Farm to Table: Mapping the Dairy Landscape until 2032

Dairy products are an essential part of the global food industry, providing nutrition, taste, and versatility to people across the world. As we look ahead to the future, it's crucial to understand the projected trends, challenges, and opportunities in the world dairy markets. Factors such as population growth, changing dietary preferences, sustainability concerns, and technological advancements are shaping the dairy industry's landscape.

Income and population growth are the two main factors contributing to the increase in consumption of dairy products in the next decade, especially in countries such as India, Pakistan, and African countries. Based on the historical trend, the relatively low- and middle-income countries are known to have more demand for fresh and semi processed (pasteurized and fermented) dairy products whereas high income countries have processed dairy products contributing to the average per capita consumption. Overall, the per capita consumption of milk and milk products is projected to grow at 0.8% per annum in the coming decade whereas the per capita consumption for fresh dairy products is expected to grow at more than 1% owing to the major chunk of demand coming from India and Pakistan.

Under processed dairy foods, cheese will remain the one of the largest consumed products with majority of demand coming from Europe and North America and will also see a sharp rise in demand coming from non-traditional markets such as Southeast Asian countries. The large-scale urbanization, increase in disposable income in these countries will positively impact the demand for cheese. On the other hand, Butter will also be gradually seen in a positive light in consumer perception in the coming decade, contrary to the earlier messaging.

From the production perspective, world milk production is projected to grow at 1.5% per annum, faster than other agricultural commodities. India will continue to dominate the dairy landscape by being the largest producer of milk in the world, and along with Pakistan is estimated to contribute to 32% of world milk production by 2032. Whereas on the other part of the globe, milk production in the European union is anticipated to decline in the next 10 years, due to decreasing population growth, consumer transition to plant based dairy alternatives, evolving preference for organic products and more sustainable methods of agriculture. North America that currently has some of the highest average yields per animal will grow strongly in the next decade with production growth stemming from further yield growth. One of the most export-oriented countries - New Zealand is experiencing stagnation in milk production after expanding strongly in the past 20 years. In the coming decade it is projected to grow at 0.4% per annum with land availability and increasing environmental restrictions being the main constraining factors.

Globally, the increasing milk production would be attributed to two factors - growth in milk producing animals in major milk producing nations such as India and Pakistan; and strong growth in the yield per animal in Southeast Asian countries. Nevertheless, the growth in yield will be much stronger than the overall herd growth in most countries, due to optimized milk production systems, improved animal health, feed efficiencies and improved genetics. Over the projection period, Africa will account for one-third of the world's herd population and will increasingly contribute to 6% of the world milk production.

With respect to the global trade, dairy commodity prices reached record highs in 2022 owing to the peaking energy and feed costs. The Russia Ukraine war has significantly heightened the uncertainty of energy and input costs worldwide.

In India also milk prices have been softening previously and expected to remain stable in coming six months. For example, Raw cow milk prices, after peaking at Rs. 42 per litre in third quarter of previous year 2022- 23, have come down to Rs. 34.5 per litre by 1st quarter of current fiscal year. Due to moderation in peak temperature of summer and intermittent rain, production of raw milk has been robust. Though moderation in raw milk prices is a positive sign for the industry as well as consumer, however in case of commodities the impact is slightly different. The year 2022 started with lots of hopes for a booming market for dairy commodities due to shortage of the commodities. The global markets were also bullish with elevated commodity prices. There was an attractive margin in exports in both SMP and Butter. The situation began to change from the third quarter onwards when the global prices started moving downward. By that time commodity prices in India started fetching good prices. The commodity prices in India were reaching new heights due to shortage of milk in the flush-season of fourth quarter of 2022. The same sentiment remained in the first quarter of 2023 also. However, by the fag end of first quarter in 2023 the momentum of commodity prices got slowed down. Interestingly the milk supplies across the nation started to improve from first quarter of 2023 onwards which is happening till date. The processors tend to pay good prices to the farmers when the business is good. They bought milk up to Rs. 42 per kg landed at their plant. The situation changed from second quarter of 2023 onwards. Due to the erratic weather, huge stocks of dairy commodities got built up. Cooler weather during summer season did not show growth in value-added milk products such as Dahi, Buttermilk, Milk Beverages, and Ice-cream, especially in the northern and western part of India.

Processed dairy products are majorly traded in the international markets and among all the commodities, butter is projected to show maximum growth till 2032. Since 2015, the international prices of Butter have been higher than SMP. While the overall prices of both Butter and SMP will see a marginal decline in the coming decade, the gap between their prices will remain the defining feature for the next decade.

World dairy trade is projected to expand in the projection period to reach 14.2 MMT by 2032, 11% higher than the base period. USA, EU and New Zealand would be the primary exporters of cheese, WMP, Butter and SMP across the globe. China on the other end of the spectrum would continue to remain the world's largest dairy importer with 21% share in the global dairy imports by 2032. Consumption will grow faster than production in African and Southeast Asian countries leading to increased imports of milk powders.

The world dairy markets are poised for significant growth and transformation in the coming years. Meeting the rising global demand, adapting to changing dietary preferences, addressing sustainability concerns, harnessing technological advancements, and navigating trade dynamics will be key to success. Dairy industry stakeholders must stay agile, investing in research and development, innovation, and sustainable practices to remain competitive in a rapidly evolving landscape. By embracing these projections and challenges, the dairy industry can capitalize on the numerous opportunities that lie ahead while meeting the diverse needs and preferences of consumers worldwide.