USDA GAIN: Dairy and Products
24 October 2013
Dairy, Milk, Fluid
Chile’s total milk output increased 1.2 percent from 2.62 billion in 2011 to 2.65 billion liters in 2012. The increase in production although at a slower rate than during the previous year, due to weather conditions during last spring (Sept-Dec 2012), when a deficit of precipitation together with higher than normal temperatures delayed the growth of pastures in the major milk production areas, reducing milk output slightly. Over 80 percent of the milk production herd is fed in grazing fields, supplemental feed is used mainly by large producers and during the winter months.
Better weather conditions during the spring 2013 will expand total milk production another 3.8 percent for CY 2013 to an estimated 2.72 billion liters, when compared to the previous year.
Chile currently has an estimated 16,000 dairy farmers with approximately 460,000 cows in production, of which 80 percent are considered small producers and the whole dairy industry employs directly and indirectly an estimated 35,000 persons.
Historically, Latin American countries have been the main destination for Chile’s dairy exports, led by Mexico with a 25 percent in 2012. Prior to 2012 Colombia was the second most important export market, but in 2013 the Emirates imported over $15 million. Close to 50 percent of these exports consist of whole dry and condensed milk.
Argentina was again the main supplier of dairy products during 2012. The US was Chile’s third supplier of dairy products after New Zealand. Imports of dairy products increased significantly during 2012 as a result of a fall in the exchange rate together with lower international prices of dairy products. These prices started to climb again during the first 6 months of 2013.
The dairy industry’s exports exceed imports in both volume and value. In CY2012 the trade balance expressed in fluid milk equivalent fell when compared to the previous year.
Although Chile bound its dairy product import duties (HS 04.02, 04.05, 04.06) at 31.5 percent in the Uruguay Round, a flat import tariff of 6 percent is applied on nearly all imported dairy products. Additionally, a value-added tax of 19 percent is charged at the consumer level on all goods, domestic or imported. Chile has reduced import duties only for Colombia and the United States for whole and non-fat dry milk as a result of the Free Trade Agreements with these countries. Non-fat dry milk has entered duty free since 2007 and whole dry milk since 2011. Colombia has had duty free access for both, whole and non-fat dry milk since 2012. For all other countries that have signed agreements with Chile, dairy products are excluded from the tariff reduction schedule.
As a result of Chile’s trade agreements, the dairy industry expects to keep increasing its export market share. The US – Chile FTA provides for a 3,500 metric ton duty free quota for Chilean dairy products. This volume increases 10 percent each year until Chile gains duty free access in 2016. The agreement with the EU offers a duty free quota of 1,500 Tons, with a yearly increment of 5 percent. The agreement reached with South Korea gives only a 1,000 Metric Ton duty free quota for whey powder, but there is an agreed upon reduction in the high duties for dairy products like yogurt and cheese in 10 years. Duties applied to these products are 40 and 38 percent respectively. No preferences were agreed for dairy products in the Chile-Japan trade agreement.
In an effort to increase domestic consumption of milk and milk products, the industry and producers continues with a promotional campaign. They have agreed to form and finance an association (Promolac) that manages the contributed funds in promotional campaigns, mainly through TV and printed media. Industry sources have indicated that promotion has been an important factor in total domestic dairy product per capita consumption reached 150 liters in CY2012.
Dairy, Dry Whole Milk Powder
Close to 75 percent of Chile’s production of dry milk is whole milk powder. Production of whole dry milk is expected to increase slightly in CY2013 when compared to the previous year. For 2014, production of whole dry milk is expected to stay at similar level in spite of a predicted increase of milk output. Total milk production will expand as weather has been more favorable for grass production which is the basic food in most milk production regions.
Dry milk is available for sale in all Chilean supermarkets and smaller grocery stores. Families that do not consume large quantities of milk or lack refrigerators to keep UHT fresh after opening prefer dry rather than fluid milk. Ultra high heat treated milk (UHT milk) is very common in Chile because you can store the containers for long time without refrigeration, but once opened the containers have to be kept in refrigerators. Government food programs also account for a significant proportion of dry milk consumption. Government tenders for dry milk may be filled by either domestic or imported product. During the winter months, the industry reconstitutes fluid milk from dry milk produced during the summer, in order to produce dairy products that have a constant demand throughout the year.
Chile’s imports of whole dry milk depend on domestic production and on the exchange rate.
Although, Chile's milk processing industry projects to increase its export markets in the coming years as they become more competitive and the price incentive increases, industry sources indicated that this will depend on the exchange rate with the US dollar. Chile’s main export markets are in Latin America, particularly Venezuela, Peru, Colombia and Mexico.
Dairy, Milk, Nonfat Dry
Chile’s NFDM production stayed at similar level in 2012 when compared to the previous year in spite of an increase in milk production. Production in 2014 is expected to stay at similar level than the previous years in spite of a total milk production increase as was indicated by the industry.
Chile’s food industry determines to a great degree the consumption level of NFDM in Chile. Leading products made from NFDM are chocolate, ice cream and yogurt. The consumption rate of these products is in line with Chile’s economic growth. In the outer years, utilization is expected to continue to increase, but at a slower rate.
The US has become again an important supplier of NFDM (non fat dry milk) for Chile. Competitive US prices for NFDM is the main reason for US milk imports, according to industry sources.
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