. The conclusions of these investigations could have long-term implications for market conditions and trade ties. They could lead to new trade obstacles or more egalitarian practices, reshaping the global dairy trade in the process.

How U.S. Subsidies Might Be Shaking Up The Global Dairy Market? Colombia Certainly Has Some Thoughts… 

How are U.S. subsidies affecting the global dairy market? Colombia undoubtedly has some ideas. They are looking at U.S. dairy subsidies, focusing on two essential programs: the Dairy Margin Coverage (DMC) program and the USDA’s Dairy Donation Program.

So, what is the crux of their complaints? Let’s dig in. The DMC program provides a significant safety net for U.S. dairy producers, with $1.65 billion issued in 2023 to cover the difference between milk prices and feed costs. Furthermore, the USDA’s Dairy Donation Program helps farmers buy excess milk products to distribute to food banks. Sounds useful.

Not if you are a Colombian dairy farmer. Colombia’s dairy farmers allege that these subsidies enable U.S. milk powder to be offered artificially cheaply, undermining domestic dairy pricing. They believe this makes it difficult for local farmers to compete, putting pressure on the sector.

Imagine being a Colombian dairy farmer trying to earn a livelihood, only to have your market inundated by cheaper U.S. milk powder. Tariffs and trade adjustments resulting from the United States-Colombia Trade Promotion Agreement (TPA) are not helping since they have opened the door for increased U.S. dairy imports.

The Colombian government is delving deeply into the subsidy concerns, and the stakes are high. How will this probe impact the delicate balance of the global dairy trade? Will it result in new trade obstacles or more egalitarian practices? Only time will tell.

Impact on U.S. Dairy Exports: A Case Study with Colombia 

So, how can these investigations and possible trade restrictions affect the U.S. dairy sector, particularly shipments to Colombia? The stakes are enormous, given the importance of the US-Colombia Trade Promotion Agreement (TPA) in defining this market.

Historically, the TPA allowed U.S. milk powder to flood the Colombian market. The deal, which went into effect in 2012, eliminated several trade obstacles that had previously limited U.S. dairy goods. Consequently, U.S. exports to Colombia have increased dramatically, with milk powder becoming a significant import.

Fast forward to the latest probe launched by Colombia’s government, and the situation may shift dramatically. Allegations that U.S. subsidies, such as the Dairy Margin Coverage program, artificially decrease prices have raised concerns. Colombian dairy producers believe these subsidies provide U.S. goods an unfair advantage, harming local farmers who cannot compete on price.

With greater on-farm profits and better weather conditions increasing local output, Colombia’s main dairy union is now looking for ways to restrict these U.S. imports. If successful, this might increase tariffs or outright limits on U.S. dairy goods entering Colombia.

Such actions would be troubling for U.S. dairy exporters. The TPA played a critical role in their present market domination, but government inquiries into subsidies may change this dynamic. The conclusion may restrict U.S. market access, requiring American dairy producers to seek new overseas markets or confront domestic overproduction issues.

The dairy industry in the United States is facing a difficult period. Understanding the historical backdrop and present dynamics may help stakeholders plan for future roadblocks and find methods to negotiate this complicated trading environment.

The Tug-of-War: Balancing Domestic Interests with International Trade Fairness 

Let us discuss the tug-of-war between home interests and international trade equity. Have you ever pondered how protectionism affects this delicate balance?

On the one hand, protectionism may be beneficial to local dairy producers. Assume you’re a dairy farmer facing stiff competition from low-cost imported milk powder. What could be better than government policies that shift the balance in your favor? These safeguards help keep pricing stable and your business profitable.

Consider the United States Dairy Margin Coverage scheme, for example. It awarded American dairy farmers with $1.65 billion in 2023 alone. This benefits domestic farmers, allowing them to weather economic crises and maintain consistent output.

However, let’s flip the coin. The same policies may disrupt international trade dynamics. Colombia’s complaint against U.S. dairy subsidies is a prime example. These subsidies have the potential to destabilize local markets in other countries by artificially lowering the price of U.S. milk powder. Colombian dairy farmers complain that this reduces their pricing, making it difficult to compete in their market.

Trade accords such as the US-Colombia Trade Promotion Agreement seek to level the playing field. However, subsidies may distort this equilibrium, causing friction and disagreements.

So, where should we draw the line? Supporting local farmers is unquestionably essential. But so is preserving fair trading practices on a global scale. As these investigations evolve, one thing becomes clear: balancing local advantages and international justice is challenging.

Roger Noll states,  “Trade barriers can protect local industries in the short term, but they often lead to inefficiencies and conflicts down the line.”

What are your thoughts? How should governments negotiate this complex landscape?

What Dairy Farmers Need to Know: Navigating Rising Protectionism 

Do you feel trapped in the crossfire of global trade disputes? You are not alone. Rising protectionism is altering the dairy industry, and planning is critical. 

Here are some hands-on strategies to help you navigate these turbulent waters: 

  1. Diversify Your Markets 
    Depending on a single export market might be dangerous. Explore new markets to diversify your risk and reach a more extensive client base. Building a more significant market presence might protect you against unexpected trade interruptions.
  2. Form or Join Cooperatives 
    There’s power in numbers. Joining a cooperative may increase negotiating power and give access to a broader range of markets. Cooperatives may also assist in sharing resources and knowledge, making it easier to overcome trade risks.
  3. Advocate for Fair Trade Policies 
    Your voice matters. Engage with industry organizations to lobby for fair trade policies. Lobbying for clear rules may help guarantee a fair playing field worldwide, which will defend your interests.
  4. Stay Informed 
    Keep up with the most recent trade news and policy developments. Subscribe to industry publications, attend webinars, and engage in debates. Knowing what’s going on might help you predict changes and plan appropriately.
  5. Leverage Technology 
    Use technology to improve productivity and save expenses. Efficient methods may strengthen your operation’s resilience to market shifts. Consider investing in farm management software, precision agricultural instruments, and other innovative technologies.
  6. Build Strong Relationships 
    Foster partnerships with local suppliers and customers. Building a solid local network may offer a consistent market for your goods while reducing reliance on foreign commerce.
  7. Consider Value-Added Products 
    Consider creating value-added dairy products such as cheese, yogurt, and butter. These items often offer larger profit margins and may provide new market possibilities.

Using these methods, you will be better prepared to deal with increased protectionism uncertainties while protecting your dairy industry. Stay proactive, aware, and engaged; your farm’s future relies on it.

The Bottom Line

Understanding the repercussions of increasing protectionism is critical for dairy producers today. We’ve looked at how significant actors like China and Colombia are challenging the current quo in the global dairy trade, with the potential to reshape markets. As trade obstacles and government subsidies are reviewed, balancing local interests and international trade fairness becomes more critical.

Keeping up with these changes might help you make more competent judgments and navigate this tumultuous world. Diversifying markets, forming cooperatives, and harnessing technology are just a few options. The future of global dairy commerce remains uncertain—will protectionism stifle development or usher in a new age of fair competition? It’s an issue that every dairy farmer must consider as they navigate this ever-changing global economy.

Learn more: 

Global Dairy Market: Price Recovery Slows as China Reduces Imports, Rabobank Reports

Explore the reasons behind the global dairy market’s slower price recovery amidst dwindling demand and surging production in China. What implications does this hold for global dairy prices? Find out more.

red yellow and green flags

Rabobank’s Q2 Global Dairy Report, titled “Searching for Equilibrium,” provides a comprehensive analysis of the worldwide dairy market. It reveals that the market is experiencing a slower-than-expected price recovery. The primary factors contributing to this trend are lower worldwide demand and the increasing local milk output in China. The report further explains that the initial surge in global dairy prices in late 2023 and early 2024 was primarily due to importers restocking at lower prices, rather than increased consumer demand. This complex interplay of factors underscores the need for stakeholders to stay informed and aware of the market dynamics.

CommodityPrice (US$ per tonne)Change (%)Recent Gains
Skim Milk Powder$2,6293.5%Consistent
Anhydrous Milk Fat$7,3653.5%Consistent
Butter$6,9315.1%Strong
Whole Milk Powder$3,4082.9%Steady
Cheddar$4,2390%Stable

Decoding the Supply Chain: How Strategic Restocking Inflated Dairy Prices 

CommodityDatePrice (US$ per tonne)Change (%)
Skim Milk Powder22 May 20242,6293.5%
Anhydrous Milk Fat22 May 20247,3653.5%
Butter22 May 20246,9315.1%
Whole Milk Powder22 May 20243,4082.9%
Cheddar22 May 20244,2390%

Knowing the mechanics underlying the first spike in world dairy prices in late 2023 and early 2024 shows one crucial tendency. Rabobank’s Q2 Global Dairy Report shows that importers’ intentional restocking at lower prices rather than consumer demand drove the jump. Globally, market prices momentarily surged as importers restocked their supplies at reasonable costs. This synthetic surge covered the underlying poor consumer demand, suggesting that the price rise did not reflect a steady increase in dairy consumption.

Navigating Market Turbulence: Global Dairy Faces Demand Challenges and Supply Surpluses in Q2 2024

RegionQ1 2024 Demand (in million tons)Q2 2024 Demand (in million tons)Quarter-over-Quarter Change (%)
North America12.312.1-1.6%
Europe17.517.3-1.1%
Asia21.020.6-1.9%
Latin America9.59.3-2.1%
Africa6.76.6-1.5%
Oceania2.82.80%

Q2 2024 presented interesting difficulties for the worldwide dairy industry. Along with rising milk output in China, a significant market participant, weak global demand resulted in lower dairy imports from China and downward pressure on world pricing. This scenario underlined the complicated dynamics of declining consumer confidence and increasing local production, therefore tempering prior predictions of a continuous price rebound. The market is now in a phase of cautiousness and adjustment.

China’s Growing Self-Sufficiency: A Stark Contrast in Global Dairy Production Forecasts 

YearMilk Production (Million Metric Tons)Growth Rate (%)
201931.94.5
202033.03.4
202134.85.3
202236.54.9
202338.04.1
2024 (Forecast)39.23.2

China’s role in the global dairy market is becoming increasingly significant. The country’s milk output projection for 2024 has been raised, indicating a substantial increase in China’s output. This shift is altering the dynamics of dairy imports worldwide. In contrast, other major dairy-producing countries such as the U.S. and the E.U. are expecting only a slight rise in milk production. Senior dairy economist Michael Harvey points out that this disparity underscores the challenges global exporters face in adjusting to China’s rising self-sufficiency and the delayed recovery in other regions.

Consistent Gains Amidst Uncertainty: Analyzing the 3.3% Rise in Dairy Prices at the GDT Auction

CommodityPrice (US$ per tonne)% Change
Skim Milk Powder2,6293.5%
Anhydrous Milk Fat7,3653.5%
Butter6,9315.1%
Whole Milk Powder3,4082.9%
Cheddar4,239No Change

The GDT auction on May 22 revealed a significant trend in world dairy markets. The latest 3.3% increase in dairy prices to US$3861 per tonne marked the tenth gain out of the last twelve auctions, indicating strong performance in many dairy industries. These consistent increases in prices suggest a robust demand, even in uncertain markets.

China’s Reentry Boosts Global Dairy Markets: Prices Soar 10% Above Long-Term Averages

Reversing their early May retreat, Chinese bidders returning to the most recent auction have lifted prices over 10% above long-term norms. Chief Economist of Westpac NZ Kelly Eckhold points out that this comeback might improve their milk price projection for the 2024–25 season to be NZ$8.40 (US$5.14). China’s increasing demand helps to justify a positive view of world dairy pricing despite continuous difficulties.

Diverse Commodity Movements: Skim Milk Powder and Anhydrous Milk Fat Lead Price Increments while Cheddar Stays Static

Prices for skim milk powder and anhydrous milk fat increased by 3.5% to US$2,629 and US$7,365 per tonne, respectively. Butter climbed 5.1% to US$6,931 per tonne. Rising by 2.9%, whole milk powder brought US$3,408 per tonne. At US$4,239 per tonne, Cheddar stayed the same.

U.S. Dairy’s Persistent Production Woes: Navigating the Multifaceted Decline Amidst Deflationary Pressures

StateChange in Milk Production (YOY)
California+0.2%
Wisconsin+2.5%
South Dakota+12.3%
New York0%
Idaho-0.1%

Reflecting a disturbing pattern, April represented the tenth straight month of decreased U.S. milk output. One crucial component is a more miniature dairy herd—74,000 fewer cows than last year—that results in 9.34 million total. Though each cow produces more, general output has fallen. Constant dairy deflation has further complicated the economic environment for farmers by inhibiting growth and investment. Regional differences are also apparent; California experienced more yields per cow but had fewer cows. These elements imply that stabilizing the U.S. dairy sector might still be difficult.

The U.S. Dairy Sector Battles Persistent Deflation: CPI Slips 1.3% in April Reflecting Ongoing Market Challenges

MonthU.S. Dairy CPI Change
January-0.5%
February-0.7%
March-1.0%
April-1.3%

April’s U.S. dairy CPI dropped 1.3% year-on-year, eight consecutive months of deflation. This steady drop emphasizes the difficulties still facing the market.

Regional Disparities in U.S. Milk Production: A Complex Landscape of Growth and Stagnation

The geographical differences in U.S. milk output provide a mixed picture. Wisconsin and South Dakota have shown outstanding performance, with respective year-on-year growth of 2.5% and 12.3%. On the other hand, California has experienced a 9,000 cow drop but still saw a modest 0.2% increase in productivity, marking its second month of gain. While Idaho had a small drop of 0.1%, New York’s output has stalled, exhibiting no year-on-year variation. These differences draw attention to the complex dynamics of the American dairy industry, where areas experiencing expansion also face difficulties.

European Dairy Landscape: Gearing Up for a Resilient Market Amidst Global Uncertainties 

MonthPrice (€/100 kg)
January45.90
February46.05
March46.33
April46.31

In April, the preliminary E.U. average farmgate milk price dropped 0.2% to €46.31 per 100 kg. Rabobank is still optimistic despite this downturn; led by sustained increases, more significant fat and protein composition, and more premiums, prices might reach €50 per 100 kg. Reflecting a solid market amid worldwide uncertainty, Rabobank predicts the 2024 E.U. farmgate basic milk prices to average about €47.5 per 100 kg.

The Bottom Line

Despite the challenges, the global dairy industry is demonstrating resilience. The industry is grappling with declining demand and rising milk output in China, which is hindering price recovery. Additional hurdles include subdued consumer confidence and cautious shopping after a restocking phase. However, Rabobank maintains a cautiously hopeful view. It anticipates that lower feed prices and consistent output in key areas by year-end will bolster the market. While recovery might be erratic and delayed, the long-term market dynamics indicate a steady improvement, instilling optimism in stakeholders.

Key Takeaways:

The global dairy market is experiencing a more gradual price recovery than initially expected, influenced by factors such as fluctuating global demand and China’s changing import needs. Rabobank’s latest report provides an in-depth analysis of the current landscape and future projections. Here are the key takeaways: 

  • Global dairy prices surged in late 2023 and early 2024 due to importers’ restocking rather than a robust consumer demand.
  • Weaker global demand and increased domestic milk production in China have tempered expectations for a steady price increase through 2024.
  • China has revised its milk production forecast upwards, contrasting with modest growth anticipated in other major dairy-producing regions for Q3 2024.
  • Dairy prices at the Global Dairy Trade (GDT) auction rose by 3.3% to US$3861 per tonne on May 22, marking the 10th increase in the last 12 auctions.
  • US April milk production fell by 0.4% year-on-year, and the consumer price index (CPI) for dairy and related products decreased by 1.3% year-on-year in April, continuing an eight-month deflation trend.
  • European farmgate milk prices fell slightly to €46.31 per 100 kg in April, with Rabobank projecting stable to incremental gains throughout the year.

Summary:

The Rabobank Q2 Global Dairy Report suggests a slower-than-expected price recovery in the global dairy market due to lower worldwide demand and increasing local milk output in China. The initial surge in global dairy prices in late 2023 and early 2024 was primarily due to importers restocking at lower prices, rather than increased consumer demand. China’s growing self-sufficiency in the global dairy market is causing a significant shift in dairy import dynamics, with its milk output projection for 2024 raising significantly. Meanwhile, major dairy-producing countries like the U.S. and the E.U. are expecting only a slight rise in milk production. The GDT auction on May 22 revealed a 3.3% increase in dairy prices to US$3861 per tonne, with Chinese bidders lifting prices over 10% above long-term norms. The U.S. dairy sector faces persistent production woes, with April representing the tenth straight month of decreased milk output. The European dairy landscape is gearing up for a resilient market amid global uncertainties, with Rabobank predicting lower feed prices and consistent output in key areas by year-end.

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