Monica Ganley, analyst with the Daily Dairy Report and principal of Quarterra, a consulting firm in Buenos Aires, says dairy demand in South America’s largest country remained remarkably robust through most of 2020 despite the fact Brazil has been a global hotspot for the virus and the source of a particularly contagious variant of COVID-19.
“One of the big factors that supported sustained demand last year was the introduction of an ambitious government assistance program,” Ganley says. “This cash transfer program sent the equivalent of about $100 each month to economically vulnerable families between April and August. In September, the government cut the aid in half and then ended the program in 2021.”
Credited with pulling millions of Brazilians out of poverty, the pandemic aid program, both in its original and reduced forms, had a positive impact on dairy demand. “Hearty sales of dairy products played a key role in pushing Brazil’s milk prices to record-high levels last year,” Ganley says. Between January and October, milk prices in Brazil spiked 57.8% to reach an equivalent U.S. price of more than $18/cwt. “That’s very high by regional standards,” she adds.
Strong demand and high milk prices also underpinned the country’s 2020 imports, which rose 21% year over year in volume terms, after adjusting for leap day,” she says. To meet last year’s strong demand, imports of milk powders surged. Brazil’s imports of whole milk powder climbed 44.7%, compared with 2019 levels, according to USDA data.
“But this year is shaping up to be very different than 2020,” Ganley notes. “In an attempt to reduce spending, Brazil’s government has almost entirely discontinued coronavirus aid, and instead will expand existing social programs. However, the impact on poverty rates will be far less positive than under last year’s aid program.”
As a result of lower-income groups having less money, retailers and wholesalers have been forced to significantly discount dairy product prices to move stock. “These price signals have reverberated down the dairy value chain, resulting in an 8.8% decline in the milk price over the last three months,” Ganley says. “Lower milk prices are unwelcome news for Brazilian dairy producers who, like many of their peers around the world, have seen operating costs surge as feed prices have climbed.”
Lower producer margins could lead to a milk production contraction this year, following last year’s 1.8% year-over-year increase. A combination of softer demand for dairy products and falling domestic prices will likely lead to Brazil importing fewer dairy products in coming months. “As a result, more products from Argentina and Uruguay, which typically would have headed to Brazil, will make their way into the global market,” Ganley concludes.