Domestic demand drives Brazilian dairy expansion

Brazil, an exporting power in other agriculture commodities, consumes 98 per cent of dairy production inside the country

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Optimism is the name of the game in the Brazilian dairy industry as the sector continues to boost production in South America’s largest country.

According to a recent survey of Brazil’s top 100 dairy producers by independent research firm MilkPoint, 90 per cent of respondents plan on expanding their operations in the next three years.

Unlike many other sectors in Brazilian agriculture like crops, livestock and poultry, the focus of Brazil’s dairy sector is on the domestic market – approximately 98 per cent of production stays at home.

While that can shield farmers from global dairy market pressures, Brazilian dairy consumption drops in times of economic turmoil, like the drastic drop in GDP, rapid rise in unemployment, increased budget deficit and severe recession that affected the country from 2014 to 2017.

The economic situation is improving and almost 40 percent of survey participants reported their profitability in 2018 as better than the previous year. A milk transporters’ strike last spring that forced farmers to dump milk when they were unable to get it to market also helped drive up milk prices.

João Salgado.
photo: Lilian Schaer

“Consumption is 100 per cent dependent on the economy and has been rising the last 10 years, although it came down during the economic crisis,” said João Salgado, product manager with DeLaval during a recent tour in Paranà state. “We are a huge internal consumption market, and it’s a big opportunity for us.”

The country’s largest dairy farm produces over 73,000 litres per day, an increase of nine per cent over 2017. By comparison, Paranà’s biggest dairy farmers average 19,238 litres of milk daily, an increase of 7.3 per cent from 2017.

Paranà is part of Brazil’s dairy mecca; the southern and southeastern regions of Brazil are the country’s main milk production areas. Most dairy animals in the state are Holsteins, even though Girolando cattle, a Holstein-Gir cross that combines the productivity of the Holstein with the heat tolerance of the Indian breed, produce about half the country’s milk.

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Just over half of the top 100 producers had a cost of production between 1.10 and 1.30 Reals ($0.37 to $0.44 CDN) per litre, and only one per cent was able to produce for less than 0.90 Reals ($0.30 CDN) per litre. Farmers supplying the region’s large co-operatives receive a price based on the average cost of production plus 10 per cent, with quality premiums available.

“About 60 per cent of milk’s cost of production is feed, so when we go to a farm to discuss a DeLaval project, the first question is how big is the farm, how much feed can you produce and can you buy more,” Salgado said. “That’s the biggest limiter to growth.”

Land is scarce in Paranà, so the focus for Frisia, one of three large co-ops in the state, is boosting dairy production on its existing land base.

The strategy, which includes a focus on nutrition, providing business planning tools, and offering a Six Sigma lean principles-based training course for farmers is paying off.

According to Frisia’s Michael Warkentin, milk production rose from approximately 140 million litres in 2013 to over 234 million in 2018, with double digit increases in 2017 and 2018. During the same time, the number of dairy farm members remained stable at 277.

Michael Warkentin.
photo: Lilian Schaer

“Training helps farmers see opportunities for growth in their farms, and little changes can make a big difference,” Warkentin said. “We saw production improvements after the start of the dairy (training) program.”

Dairy farmer Ronald Rabbers milked 110 cows on 270 acres when he first started farming. Today, his herd has grown to 360 milking animals on the same land base, and he’s still expanding with another new barn under construction.

Better crop and land management, as well as better crop genetics that have improved yields, are helping support that growth.

Ronald Rabbers.
photo: Lilian Schaer

“I didn’t think I could milk so many cows on this amount of land,” he said. “I can go as high as 500 cows, but then I will need to buy silage from a neighbour.”

Together with nearby co-ops Capal and Castrolanda, Frisia delivers 3.5 million litres of milk daily, supplying 30 per cent of Danone and Nestle’s needs respectively. A milk drying plant is opening later this year, and a cheese plant is also in the works in order to capitalize on market demand for whey.

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