7 August 2012

3 minute read

Yet a combination of factors including restrictive government policies, weather dependence, competition for resources from other ag sectors like beef, sheep and soybeans, and healthy growth in domestic consumption— limited dairy industry growth and kept the nation off most prognosticators’ lists of up-and-coming exporters - until now.

Argentina’s dairy performance over the past year-plus, shifts in government policies and an influx of investment suggest the nation may be more of an export force in the years ahead than many imagined.

Farm conditions—everything from weather to farmgate milk prices to milk profitability vs. other ag sectors—were ideal, driving milk output 13 per cent to nearly 12 million tons last year, according to statistics from Argentina’s Ministry of Agriculture, Livestock and Fisheries.

It was the fourth straight year of rising output. In the first five months of 2012, production grew more than nine per cent. At the same time, the government eased dairy export restrictions that were implemented mid decade to keep a lid on domestic retail dairy prices.

Argentine exporters also benefit from market access provisions in the country’s existing regional trade agreements, such as Mercosur and Unasur.

The government reported Argentine dairy export volume rose 39 per cent to 440,083 tons in 2011, led by milk powder (mostly WMP, up 54 per cent to just under 200,000 tons). Cheese (+33 per cent) and whey and its derivatives (+55 per cent) also showed healthy gains.

Looking ahead

Some of the nation’s largest dairy processors appear to think more good days are to come. La Serenissima, NAM Corp., SanCor and others have recently made or announced major investments, largely geared toward expanding drying capacity for milk and whey.

The country is also looking to broaden its customer base beyond Algeria and Latin America. Recently, the Dairy Industry Center, for example, took a group of cheese producers to China to lay the groundwork to increase cheese exports.

“The factors often cited as limiting milk production and dairy export growth proved inconsequential over the past year or two,” says Sonia Amadeo, USDEC’s South American office representative.

“But whether Argentina can maintain its dairy industry growth is unknown.” Industry constraints have subsided but not disappeared. Farmgate prices that are declining around the world will likely catch up to Argentine producers. Other ag crops could cycle back to the top of the profitability heap.

Plus, the Argentine government is infamous for keeping a tight rein on trade and could re-implement dairy export restrictions at any time. To top it off, the nation’s top dairy buyer, Brazil, is keen on limiting Argentine dairy flows to protect its own domestic industry.

Ms Amadeo says: “The question is whether the country can sustain growth, keep investing in capacity and prevent backsliding if conditions deteriorate.”