6 March 2007
The tsunami of Latin American milk powder that the global dairy industry has been anticipating will not flood Australia's key export markets in the short to medium term, Rabobank visiting expert, Osvaldo Cappellini told the Australian Dairy Conference last week.
Mr Cappellini, president of the Centro de la Industria Lechera (CIL), the industry body for Argentina's dairy processors, and president of the Global Dairy Alliance, discussed the rise of dairying in Latin America in front of more than 200 delegates at the Shepparton-based conference, telling the audience that despite rapid growth over the last ten years several factors would limit Latin America's growth potential over the short to medium term.
"The dairy industry is developing quickly in many parts of Latin America; production growth has been strong and this has seen countries in this region turn from net importers to net exporters over the last decade, with Argentina and Brazil in particular sending increased volumes onto the global market in recent years," Mr Cappellini said noting that Argentina had gone from exporting 1.1 billion litres of milk equivalents in 1996 to 2.7 billion litres in 2006.
The drivers of such rapid growth include the availability of arable land, feed grains and low cost labour in addition to the devaluation of several currencies in the region early in the current decade, which improved cost competitiveness, according to Mr Cappellini, who is also the Director of Corporate Affairs at Mastellone Hermanos (MH), Argentina's second largest dairy processor.
"Certainly in the long-term potentially we may compete with Australia for the same market at the same time," Mr Cappellini told the audience.
However, fears that the world faces an imminent surge of dairy exports from the region are likely to prove unfounded, at least in the short term Mr Cappellini said.
"Production growth has slowed for the time being as farmers reduce feed rates, and some dairy land is shifted to crop production, in response to rising grain prices. Dairy productivity is highly dependent on grain prices," Mr Cappellini said.
In addition to these factors, Mr Cappellini noted that the continued rise in Latin American consumption is likely to soak up much of any increased production in the short term, which will further absorb any threat of competition in Australia's key export markets.
Tim Hunt, senior Rabobank diary analyst, accompanied Mr Cappellini to the conference, hosting the Tuesday morning 'Perspectives' session.
Following Mr Cappellini's presentation, Mr Hunt said that despite the lack of immediate threat, developments in Latin America will be highly relevant to the Australian dairy industry in coming years.
"The extent to which growth in Argentina and Brazil in particular sees surplus production spilling onto the global market will impact our ability to place our products onto export markets and the price we can obtain for those products. That in turn will have a significant influence on farmgate prices and the growth prospects of our industry," he said.
"The picture of modest export growth Mr Cappellini has painted is reassuring for Australia. However, longer term growth in Latin America is still likely to force our industry to focus on higher value-added products to avoid head to head competition with these players where they do export."
Mr Cappellini was in Australia as part of Rabobank's Visiting Experts Program, which brings some of the world's leading food and agribusiness specialists to Australia to share their knowledge with communities in rural and regional locations across the country.
Rabobank Australia is a part of the international Rabobank Group, the world's leading specialist in food and agribusiness banking. Rabobank has more than 100 years' experience providing customised banking and finance solutions to businesses involved in all aspects of food and agribusiness. Rabobank has a AAA credit rating and, in recent years, has twice been awarded the title of the world's safest bank by Global Finance magazine. Rabobank operates in 38 countries, servicing the needs of more than nine million clients worldwide through a network of more than 1500 offices and branches. Rabobank Australia is one of Australia's leading rural lenders and a significant provider of business and corporate banking and financial services to the Australian food and agribusiness sector. The bank has 46 branches throughout Australia.
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