Summary of the 17 th IFCN Dairy Conference

1. Summary of the17th IFCN Dairy Conference in Belgium Ghent, 4 – 8 June 2016 Hosting partner: Co-organiser: Special focus:Milk pricing systems and the farmer- processor cooperation Sponsors: IFCN Dairy Research Network: Contact: anke.heyer@ifcndairy.org

2. IFCN Dairy Conference 2016 – Summary Point 1: The current dairy crisis has basically 5 main drivers (details s. sheets below. Some of the arose from the dairy crisis in 2012 and the dairy price boom phase 2013/2014. Point 2: IFCN Top 20 Milk Processors: The IFCN Analysis measures annual milk intake and turnover processors and rank them by kg milk intake. The top 20 processors globally collect and process about 200 mill t milk which represents 25% market share. Point 3: Dairy Outlook 2016/2017 - Milk price recovery in 2016 is possible World milk supply based on IFCN Researchers estimates will grow by 1,5% in 2016. This is substantially lower than 2015 (+1,8%) and 2014 (+3,2%). Milk demand growth in 2015 is estimated by IFCN at a level of 1,8% - 2%. This growth was lower than the long-term average of 2,4%/year from 2006 -2015. For the year 2016 IFCN estimated milk demand growth at a level of 2%. Market balance: In 2014 and 2015 milk supply exceeds demand and dairy stocks have been build. For 2016 IFCN estimates on an annual basis that milk demand will exceed milk supply. This was not the case in the first 5 month but is expected to arise later in 2016. Milk prices perspectives: This depends heavily on the action of the current dairy stock holders. If those keep stocks for longer time a substantial recover until the end of 2016 is possible. Once stock holder act differently, price recovery will be delayed. Uncertainty: IFCN has solid data on milk supply – milk demand data are uncertain. Changes in these estimates can change results significantly up or down.

3. Point 1: IFCN World Milk Price Indicator 2007- 5/2016(USD / 100 kg Milk ECM 4% fat; 3,3% protein) The Indicator: It describes the value of milk on the farm gate once a processors sells the key dairy products at the commodity world market prices. Drop from 56 USD in Feb 2014 to22.2 USD /100kg ECM19.6 EUR /100kg ECM or 9.6 USD /CWT Average 2007-2016 of world milk price was 40 USD/100kg ECM

4. Point 1: 5 key drivers for current dairy crisis 1. 2012 Dairy crisis: High feed prices and &bad weather depressed milk supply in the year 2013. 2. 2013/14 Milk price highs: This has stimulated record milk supply growth 2014 of +3,2% or +25 mill t milk. 3. 2014/15 => depressed demand for various reasons a) High milk prices reduce milk demand + stimulate substitutes b) Lower global GDP growth; lower oil prices, currency devaluations c) Russia milk import ban driven by policy d) China and also Venezuela reducing dairy imports significantly 4. 2015 EU post quota situation: Despite low price milk supply grew substantially after milk quota abolishment from 1.4.2015 onwards. 5. Feed price level: Lowering feed prices lead to lower costs of milk production.

5. Point 1: IFCN Farm Economic Analysis Farm profitability: Share of farms with entrepreneur’s profit 2015 per 100 kg milk ECM IFCN analysis 2016: IFCN has analyzed typical dairy farming systems from 52 countries. The data represent the year 2015.Dairy farm profitability 2015: This looks critical in many farms and has decreased substantially since 2014. E.g. in Western Europe less than 10% of the farms analyzed were able to create an entrepreneurs profit. For 2016 it is predicted that farm profitability will we worse than 2015 due to falling milk prices. Costs of milk production decreasing: Driven by lower feed prices and currency devaluations against the US-$ cost decreased up to 10 US-$ per 100 kg milk.

6. Point 2: IFCN Top 20 Milk Processor by milk intakeData refer to the year 2015

7. Point 2: IFCN Top 20 Milk Processor by milk intake IFCN Top 20 Milk Processor 2015: the top 20 processor collect 200 mill t ME, which is 25.4% or the entire milk produced worldwide. Change in Top 20 companies vs 2013: Among the top 10 processors, Arla, DMK and Saputo moved up. There are two new entries among the top 20 companies: Schreiber Foods and Agropur, two players in the North American market. Three of the top 20 milk processors are placed in emerging markets, 2 in China and 1 in India Milk intake of top 20 milk processors increased 52 mill ton ME since 2007. Turn-over per kg milk: Turn-over per kg of processed milk ranges between 0.5-2.4 USD per kg in 2015, whereas Nestlé and Danone ranked highest and DFA and California Dairies ranked lowest. Method issues: IFCN collected information from public sources or estimates the figures, if not public available. Any feedback how to improve the method or the estimates are very welcome.

8. Point 3: Key pointsrelatedto IFCN milk priceoutlook 2016 and 2017 • Recovery of world milk prices can happen in 2016 • Balance: In 2016 most likely milk demand growth is bigger than milk supply growth • Stocks: Milk price recovery depends strongly on the action of current dairy stocks holders

9. IFCN dairy conference - group picture

10. The IFCN Dairy Conference 2016 The IFCN Dairy Conference Over 70 IFCN researchers and guests form 42 countries gathered for a 3 days conference in Ghent, Belgium. The special focus of this annual conference laid this time on the understanding global milk pricing systems and farmer-processor relationship. Voices about the conference Lorildo Stock - Brazil:This crisis will lead to stronger structural change compared to previous crisis's.Linda Nielsen – Zimbabwe: What is driving the crisis, what's way out of it  and being part of it is good learning Eddie Leloup – Milcobel: Happy to welcome to the Milcobel and Belgium, as developing company with its own strategies with empowering dairy farms. Optimistic scenarios and pessimistic scenarios are useful but in the end what counts is a realistic scenario. Ali Sadeghi - Iran: Good to know that the milk price "will" recover. About IFCN IFCN is a global dairy research network and provides globally comparable dairy economic data and forecasts. IFCN creates knowledge out of our data, models and analyses. The core competence lays in the field of milk production, milk prices and related economic topics.