Milk and Milk Products Handbook: Commodities and Export Projections Division Economic Analysis and Projections Department

A
Milk and MIlk Products

Handbook
Commoditiesand ExportProjectionsDivision
EconomicAnalysisand ProjectionsDepartment
.
February1982
rECHNICALCONVERSIONFACTORS
Fat Content Butter Yield of Cheese Yield of Powdered Whc'

Countries of Cow Milk Cow Milk /a Cow Milk Ia Milk Yield /a
of Cow 4ilk
…--------------------…----(percent)--------------------------
IndustrializedCountries
Australia 3.7 4.67 9.68 11.4
Canada 3.5 4-2, 9.1 12.5
Denmark 4.2 5.0 12.0 -
France 3.8 - - -
Germany, F.R. 3.78 4.4 8.3 - 10.0 13.0
Netherlands 3.84 4.0 10.5 11.36
aiewZealand 4.7 5.5 11.2 -
Sweden 3.95 4.72 13.9 -
uS 3.73 4.5 11.5 12.1
DevelopingCountries
Argentina 3.4 3.8 8.0 - 12.0 11.9
Brazil 3.5 - 7.0 4.6 10.0 12.5
Colombia 3.0 - 3.25 - - -
Ethiopia 4.0 -
Tndia 4.84 14.5 - -
. Kenya
Mexlco
Nigeria
3.6
4.3
6.0
3.2
_
9.7
_
12.0
Pakistan 3.0 - 5.0 -

Tanzania 4.5 5.0 10.0
Turkey - 3.7 18.0 - 33.0
Yugoslavia 3.6 3.4
CentrallyPlanned Economies
Poland 3.26 3.9 9.0 11.4
Romania 3.5 4.2 19.2 -
/a The yield may also be expressed in terms of the quantity of cow milk required to
produce one unit of butter, cheese or milk powder.
Swirce: FAO Technical Cor.version

Factors for AgriclturaiCommodities,Rome, 1972.
February 1982
TABLE OF CONTENTS
Chapter Page
I. TNTRODUCTION .....................
II. THE PRODUCT ............... , I-1
A. Characteristics of Mi'k and Milk Products II1....
B. Imitation Milk and Synthetic Milk Products II-4
C. Milk Handling Processing and Marketing. II-5
III. PRODUCTION.... III-1
A. Geographical Distribution of Production.o III-1

B. Milk Yields . ....... 111-9
III..
C. Supply Responsespos... III-11

IV. CONSUMPTION.... .. IV-1
A. Changes in Composition and Geographical Distribution.. IV-1

B. Price and Income Demand Elasticities ...... IV-6
V. INTERNATIONAL TRAE ..... V-l
A. Imports and Exports . . ..................... v-1
B. International Arrangements .... V-

C. Government Intervention. . .. V-10
D. International Price... V-12
REFERENCES ......... .. .. VI-l

. List of Tables Page No.
III-Al Fresh Milk Production- Cow, Buffalo, Sheep and Goat....... ITI-2
11I-A2 Dry Milk Production......................................
.........
*... IP,-3
III-A3 Skim Milk Powder (NFDM) Productiond
r....... .. .....
d. ... .... . I-4
III-A4 Evaporatedand CondensedMilk Production. ...... c. tio.. 111-5
III-A. Butter and Ghee roduction............
.. .........
# III-6
III-A6 Cheese (All s) Production ......... III-'7
III-Bl Whole FreshMic. Yields................... III-lO
III-Cl Supply Price Elasticitiesfor Dairy Products in
Industrialized Countries .............................. III-12
IV-Al Skim Milk Powder Consumptionand Consumptionper Head IV-3
IV-A2 Butter Consumptionand Consumptionper Head................ IV-4
IV-A3 Cheese Consumptionand Consumptionper Head................ IV-5
IT-Bl Estimated Elasticities of Demand for Fluid Milk in Various
Countries .. I .......... IV-7
IV-B2 Demand Elasticities for Dairy Products in Industrialized
Countries........ IV-8
IV-B3 Expenditure Elasticities for Milk and Milk Products in
Developing Countries........ IV-9
V-Al Fresh Milk Exports by Country and Region......... V-3
V-A2 Butter Exports by Country and Regions........ V-4
V-A3 Cheese and Curd Exports by Country and Region........ V-5
V-A4 Fresh Milk Imports by Country and Region ..... ... V-6
V-A5 Dry Milk Imports by Countrv and Region......... V-7
V-A6 Cheese Imports by Country and Region......... V-8
V-A7 Butter Imports by Country and Region . . V-9
V-Dl Export Unit Values for Dairy Products . . V-14
Figure V-Dl Export Unit Values for Non-Fat Dry Milk,

Butter and Cheese........ V-15
VabruaryitS?2
INTRODUCTION
The internationalmarket for dairy products has been undergoing a

considerable process of structural change which has accentuated the Inherent
instability stemming from its residual nature. Since only a small proportion
of total world dairy production enters internationaltrade (about 3 or 4
percent), relatively small changes In output can have a dramatic effect on
trade flows and prices. This instabilityhas been compoundedby the policies
adopted by some major producing and trading countries to protect their
domestic industries.Price support schemes, stockpiling,export subsidies,and
import restrictions aimed at insulating producers from the effects of the
opera-ion of market forces continue to distort and destabilizeworld trade in
dairy products.
In the post-war period the international dairy market has been
characterizedby periodic surpluses.Up to the mid-1960s the US was the major
cause of these surpluses, which resulted from its price support policies.
Since then the EC has been the major source of surpluses.The US has continued
'Itsdairy price support policies, with government purchases into stocks and
import constraints continuing to be the main instruments used to prop up
prices. However, its activity on the internationalmarket has been largely
confined to getting rid of these surpluses at concessionalprices in Central
and South American countries; although the impact of this form of aid has
worldwide consequences.Mexico has been the largest customer for the major
dairy products put into public storage in the US--butterand dried mnilkpow-
der. The dairy policieswhich will be pursued by the present US administration
are an important unknown at this stage. If, as seems possible, dairy price
support is considerably reduced, this could mean mor, scope for market-
oriented production and trade in developing countries. Such scope would be
enhanced, if, as also is likely if the US moves in a free-trade direction
itself, it negotiateswitn the EC to follow a similar path in respect of its
dairy policies.
The EC, whos2 present member countries had been the world's largest
import area ip to the 1960s, has become by far the biggest exporter of milk
productswith about 40 percent of total world trade. Developingcountries have
virtually ceased to export dairy products.
_ Dairy production in the EC continues to expand despite measures
introduced in 1977 aimed at restrainingproductionand encouraginga shift of
resourcesout of the industry. Cow numbers are not growing but yield increases
of about 50 kg per cow per year are being realized. Reductions in support
price levels in real terms offer the only long-termsolution to the problem of
surplus dairy productionwithin the EC. However, the political problems to be
overcome tn achieve this goal are formidable.
The OPEC group of countries provide the most rapidly growing export
market for dairy products. It is estimated that in 1980 OPEC imports of milk
products accounted for about one-fifth of world imports. Cheese is probably
the most Important dairy export to this gr.oupof countries,and Saudi Arabia
and Venezuelaare among the most rapidly growing of these markets.
The most important dairy products traded on world markets are skim
milk pow:derand butter. These two products account for over half of the total
value of world dairy trade. The remainder is principallymade up by condensed
milk, whole milk powder and cheese.
Consumption patterns within countries have also changed considerably
in recent decades. Butter consumption in most of the Industrializedeconomies
has been declining, while consumption of cheese, whole milk powder and the
milk protein products (skimmed milk powder and casein) has generally been
growing. These changes in large part reflect dietary concern about the con-
sumption of animal fats and the relative cheapening of vegetable fats and
( is. In the case of whole milk powder and skimmed milk powder the bulk of the
increase in demand is coming from the developing rather than the indus-
trialized countries. Convenience, in countries where the availability of
refrigerationis low, and cost are important factors affecting this market in
developing countries. Milk powders are available on the internationalmarket
at relatively low prices, and the skimmed milk powders can be reconstituted
with milk fat, or with vegetable fats which are often readily available and
inexpensive in developing countries, thus providing a relatively cheap food
item.
In line with the changing pattern of demand there have been corres-
ponding changes in price relativitiesbetween the major products. In general,
the price relativitieshave moved in favor of cheese, whole milk powder and
the milk protein productsand against butter and butterfat products.
FeDruary 1982 II-
II. THE PRODUCT
W A. Characteristicsof Milk and Milk Products
Fluid milk from cows forms a very important part of human diets
throughout the world, except in those regions or countries where the popula-
tion has an intoleranceof milk, e.g. China, or where social custom constrains
the use of milk, e.g. parts of Africa. Besides its use for fluid milk con-
sumption, milk is also valued for the consumptinn and Industrialuse of nilk
products which are derived from the various comopeats of milk. Worldwide,
about 11-12 percent of total mllk suppliesare from animal species other than
cattle (water buffalo 5.6 percent, sheep and goats 3.5 percent, and canls,
yaks and reindeer 1.6 percent). 1/
Milk is basically composed of water (87 percent), milk fat (4 per-
cent) and non-fat solids (9 percent). These ratios would apply to milk testing
at 4 percent butterfat. The butterfat content of milk may be 'iigheror lower
than 4 perceint,
depending in large part on the breed of dairy cow being milked
and/or the level of nutritionof the animal. The solids-not-fatcomponentalso
varies with the diet of the animal.
The milk fat is separated from the fluid milk in the form of cream.
This separation may be cart ed out atther on the farm or in the factory. The
major forms of consumptionof milk fat are butter, fresh or sour cream and ice
cream. When milk is separated on the farm, the skim milk (the residue after
removal of the cream) is used as a feed for young cattle, pigs or poultry.
With this form of utilization the solids-not-fat,which is contained in the
skim milk, is unavailable for direct human use. However, with the growing
demand for dairy products based on solids-not-fats,farmers have moved from
selling cream to selling whole milk. Butter (or cream) and nonfat dry milk
solids (roller or spray dried) then become joint products within the dairy
factory.
Nonfat dry milk has been an increasingly important use of milk-
solids-not-fat.As well as direct household consumption, it has many indus-
trial processed food uses such as in bakery, confectionaryand processedmeat
products.
* 1/ R.E. McDowell, "State of the Dairy Induetry in Warm Climates of Less

Developed Countries",paper presented at InternationalConferenceon Human
Lactation: A Workshop, The New York Academy of Sciences, New York, March
2-4, 1977.
February 19*2 11-2
Milk can be internattonally tra4ed either i* 4r, .wvpoVA. -oxr C46-

densed whole milk form or as dry skimmed milk powder (NFDM).These whole milk
pruductsmay be reconstitutedto fluid milk by mixing with water. Skimmedmilk
powder is reconstitutedby mixing with butteroil (anhydrousmilk fat) or vege-
table fats and water to obtain a mixture of about 3.5 to 4 percent fat and 9
percent non-fat-solids. Well-reconstitutedmilk is said to be practically
indiatinguishablefrom fresh milk. However, to overcome consumer resistance
wher.the reconstitutedmilk may not be entirely comparable it is mixed with
fresh milk.
Fresh milk is highly perishable,bulky, and easily contaminated(it
is a favorable medium for bacterial growth). Because it is so susceptibleto
contaminationand adulteration(with water), fluid milk production,treatment
and distribution Is widely subject to controls. To deter spoilage and
contamination from human disease organisms, fluid milk is generally either
processed 1/ by heat treatment ('pasteurization')and/or Thomogen'zation or
ultra-heat-treated (UHT). UHT milk, which has been available in.some countries
since the mid-1960s, does not require refrigeration,and has a long shelf
life. It has overcome many of the diFadvantagesof ordinary pasteurizedmilk
with regard to keeping quality. Homogenizationprevents fat separationand is
achieved by mechanicallybreaking up the fat globules so that they do not rise
to the surface to form a cream layer. This is done by forcing heated milk
through a small orifice at high pressure.
In rural areas of industrializedcountries, where raw milk marketing
has virtually disappeared,UHT milk is now often the only type of liquid milk
available to consumers. UHT milk has been introducedespecially successfully
in the warmer countries of southern Europe. In Italy, the proportionof UHT
milk to total liquid milk sales rose from 20 percent in 1970 to 45 percent in
1975. In Switzerlandand the Federal Republic of Germany the share of UHT milk
increased to 35 and 38 percent, respectively,by 1975. For western Germany
this meant an expansion of UHT milk sales from less than 100,000 tons in 1970
to close to 900,000 tons in 1975. However, in countries such as the United
Kingdom, the US and New Zealand, UHT milk has hitherto been unimportant.
1/ The treatment of milk for the liquid market is termed 'processing';pro-

cessing of milk into other dairy products, including cream, is termed
manufacture'.
February 1982 Il-3
"Toning" is the addition of reconstituted skim milk to locally

produced milk, in order to reduce its fat content to a predeterminedstandard
(usually 1-2%). Developed in India, toned milk is important in developing
countries where local breeds give milk of a high fat content (zebu up to 6.5%,
buiffalo7-11%). In this way the local milk supply can be supplementedwith
cheap supplies of dried milk. It is desirable to subject the reconstituted
milk to heat treatment,especiallywhere there is a concern about the quality
of the water supply.
Fluid milk is a very importantdrink in economic terms. As a beverage
it is in competition with tea, coffee, cocoa, fruit juices and soft drinks.
Milk is also consideredto be highly important to a communi;y because of its
nutritive role in the diet of infants. However, dietary concern over the
impact of the connumption of animal fats in high-income communities has been
partly responsible for a consistent reduction in per capita consumption of all
forms of milk fat dairy products in such communities in tilepost-WorldWar II
period. Consequently,consumption of liquid milk in skimmed or semi-skimmed
form has become increasing'.y
po?,ular.
Milk products are numerous and perform a variety of roles in h=n-
0 diets. Consider the forms of consumption of such milk products as butter,
cheese, cream, voghurts, casein and ice cream.
Yoghurt is a product obtained by fermenting milk with acidic sub-
stances. Two types of yoghurt are normally distinguished,natural yoghurt and
prepared yoghurt, which usually includes fruit. However, there are several
other types of soured and fermentedmilk products which are similar to yoghurt
(e.g. kefir from the Caucasus, ymer from Denmari and taette from Norway). As a
result of the short life of fresh milk pro. ~s, international trade in
yoghurt is relatively small; most traie is confined within the European
countries.
W4ithin the EC the major exporters of yoghurt are France and Germany,
F.R. Of other Western European countries, Austria and Switzerland are also
prominent exporters. Consumptionof yoghurt and other cultured milk products
has risen stead!ly in recent years, with the largest gains being in the fruit
yogihurt market. The Netherlands has the highest per capita consumptioll at
about 16 kg per head per annum.
Lactose, sometimes called milk sugar, is extracted from whey, a hy-
of cheese manufacturing. Lactose makes up an average of 4.7
,:oduict percent of
fluid whole cow's milk. It is the most abundant nutrient of cow's milk,
February 1982 II-4
accounting for about 40 percent of total milk solids, with fats -nd protein
each representingabout 30 percent. While producing a pleasantly sweet milk
taste of its own, lactose has been found to enhance the natural flavor of
other foods.
Casein is a protein of milk, which is precipitatedfrom the skimmed
milk by heating with an acid or by the action of lactic acid in souring.
Casein Is the chief constituentof cheese. However, it is also produced hide-
pendently and is used for both industrialand nutritional purposes. In indus-
try it is used in making paints, adhesives and plastics. Its main use in
foodstuffsis as a cheap substitutefor cheese in pizzas. In the US, the major
importerof casein, its nutritionaluse now dominates its industrialuse.
B. ImitationMilk and SyntheticMilk Products
Substitutes for liquid milk are generally of two types: (a) those
containing one or more milk components, i.e. "filled" milk, in which nonfat
milk solids--either liquid or reconstituted skim-milk--are recombined with
vegetable fat; and (b) "synthetic"milk, in which no milk component is used.
The non-milk products are a combination of vegetable fats or oils,
particularly coconut oil, maize syrup solids, emulsifiersand vegetable pro-
tein (mostly soybean protein). Syntheticsmay contain sodium caseinate as the
main protein source, which is derived from casein, but they are not regarded
as dairy products. Imitation milks contain lower levels of minerals (espe-
cially phosphorous and calcium) and protein than normal or "filled" milk.
Imitation milks are therefore not usually nutritionallysuitable for infants
or children._/
Substitutes for milk products are common and include the following:
non-butter-fat-basedwhipped topping as a substitute for whipping cream;
coffee whiteners derived from vegetable fats; mellorine, a frozen product
based on vegetable fats and skim milk powder, which is a competitor of ice
cream; and artificialsour cream.
The factors which seem most important in accounting for the increas-
.ag use of these dairy substitutes are price, convenience and concerns about
health. "Filled"milk may be up to half the price of fluid milk of 3.5 percent
butterfat content. The difference is accounted for by the differing costs of
1/ S.K. Kon, Milk and Milk Products in Human Nutrition, FAO Nutrition.l
Studies, No. 27, FAO, Rome, 1972.
.
February 1982 II-5
butterfatand vegetable fats. The substitutionof vegetable fats for milk fats
in dairy products is particularlyattractiveto developingcountries.Use can
be made of the subsidizedskim miWK powder available on the world market to
six with often abundant, locally producedvegetable fats.
Substitute milk products are said to have greater flavor stability
and keeping quality and hence longer storage life. This factor receives con-
siderationwhen refrigeratedstorage facilitiesare unavailableor in tropical
climates where refrigerated storage facilities are prohibLtively expensive.
The alleged association between animal fats intake and heart and
other disease has obviously accounted for part of the expansion of vegetable
oil-based products.
C. Milk Handling, Processingand Marketing
According to FAQ estima-ces,Ln the developing countries on average
less than a fifth of total milk productionwas industriallypro vssed around
the mid-1970s, tl';ugh the proportion was well above this average in South
America. Rural manufacture of less perishable milk products, such as butter,
ghee, cheese, fermented end semi-condensed milk is of great importance in many
developing countries but most of the milk in these countries is still consumed
unprocessed or little processed (e.g. fermented) in producer households or
distributed to consumers in areas rather close to the place of product'on. By
contrast, in the most advanced industrialized countries the proportion of milk
industrially processed rose from about 75 percent to well over 90 percent
during the last two decades, while in most East European countries and the
USSR this proportion increased- to 50-70 nercent by the first half of the
1970s. In the northern parts of Europe, in North America and Australasia,
rural nmanufacture of milk products had become insignificant by the 1970s and
so had retail marketing of fresh milk by producers. At the same time, the
trend towards fewer and larger dairy units, with a growing stnare of milk
p.oduced in specialized dairy farms, rather than mixed holdings, has reduced
farm home consumption of fresh milk in high-income countries.
In the industrialized countries, but also in the more advanced
developing countries, the proportion of milk marketed through industrial milk
plants has grown steadily. In the majority of developing countries the market-
ing of locally produced milk is mainly through private middlemen.
Characteristics of Industrialized Ccuntries
Collection and processing of milk in industrialized cotuntrieshas, to
a large extent, traditionally been organized by producer cooperatives. In nor-
February 1982 II-S
thern Europe, North America and New Ze''ind the bulk of milk collection is in
the hand? of cooperativesor is supervis3dby organizationsrepresentingpro-
ducers. Cooperativesalso process the bulk of commercial milk production in
New Zealand and in most northern European countries, except .n the United
Kingdom. In that country and in the UlnitedStates, a sizable portior of milk
collected by cooperativesis sold to non-cooperativemilk processing plants,
with collection cooperativesacting as bargaining agents for the farmers in
the sales of milk to private plants. In some countries the cooperatives'
marketing power has increased to an extent that the issue of maintaining a
competitivemarketing environmenthas been raised.
In most industrializedcountries the trend haq been from milk collec-
tion in cans towards collection in bulk by roadtankers with every-other-day
collection gaining importance. This change has gone hand ir.hand with the
rapid installationof milk tan%s with cooling facilitieson dairy farms; the
trend to fewer and larger milk productionunits facilitatingthis development.
Not infrequently,dairy companies have pl3yed a role in the financingof farm
milk tanks. Most of the road tankers belong to the dairy companies, though
hired transportalso oLcurs. In the past, milk for liquid consumption,because
of its perishabilityand bulkiness used to be produced in reas relatively
near to a consumptioncenter. More recently improved roads, better refrigera-
tion, improved quality of raw and processed products, plus the increased use
OL single-servicecontainersand increased sales through stores, have expanded
the geographicarea over which the productionof milk marketed as pasteurized
liquid is economically feasl'ule.The introduction of sterilized and IMT
(ultra-heat-treated)milk for liquid constimptionhas further reduced -he
problems related to liquid milk marketing.Manufacturingof milk into products
such as butter. cheese, dried and condensed milk or casein, has traditionally
been done in more remote areas where milk prices are usually lower.
Like dairy farming, the milk processingsector has undergone dramatic
changes. The trend has been and will continue to be towards fewer and larger
milk plants. For instance, in the United States, the number of liquid milk
processingplants has declined by over three-fourthsto below 1,600 during the
last 25 years. In the Netherlands,the number of milk processing plants fell
from 580 in 1950 to 221 in 1975. With Dutch milk collection growing, the
average throughput per plant grew to over 40 million kg by 1975, as against 27
million kg in 1970, 16 million kg in 1965 and only 12 million kg in 1960. The
decline in the number of plants has been accompanled by a rapid merger
Februlary 1982 1I-7
process, resulting in the formation of a relatively small number of large

multiplant firms accounting for an important share of the total mark,t..Tn
this process,a large number of the less efficient and less favorablylocatedt
plants have been closed down, while at the same time new plants have been
built, especially for products for which demand is increasing. The remaining
plants hale often been substantiallyenlarged and modernized.
Distributionof milk and milk products has also undergone consider-
able change. Milk for liquid consumption had traditionallybeen delivered
mostly directly from milk plants to retailers, whereas the distribution of
manufactured milk products had been through wholesalers who often performed
such functions as grading, packaging, storing and transport to retailers.
However, in recent years more and more of the large processorshave been able
to perform this functionthemselves.Direct delivery by processorsof products
to chain stores and other large scale users has become increasinglycommon in
the most advanced industrializedcountries.
Dairy products retailing had traditionallybeen done by a large num-
ber of small specialized shops, often combined with door-to-door delivery.
But, under the competitive pressures from the supermarket chains, the number
of dairy shops has declined rapidly. Delivery to the consumer'sdoorstep also
decreased, though this system is still predominant in many countries,e.g. in
the United Kingdom and New Zealand. In the hope of reversing the downward
trend in milk and milk products consumption, dairy industriesof some coun-
tries have attempted to reactivatedoor-to-doordelivery in recent years, most
actively in Switzerland.
The increasing importanceof dairy sales in self-servicestores and
supermarketshas generated the need for various changes in the products and
product line offered by the processors. It has contributed to the demand for
the constant introductionof new products and packaging methods. The change
In packagingmethods is particularlytrue of milk for liquid consumption.For
example, in the Federal Republic of Germany, 75 percent of liquid milk was
retailed in bulk in 1955. By 1975 this percentage fell to 13 percent. To tht
packaging of liquid milk the glass bottle has been increasinglyreplaced hv
one-way carton containers or plastic sachets. Because it does not requI.r:
refrigerationand because of its longer shelf life, UHT milk is a much morf'
easily marketable product than ordinary pasteurized milk. It has rapidlv
gAiined importance,partly supplemenitinig
but mainly replacing pasteurizedmilk.
February 1982 II-8
For milk and milk products as a whole, the described trends in mar-
keting and consumption in industrialized countries imply that the milk
producers' share of consumer expediture de-lines as more processing takes
place and a growing number of services are added in the marketing channel.
However, for relatively simple products, such as liquid milk, the efforts to
rationalize processing and distributionhave resulted in the farmer's share
remaining remarkablyconstant at approximately50 percent during the last two
decades in most industrialized countries, with processing (including
collection and packaging) and distribution accounting for some 25 percent
each.
In eastern Europe and the USSR, there has been the same trend towards
larger production and processing units and diversificationof the supply of
milk and milk products. Industrieshave made great efforts to improve the qua-
lity, range and packaging of dairy products. Generally,however, average milk
plant size, diversificationand packaging methods have not yet reached the
same stage as in the most advanced western countries. For instance, in the
USSR the proportionof packaged liquid milk was still only 49 percent in 1975,
and the 5,400 milk plants had an average annual intake of merely 10 million
kg. While private milk production from small plots still accounts for a
sizable proportion of total milk production in many socialist countries,
production units in the collective and state sector have reached a consider-
able size. In the German DemocraticRepublic for instance, the 2,000 cow dairy
farm is now being aimed at. Large-scaleproductionand processing in the col-
lective and state sector has facilitated vertical integration of the dairy
industry. On the other hand, due to the absence ur the pressuresof competi-
tion, the efficiency of milk production and marketing still appears to be
lower than in western industrialcountries.
Characteristicsof DevelopingCountries
It is obviously more difficult to produce milk in tropical and b-
tropical environments than in humid temperate zones. For ecological reasons,
milk production at reasonable cost levels is precluded altogether in large
parts of the developing regions. Therefore, markets of these ccuntries will
continue to be supplied by imports.Although import prices have generally been
low, costs of marketing have so 'ar been high, partly reflectingthe linita-
tion of the market by consumption habits and, in particular,the low average
purchasing power. However, several of these countries belong to the group of
nations now benefiting by the increased petroleum prices. Incomes are rising
!ebruary 1982 II-9
for direct consumption or after processing by local recombining plants is

increasing correspondingly. The expansion of the market, together with
improved distribution facilities is resulting in a reduction of marketing
costs which may help to raise consumptlin levels further.Markets in the OPEC
member countries therefore sees to provide an increasing outlet for tradi-
tional and possibly new dairy products for exporting countries, though in a
number of these countries there is also some scope for the development of a
relatively high-cost local milk production, especially for liquid milk
consumption.
Traditionally in developing countries, milk which is surplus to
producers requirementshas been marketed by a network of marketeers, some-
times specializingin milk purchasingand in convertingmilk into simple milk
products. These traders usually make contracts with farmers, finance their
inputs in advance and often employ specialized collectors, who, besides
collecting milk or milk products (and sometimes even milking the cows) are
expected to do various services for the producer. Adulteration of milk is
still a common practice under this system and with growing urbanizationthe
problem has become more acute. Nonetheless,raw milk procurement and distri-
bution by pedlars, was in the past--and in many cases it is still at present--
an efficient way of marketing, using cheap labor and little capital and, with
consumers being accustomed to boiling the milk, the health risk was insigni-
ficant.
However, growing urbanization and demands for better quality milk
products is leading to more organized milk collection and industrial milk
processing. Further, a growing number of developing countries have attached
higher priority to dairy development in recent years, not only because of
balance of paymentsas well as nutritionalconsiderations,but also because of
the particularrole dairy developmentcan play in overall rural development.
The establishmentof organized milk marketing systems has been the
concern of the specialized UN agencies, initially mainly UNICEF and FAO, and
later on also the UN/FAO World Food Program (WFP). Initially, the projects
were directed mainly towards providingmilk for children and mothers in nutri-
tionallydeficient areas. Skim milk powder, imported as food aid, provided the
economic base for many of these projects, enabling them to develop the local
dairy industry and, at the same time, making cheap milk available to vulner-
able groups. In such dairy development projects, supported in particular by
the WFP, an important gap between local raw milk supplies and demand has been
February1982 11-10
bridged, in that milk powder and butter oil, obtained as food aid, a'. recom-
bined into liquid milk, possibly mixed with local milk, and sold on the
market.The sales proceedshave been investedin the developmentof domestic
milk productionand marketing.
Multilateral and bilateralassistanceto dairydevelopment
has mostly
been directedto governmentschemes.The recombiningindustry,using commer-
cially importedbutter oil and or milk powder, has generally been established
eitherby transnational
food companiesor Indirectlyby assistancefrom mar-
keting agenciesof exportingcountries,notably New Zealandand Australia,
which have done so with a view to creating new long-term outlets for their own
dairy industries. In some developing countries, such recombining plants have
also engaged in the developmentof local milk productionand collection.
0
February '982 III
III. IODC¶TTOW
A. GeographicalDistribution
Tables III-Al to I:I-A6 present production data for fresh milk and
milk pr^ducts by reglonal groupings and by country. The fastest rates of
growth among these products have taken place in the dry milk powyders--whole
milk powder (7.0%) and skilmed milk powder (5.3%). Whole milk powder has grown
from a relatively small base. The next fac;testin growth has been cheese
(2.7%).
The growth in milk powders is obviously closely related to the price
support policies in the EC as witnessed by the large production increases in
those countries. However, the increase in cheese productionhas probably been
largely stimulated by the growth in demand for cheese--cheesebeing the one
dairy product whose income elasticity in industrialcountrie is rather high
and not declining.
Butter and fresh milk production expansion has been very slow in
industrial countries--reflectingthe low price and income elasticities in
these countries,and the competition from cheapening substitutes.However, in
the developingcountries,production of these commoditiesseems to have grown
faster than the growth in population.
The CPEs have shown considerablegrowth in all areas of milk prcduc-
tion, but especiallyin milk powders and cheese.
Ecological conditions are generaliy more favorable for dairy farming
in the temperate zones than in the tropical and subtropical zones. However,
the concentrationof milk production in the industrial, temperate-zonecoun-
tries is biased upwards because of the agricultural policies pursued by the
major producing countries. The disparities within these countries between
prices for production and consumption have caused large surpluses which have
been subsidized into world markets and thus depressed producer prices in
developingcountries.
The industrialcountries,along with the centrally planned economies,
account for approximately80% of total milk production. Rapid rises in yields
have contributed to increasingproduction levels in the industrialcountries
while at the same time cow numbers have declined. Increases in the profitabi-
lity of concentratefeeding and their expanding use as well as the maintenance
of producer prices above free market levels have been the main factors behind
the rise in milk yields in the industrialcountries.For instance, in the ITS
the average milk yield per cow is now more than 5,000 kg, about double that oL
25 years ago.
Table I11-A1: FRESH MILK PRODUCTION - COW, BUFFALO, SHEEP AND GOAT
Growth Rate "

Country,'Region 1961 1965 1970 1971 1975 1978 1979 1961-79
----------------------- (million mt)-------- - - ~--(S

WORLD 347.8 369.5 398.5 400.6 429.2 456.6 459.8 1.8
Industrialized Countries 285.3 303.1 319.7 320.0 338.6 356.9 361.0 0.6
US
Canada
57.0 56.3 53.1 53.8 52.3 -5.2 T -6.017
8.3 8.3 8.3 7.9 7.8 7.4 7.1 -0.8
EC 86.6 90.5 93.5 93.4 99.8 107.0 109.4 0.0
Belgium/Luxembourg 3.9 3.8 4.0 3.8 3.9 4.0 4. T 0.1
Denmark 5.5 5.4 4.5 4.4 4.9 5.3 5.2 -0.4
France 24.7 27.7 28.3 28.7 30.9 32.0 33.1 1.3
Ireland 2.8 3.1 3.6 3.7 4.3 4.7 4.9 3.2
Netherlands 7.0 7.1 8.2 8.4 10.2 11.4 11.6 3.1
Germany 20.1 21.3 21.q 21.2 21.6 23.3 24.0 0.6
Other EC (Italy, UK) 22.6 22.1 23.0 23.2 24.0 26.3 26.6 0.9
Other Western Europe 15.3 15.6 14.5 14.4 14.8 15.4 16.0 0.3
Australia 6.3 7.1 7.8 7.5 6.7 5.6 5.8 -0.7
New Zealand 5.3 6.0 5.9 5.8 6.1 5.9 6.3 0.7
Other /a 13.7 15.3 19.8 19.8 22.5 25.2 25.9 3.1
Centrally Planned Economies 92.8 104.0 116.8 117.4 128.6 135.2 133.9 2.4
USSR 62.7 72.6 83.0 83.1 90.7 94.7 2.5
Eastern Europe 29.7 31.4 33.8 34.3 37.9 40.5 40.6 1.8
Developing Countries 62.5 66.4 78.8 80.6 90.6 99.7 98.8 2.8
Argentina 4.1 4.3 4.2 4.8 5.6 5.1 5.2 1.6
Brazil 5.3 6.9 7.4 7.4 10.0 12.1 10.7 4.2
Colombia 1.8 2.0 2.3 2.3 2.1 2.5 2.7 1.8
Mexico 2.5 2.5 4.1 4.3 5.2 6.7 6.5 6.1
India 20.4 19.7 22.0 23.0 24.0 25.0 25.0 1.5
Pakistan 3.8 4.2 8.4 8.7 9.6 10.0 10.0 6.1
Kenya 0.7 0.7 0.9 1.0 1.0 1.0 0.9 2.0
Tanzania 0.5 0.6 0.8 0.7 0.7 0.8 0.8 2.0
Ethiopia 0.5 0.5 0.6 0.7 0.7 0.8 0.8 2.2
/a Spain, Turkey, Portugal, Greece, Israel, Yugoslavia, Cyprus, Malta, Japan.
Source: FAO, Production Yearbook, various issues.
0 *0.
Table III-A2: DRY WHOLE MILK PRODUCTION
Growth Rate
Country/Region 1961 196f, 1970 1971 1975 197R 1979 1Q61-79
------ ___________----(-000 mt…)---------------

WORLD 450 692 966 1,053 1,234 1,608 1,555 7.0
Indtistriali7p,1Cotintries 390 585 739 810 875 1,170 1,153 5.4

llc 25i 26 31 33 29 34' 34 -1.3
Canada 12 10 0 0 1 7 7 -6.8
EC 179 246 313 358 376 519 526 6.3
Belgium f1.tvtumhotrF 14 26 17 3' 20 23 23 :fi
Denmarl 24 29 3Y 44 46 79 77 C.5
France ?3 41 73 84 94 139 144 10.0
Ireland 14 19 14 11 28 20 3.9
Netherlands 41 5( 60 6Q 90 135 13R 6.6
Germany 32 Si 74 73 94 93 100 7.5
Other EC (Italy. UT() 34 3? 37 21 22 24 -1.9
Other Western Europe 62 13- 157 167 142 168 156 5.3
Australia 1 2)(' 25 26 45 78 77 8.2
New Zealand 6 - 28 24 21 71 77 17.5
Other la J rc 20 24 17 22 20 4.9
Centrallv Planned Economies 83 124 165 178 244 271 256 7.3
USSR 55 70 145 158 167 Tm
Eastern Europe 2P 4c 20 20 77 44 41
Developing Coountri;-s 60 107 227 243 359 438 402 11.8

Argentina 13 20 25 37 73 55 10.7
Brazil 4 17 80 83 117 165 150 18.7
Colombia 0 C 8 10 9 12 13 3.6
Mexico 4 6 10 12 21 29 30 11.5
Pakistar 0 1 0 0 00 0 -
Kenya 1 2 3 2 3 3 1 4.2
/a Spain, Turkey. Portugal, C.reece,Israel, Yugnslavia, Cyprus, Malta, Japan.
Sourne: FAO, Production Yearbook, varintis issuiec

Table TII-A3: SKIM MILK POWDER (NFDM) PRODUCTION
-I-- > Crowth Rate

Countrv/Region 1961 1965 1970 1971 1975 197R 1979 1961-79
…-------------('000 MCt------------- --(1)-
WORLD 1,707 2,249 3,002 3,049 3,979 4,156 4,167 5.3
Industrialized Countries 1,636 2,172 2,963 3,007 3,927 4,104 4 119 5.4
(is 961 945 687 f671 477 438 3 -5.4
Canada 101 105 169 140 191 133 114 2.5
EC 375 773 1,401 1,389 1,975 2,211 2,1R2 4.2
Belgium/Luxembourg 35 60 109 9R 132 145 145 T.3
Denmark 6 17 19 24 69 64 52 13.7
France 100 332 648 627 782 733 735 9.9
Ireland 6 11 34 47 135 170 146 24.0
Netherlands 64 70 96 86 185 202 179 7.4
Germany 84 202 401 398 567 625 675 11.4
Other EC (UK) 80 81 94 109 105 272 250 6.5
Other Western Europe 54 116 208 225 258 283 312 10.3
Australia 45 58 104 109 169 93 83 5.R
New Zealand 61 104 152 191 253 185 198 7.5
Other /a 0 0 15 15 25 34 38 17.9
Centrally Planned Economies 39 71 227 267 579 727 759 20.0

USSR 10 27 63 81 213 306 21.6
Eastern Europe 29 44 164 186 366 421 469 17.0
Developing Countries 71 77 39 42 52 52 48 -2.0

Brazil 42 39 0 0 0 0 0 -
Mexico 1 2 2 3 4 4 5 5.9
Kenya 1 1 3 3 3 2 1 7.1
* * * . .
Table 111-A4: EVAPORATFI) ANT) CONDENSED MILK PRODUCTION
Growth Rate m
Country/Reglor. 1961 i9h- 1970 1971 1975 1978 1979 1961-79
…---____________________( 000 mt)…------------------------

'0
WORDI) 4,048 4,29( 4,513 4,605 4,079 4,518 4,567 0.4
Industrtalized Countries 3,635 3,82F 3,837 3,907 3,358 3 664 3,704 -1.6
ITS 1,635 1,49S 1,266 1,283 q49 900 1 -3.8
Canada 157 161 130 136 109 182 162 -1.0
EC 1,353 1,544 1,511 1,500 1,312 1 415 1,438 0.3
Belgium/Luxembourg 22 2P l8 7 9 7 8 -T-W8
Denmark 42 39 29 24 15 8 8 -9.4
France 105 155 19P 196 142 153 163 1.3
Ireland 140 161 74 82 64 77 74 -4.5
Netherlands 412 457 496 47R 461 489 514 0.9
Germany 391 462 438 461 448 491 483 0.6
Other Er (UK, Italv) 241 242 261 252 173 190 188 -1.4
Other Western Europe 104 92 116 112 88 ltO 115 0.5

Australia 67 90 71 93 60 77 81 -0.2
New Zealand 10 7 1 1 14 8 9 2.1
Other /a 61 9R R1 84 152 124 132 4.6
USSR 172 236 420 440 364 5TZ 530 T.tl
Eastern Europe 76 lo5 241 258 310 314 321 8.3
Developing Countries 413 471 676 698 721 854 863 4.4
Argentina 4 11 8 1o1
0-- --T 0.1
Brazil 17 17 25 29 31 32 34 4.3
Colombia 0 0 4 4 4 4 4 4.5
India 214 210 215 217 222 222 222 0.4
Kenya 0 1 3 3 1 n 0 -0.6
Source. FAO, Production Yearbook, various issues.

Table 1I1-A5: BUTTER AND GHEE PRODUCTION
Growth Rate
Country/Region 1961 1965 1970 1971 1975 1978 1979 1961-79
9~~~~~~~~
~-------------------
- - (-000 at)- -- - -(7)
-e
WORLD 5,436 5,884 5,896 5,942 6,516 6,958 6,918 1.4

co
Industrialized Countries 4,457 4,882 4,711 4,710 5,164 5,557 5 502 0.1 1
US 697 -611 51 520 446 451 0.1
Canada 165 157 153 134 133 106 103 -2.7
EC 1,411 1,509 1,541 1,498 1,712 1 925 1 928 1.8

Belgium/Luxembourg 94 94 98 92 101 1 0 6 7 0.
Denmark 171 166 131 124 133 140 131 -1.3
France 405 475 481 474 559 548 566 1.7
Ireland 61 65 73 75 84 119 122 3.6
Netherlands 97 10- 121 124 204 211 203 5.4
Germany 456 501 505 471 521 564 566 0.8
Other EC 127 105 132 13R 110 237 234 3.5
Other Western Europe 270 280 228 219 232 233 233 -0.8
Australia 185 206 223 203 161 IIl 105 -3.1
New Zealand 217 246 218 237 250 226 251 0.6
Other /a 149 168 192 195 201 230 242 1.2
Centrally Planned Economies 1,363 1,705 1,638 1,704 2,029 2,275 2 194 3.0
USSR 894 1,1841,067 1,122 1,320 TI472 T40 2.7
Eastern Europe 469 521 571 582 709 803 785 2.9
Developing Countrles 979 1,002 1,185 1,232 1,352 1,401 1 416 2.2
Argentlna 55 42 27 36 40 29 2';I -2.7
Brazil 26 25 45 50 63 90 90 8.4
Colombia 4 4 11 11 11 11 12 7.3
Mexico 11 14 180 190 230 250 252 4.8
India 433 421 490 515 562 570 575 2.2
Pakistan 134 152 209 216 238 245 246 3.7
Kenya 6 5 5 4 4 4 4 -3.5
Tanzania 1 2 2 2 3 3 3 5.0
Ethiopia 10 10 9 9 9 9 9 -1.0
/a Includes Spain, Greece, Turkey, Portugal, TIrael, Yugoslavia, Cyprus, Malta, Japan.

Table 1II-A6: CHEFSE (ALL KINDS) PRODUCTION
Grovth Rate
Country/Region 1961 1965 1970 1971 1975 1978 1979 1961-79
. ._ ~~~~~~~cr
a
------------------------- ( 000 mt) --------- ---------
(
'1
WORLD 6,941 7,746 7,714 8,057 9,412 10,720 110012 2.7
Indutstrialized
Cotuntries 4,562 5,312 6,572 6,880 8,113 9 325 9 597 4.2
us 1,005 1,083 1,329 1,415 1,593 192,2067
Z
Canada 71 96 118 135 146 168 187 5.2
EC 1,649 1,941 2,334 2,484 2,925 3 201 3 314 4.0
Belgilum/Luxembourg 23 35 -3 742 41 43 4 2.5
Denmark 122 114 111 120 152 1A3 189 2.6
France 484 618 781 819 943 1,010 1,043 4.4
Ireland 6 17 29 34 62 50 58 12.4
Netherlands 213 219 278 306 373 418 435 4.6
Germany 305 376 495 523 619 714 732 5.1
Other EC 496 562 600 640 735 783 813 3.0
Australia 48 48 76 78 101 116 142 5.2
New Zealand 101 108 102 102 94 82 90 -1.2
Other la 347 416 520 527 636 702 736 3.8
Centrallv Planned Ecnomies 1,101 1,351 1,79O 1,817 2,236 2 63U 2 632 5.3
USSR 570 17?350 1,018 1,251 T'TW T.
Eastern Europe 531 601 765 799 985 1,120 1,137 4.3
Developing Countries 2,379 2,434 1,142 1,177 1,299 1 395 1 415 -2.1
Argentina 134 150 167 188 22 'T ~ '239
Brazil 39 39 50 50 53 56 58 2.2
Colombia 17 19 39 41 38 43 44 5.5
Mexico 60 63 77 78 89 95 95 2.8
India 1,427 1,338 0 0 0 0 0 -1.6
Kenya 0.6 0.8 0.5 0.5 0.5 0.4 0.4 -4.5
Tanzania 0.5 0.5 0.5 0.5 0.5 0.5 0.5 -
Ethiopia 0 0 4 4 4 / 4 -0.8
/a Includes Spai, Greece, Turkey, Portugal, Israel, Yugoslavia, Cyprus, Malta, Japan.
Source: FAO, Production Yearbook, various isrues.

February 1982 III-8
Efforts have been taken by moqt of the surplus pr-oducingindustria-

lized countries to curtail milk production, because of the rise in stocks as
productionhas increased faster than consumption. With the exception of the
Urited States, the following producers have adopted levies to penalize over-
production: Canada, Switzerland, Austria, Norway and Finland. Australia has
also discouraged excess production by phasing out most subsidies on manufac-
tured milk, and the EC initiated a program aimed at reducing dairy herds.
TJnder the dairy cow slaughtering program introduced in the EC in 1977,
supposedlyslightlyover 1 million dairy cows had been taken out of production
by September 1980 when the scheme was discontinued.Nevertheless,total dairy
cow numbers remained unchanged and the growth in EC milk production even
acceleratedin 1980. Despite these measures, internationalprices are expected
to remain lower than domestic prices in most industrialcountries.The current
oversupply situation is expected to improve somewhat but full adjustment of
output of industrialcoultries to commercial outlets is unlikely in the near
future.
In the CPEs, both productionand consunptionhave been expandingas a
result of increasingyields and cow numbers. In an attempt to encourage domes-
tic consumption of milk, governments have heavily subsidized processing and
distribution costs. Per caput consumption of milk products in the USSR and
eastern Europe is now higher than in the western industrializedcountries.The
result of tnese measures in both the industrializedcountriesand the CPEs has
been a glut of milk and milk products at prevailng prices (which do not
reflect accuratelythe real productioncosts).
From the point of view of the developing countries, there have been
some positive effects from the current oversupply situation.Due to over-pro-
duction in the industrializedand centrally planned industrializedcountries,
dumping practices have become common. The existing surpluses have enabled
developing countries to purchase milk products at low prices and/or obtain
part of them free through food aid. However, these concessionaland food-aid
exports have been vulnerable to fluctuatioL,s
in commercial supplies of dairy
products. Food aid has a tendency to increase when supplies are ample and to
decline when suppliesare low. The implicationsfor countries trying to combat
malnutritionare obvious.
There are a number of p 'ems associated with the expansion of milk
production in developingcountries.tor a long time dairy developmentwas neg-
lected since it wasn't financially attractive; furthermore, governmelt
February 1982 III-9
involvement in the market pl&ce resulted in unremunerative prices for rural
milk producers and there were other price distortions at the retail level
which interferedwith the private raw milk trade. Milk plants in the develop-
ing countries (in particular, government plants) have so far been losing
rather than profit-makingenterprises. This is said to he due to inadequate
capital, low production levels as a result of slow progress in milk procure-
ment and/or sales, and their bureaucratic inclination (rather than
commercial).
Rural anufacture of Lhe less perishable milk products is important
in many developingcountries,but most of the milk in these countries is still
consumed unprocessed or with little processing (e.g. fermented) in producer
householdsor distributedto consumers in areas close to the place of produc-
tion. By concrast, in the most advanced industrialcountries the proportionof
milk industriallyprocessed rose from 75 percent to well over 90 percent dur-
ing the last two decades.
B. Milk Yields
Per qnnum milk yields per cow are shown in Table III-8i for various
countries and regions. The highest yields per cow are attained in those coun-
tries with feeding regimes which use a high proportion of feed concentrates,
suLchas the US, Netherlands and Denmark. However, the most economically effi-
ient dairy industries are in New Zealand and Australia where the industry is
ba-;edon pasture feeding and yields are much less tharlin say the US.
Yields in developing countries are very much below those in the
ind(itstrial
countries and are growing more slowly in genieral. However, this Is
not necessarily of concern, as protection in the industrial countries hem
hiased dairy practice towards the more intensive use of concentrates, and as
well, the factor proportions in developing countries are different from those
in industrial countries.
Table III-BI: WHOLE FRESH MILK YIELDS W
Growth Rate C
Country/Region 1961 .965 1970 1971 1975 1978 1919 1961-79
______-----------(-000------ - (00 k)
WORLD 1.7 1.U 1.9 1.9 1.9 1.9 2.0 0.8
Industrialized Countries 3.0 3.3 3.6 3.9 4.1 4.1 4.1 1.5
Us 3.3 3T.8 4.6 4.5 I^T TIT
5.S1
Canada 2.5 2.9 3.3 3.5 3.7 3.1 3.0 1.1
EC 3.3 3.4 3.6 3.6 3.8 4.0 4.0 1.1
Belgium/Luxembourg 3.8 3.7 3.6 3.6 3.6 3.8 3.9 0.1

Denmark 3.7 3.9 4.2 4.2 4.5 4.8 4.5 1.5
France 2.4 2.8 2.8 2.9 2.9 3.0 3.1 1.0
Ireland 2.3 2.3 2.6 2.6 3.0 3.3 3.2 2.3
Netherlands 4.2 4.2 4.3 4.4 4.6 5.0 5.0 1.0
Germany 3.4 3.6 3.9 3.9 4.0 4.3 4.4 1.3
Australia 2.0 2.3 2.7 2.7 2.8 2.6 2.9 1.9

New Zealand 2.8 3.0 2.5 2.6 3.0 2.9 3.1 0.4
Centrally Planned Economies 1.8 1.9 2.2 2.2 2.3 2.4 2.3 1.8
USSR 2.0 -9 T.1 2.1 2. 2.2 i:r Ty
Hungary 2.2 2.2 2.2 2.2 2.3 3.0 3.0 1.4
Developing Countries 0.6 0.6 0.7 0.7 0.A 0.7 0.7 1.1
Argentina 1.- 1.9 T1 Fl T
Brazil 0.7 0.8 0.7 0.7 0.R 0.9 0.8 0.7
Colombia 0.7 0.7 0.9 0.9 0.9 0.9 1.1 2.1
Mexico 0.9 1.0 0.5 0.6 0.6 0.7 0.8 -1.7
India 0.4 0.4 0.5 0.5 0.5 0.5 0.5 1.2
Pakistan 0.3 0.3 0.8 0.8 0.8 0.8 0.8 5.8
Kenya 0.5 0.5 0.5 0.5 0.5 0.5 0.5 0
Tanzania 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0 0
Ethiopia 0.1 0.1 0.1 0.1 0.2 0.2 0.2 1.1
Fource: FAO, Production Yearbook, various issues.
* * * . 6 .@
February1982 III-ll
C. Supply Responses
There have been few studies of the supply response of milk and milk
products to changes In the prices of the various commodities.What estimates
are available concentrate on the industrial countries. In Table III-Cl the
supply-price Llasticities assembled for the US Department of Agriculture's
model have been reproduced.
Grains-Oilseeds-Livestock
Supply response in the dairy industry is complex because of the many
different markets (fresh milk, butter, cream, etc.) to which milk can be
directed as well as the fact that both beef and veal and milk are primary
nrr'ucts of a dairying enterpriEt. The extent to uhich the dairy sector is
engaged in beef production varies within countries as well as between
countries.Those dairy farms which are oriented towards the fresh milk market,
and which thereforemay be in close proximity to large urban areas, are likely
to produce only small quantitiesof meat (either as veal from young calves or
beef from cows culled from the herd). In other situations, for example, where
land is relatively cheaper because it is not close to urban areas, a beef
raising enterprisemay be run in conjunctionwith dairying, utilizing both the
. excess calves as well as skimmed milk (if cream is the form in which the dairy
output is sold) from the dairy enterprise. It is obvious from the above that
the relative price ratio between milk and beef (or veal) will often be an
importantvariable affecting the supply response for milk.
0
February 1982 III-12
Table III-Cl: SUPPLY PRICE ELASTICITIES FOR DAIRY PRODUCTS

IN INDUSTRIALIZED COUNTRIRS
Elasticity with Respect to Price

Country Milk Butter Cheese
Canada
Total Milk 0.3
Cheese -0.6 0.6
EC
Total Milk 0.35
Cheese 0o.4
Other Western Europe
Total Milk 0.3
Cheese 0.5
Japan
Total Milk 0.8
Oceania
Total Milk 0.4
Cheese -1.0 1.0
Us
Total Milk 0.4
Cheese -0.6 0.6
Source: USDA, Alternative Futures for World Food, Vol. 1, World GOL Model,
Analytical Report, Economics, Statistics, and Cooperatives Service,
Foreign Agricultural Economic Report No. 146.
February 1982 IV-1
IV. CONSUMrlION
A. Changes in Compositionof Consumptionand GeographicalDistribution
World demand for milk and milk products as a whole has grown rather
slowly over the last two decades, though there has been considerablevariation
between the individual countries and between the individual milk products.
Aggregate world use of milk and milk products in human consumptionhas hardly
kept pace with population growth, while the use of milk and milk products in
animal feeding has been declining at an acceleratedpace.
World average per caput consumption of milk and milk products has
recently been about 100 kg of liquid milk equivalent.Among the industrialized
countries, i.e., including industrialized centrally pla..nedeconomies, per
caput consumptionhas oeen about 250 kg per year, being In Australasia
ih..st
and the northern parts of Europe and lowest in the Mediterraneancountriesand
Japan. Per caput consumptionhas been about 300 kg in Eastern Europe and the
USSR--the result of pricing policies which hold milk prices down with subsi-
dies, as well as the impact of increasing incomes. There has been a similar
policy of limiting, by means of subsidies, the effects to consumers of higher
* producerprices in other industrialcountries. Nonetheless,per caput consump-
tion has steadily decreased. The downward trend has been particularly
pronouncedin the economicallymost advanced countries with traditionallyhigh
milk consumptionlevels.
Annual per caput consumptionof milk and milk products in developing
countries has been about 50 kg. However, per caput consumptionvaries greatly
between developing countries (and no doubt within such countries); in most
countries of Africa South of the Sahara and East Africa it is extremely low;
in some countries even below 10 kg. 1/ In countries such as Indonesia,where
per capita milk consumption is among the lowest in Asia, for the rural and
urban poor with incomes adequate only to buy rice and simple side dishes, milk
is a luxury food beyond their means.
There have been substantialdifferences in the developmentof demand
for individual milk products in the industrial countries. The general trend
1/ Care Is necessary in interpreting statistics about milk consumption,

because, for example, social customs among tribal groups in Africa in some
cases place a high value on milk, in others, custom serves to severely
limit consumptionof milk. Genetic intoleranceof milk may also be present
to a high degree.
February 1982 IV-2
has also been declining consumption of liquid whole milk, cream, and evapo-
rated and condensed whole milk. This has been the result of a fall-off in
demand for food fats and a shift from animal fats towards vegetable fats and
oils, which has been the result of health concerns over consumptionof animal
fats as well as lower relative prices of vegetable fats. The rising trend in
demand for protein-richmilk productshas benefited cheese especially (includ-
ing cottage cheese) and fermented milk products (particularly flavored
yoghurts).
Generally, the range of milk products offered to consumers,particu-
larly in the high-income countries, has shown an increasingvariety and the
proportion of milk products consumed in the form of mixed and convenience
foods has grown rapidly.
Human consumption has accounted for about three-quartersof total
world consumption of milk and milk products in recent years, with the
remainder being used mainly for pig and calf feeding. A small fraction of
total milk solids has been used in the form of casein for technicalindustrial
purposes. Feed use of milk productshas also undergone considerablechange. In
the main industrial dairying countries, production of milk was in the past
much more directed towards butter production,with the skim milk used by far-
mers as a cheap protein feedstuff. The increase in the value of the solids-
not-fat component and the decline in value of the butterfat component has
resulted in a rapid decline in the use of liquid skim milk in livestock
feeding. However, within Europe the decrease in liquid milk consumption for
feedstuffshas been offset by an increase in the use of skim milk powder for
feeding meat animals; this has been due to the subsidizationof this feed by
the EC.
Data on total consumption and consumption per head for skim milk
powder, butter and cheese are shown in Tables IV-Al, IV-A2 and IV-A3.
.
February 1982 IV-3
Table IV-A1: SKIM MILK POWDER CONSUMPTION AND CONSUMPTION PER HEAD
1975 1978 1979 1975 1978 1979
-------('000 mt)------ -------(kg/hd)-------
WORLD 2,366 3,860 4,154 0.6 0.9 1.0
Industrialized Countries 2,019 3,427 3,651 5.3 5.1 5.4

US 35
435 3_4T 1.6 1.5
Canada 81 48 50 2.5 2.1 2.1
EC 1,070 1,843 2,254 4.1 6.9 7.1

Belgium/Luxembourg 72 l20 184
Denmark 25 40 59 5.3 8.0 11.6
France 370 580 619 7.4 11.0 11.6
Ireland 13 20 33 4.2 6.3 10.3
Netherlands 185 400 400 13.5 28.8 28.6
W. Germany 185 350 341 2.8 5.7 8.9
Other 220 333 418 2.0 2.9 3.6
Western Europe 173 150 312 5.6 4.9 10.1

Australia 89 50 52 6.5 3.5 3.7
New Zealand 10 10 14 3.3 3.3 4.4
Other 16 39 70 0.3 0.7 1.3
Centrally Planned Economies 83 580 506 0.7 1.5 1.3

USSR n.a. 430 - -
.3T
Eastern Europe 83 150 159 0.7 1.3 1.3
Developing Countries 347 433 503 0.2 0.2 0.3

Argentina 46 68 70 2.3 2.6 2.6
Brazil 105 190 220 1.3 1.6 1.8
Mexico 90 70 70 1.5 1.0 1.0
India 41 52 52 0.1 0.1 0.0
Source: USDA, Foreign Agriculture Circular, various issues.
0
February 1982 IV-4
Table IV-A2: BUTTER CONSUMPTION AND CONSUKPTION PER HEAD
1975 1978 1979 1975 1978 1979
-------…(000 mt)------- (kg/bd)-------
WORLD 5,239 5,735 5,645 1.3 1.4 1.3
Industrialized Countries 4,611 5,011 4,893 6.0 6.3 6.1

us 437 451 450 :Tr 2.1 -27
Canada 120 96 105 5.3 4.2 4.4
EC 1,694 1,715 1,726 6.8 6.5 6.6

Belgium/Luxembourg 100 110 102 10.0 iTTY iT0.
Denmark 41 45 52 8.2 9.0 10.4
France 466 535 513 8.8 10.0 9.7
Ireland 36 40 - 12.0 12.5 -
Netherlands 30 40 - 2.2 2.9 -
German 423 415 445 6.8 6.8 7.3
Other 598 530 530 5.3 4.6 4.6
Other Western Europe 214 218 215 6.9 7.2 6.9

Australia i00 69 70 7.4 5.3 4.9
New Zealand 46 49 44 14.8 13.1 13.7
Other 28 39 40 0.5 0.7 0.7
Centrally Planned Economies 1,892

1,200
2,316
15,565
2,187
1T,7T
5.1
'
6.1 5.7
3Tg
0
USSR
Eastern Europe 692 751 736 5.9 6.2 6.0

Argentina 32 26 30 1.3 1.0 1.1
Brazil 82 75 90 0.8 0.6 0.7
Mexico 8 8 8 0.1 0.1 0.1
India 449 477 477 0.7 0.7 0.7
Source: USDA, Foreign Agricultural Service, Foreign Agriculture Circular,

various issues.
.
February 1982 17-5
Table IV-A3: CHEESE CONSUMPTION AND CONSUMPTION PER HEAD
1975 1978 1979 1975 1978 1979
_______(-000 at) ---- --------(kg/hd)--------
WORLD 7,052 8,424 8,376 1.8 2.0 1.9
InditstrializedCountries 6,470 7,534 7,494 9.9 11.3 11.2

US 1,430 1,802 1,779 6.8 8.2 8.0
Canada 204 162 166 8.9 6.9 7.0
EC 2,690 3,161 3,151 11.0 12.0 12.1

Belgium/Luxembourg §2 116 112 W4 11.8 11.4
Denmark 48 51 48 9.4 10.2 9.4
France 799 950 925 15.2 17.8 17.3
Ireland 9 9 11 2.9 2.8 3.3
Netherlands 160 185 195 11.7 13.3 13.9
Germany 685 775 780 11.1 12.6 12.8
Other 897 1,075 1,080 8.0 9.2 9.3
Total Western Europe 263 300 312 8.5 10.0 10.1

Australia 73 88 88 5.4 6.3 6.2
New Zealand 15 24 28 4.8 8.0 8.8
Other 303 355 355 5.6 6.3 6.3
Centrally Planned Economies 1,438 1,562 1,533 3.9 4.1 4.0

USSR 592 750 708 2.3 2.9 2.7
Fastern Europe 846 812 825 7.1 6.8 6.8

Argentina 216 TV 23 .5 8.7
Brazil 147 237 230 0.1 2.0 1.9
Mexico 115 122 122 2.0 1.9 1.8
India n.a. 1 1 n.a. 0.0 /a 0.0/a
/a Less than 500 grams.
Source: USDA, Foreign Agricultural Service, Foreign Agriculture Circular,

various issues.
0
February 1982 IV-6
B. Price and Income Demand Elasticities
Measurment of consumers responses to changes in the prices of fluid
milk and milk products has a very long history in the field of economics,pro-
bably because the milk industry has such a long history of regulation.There
appears to be general agreement that the price elasticity of demand for fluid
milk in the high-income countries is in the nelghborhoodof -0.2. For lower-
income countries the price elasticity for fluid milk is probably larger than
this. Table IV-Bl shows the results of various estimates of demand-price
elasticities for fluid milk for a few countries. Venezuela is the only
developingcountry among them and the price elasticity is in the range of -0.6
to -1.0.
In Table TV-B2 demand-priceelasticitiesfor milk, butter and cheese
are presented. These are reproduced from a USDA source which has collected
estimates for various industrial countries and country groupings. In this
table the demand-price elasticity for fluid milk in Japan is -0.7--well above
the other high-income countries, as is the price elasticity for cheese. How-
ever, fresh milk consumption in Japan on a widespread basis was only realized
after World War II when milk and milk products were made widely available from
surplus stocks in the US. It is expected that the demand-price elasticity for
fluid milk and milk products in Japan will decrease significantly in the
future.
Table IV-B2 presents estimates of income elasticities for this set of
industrial countries. These support the notion that the income elasticity of
most milk products is very low, and in some cases negative, in western indus-
trial countries. Cheese is the main exception. Cheese is the one dairy product
whose consumption continues to show growth in the high-income countries. The
income elasticity of dairy products _s high in Japan, but is expected to
decline in the future in the same way as the price elasticity.
The income elasticities for most dairy products are believed to be
much higher in the developing countries than in the industrial countries,
averaging in the neighborhood of 1.0. Table IV-B3 presents a set of expendi-
ture elasticity estimates for fresh milk, dried milk, cheese and butter for
varioulsdeveloping countries. These estimates were made by the FAO in 1972. In
some cases the estimates distinguish between rural and urban consumers, and in
general the elasticities for the urban groups are much lower than for the
rural yroups. 0
February 1982 IV-7
Table IV-Bl: ESTIMATED ELASTICITIESOF DEMAND FOR

FLUID WHOLE MILK IN VARIOUS COUNTRIES
Price Income
Country Elasticity Elasticity
Australia (i) /a n.a. 0.35

(ii) /b -0.19 to -0.23 short run n.a.
Europe and North America /c n.a. -0.30 to 0.30
Israel /d -0.27 to -0.32 0.0 to 0.34
Sweden /e -0.3 0.0
US prewar /f -0.3 to -0.45 n.a.
US /g -0.34 0.2 (not significant)
Venezuela /h -0.72 to -0.77 0.22 to 0.28
natural milk natural milk
-0.59 to -1.02 0.48 to 0.55
pasteurizedmilk pasteurizedmilk
. Sources:
/a K.L. Kinsman and j.M. Anderson, "Canberra Miik Consumption; A Study in
Demand" Quarterly Review of Agricultural Economics, 12(1): Jan. 1959, pp.
19-23.
/b J.A. Street, "Demand for Milk," Review of Marketing and Agricultural

Economics, 42(2): June 1974, pp. 100-113.
/c L.M. Goreaux, "Demand for Dairy Products in Some European Countries,"

Economic Commission for Europe, Comm. on Ag. Prob. Study Group on Demand
for Ag. Products, 1958.
/d Y. Mundlak, "Long-Term Projections of Supply and Demand for Agricultural

Products in Israel", Hebrew University Faculty of Agriculture, Falk,
Jerusalem, May, 1964.
/e H. Wold and L. Jureen, Demand Analysis, A Study in Econometrics,

Stockholm, Wiley, 1966.
/f J.M. Cassels, Study of Fluid Milk Prices, Harvard Univ., Press, Cambridge,
Mass., 1937.
/g P.S. George and G.A. King, "Consumer Demand for Food Commodities in the
United States with Projections for 1980", Giannini Foundation Monograph,
No. 26, University of California, Davis, March, 1971.
/h
* ConseJo de Bienester Rural, Long Term Forecasts of the Supply and Demand
of Agricultural and Livestock Products in Venezuela, Caracas, 1965.
February 1982 IV-8
Table IV-B2: DEMAND ELASTICITIESFOR DAIRY PRODUCTS IN INDUSTRIALCOUNTRIES
Price Elasticities Income Elasticities

Countries Fluid Milk Butter Cheese Fluid Milk Butter Cheese
Canada -0.2 -0.7 -0.5 -0.1 -0.3 0.6

EC-6 -0.25 -0.7 -0.6 0.2 0.2 0.5
Other Western Europe -0.2 -0.5 -0.6 0.3 0.3 0.6
Japan -0.7 -0.7 -1.69 0.95 1.0 1.25
Oceania -0.2 -0.4 -0.3 0.1 -0.1 0.5
US -0.2 -0.7 -0.5 -0.1 - 0.5
Source: USDA, Alternative Futures for World Food, Vol. 1, World GOL Model,
Analytical Report, Economics, Statistics, and Co-operativesService,
Foreign AgriculturalEconomic Report No. 146.
February 1982 IV-9
Table IV-B3: EXPENDITUREELASTICITIES FOR MILK

AND MILK PRODUCTS IN DEVELOPITG COUNTRIES
Country Fresh Milk Dried {llk Cheese Butter
Argentina 0.23
Chile 0.63 - 1.06 0.89 - 2.22
Cyprus 0.33
Honduras -Rural 1.25 2.65 0.96 1.55
-Urban 0.69 1.46 0.34 0.92
Hong Kong 0.97 3.31

ilungary -Rural 0.53 0.70 0.81
-Urban 0.19 0.52 0.95
India -Rural 1.78
-Urban 1.25
-Total 1.67
Indonesia -Rural 2.26

-Urban 0.87
-Total 1.75
Iran -Urban 0.90
Kenya -Urban 0.36
Pakistan -Urban 1.13 1.47

-Total 2.24 2.02
Philippines-Rural 2.64
-Urban 1.30
-Total 1.47 - 1.99
Poland -Urban 0.17 0.79

-Total 0.14 0.71
Sri Lanka 1.67
Sudan -Rural 0.89 1.07
-Urban 0.73 0.81 - 1.44
Tunisia l.t7
United Arab Republic 0.90
Uganda -Urban 2.01
Venezuela -Urban 0.51
Vietnam -Rural 2.59
Yugoslavia 0.44 1.09 0.45 1.54
Source: FAO, Income Elasticities of Demand for Agricultural Products, Rome,

1972.
February 1982 v-1
V. INTERNATIONALTRADE
A. Imports and Exports
Internationaltrade in milk and milk products has risen during the
last two decades. However, a large proportion of total wor_d trade La trade
within the EC. Excluding intra-EC trade, world dairy exports (expressed in
milk equivalent)accounted for less than 5 percent of world milk productionIn
the first half of the 1970s. This percentage became even smaller when the UK
joined the EC.
For a long time the UK had been the world's leading import market for
butter and cheese, with New Zealand and Australia supplying the major part of
the UK's requirements.Upon its entry into the EC in 1973, all major suppliers
outside the EC, with the exception of New Zealand (which was granted continued
access on preferentialterms for a limited, transitionalperiod), lost access
to the UK market. These third-countrysupplies were replaced by imports from
EC couintries,
while the third countries had to seek non-EC markets for their
exports.
Leaving aside EC trade in dairy products, trade in butter, including
* butter oil and milk powder, has been mainly from industrializedto developing
countries and Japan, with the EC, New Zealand and Australia being the main
suppliers.Cheese had been traded mainly among industrialcountries,though in
recent years the petroleum-exportingdeveloping countries have become much
more important buyers of cheese and milk products in general. The US, an
important net exporter of dairy products until the 1960s (because of the
generation of large surpluses due to the dairy price supports),has become an
important importerof cheese, casein aaidother dairy products.
Apart from subsidized commercial exports, industrial producing
countries have also made available sizable quantities of milk powder and
butter oil for food aid to the developingcountries. Up to the mid-1960s the
IJSwas the main donor, since then the EC has become the principal dairy food-
aid supplier. US exports of dairy products are now essentially confined to
concessional exports to countries in Central and South America, with Mexico
being the largest recipient of this aid (which is mainly in the form of milk
powders). The availability(usuallyon an intermittentbasis) of cheap or even
free supplies of milk products on the internationalmarkets, while being of
benefit to some consumers in developing countries, obviously has reduced
incentives to develop domestic milk production in those countries that have
potential for dairy farming.
February 1982 V-2
Import and export data, by country and regional groupings, are pre-
sented in Tables V-Al to V-A7. These cover trade in fresh milk (which is O
mainly confined to the EC), dry milk, butter and cheese. The developing
countriesare minor participantsin trade of dairy productswith the exception
of imports of dry milk, of which they take about half of the total and imports
of butter of which their share has recently grown to about one-third.
.
Table 1V-Al: FRESH MllK EXPORTS BY COITNTRY AND REGION
Growth Rate
Country/Region 1961 1965 1970 1971 1975 1978 1979 1961-79 1
------------------------
…(000 mt)-------------------------) -
WORLD 238 318 447 796 1,360 1,846 2,104 14.9

Industrialized Countries 225 292 435 781 1,326 1,838 2,097 15.5
US 3 4 6 6 A a 106.
EC 194 263 386 736 1,302 1,799 2,029 13.9
Belgium/Luxembourg 6 18 24 21 135 166 182 3 5
Denmark 39 31 27 27 33 57 3R 1.2
France 75 138 200 434 342 345 343 9.9
Ireland 2 14 6 6 12 9 16 8.6
Netherlands 69 60 45 63 64 49 75 0.5
Germany 3 1 R1 183 6R2 1,141 1,365 59.6
Other (UK, Italy) 0 1 3 2 34 32 12 14.8

Australia 5 1 1 3 5 1i 15 4.6
New Zealand 0 5 5 5 6 6 6 9.6
Other /a 4 5 11 15 0 9 28 11.4

Eastern Europe n 2F 15 O T 2 i6.0
Kenya 1 22 10 10 11 T 0 -
/a Includes Spain, Turkey, Portugal, Greece, Israel, Yugoslavia, Cyprus, Malta, Japan.
Source: FAO, Trade Yearbook, various issues.

Table V-A2: BUTTER EXPORTS BY COUNTRY AND REGIONS o
1961
Country/Region ~~~~~~~~~~~~~~~~~~~Growth
Rate
Country/Region 1961 1965 1970 1971 1975 1978 1979 1961-79
2
----------------------- ('000 mt)--- - -- ()-
WORLD 632 688 909 839 924 1,025 1,262 3.3
Industrialized 588 667 899 819 909 1,000 1,253 4.3

us 3 30 1 43 0 0 0 -
EC 227 232 454 416 621 704 947 8.3
Belgium/Luxembourg 9 14 32 42 63 94 101 20.6
Denmark 120 116 87 77 98 Si 83 -1.6
France 51 30 110 71 7R 81 163 7.6
Ireland 16 21 46 32 57 83 119 10.0
Netherlands 31 35 142 109 180 185 265 13.9
Germany 0 15 35 80 142 122 153 66.6
Other (UK, Italy) 0 1 2 5 3 58 63 25.9
Other Western Europe 34 37 42 29 23 27 27 -1.3

Australia 64 97 98 89 32 32 34 -5.0
New Zealand 168 192 197 192 164 177 191 0.3
Centrally Planned Economies 91 78 107 48 69 60 54 -3.4

USSR PT 7z3 73 24 oi
20 aRr -R.2
Eastern Europe 34 35 34 24 49 '3 36 0.3

Argentina 14 7 0 6 4 1 0 7nTT
Brazil 0 0 0 0 0 6 0 -
India (Nepal) 3 2 1 2 2 2 2 -0.3
Kenya 3 2 2 1 1 1 1 -6.4
4
Source: FAO, Trade .earbook, various issues.
* 0 0
0
Table V-A3: CHEESE AND CURD EXPORTS BY COUNTRY AND REGION
Growth Rate ¢
Country/Region 1961 1965 1970 1971 1q75 1978 1979 19l6-79
…--------------___---…('000 mt)-------------------------- ()
WORLD 502 601 791 R31 988 1,229 1,368 5.5
Industrialized Countries 492 592 782 820 977 1,198 1,350 5.6
us 4 3 3 3 4 5 6 -0.8
Canada 9 15 18 16 4 2 3 -10.3
EC 268 330 452 500 688 852 981 7.5

Belgium/Luxembourg 2 10 11 10 11 27 28 9.6
Denmark 79 75 68 70 100 132 146 3.1
France 40 64 98 129 154 198 225 10.4
Ireland 2 10 24 28 57 42 61 16.4
Netherlands 108 120 173 180 227 249 286 6.0
Germanv 12 27 52 58 105 164 186 15.7
Other (UR, Italy) 25 24 26 25 34 40 49 3.8

Australia 18 28 41 38 34 44 52 4.2
New Zealand 89 95 ql 93 65 70 64 -1.9
Other /a 3 5 5 6 6 8 12 6.3

USSR 4 5 7 7 8 8 3.7
Eastern Europe 26 30 53 48 39 54 64 5.1
Developing Countries 10 9 9 11 11 31 1R 3.3

Argentina 4 5 2 5 7 16 5 6.2
Colombia 0 0 0 0 1 7 7 -
/a See Table V-Al.

Table V-A4 FRESH MILK IMPOR7q BY COIUNTRYAND REGION
Growth Rate
Country/Region 1961 1965 1970 1971 1975 1978 1979 1961-79
----------------------- ('O00 mt)------------------------ -
WORLD 151 231 403 718 1,352 1,916 2,151 18.2
Industrialized Countries 83 146 296 584 1,245 1,821 2,044 19.5

ITS 0 5 6 5 8 7 5 9.6
EC 67 112 217 368 1,032 1,786 1,966 20.1
Belgium Luxembourg 1 2 9 31 25 37 49 27.5
France 3 1 1 3 25 31 33 22.7
Ireland 0 0 0 0 95 69 73 -
Netherlands 4 20 sO 64 181 243 207 33.1
Germany 54 46 52 62 114 113 125 6.R
Other (UK) 5 43 75 208 592 1,293 1,479 37.2

Other /a 5 14 50 182 176 6 40 29.3

Venezuela 31 20 2 2 1 2 -15.7
Mexico 0 0 0 0 1 1 1 -
Algeria 19 36 63 90 23 1 0 -10.4
Singapore 1 1 4 3 2 2 2 5.3
Uganda 10 21 9 9 28 0 0 2.2
/a See Table V- alU.
e
Table V! A5: flRY MTK IMPORTS BY COUNTRY AND REGION
Country/Region Growth Rate

1961 1965 1970 1971 1975 1978 1979 1961-79 -
OD
…--------------________(-000 mt)…------------- - -- ----
WORLD 515 919 1,318 1,266 1,342 2,391 2,494 7.7

Industrialized Countries 237 540 744 675 681 1,231 1,220
uls 7.9
1 1 4 3 0
Canada 7 1 9.S
3 3 3 2 2
EC 2 2 -0.1
140 318 421 374 470
Belgium/Luxembourg 902 R42 10.5
3 48 37 24 35
Denmark 60 43 9.6
14 8 26 22 11
France 4 17 -2.4
3 5 R 2 9
Netherlands 58 45 9.8
33 106 116 113 168
Germany 351 363 12.3
18 41 20 23 22
Other (UK, Italy) 159 66 7.1
69 110 214 190 225 268 30R 8.7
Other Western Europe 39 92 95 98 59 166 152
Other /a 7.8
37 70 99 91 53 76 120 4.5
Centrally Planned Economies 17 56 122 107 96 87 103
USSR 9.8
2 20 22 23
Eastern Europe 15 33 102 R5 73 60 63 8.3
Developing Countries 278 379 574 591 661 1,160 1,274
Brazil 8.8
11 22 22 15 14
Argentina 2T 11 t[v
0 0 5 2 1
Colombia 13 20 18.8
11 11 8 1 4
India 19 20 3.3
42 37 26 39 35
Venezuela 37 35 -2.5
45 42 18 7 37
Philippines 103 73 3.0
19 33 49 53 48
Kenya 71 101 8.3
I 1 2 2 2
Tanzania 0 2 -6.6 C
0 0 4 3
Mexico 8 10 8 9.6 ¢
13 16 36 48 21
Malaysia 60 90 8.7
4 14 40 35 49 66 67 12.6
/a See Table V-A1.
Source: FAO, Trade Yearbook, variotis issues.

Table V-A6: CHFESF. IMPORTS BY COITNTRYAND REGION
Growth Rate
Country/Region 1961 1965 1970 1971 1975 1978 1979 1961-79 b
Pt
(00O
------------------------- mt)…--- …-
WORLD 497 599 776 820 972 1,219 1,348 5.5
Industrialized Countries 434 548 700 734 866 1,021 1,115 5.3
tus 73 62 82 112 113
Canada 7 8 14 16 22 21 21 8.4
EC 336 414 486 530 618 706 785 4.5
Belgium/Luxembourg 35 36 48 53 64 85 -92 6.1
Denmark 0 0 3 2 3 4 5 -
France 10 29 31 3i 46 63 61 8.3
Ireland 0 0 0 0 1 2 3 -
Netherlands 0 8 10 11 17 22 27 15.0
Germany 109 126 145 153 179 215 223 3.8
Other (UK, Italy) 182 215 249 280 308 315 374 4.1

Australia 2 4 7 6 9 12 12 11.0
Other /a 6 24 16 19 21 36 43 7.5
Centrally Planned Economies 26 27 31 27 1Q 16 22 -2.5

USSR 3 9 i 10 7 6 -7 1.1
Eastern Europe 23 18 21 17 12 10 15 -2.3

Argentina 0 0 0 0 0 n 5 -
Brazil 0 0 0 0 0 7 1
Mexico 0 0 0 0 0 3 3
/a See Table V-Al.
* * 0
Table V-A7: BUTTER IMPORTS BY COtNTRY AND REGION d
Growth Rate
Country/Region 1961 1965 1970 1971 1975 1978 1979 1961-79
…________________--…(000 mt)…---------- -(%-- -
WORLD 616 688 857 804 1,005 1,056 1,254 3.5
Industrialized Countries 555 595 670 637 811 719 839 2.3
IJS O -P 1 - 0 0 0 -
Canada 0 0 1 1 5 5 0 -
EC 464 516 551 519 71R 623 598 1.7
Belgium/Luxembourg 0 4 40 2R 69 111 114 20.5
Denmark 0 0 0 0 2 1 1 -
France 0 17 3 17 42 76 67 8.0
Ireland 0 0 0 0 1 1 2 0
Netherlands 0 0 16 5 35 54 77 4.2
Germany 28 11 4R 41 27 41 49 4.5
Other (IUK,Italy) 436 4R4 444 428 542 339 288 -2.3

Other /a 2 7 14 14 12 R 1R 13.0

USSR 8 6 2 2 11 W -174- 19.5
Eastern Europe 73 57 77 75 49 27 -3.9
Developing Countries 61 93 1.87 167 194 337 415 9.5

Ethiopia 0 1 2 3 0 0 -
Sri Lanka 2 1 2 1 0 1 1 -5.0
Philippines 1 1 4 6 4 6 9 11.4
Singapore 3 4 7 6 5 6 7 5.9
Chile 3 5 7 10 5 6 9 0.5
Jamaica 2 3 5 6 4 3 4 2.7
Peru 3 6 12 13 12 12 13 6.7
Algeria 9 6 8 5 16 30 25 8.4 C
/a See Table V-Al.

February 1982 V-10
B. InternationalArrangements
The InternationalDairy Arrangement,which resulted from the Tokyo
Round of multilateral trade negotiations,entered into force on January 1,
1980. It superceded three arrangements negotiated earlier within OECD and
GATT: Gentleman's Agreement on exports of whole milk powder (OECD), Arrange-
ment Concerning Certain Dairy Products and Protocol Relating to Milk Fat
(GATT).
The objectives of the Arrangement are to achieve the expansion and
greater liberalizationof world trade in dairy products under market condi-
tions as stable as possible, on the basis of mutual benefit to exporting and
import!ng countries, and to further the economic and social development of
developing countries. To this end the Arrangementmakes provision for a com-
prehensive information and cooperation mechanism. It is accompanied by three
protocols containingspecific provisions:in particular, fixing minimum export
prices in respect of certain milk powders, milk fat (including butter) and
zertain cheeses.
In 1980 there were 15 participants to the Arrangement: Argentina,
Australia, Austria, Bulgaria, EC, Finland, Hungary, Japan, New Zealand,
Norway, South Africa, Sweden, Switzerland,US and Uruguay.
C. Goverment Intervention
U.S.
Under Section 22 of the AgriculturalAdjustment Act 1933 the Presi-
dent may establish import quotas for agriculturalproducts, after investiga-
tion by the US InternationalTrade Commission. This is the method used to
control the import of dairy products into the US. Quotas are in force in
respect of butter, butter oil, cheese, nonfat dry milk, dried whole milk, ice
cream, frozen and dried cream, dried buttermilkwhey, malted milk and animal
fats containingmilk or milk derivatives.Of these, cheese is by far the mist
important import item and the administration of cheese quotas has been the
focus of most attention.
The import licensing provisionswere revised under the Tokyo Round of
the MTN to allow the EC, the largest exporter of cheeses to the US, to have
greater access. 1/
1/ For details, see USDA Foreign Agricultural Service, Changes in Licensing

for Certain Dairy Imports, July 1981.
February 1982 V-11
The US also maintains a direct price suFport program through a floor

price scheme for manufacturingmilk, which indirectly provides price support
for all milk. l/ The floor price set by Congress, is maintainedby the govern-
ment purchasing body, the Commodity Credit Corporation (CCC), buying In
butter, cheese and non-fat dry milk powder. Stocks are disposed of mainly
through international food aid and concessional sales to Latin American
countries,principallyMexico.
The US price support scheme has been used more for income-enhancement
purposes than for price stabilization purposes, leading to oversupply and
hence surpluses of dairy products. Tb- extent of governmen, support may be
reduced under the present administration,which would have wiiespread implica-
tions for productionand trade in milk productsby developingcountries.
More than 95 percent of all liquid milk is priced under Federal or
State Governmentcontrol. 2/ Under the AgriculturalMarketingAgreement Act of
1937 federal marketingorders establish tU minimum price paid for liquid milk
in States which place liquid milk produc ion under Federal jurisdiction. Many
States also set wholesale and retail pr es for milk.
3EC
The prices of dairy products within the EC are regulated under the
Common Agricultural Policy (CAP). Internal target (or guide) prices for the
principal products are established each year. The target price is a national
price representing the level to which it is considered desirable for wholesale
prices to rise in order to ensure reasonable farm incomes.
The intervention price is a guaranteed minimum wholesale price. This
is the price at which national intervention agencies are obliged to support
the market by purchasing all supplies of the product offered to them. Only
non-fat dry milk and butter are purchased through intervention. A cheese price
support policy is pursued only in Italy and there only for specified Italian
cheeses.
The threshold price is a minimum duty-paid import price, uniform at
all points of entry into the EC. The import levy to be applied at any point in
1/ For details, see A.C. Manchester, Dairy Price Policy: Setting, Problems,
Alternatives, USDA Agricultural Economic Report No. 402, 1978.
2/ For details, see C.N. Shaw and S.G. Levine, Government's Role in Pricing
Fluid Milk in the United States, USDA Agricultural Report No. 397, 1978.
February 1982 V-12
time is calculated by deducting from the threshold price the lowest current
c.i.f. price. Import levies are usually fixed weekly.
A target price for liquid milk delivered at the dairy factory is
fixed annually (refers to milk of 3.7 percent butterfat).Th?re is no inter-
vention policy for liquid milk. From the target price for mill,the threshold
prices are derived for butter and for pilot products of each of 1; groups of
other dairy products. The threshold price includes average manufacturing
margins and transportcosts.
Export subsidies or restitutionsare paid to exporters for the dif-
ference between prices paid by them on domesticmarkets and price. receivedby
them on the world market. Surpluses are also disposedof through international
food aid, and subsidized domestic uses-both human and animal. An important
form of diversion is into animal feeds--surelythe ultimate in inefficiencyof
food conversion.
The only import quota established for dairy products is a special
quota with New Zealand in respect of butter. The quota presently stands at
94,000 tons for 1981, and 92,000 tons for 1982. New Zealand receives about 75
percent of the EC interventionprice.
Developing Countries
For a summary of government intervention in about 30 developing
countries,
see FAO (1978). 1/ In general, dairy policy in developingcountries
has been oriented towards the needs of urban consumers, resulting in low con-
sumer and producer prices. This has led to pressure for increased imports of
dairy products and then to pressure to develop domestic dairying for import
substittution
purposes. Instead of correcting the pricing policy distortions
the general responsehas been more government interventionin milk production
and processing. Of course, the developing countries are not wholly to blame.
Because of the subsidized imports available from the industrial countries,
border prices of dairy products in the developing countries are artificially
depressed. Investmentfunds have thus been better used in other industries.
D. InternationalPrices
Due to the narrownessof the internationalmarket, prices in interna-
tional dairy trade, especiallybutter and skimmed milk powder, have fluctuated
1/ FAO, Review of National Dairy Policies and Development Programmes 1976-

1978, Sept. 1978.
February 1982 V-13
substantially.Moreover, because the international*arket has been dominated

* by exports of surplus stocks from major producing countries (by the US in the
1950s and 1960s and by the EC in the 1960s and 1970s) prices in international
trade have been substantiallylower than they would be in the absence of such
government intervention.
The instabilityof internationalprices can be observed from Table V-
Dl and Figure V-Dl, where export unit values for non-fat dry milk, butter and
cheese are shown. These export unit values for dairy products exports from
Australia and New Zealand are believed to be useful indicatorsof world trade
prices for these products as these two major dairying countries export a
large proportion of their dairy production and hold a major share of world
exports. Dairy product prices have increased sharply since 1977, which has
been largely the result of large-scale disposal of dairy surpluses on the
domestic market in the EC since that time (in large part as animal feedstuffs)
and increased internationaltrade in dairy products. However, in real terms
(see Figure V-Dl), present prices are not as high as they were in the 1974-75
period.
For the foreseeable future the surplus dairy production in the EC
* will continue, keeping down prices in international trade and forcing
irrationalpricing policieson developing countries.There are some signs that
support of dairy prices could be reduced or even eliminated in the US under
the present administration.It is conceivable that the US could do so and at
the same time obtain agreement from the EC to follow a similar path.
February 1982 V-14
Table V-D1: EXPORTUNIT VALUESFOR DAIRY PRODUCTS
Non Fat Dry Milk /a Butter /b Cheese /b
1961 225.4 718.5 563.2

1962 203.6 672.5 512.6
1963 199.2 681.0 518.0
1964 205.6 696.2 535.0
1965 298.3 778.3 575.4
1966 301.8 774.1 594.7

1967 301.0 695.5 658.9
1968 241.4 672.6 582.4
1969 185.8 604.6 611.4
197, 190.4 593.7 536.8
1971 238.0 603.0 557.4

1972 472.9 1,003.7 790.4
1973 548.6 1,067.8 953.6
1974 670.0 1,094.0 1,122.3
1975 877.4 1,420.0 1,385.3
1976 611.4 1,112.2 1,407.3

1977 436.3 1,294.7 1,233.2
1978 537.6 1,564.8 1,416.3
1979 664.2 1,629.9 1,521.4
1980 900.0 /c 1,800.0 /c
1981 1,050.0 7c 1,800.0 7E9
/a New Zealand exports of non-fat dry milk.
/b Australianexports of butter and cheese.
/c Estimatedby EPDCE.
Source: FAO, Trade Yearbook,various issues.
.
February 1982 V-15
Figure V-Dl: EXPORT UNIT VALUES FOR NON-FAT DRY MILK, BUTTER
AND CHEESE IN CURRENT AND CONSTANT TERMS /a
Current Values
isao1 -.
Non-Fat Dry Milk

0 1 ., ., I, . I I ,*} . -o
ax CS 65 17 08 71 73 75 77 79 81
Constant Values
(1975 100)
1;00- 140
1I00 - utter 10low
Xon-Fat Dry Milk 2
81 03 ' 5 e a's'T' 7g S i7 79 81
/a Deflatedby the Bank's US GDP Deflator for OECD

North.
Source; Same as for Table V-D1.

February 1982 vI-1
REFERENCES
CommonwealthSecretariat,Meat and Dairy Products, (Publishedtwice yearly,

London). Providestrade, by destinationand source, cow numbers,milk
and milk products, production and stocks for several years. Also
current prices In internationaltrade for various milk products.
FAO, ProductlonYearbook, (Annual,Rome). Production,cow numbers,yield per

cow.
, Trade Yearbook, (Annual,Rome). Trade in value and volume.
GATT, Status Report on world Market for Dair1 Products, (Publishedyearly

*ince IM, Geneva). Several year data on-production,consumption,
trade and stocks, and current prices in internationaltrade for some
dairy products.
USDA, Foreign AgriculturalService,Foreign AgricultureCircular, (Published

quarterly, Washington, D.C.). Several years data on production,
consumption,consumptionper head, and trade.

Milk and Milk Products Handbook: Commodities and Export Projections Division Economic Analysis and Projections Department

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A

Milk and MIlk Products

Fat Content Butter Yield of Cheese Yield of Powdered Whc'

Pakistan 3.0 - 5.0 -

Swirce: FAO Technical Cor.version

A. Geographical Distribution of Production.o III-1

C. Supply Responsespos... III-11

A. Changes in Composition and Geographical Distribution.. IV-1

B. International Arrangements .... V-

REFERENCES ......... .. .. VI-l

Figure V-Dl Export Unit Values for Non-Fat Dry Milk,

The internationalmarket for dairy products has been undergoing a

* 1/ R.E. McDowell, "State of the Dairy Induetry in Warm Climates of Less

Milk can be internattonally tra4ed either i* 4r, .wvpoVA. -oxr C46-

1/ The treatment of milk for the liquid market is termed 'processing';pro-

"Toning" is the addition of reconstituted skim milk to locally

February 1982 II-5

process, resulting in the formation of a relatively small number of large

for direct consumption or after processing by local recombining plants is

Growth Rate "

----------------------- (million mt)-------- - - ~--(S

/a Spain, Turkey, Portugal, Greece, Israel, Yugoslavia, Cyprus, Malta, Japan.

Source: FAO, Production Yearbook, various issues.

------ ___________----(-000 mt…)---------------

Indtistriali7p,1Cotintries 390 585 739 810 875 1,170 1,153 5.4

Developing Coountri;-s 60 107 227 243 359 438 402 11.8

/a Spain, Turkey. Portugal, C.reece,Israel, Yugnslavia, Cyprus, Malta, Japan.

Sourne: FAO, Production Yearbook, varintis issuiec

-I-- > Crowth Rate

…-------------('000 MCt------------- --(1)-

WORLD 1,707 2,249 3,002 3,049 3,979 4,156 4,167 5.3

Centrally Planned Economies 39 71 227 267 579 727 759 20.0

Developing Countries 71 77 39 42 52 52 48 -2.0

/a Spain, Turkey, Portugal, Greece, Israel, Yugoslavia, Cyprus, Malta, Japan.

Source: FAO, Production Yearbook, various issues.

…---____________________( 000 mt)…------------------------

Other Western Europe 104 92 116 112 88 ltO 115 0.5

/a Spain, Turkey, Portugal, Greece, Israel, Yugoslavia, Cyprus, Malta, Japan.

Source. FAO, Production Yearbook, various issues.

WORLD 5,436 5,884 5,896 5,942 6,516 6,958 6,918 1.4

EC 1,411 1,509 1,541 1,498 1,712 1 925 1 928 1.8

Source: FAO, Production Yearbook, various issues.

WORLD 6,941 7,746 7,714 8,057 9,412 10,720 110012 2.7

Source: FAO, Production Yearbook, various isrues.

Efforts have been taken by moqt of the surplus pr-oducingindustria-

WORLD 1.7 1.U 1.9 1.9 1.9 1.9 2.0 0.8

Belgium/Luxembourg 3.8 3.7 3.6 3.6 3.6 3.8 3.9 0.1

Australia 2.0 2.3 2.7 2.7 2.8 2.6 2.9 1.9

Fource: FAO, Production Yearbook, various issues.

Table III-Cl: SUPPLY PRICE ELASTICITIES FOR DAIRY PRODUCTS

Elasticity with Respect to Price

1/ Care Is necessary in interpreting statistics about milk consumption,

1975 1978 1979 1975 1978 1979

-------('000 mt)------ -------(kg/hd)-------

WORLD 2,366 3,860 4,154 0.6 0.9 1.0

Industrialized Countries 2,019 3,427 3,651 5.3 5.1 5.4

EC 1,070 1,843 2,254 4.1 6.9 7.1

Western Europe 173 150 312 5.6 4.9 10.1

Centrally Planned Economies 83 580 506 0.7 1.5 1.3

Developing Countries 347 433 503 0.2 0.2 0.3

Source: USDA, Foreign Agriculture Circular, various issues.

Table IV-A2: BUTTER CONSUMPTION AND CONSUKPTION PER HEAD