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Ukrainian Grain & Oilseed Market

Ukrainian Grain&Oilseed Market

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Ongoing Economic Crisis in Argentina Impacts Dairy

26.07.2024 09:28 "Agro Perspectiva" (Kyiv) — According to the report of the USDA Dairy: World Markets and Trade (July 2024), the Argentine dairy industry is grappling with significant challenges this year brought about by the country’s economic crisis. The combination of inflation in domestic inputs and government instituted foreign exchange controls (restrictions on capital outflows, controls on foreign debt payments, etc.) have wide-ranging impacts on milk production, export competitiveness, and

domestic consumption, and is reshaping the industry’s landscape in the short run.

Argentine dairy farmers depend heavily on largely domestically produced inputs, including feed, machinery, and fuel. The increased financial burden has

forced many to cut production or seek additional capital, with many operating at a loss. As a result, year-to-date milk production in Argentina has

declined precipitously. From January through June 2024, Argentina milk production fell 13 percent from the same period in 2023. In 2023, milk production

totaled 11.7 million tons, but this figure is forecast to fall 7 percent to 10.8 million tons. The abrupt drop in production in early 2024 led to a rapid recovery in milk prices, which supports expansion in production during the second half of the year. The consistent decrease in production over the past 5 years highlights the sector’s struggle to maintain output levels amidst rising costs and economic instability.

Conversely, the currency devaluation has made Argentine dairy products more competitive in the global market. A weaker peso translates to lower prices for foreign buyers. Exchange rates and inflation were so disadvantageous to domestic producers that it raised significant uncertainty as to whether traders would sit on inventories or if there would be a rush to secure foreign currency, notably in U.S. dollars. Dairy export volumes increased 10 percent in the first

5 months of 2024 compared to the same period in 2023. Notably, cheese exports are forecast to rise from 85,000 tons in 2023 to 100,000 tons in 2024.

Domestically, the economic situation remains challenging. The rise in production costs has led to higher prices for dairy products on the domestic market. With inflation eroding consumer purchasing power, many families are struggling to afford basic food products, leading to a decline in forecast domestic consumption. Domestic fluid milk consumption in Argentina is forecast to fall to 1.6 million tons in 2024, 7 percent below 2023. Falling consumption of all

dairy products poses a significant challenge for the industry. Producers are faced with the choice of focusing on the more lucrative export markets or continue serving the increasingly price-sensitive domestic market.

Agro Perspectiva

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