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USDA GAIN: Dairy and Products


11 October 2012

USDA GAIN: Chile Dairy and Products Annual 2012USDA GAIN: Chile Dairy and Products Annual 2012

Chile’s dairy production is expected to increase again this year, as weather has been favorable for grass production which is the primary feed for dairy cattle in Chile.
USDA Gain Report - Dairy and Products

Executive Summary:

Chile’s milk production is expected to increase again in 2012 (Jan-Dec). As a result of good weather conditions which is an important factor for pasture production. Chile’s dairy cattle are grass fed so high-quality and abundant grass lead to increased milk production. The industry is projecting another expansion, the outlook for the next years’ milk production is to increase further as large producers are expanding their operations and many farmers invest in new technologies and animal genetics.

Production:

Chile’s total milk output increased 3.6 percent from 2.53 billion in 2010 to 2.62 billion liters in 2011. Milk production increased at a slightly slower rate than last year due to colder than normal temperatures last spring (Sept-Dec 2011) that delayed the growth of pastures reducing milk output slightly. Over 80 percent of the dairy herd is fed in grazing fields, supplemental feed is used only by large producers during the winter months.

Better weather conditions during the spring 2012 and expected for summer of 2012 (January through March) will expand total milk production another 3.2 percent for CY 2012 to an estimated 2.71 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 workers.

Trade:

Other Latin American countries are the main destinations for Chile’s dairy exports, led by Mexico at 26 percent and Colombia with a 17 percent of total Chilean dairy exports. Close to 40 percents of these exports are made up of whole and non fat dry milk powder.

Once again, Argentina was the main supplier of dairy products to Chile during 2012. The US is Chile’s second most important supplier of dairy products.

The dairy industry’s export exceeds imports in volume and value. In CY2011 the trade balance expressed in fluid milk equivalent fell when compared to the previous year.

Policy:

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 will have duty free access for both whole and non-fat dry milk by the end of 2012. Dairy products are excluded from the tariff reduction schedule for all other countries that have signed agreements with Chile.

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 mt 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: http://www.yotomoyocomo.cl/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 which will reach 145 liters in CY2012.

Dairy, Dry Whole Milk Powder

Production:

Close to 75 percent of Chile’s production of dry milk is whole milk powder. Production of whole dry milk is expected to fall in CY2012 when compared to the previous year. For 2013 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.

Consumption:

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.

Trade:

Chile’s imports of whole dry milk depend on domestic production and on the exchange rate. Although, Chile's milk processing industry projects increases in its export markets in the coming years as the domestic industry becomes 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

Production:

Chile’s NFDM production rose in 2011, as milk output increased. Production in 2012 is expected to increase slightly as total milk production will increase as was indicated by the industry, together with an increase in the domestic demand for NFDM.

Consumption:

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.

Trade:

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.

October 2012

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