South Korea to implement plant registration system
Korea issued new legislation effective February 4, 2016, that mandates plant registration for overseas facilities with Korea’s Ministry of Food and Drug Safety (MFDS) by August 3, 2016. However, as a trade facilitating measure, Korea has grandfathered all manufacturing facilities as approved if the exported livestock products (including dairy) entered the country any time from 1998 through February 4, 2016.
MFDS is currently compiling a list of foreign plants to generate this grandfathered approved plant list. The agency expects to have the draft finished by early March, at which point MFDS will share the list with trading partners’ governments to confirm whether there are any missing plants.
Food products can continue to be imported from unregistered manufacturers until August 3, after which only products from registered manufacturers will be allowed import into Korea. The U.S. government and MFDS will be discussing the procedures to register new U.S. plants. USDEC will share additional details as they become available. Please contact Matt McKnight at mmcknight@usdec.org or Sandra Benson at sbenson@usdec.org with any questions.
China imports reach record highs in January
China imported record volumes of dairy last month, including more than 120,000 tons of WMP (just shy of the January 2014 high) and new highs in cheese and butterfat. In addition, SMP imports were up 43 percent, whey imports were up 52 percent, fluid milk imports were up 71 percent and infant formula purchases were up 39 percent. On a milk-equivalent basis, imports were up 51 percent from the prior year. (GTIS, USDEC staff)
ALIC butter tenders undersubscribed again
Suppliers sold only 4,312.1 tons of the total 5,314 tons of butter available during February 23 and 25 Agriculture and Livestock Industries Corp. (ALIC) SBS tenders in Japan. Import demand is low at present, given ALIC forecasts that domestic butter production February-December will rise 12 percent, while demand declines 9 percent.
For the two tenders combined, New Zealand secured the largest portion (1,705.2 tons), followed by the Netherlands (1,463 tons), Germany (838 tons), France (168.4 tons), Switzerland (117.5 tons) and Australia (20 tons). The average price declined by nearly US$500/ton between the first and second event, falling from about US$5,164/ton to US$4,655/ton.
ALIC has yet to announce plans for the unused portion of the allocation. The group has so far slated one more SBS tender for 2,500 tons of whey and whey products on March 1. For more information, contact USDEC’s Japan office at usdecjapan@marketmakers.co.jp or (011) 81-3-3221-6410. (USDEC Japan office)
MARKET CONDITIONS
EU dairy farmers seek intervention restart
Irish and British dairy farmers are calling on the European Commission to roll back the clock to zero when intervention reaches its 109,000-ton cap, rather than implement a tender system as rules specify. The groups said that intervention is a proven mechanism to tighten supplies and is particularly necessary given that markets are still struggling and the spring flush is around the corner. Analysts expect further farmgate price cuts in Europe in the months ahead as April-June output will likely exceed even last year’s lofty levels. From January 4-February 21, EU dairy processors offered 44,642 tons of SMP to intervention, with more than 7,200 tons in each of the past three weeks.
A November AHDB Dairy survey of 325 UK dairy farms found that only 12 percent were farming with long-term sustainable herds (meaning their output covered full economic costs). That number is down from 64 percent in 2013/14. More than half of those surveyed were operating in the red. (European Commission; Farmers Weekly Interactive, 2/24/16, 2/23/16; DairyReporter.com, 2/24/16; The Irish News, 2/23/16)
European Commission reallocates cheese PSA
The European Commission reallocated 68,123 tons of Private Storage Aid (PSA) for cheese and extended the program to September 30, 2016. Although some countries hit the ceiling on their PSA cheese limits, more than two-thirds of the original 100,000-ton allocation had gone unused. The eight EU members who made the most PSA applications since the program was reinstated last October (Finland, France, Germany, Ireland, Italy, Lithuania, Sweden and the UK) were given the new allocations. (Dairy Markets, 2/18/16)
NZ government encourages banks, dairy farmers to stay the course
New Zealand Finance Minister Bill English ruled out any government intervention in the dairy sector to support the industry, while Primary Industries Minister Nathan Guy urged banks to stand by dairy farms despite the prolonged market downturn. English expressed confidence that farmers and banks could pull through the downturn, although he reportedly said farmers should not expect farmgate prices to ever reach NZ$8.00/kgMS again (about equivalent to US$16.28/cwt.), given that U.S. and EU farmers could produce milk “more quickly than we can imagine.”
Some analysts said Kiwi farmers need to prepare for regular payouts of less than NZ$6.00/kgMS (about equivalent to US$12.21/cwt.) and encouraged them to trim input costs to $3.75-$3.80/kgMS, a level that is far below current break-even estimates and would significantly restrict New Zealand milk production growth. (Interest.co.nz, 2/24/16; Agriland, 2/22/16; NZFarmer.co.nz, 2/23/16)
Uruguayan dairy processing sector gets temporary relief
The Uruguayan government is funding a $93-million loan package for four Uruguayan dairy suppliers affected by Venezuela’s failure to pay for dairy exports. The suppliers made the shipments last year as part of a government-brokered trade deal that was supposed to fill Venezuelan supply needs while supporting the troubled Uruguayan dairy sector (see Global Dairy eBrief, 1/28/16). The loans, which cover the value of the shipments and are repayable over three years, are aimed at easing cash flow pressures.
Uruguayan President Tabaré Vázquez is also talking with the nation’s dairy farmers about a producer support program. Uruguay exports around 70 percent of its dairy production, and milk powder volumes held up well in 2015 (SMP exports +24 percent to 26,355 tons; WMP +67 percent to 97,435 tons). But cheese shipments declined 36 percent to 28,839 tons, as the country lost its largest customer in Venezuela. Uruguay’s dairy suppliers are reportedly seeking to expand export markets in Cuba and Russia to help offset the loss. (USDEC staff; Latin American Herald Tribune, 2/23/16; Dairy Markets, 2/22/16; El Pais, 2/18/16; TASS, 2/10/16)
China-backed firm buys Australia’s biggest dairy farm
Despite nationalist calls to deny the deal, Australian regulators approved the sale of the nation’s largest dairy farm to a Chinese buyer. Chinese businessman Lu Xianfeng and his Australian corporate arm Moon Lake purchased the 18,000-cow Van Dieman’s Land Co. (VDL) in Tasmania. Moon Lake said it would continue to supply all VDL milk to Fonterra Co-operative Group’s Australian division according to VDL’s contract and pledged to invest A$100 million to develop another nine farms on the property. How that plan plays out remains to be seen.
The past year has been marked by announcements of Australian dairy development plans that ultimately wound up in limbo or disappeared altogether. Most recently, an A$750 million plan (about US$542 million) by investment firm Aerem (formerly Linear Capital) fell through. Aerem intended to buy up to 70 Victoria and South Australia dairy farms and build an A$250 million infant formula plant focused on exports. The company blamed the collapse of the deal on unfavorable market conditions. (The Australian, 2/24/16; Wall Street Journal 2/22/16; Stock & Land, 1/20/16)
Chinese meat companies plan major pig expansion
Over the next three years, Chinese meat processors plan to spend nearly $11 billion on a string of 35 farm projects that will add almost 25 million additional pigs to the country’s livestock totals. Much like the nation’s dairy farming sector a decade ago, smaller, less efficient operators dominate China’s pig industry. Government documents note that large, professional companies control only 5 percent of the volume, creating opportunity for consolidation.
The pig market remains a key outlet for permeate in China as USDEC continues to pursue permeate acceptance for food applications with the nation’s regulators. For more details on some of the projects getting underway, read “China’s meat firms invest in pig herd growth” at FoodNavigator-Asia.com. (FoodNavigator-Asia.com, 2/22/16)
COMPANY NEWS
Ornua butter plant targets international demand, courts controversy
Irish dairy co-op Ornua expects to open a new butter manufacturing plant in Mitchelstown later this year. The new plant will take the place of aging third-party facilities. Ornua said it was needed “to meet the increasingly sophisticated international market requirements for tailored products, including new butter products and formats not currently available in Ireland.” One of its primary initial items will be stick butter for the U.S. market.
It will be the company’s first production facility in Ireland, a move that some analysts believe could generate tension in the Irish dairy sector given Ornua’s position as an international marketer of dairy products manufactured by its members. Ornua downplayed the issue, noting that its members’ cream would be going into the butter. For more on the potential controversy, read the Irish Times article here. (Irish Times, 2/20/16)
Bega sees big opportunity in healthy aging products
Bega Cheese Executive Chairman Barry Irvin said that over the next decade dairy products for healthy aging will be as big as infant formula is today. Bega and its joint venture partner Blackmores rolled out an infant formula line earlier this year and are currently focusing on new product development with an emphasis on “the other end of the age spectrum.”
“Things like bone health, gut health, brain health, metabolic challenges like diabetes—there’s myriad dairy proteins and products” with “extraordinary research” supporting their contribution to people’s health, Irvin said. (Sydney Morning Herald, 2/24/16)
Company news briefs
Nestlé entered the Vietnamese ice cream market, selling Milo and Kit Kat brand products imported from Thailand . . . Rod Quin, CEO of New Zealand’s Westland Milk Products, is stepping down. He did not specify a date but said he would remain in the job until a replacement was named . . . Australia’s Camperdown Dairy International (CDI) is investigating an IPO to raise A$100 million to expand its infant formula business. (CDI is unrelated to Camperdown Dairy Co., recently acquired by Australian Dairy Farms Group.) . . . Australi an organic milk, yogurt, cheese and butter maker B.-d. Farm Paris Creek is spending A$6.5 million to add extended shelf-life packaging capacity to its Adelaide Hills, South Australia, plant, with an eye toward expanding into overseas markets. (USDEC Vietnam office; Company reports; Australian Financial Review, 2/23/16; Stock Journal, 2/3/16)
From the U.S. Dairy Exporter Blog
