Up to 500 million liters of milk should no longer be sold in 2021

The phrase “it’s not easy for anyone” can never be applied so clearly to the dairy sector as it is now. All links in the chain —producers, industries, retailers and consumers— face an unprecedented crisis, according to the sector, with a drop in production, amounts received and consumption.

The country’s industries should stop selling up to 500 million liters of milk in 2021, which, if confirmed, represents a drop of about 7% compared to the 7 billion liters sold last year, according to the ABLV (Brazilian Association of the Long Life Dairy Industry).

But the scenario could be even worse in the coming months, as currently the drop in consumption is between 8% and 10%, in a scenario that has worsened since August and that generates uncertainties for the coming months.

“It’s a completely out-of-the-box number, we’ve never seen it before, it’s scary because as a commodity, [o leite] does not undergo sudden changes in consumption. It’s the biggest crisis we’ve ever faced by far. In the last 50 years there has not been such a difficult time as it is now”, stated the president of ABLV, Laércio Barbosa.

The deterioration of consumer purchasing power —due to high inflation, unemployment and the delay in the approval of emergency measures to help the population— is the main reason seen by the market for the scenario.

Prices have risen over the course of the year for the links involved in the chain, but nobody’s happy. Now, they started to fall, driven by the increase in supply in the period, greater stock in dairy products and a drop in consumption, which makes producers even more worried.

For consumers, the price of a liter of long-life milk accumulated a high of 4.18% from January to October, according to the IPCA (Extended National Consumer Price Index), but other derivatives rose much more.

Condensed milk had a high of 4.78% and powdered milk, 6.98%. Cheeses rose 14.37%, behind yogurts (14.63%) and curd (16.50%).

The price of milk collected in October and paid to ranchers in November, on the other hand, shrank 6.2% and made the average in the country reach R$ 2.1857, 2.5% less in real terms, already discounted for inflation, than the same last year, according to Cepea (Center for Advanced Studies in Applied Economics), from Esalq/USP.

With this fall, the second in a row in the field, the accumulated result for 2021 is negative at 5%, also after discounting the inflation for the period.

“All commodities and inputs are on the rise, except for milk. Fertilizers, fuels, medicines, everything rose disproportionately in relation to milk, so there could not be a fall at this time,” said cattle raiser Geraldo Borges, president of Abraleite (Brazilian Association of Milk Producers).

The market and researchers’ assessment is that, even with the return of rain, which improves pastures, milk production continues to be limited by the increase in costs and disinvestment in the activity.

“The increases have not translated into profitability for anyone, neither the producer nor the industry, let alone the consumer,” said Natália Grigol, a researcher in the dairy sector at Cepea.

According to her, items such as animal feed, inputs (fertilizers and correctives) and mineral supplementation rose due to the exchange rate level.

“Products with imported raw materials have risen and the devaluation of the real also ends up influencing foreign sales of grains. For grain producers it is interesting, but this reduces the domestic availability of these grains, which raises the price for milk producers , pigs and poultry,” said Grigol.

The climate, marked by extreme drought and frost in 2021, did not help the dairy producer either, as it deteriorated pastures.

“The cost increases more than the price to the producer, and the price to the producer increases more than the price of dairy products, because we have the Brazilian consumer at the top with the purchasing power totally in tatters.”

For the researcher, the forecast is that December will have a retraction in values, despite the year-end festivities, and the variable that should determine the path of prices should be demand, which should not grow to the point of reversing the downward movement.

According to Embrapa’s Milk Intelligence Center, preliminary data on milk uptake showed a result below that recorded in 2020 for the third quarter, with a 5% reduction, which would indicate that the tightening in the producer’s margins is affecting production.

And, with this scenario, the prospects pointed out by the president of ABLV for the beginning of next year are not encouraging.

“Consumer’s purchasing power is deteriorating, inflation continues, we don’t see prospects. The country is improving, getting jobs, but in fewer numbers than necessary. The delay in approving the new aid was also a problem. If basic product as milk is like this, it is wreaking havoc in other sectors as well,” said Barbosa.

Livestock farmers preach incentives to exports, tax relief for the sector and also greater control of imports as ways to help the sector.

“The volume imported annually does not harm, it is around 5% of the total, but when we have surges in imports, with a large volume at once, it generates imbalance,” stated Borges.

About the 500 million liters of milk that should not pass through the industry this year, the ABLV executive says that industries are moving towards other products that are easier to store, such as powdered milk, condensed milk and cheeses — although they are also with declining sales—and that imports were reduced.

“What we noticed is that Brazil significantly reduced imports, 30% less than in 2020. As we have a surplus of domestic milk, consumption has fallen and needs to import less. The balance goes this way, importing less and allocating the surplus to other products that are forcing larger inventory.”