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I
nt. J. Trade and Global Markets, Vol.
7
, No. 2, 2014 145
Copyright © 2014 Inderscience Enterprises Ltd.
Growth and instability in dairy production and trade:
a global analysis
Ramphul Ohlan
Institute of Management Studies and Research,
Maharshi Dayanand University,
Rohtak 124001, India
E-mail: ramphul.ramphul@gmail.com
Abstract: The study investigates the pattern of growth and instability in the
production and trade of dairy products at the global level and in the world
leading producers, exporters and importers in the context of the World
Trade Organization (WTO) regime using the log linear regression model,
decomposition analysis and standard deviation of growth rate. The basic
characteristics of the dairy industry in the world leading exporters of dairy
products are briefly reviewed. We find that under the WTO regime for the
world at large and in most of the leading producers, the growth rate of milk
production has increased statistically significantly while its instability has
declined. It indicates that high rate of growth in milk production does not cause
high instability. Our findings suggest that there is a need for enhancing the
domestic dairy production by focusing on improvements in yield and
encouraging the processing of milk to meet the fast-growing demand for a large
lacto-vegetarian populated country like India.
Keywords: milk; WTO; World Trade Organization; international trade;
production growth; variability; additive decomposition model.
Reference to this paper should be made as follows: Ohlan, R. (2014)
‘Growth and instability in dairy production and trade: a global analysis’,
Int. J. Trade and Global Markets, Vol. 7, No. 2, pp.145–172.
Biographical notes: Ramphul Ohlan is an Assistant Professor (Senior Grade)
of Economics at Institute of Management Studies and Research, Maharshi
Dayanand University, Rohtak, Haryana, India. He has a PhD in Economics
from Department of Economics, Kurukshetra University, Kurukshetra, India.
He has published extensively on agriculture and food economics issues in
international journals of repute such as Quarterly Journal of International
Agriculture, The Journal of World Investment and Trade, African Journal of
Social Sciences, Asian Profile, Social Indicators Research, Agricultural
Economics, Journal of International Economic Studies, South Asian Survey and
Journal of Indian School of Political Economy. His current research interest
lies mainly in competitiveness and international trade of agri-food products and
marketing of traditional food products.
1 Introduction
The dairy sector at the global level has undergone some noteworthy changes during
the last three decades. First, the milk production has grown sizably, moved up from
146 R. Ohlan
465.66 million tonnes in 1980 to 735.51 million tonnes in 2011, a 57.95% increase.
Second, demand for dairy products has grown rapidly in the developing world, driven
by economic growth, population growth, urbanisation, food preferences, awareness for
health and rising income levels. Third, the share of the developing countries in the
world’s total milk production has jumped up from 41% in 1980 to 51% in 2011. Fourth,
the trade orientation of the dairy sector, measured as the share of trade in production,
has moved up considerably, increased from 9.2% to 14.4% during the same period.
Finally, at the same time, the world dairy trading system has witnessed profound changes
with the establishment of the WTO on 1 January 1995. The treaty on agriculture signed at
the ministerial meet on 15 April 1994 by 125 nations and the agreement on agriculture
(AoA) became effective from 1 January 1995, with the establishment of the WTO.
One of the main objectives of the WTO’s AoA is to increase the value of the world dairy
trade and reduce its volatility.
The standard argument in favour of the introduction of the dairy sector in the WTO is
that a free and fair trade in dairy products would lead to a substantial increase in the
world total dairy trade. On the eve of AoA, it was forecasted that under the liberalised
farm trade order world dairy trade would grow faster than pre-WTO period and its share
in the world total merchandise trade would improve. Now, it is, therefore, appropriate to
review the changing pattern and trends in global milk production and trade in dairy
products.
Given the overwhelming importance of the dairy sector in livelihoods, equity
and food security for the rural masses in many developing countries, a quantitative
assessment of the contribution of the various factors to growth of milk output is helpful in
reorienting the programmes and priorities of dairy development. It is widely known that
many factors affect the growth of milk production. Among these, a number of dairy
animals and yield are major ones. These sources of milk output growth have relevance
in deciding programmes of dairy development and priorities of investment in it like
livestock revolution. Thus, it becomes important to get insights into growth rates of milk
production in leading milk producers to find why these growth rates differ from one
another, so that the bottlenecks may be removed to achieve the speedy development of
the dairy sector.
A decomposition of growth in milk production remained of active interest to
researchers and policy-makers. A breakdown of milk output growth into various
components, viz. number of dairy animals and yield, etc., facilitates output projection
with alternative targets and policies. Thus, decomposition of milk output among its
constituent forces is of great importance. An analysis of the behaviour of milk production
in the past and estimation of its growth rate may provide a basis for further projection of
milk output.
To assess the consistency of growth performance, it becomes imperative to study
instability indices for different variables concerned with dairy production and trade.
Inadequate recent information at the macro-level has impaired policy initiatives in the
emerging globalised farm trade order. Therefore, it is instructive to provide current
evidence on temporal and spatial dimensions of the global milk production and trade
development. A survey of literature on the subject brings out that there is hardly any
systematic and comprehensive study that empirically investigates the growth and
instability in the world dairy production and trade in the context of the WTO regime
Growth and instability in dairy production and trade: a global analysis 147
at the disaggregate level. Against this backdrop, the main aim of our study is to
investigate the growth and instability in dairy production and trade at the global level and
in the world’s leading producers, exporters and importers in the context of the WTO
regime. The specific objectives of the study are:
• to investigate the pattern and trends in global milk production and trade
• to measure the relative contribution of yield and the number of dairy animals to the
growth in milk production
• to examine the extent of instability in global milk production and trade.
The remainder of the study proceeds as follows. In Section 2, we briefly review the
existing theoretical and empirical literature on the relationship between growth and
instability in milk production and trade. In the same section, we present the time
profile of output growth in leading milk producers as well. Section 3 briefly describes
the methods of analysis used in the study for the analysis of growth and instability, and
mentions the sources of data. Section 4 presents empirical results and subsequently
elaborates. The final section concludes and offers policy implications.
2 Review of literature and milk growth profile
1
2.1 Review of literature
Morrow et al. (1998) argued that politics shapes international trade. This is so since
governments in free market economies still set the rules under which firms export and
import, while governments in managed economies directly negotiate the terms of trade.
It is widely known that the world dairy trade has traditionally been destroyed by
protectionist dairy policies and domestic support, as it was largely neglected in the
various negotiating rounds of the general agreement on tariffs and trade (GATT) 1947.
The dairy sector was not subject to the same restrictions on the use of trade
opening instruments as was the manufacturing sector.
2
As the reciprocal tariff reductions
were the principal focus of the negotiations in GATT rounds and the trade in dairy
products was generally not restricted by tariff, dairy trade liberalisation was largely
avoided. Until 1994, the multilateral trade rules applied predominantly to manufactured
goods rather than dairy products, which sheltered it from the full impact of GATT
disciplines.
The WTO’s AoA was seen as only a first step towards the liberalisation
of agricultural trade (including dairy trade); domestic instruments as well as trade
instruments were subject to constraints, which, hitherto, they had not been. The WTO’s
AoA aims to reform the farm trade and make the member countries’ agricultural policies
more market-oriented. It appears committed to removing all ‘barriers’ to international
farm trade, to achieve ‘free trade,’ and thus, to remove all ‘economic boundaries’ among
nations, to achieve a single ‘global free market.’ The rules and commitments apply to the
areas of increasing market access, reducing domestic support and export subsidy, as well
as export restrictions and prohibitions. In particular, all non-tariff barriers were converted
to tariffs, subject to reduction, and then bound. Market access was guaranteed through
the use of tariff rate quotas (TRQs) and specific import targets tied to base period
148 R. Ohlan
(1986–1988) levels of consumption. Trade-distorting domestic policy instruments were
subject to reduction. The world dairy-food system is becoming increasingly globalised
during the last three decades, measured by dairy trade relative to domestic production;
the share of the world dairy exports in total milk production has been jumped up
considerably. It is, therefore, reasonable to assume that WTO does foster world dairy
trade because it reduces the influence of restrictive trade policy (politics) on international
trade.
3
Regarding the relationship between output growth and its instability, macroeconomic
theory offers three possible scenarios:
• independence between output growth and its variability
• a negative association between output growth and its variability
• positive relationship between these two variables.
Independence between output growth and its variability implies that the determinants of
the two variables are different from each other. According to real business cycle models,
output fluctuations around the natural rate are due to price misperceptions in response to
monetary shocks. On the other hand, changes in the growth rate of output arise from real
factors such as technology (Friedman, 1968).
A positive relation between output growth and its variability could be justified by the
following two economic theories. More income variability (uncertainty) would lead to a
higher savings rate (Sandmo, 1970) and hence, according to Solow’s (1956) neoclassical
growth theory, a higher equilibrium rate of economic growth. This argument is further
advanced by the notion raised by Mirman (1971), which posits that higher economic
uncertainty raises precautionary savings and leads to higher output growth. In this
context, Black (1987) argued that technology comes with expected returns associated
with degree of specialisation and varying level of risk or uncertainty. Therefore,
investment occurs in specialised technologies only if expected returns can sufficiently
compensate for the associated risk. However, this proposition is disproved by Bernanke
(1983) and Pindyck (1991) who concluded that there exists a negative relationship
between output volatility and output growth stemming from investment irreversibilities at
firm level. The scenario of a negative association between output variability and average
growth goes back to Keynes (1936), who argued that entrepreneurs, when estimating the
return on their investment, take into consideration the fluctuations in economic activity.
The larger the output fluctuations, the higher the perceived riskiness of investment
projects and, hence, the lower the demand for investment and output growth. A similar
result is obtained by the literature on sunspot equilibria (Woodford, 1990).
Given the absence of a theoretical consensus, the anticipated relationship between
output variability and economic growth remains an empirical issue. Accordingly, the
relationship between the output growth rate and its instability has recently received
increasing attention of empirical macroeconomists. Yet neither is there a theoretical
consensus nor consistent empirical evidence that would lead us to believe the relationship
is positive (e.g., Grier and Tullock, 1989; Lee, 2010; Jiranyakul, 2011), negative
(e.g., Kormendi and MeGuire, 1985; Ramsey and Ramsey, 1995; Martin and Roger,
2000; Kneller and Young, 2001) or non-existent either within broadly defined regions or
over time (e.g., Hamori, 2000; Fountas et al., 2004). In all, the growing interest in the
Growth and instability in dairy production and trade: a global analysis 149
subject may have been motivated by the following three reasons. First, the richness
of economic theories that provide for a variety of possible relationships between the rate
of output growth and its instability. Second, developments in time series econometrics
that facilitate the measurement of the variability of an economic variable. Third, the
variety of empirical results to date concerning the direction of the relation between output
growth and its variability (e.g., Caporale and McKiernan, 1996; Speight, 1999; Henry
and Olekalns, 2002).
There are few empirical studies, which characterise the world dairy market. The
prominent studies pertaining to growth and instability in world dairy production and
trade are as follows.
Food and Agriculture Organization (FAO) (2009) explored the ways of growth in
milk output between 1980 and 2007. It is found that the numbers of dairy animals
generally increased faster than yields. Jansen (2012) presented an overview of the world
dairy trade. It is noted that over the past decade world dairy trade has grown more
than production while supply base remains concentrated. In many markets, consumption
develops faster than production and trade bridges the gap. The base of global demand for
dairy products remains very broad and is widening.
USDA (2012) forecasted the milk production for major exporters. It is found that in
the USA, milk output, which is slated to grow by almost 2% in 2012, is expected to
remain virtually flat in 2013, as high feed prices have taken a toll on the financial health
of dairy farmers. In the EU, milk production is forecast to grow by less than 1%. In sum,
it appears that 2012 was an exceptional year but milk output in 2013 will revert to a more
normal pace. It means that for 2013 the availability of exportable supplies to global
markets will more likely grow but not by the amounts experienced during the past
two years. China will be a key player in determining the health of global dairy markets
given its demand for an ever-growing share of dairy supplies. Ohlan (2012a) explored the
pattern and trends in global dairy trade at the aggregate level and changes resulting
from globalisation being introduced under the auspices of the WTO. It was found
that the WTO did not have a significant effect on the growth rate of value of world
dairy trade.
As we have noted in the introductory section, the existing literature is confined
to an overview of the world dairy production and trade mainly at the aggregate level.
Our study contributes to the gap by examining the extent of growth and instability in
dairy production and trade at the disaggregate level in the context of the WTO regime.
2.2 An overview of global milk growth
Now, it would be worthwhile to review the growth in the world milk production.
It deepens the understanding about the global dairy market supply condition. Table 1 lists
the world’s leading milk producers in terms of quantity produced, share in the global
milk production, yield, per-capita availability and growth pace of production. The table
shows that the global milk production has been registered a compound annual growth
rate (CAGR) of 1.32% during 1980–2011. The FAO database indicates that the
world’s total milk production has been increased from 465.66 million tonnes in 1980 to
542.42 million tonnes in 1990. During 1990–1992, global milk production has seen a
decline of 16.53 million tonnes or 3.05%. Thereafter, it has been again continued to
grow – increased from 525.89 million tonnes in 1992–1993 to its peak of 735.51 million
tonnes in 2011.
150 R. Ohlan
Table 1 World leading milk producers, 2011
Country
Milk production
(million tonnes)
Share in world’s
total milk
production (%)
Yield (kg
/animal/day)
Per capita
availability
(gm/day)
γ
Growth in milk
production during
1980–2011 (%)
1 2 3 4 5 6
India 127.90 17.39 2.91 291 4.20
USA 89.02 12.10 25.52 774 1.25
China 41.85 5.69 1.92 85 9.23
Pakistan 36.66 4.98 3.53 568 4.97
Brazil 32.24 4.38 3.14 455 3.39
Russian Federation 31.64 4.30 9.66 1058 –1.70
α
Germany 30.34 4.12 19.68 1266 –0.55
France 25.35 3.45 11.77 1061 –0.54
New Zealand 17.89 2.43 10.18 11008 3.47
Turkey 15.06 2.05 2.13 560 0.98
World 735.51 100 3.02 287 1.32
Total of top 10
producers
447.93 60.90 – – –
γ
: Per capita availability of milk is the ratio of milk production to the human population
in the respective country.
α
: Estimation for 1992–2011.
Source: Author’s own calculation based on data available in FAO database
India is the world’s largest milk producer, producing 127.90 million tonnes in 2011.
Milk production in India has grown at a robust pace of 4.20% per annum during
1980–2011. It has been increasing faster than the rest of the world. As a result, India’s
share in the global total milk production has improved from 6.78% in 1980 to 17.39% in
2011. It may be attributable to successful completion of the operation flood programme
(OFP) in conjunction with other dairy development programmes implemented by the
central and state governments like the Delhi milk scheme, technology mission on
dairy development, integrated dairy development programme and the intensive dairy
development programme.
USA is the world’s second largest milk producer, accounting for 12.21% of the global
production. China is the third largest milk producer, with a share of 5.69% of the world’s
total production and producing over 41 million tonnes in 2011. Pakistan is the fourth
largest milk producer in the world, producing 36.66 million tonnes in 2011, and accounts
for 4.98% of the world’s total milk production. Other major milk producers include:
Brazil with a share of 4.38%, Russian Federation with a share of 4.30%, Germany with a
share of 4.12%, France with a share of 3.45%, New Zealand with a share of 2.43%
and Turkey with a share of 2.05%. These top 10 producing countries accounted
for 60.90% of the world’s total milk production in 2011. It may be added here that
their share has exhibited a rising trend during the last two decades (for details,
see Ohlan (2012b)).
It may be seen from the results presented in the last column of Table 1 that since 1980
growth in milk production varied widely among countries. During 1980–2011, the milk
production in some leading producers developed nations, viz. Germany, France and
Growth and instability in dairy production and trade: a global analysis 151
Russian Federation, has declined at a compound annual rate of 0.55, 0.54 and 1.7%,
respectively. Conversely, China, Pakistan and New Zealand have expanded output
significantly – a whopping CAGR of 9.23, 4.97 and 3.47%, respectively. The USA and
Brazil have also gained 52.83% and 167.31% in milk output between 1980 and 2011,
respectively. It may be noted here that milk production in China has been growing much
faster than other leading producers. However, the milk farming base in China has been
very fragmented and the rapid growth of the dairy industry allowed profit-seeking
intermediaries (often with no background in dairy) to enter the supply chain. Milk
production in China during the next decade is expected to grow by less than 3% annually
on average. This is a much slower growth than seen in the last decade, as it is assumed
that restructuring and the withdrawal of backyard operations will moderate domestic
output expansion (OECD and FAO, 2012).
As far as milk yield is concerned, USA has attained the highest level – 25.52 kg per
day per animal in 2011, perhaps owing to large-scale adoption of Holstein-Friesian, the
type of dairy cow most common in the UK, Europe and the USA. Of the first 10 leading
milk producers, it is followed by Germany with a yield of 19.68 kg per day per animal
during the same period. The yield level in France, New Zealand and Russian Federation
is also far above the other leading milk producers. India’s milk yield is far below other
major producers. It may partially be attributable to India’s main species of milk,
i.e., buffalo. Buffalo has generally low yield in comparison with cow. Other likely
reasons for low yield in India may be:
• lack of use of scientific practices in mulching
• inadequate availability of fodder in all seasons
• poor nutritive value of feed and fodder
• inadequate availability of veterinary health services
• gradual genetic deterioration
• poor fertility (Ohlan, 2012b).
With respect to per-capita availability of milk, New Zealand ranks first with a per-capita
availability of 11.8 kg per day in 2011. The other largest milk producers having
per-capita milk availability above 1 kg per day are Germany, France and Russian
Federation. The per-capita availability of milk in India is just comparable with the world
average. It may partially be attributable to higher population pressure.
The FAO database shows that the main dairy species for global milk production
is cow, which accounts for 84% of total production in 2011. It is followed by buffalo
species with a share of about 13% during the same period. The worldwide buffalo milk is
estimated at 89.96 million tonnes in 2011 and continues to grow. Almost 91% of total
volume of buffalo milk is solely produced by India (68%) and Pakistan (23.4%), smaller
volumes in China, Egypt and Italy. Other dairy species supplying milk for human
consumption are goat (2%), sheep (1%) and camel (0.2%).
OECD and FAO (2012) in their joint outlook reported that the average growth rate of
global milk production for the next decade, 2012–2021, is estimated at 2%, only slightly
below the 2.1% level witnessed in the last decade. The majority of which is anticipated to
come from developing countries. India and China alone account for nearly 40% of
global gains. The use of dairy products is expected to increase by about 30% by 2021.
152 R. Ohlan
This increase is driven by increasing population, income levels and the growing influence
of retail chains and multinational companies, which facilitate improved consumer access
to dairy products. Regional differences in the growth of global milk production are
expected to persist. Growth levels are driven by market and policy context, the milk-feed
price ratio, competition for feed and land, as well as water and other environmental
constraints. Milk production gains will be largely driven by new investment, increased
economies of scale and improved management.
3 Methodology
This study is based on secondary data. The study uses time-series data on milk
production, yield, number of dairy species and dairy exports and imports in volume
and value terms obtained from the official website of the FAO, Rome (i.e.,
http://faostat.fao.org). The data on the volume of dairy trade are taken in milk equivalent
terms. The analysis covers a period of three decades plus two years, i.e., from 1980–1981
to 2011–2012. The data used in the study are annual. Milk production includes the
following dairy species: cow, buffalo, goat, camel and sheep. The analysis is confined to
leading milk producers, exporters and importers.
In this study, we analyse the growth trends and instability in world milk production
and trade in the context of the WTO regime using a simple before and after approach.
Accordingly, the period under analysis has been divided into two parts: period 1, from
1980–1981 to 1994–1995, represents the pre-WTO period and period 2, from 1995–1996
to 2011–2012, is the post-WTO period. These two periods allow us for an examination of
an extent of growth during each period as well as for an examination of changes
between the two periods. For both periods, various standard production and trade
performance indicators, viz. production and trade shares, CAGR, instability index and
additive decomposition model, are estimated and compared. A brief introduction of the
methods of analysis used in the study is in order.
3.1 Estimating the impact of the WTO regime on the growth rate
The movements in milk production and trade are analysed in terms of a CAGR. To
estimate
the impact of the WTO regime on the growth rate of variable under investigation,
the following specification is used (for details, see Ohlan (2010)):
12 3
log log ,
tttt
YArtrDrDtu=++++ (1)
where
Y
t
= dependent variable in period t; t = 1 (=1980), t = 2 (=1981).
D
t
is a dummy variable such that
D
t
= 0 if t < 1995
= 1 if t ≥ 1995
r
1
is the instantaneous growth rate before WTO regime, r
2
is the intercept dummy,
r
3
is the slope dummy and u
t
is the error term assumed to satisfy all the basic assumptions
of the classical linear regression model. In this model, a change from 0 to state 1,
Growth and instability in dairy production and trade: a global analysis 153
i.e., a change in the value of D from 0 to 1 signifies a policy change, namely the
introduction of WTO. Hence, r
3
is a measure of the impact of the WTO on the growth
rate of variable under consideration. Its significance has been tested applying student’s ‘t’
test statistic. The sum of r
1
and r
3
,
which gives instantaneous growth rate under the WTO
regime, is used to estimate the CAGR.
3.2 Decomposition of milk growth
To measure the relative contribution of number of dairy animals (N), yield (Y) and their
interaction towards the growth in production of milk (P), the additive decomposition
model has been used (for illustrative applications see, e.g., Shadmehri (2008)).
The change in the production of milk (∆P) between any time periods may be
expressed as:
Change in milk production = Yield effect + Animal effect + Interaction effect
More specifically:
00
PNYYN YN∆= ∆+ ∆+∆∆ (2)
where ∆P = P
t
– P
0
, ∆Y = Y
t
– Y
0
, ∆N = N
t
– N
0
; N
0
, P
0
and Y
0
are number of dairy
animals, production and yield of milk in the initial year and
N
t
, P
t
and Y
t
are the number
of dairy animals, production and yield of milk in the last year under consideration,
respectively.
Thus, the total change in milk production may be decomposed into three effects,
viz. yield effect, animal effect and the interaction effect owing to changes in yield and
number of milk species.
3.3 Instability index
Instability in global milk production and trade has been estimated measuring the standard
deviation in their annual growth rates. This is a unit-free and robust measure of instability
(Ohlan, 2012a). The index is specified as:
ln 100
it
IX
σ
=∆ × (3)
where I
i
= instability index,
σ
= standard deviation, ∆ = first difference operator,
∆ln X
t
= ln X
t
– ln X
t–1
, t = time, X = variable under investigation and ln = natural
logarithm.
4 Results and discussion
4.1 Estimates of growth in milk production in world major milk producers
We begin by analysing the growth in milk production at the disaggregate level. Table 2
illustrates the growth in the dairy sector in terms of a CAGR of the number of animals,
yield and milk production at the global level and in the top 10 producers for the pre-
and post-WTO periods and for the whole period as well. The table displays that
the population of milch animals at the global level grows at a CAGR of 1.21% during
1980–2011, while the milk yield increases at a sluggish rate of 0.11% per annum.
154 R. Ohlan
Thereby, milk production has grown at a low pace of 1.32% annually. The CAGR of the
number of animals has declined slightly from 1.31% during pre-WTO phase to 1.15%
during post-WTO phase. However, the growth rate of milk yield for the world at large,
which was found negative (–0.34%) during the pre-WTO period, turned to be positive
(0.89%) during the post-WTO period. It has resulted in a significant improvement in the
CAGR of global milk production – increased from 0.97% during 1980–1994 to 2.04%
during 1995–2011.
During the whole period under investigation, the highest compound annual growth
in milk production is reported for China (9.23%), followed by Pakistan (4.97%), India
(4.2%), New Zealand (3.47%), Brazil (3.39%), USA (1.25%) and Turkey (0.98%).
This impressive growth in milk production in China has been come through robust
growth in both the number of dairy animals and the yield level – 4.10% per annum
and 4.97% per annum, respectively. It can be attributed to many other reasons as well.
These include:
• higher prices of dairy products
• expansion in dairy product processing
• increase in diversity of dairy products
• increase in number of dairy farms
• increase in herd size
• institutional support from central and local governments like dairy cow genetic
improvement support fund, high-yielding cow embryo transfers, introduction of
development plans in large milk-producing regions and demonstration of
technologies to promote standardised dairy cow rearing.
In the last three columns of Table 2, we have presented the value of student’s ‘t’ statistic
for assessing the significance of coefficient for the slope dummy (i.e., r
3
in equation (1)),
which is a measure of the impact of the WTO regime on growth rate of the number of
dairy animals, yield and milk production, respectively. The individuals leading milk
producers experienced a significant increase in their milk production growth rates under
the WTO regime include: China, USA, Brazil, New Zealand, Turkey and Germany. Milk
production in these countries has registered a CAGR of 12.22, 1.60, 3.78, 3.8, 2.20 and
0.2%, respectively.
During the post-WTO period, India’s milk growth performance has adversely been
affected. Its milk production growth rate has decelerated from 4.20% per annum during
pre-WTO phase to 3.85% per annum during post-WTO phase. This deceleration has
come through a slowdown in CAGR of the number of milk animals from 3.57% during
1980–1994 to 1.93% during 1995–2011. While during the same period, the growth rate
of India’s milk yield has improved significantly – increased from 1.01% to 1.89%.
Other studied countries that have significantly improved their yield growth rates under
the WTO regime are China, Brazil, New Zealand, Russian Federation and Turkey.
Among the leading milk producers, USA, Germany, France and New Zealand have
experienced a statistically significant improvement in the growth rate of the number of
dairy animals. These countries have witnessed a considerable growth in milk production
as well. It appears from the above-mentioned discussion that the number of dairy animals
plays an important role in growth in milk production. Next, we investigate the relative
contribution of various constituent forces of milk output growth.
Growth and instability in dairy production and trade: a global analysis 155
Table 2 Estimates of compound annual growth rates of world major milk producers: animal,
yield and production, 1980–2011 (in %)
156 R. Ohlan
4.2 Decomposition of milk output growth
The relative contribution of the number of milch animals, yield and their interaction to
change in milk production in the world’s leading producers and at the global level
in percentage terms is presented in Table 3. The results of decomposition analysis
(equation (2)) suggest that during 1980–2011, on average, growth in milk production has
mainly been because of an increase in the numbers of dairy species.
Table 3 Decomposition of milk production growth in world leading producers, 1980–2011
Country Yield effect (%) Animal effect (%) Interaction effect (%)
India 27.86 40.62 31.52
USA 137.56 –21.75 –15.81
China 30.96 13.50 55.54
Pakistan 22.33 46.10 31.57
Brazil 53.76 24.35 21.90
Russian Federation
#
–170.62 173.11 97.51
Germany –1283.93 811.38 572.55
France –437.95 384.60 153.35
New Zealand 16.25 65.86 17.88
Turkey 383.60 –89.47 –194.13
World 25.95 64.64 9.42
#
Estimates for 1992–2011.
Source: Author’s own calculation based on data available in FAO database
At the global level, the number of dairy animal effect has driven 64.64% growth
in milk production. The yield and interaction effects have contributed to only 25.95 and
9.42% increase in milk output, respectively. These results, indicating that the
major source of growth in world milk production during the last three decades
has been the increase in the number of species, are consistent with an earlier study,
i.e., FAO (2009).
For most of the individual important producers (except USA, China, Brazil and
Turkey), also the animal effect has been the main driver of the increase in milk
production. It has been strongest in the case of Germany (811.38%) while its yield effect
has been worst (–1283.93%). For Germany, the interaction effect (572.55%) has also
been noticed robust. For seven major milk producers, namely India (27.86%), USA
(137.56%), China (30.96%), Pakistan (22.33), Brazil (53.76%), New Zealand (15.56%)
and Turkey (383.60%), the yield effect has positively contributed to increase in milk
output. Growth of milk production in the USA has mainly been due to a yield effect
while the animal effect (–21.75%) and interaction effect (–15.81%) have been noticed to
adversely affect its output. Another important milk producer in which the growth
of the productivity has mainly been a responsible factor of output growth is Turkey.
The interaction effect is found to be strongest in the case of Germany. It is apparent from
the above-mentioned analysis that the number of dairy animals is a powerful driver of the
growth in milk production.
Growth and instability in dairy production and trade: a global analysis 157
4.3 Instability in milk production
We have estimated the extent of instability in milk production. Instability indices
(equation (3)) for number of dairy species, yield and milk production for the world at
large and in leading producers for before and after WTO periods, pooled years and
percentage change in two periods are estimated. The results are presented in Table 4.
A brief perusal of the data presented in the table shows that during the period under
investigation, range of instability in milk production is quite wide at the country-level –
ranges from 6.2% in Turkey to 1.8% in the USA. At the global level, instability in milk
production has turned down during the post-WTO period, as the standard deviation of
milk production growth rates has declined from 1.4% during 1980–1994 to 0.7% during
1995–2011. The growth rate of the global milk production has improved significantly,
up from a CAGR of 0.61% to 2.04% during the same periods. This result does not
support the hypothesis of high rates of growth causing high instability. This evidence
is consistent with Speight’s (1999) analysis of UK data and implies that output variability
does not affect output growth.
For the majority of the leading milk producers (except China, Pakistan, Brazil,
France and Turkey), instability in milk production has declined under the WTO regime.
The important milk producers who show below 4% year-to-year deviation from
growth trend in milk production under the WTO regime include: Germany (1.4%),
India (1.5%), USA (1.5%), France (2.1%), Brazil (2.9%), Russian Federation (3.3%) and
Pakistan (3.9%). Among the countries under study, the highest milk production instability
is noticed in China (7.8%), which is closely followed by Turkey with 7.7% deviation
from the growth trend. In both of these countries, the high yield and the number of dairy
animals’ instability support it, 4.2% and 8.2% for China, and 7.9% and 8.5% for Turkey,
respectively. Instability index of milk production displayed quite high uncertainty at
individual country level bearing a few exceptions index is below 4%. It is, however,
low at the aggregate level, 0.7% under the WTO regime.
During the post-WTO phase, most of the important milk producers are able
to decrease instability in growth rates of the number of dairy animals. For example,
India experienced a 3.7% decline in instability in the number of dairy animals. In sharp
contrast, China, Brazil and Turkey have experienced an increase in variability in growth
rates of the number of dairy animals.
As far as instability in milk yield is concerned, India, USA, Pakistan, Russian
Federation, Germany and New Zealand have seen a fall in variation whereas China,
Brazil, France and Turkey have witnessed higher yield variability under the WTO
regime. It may be noted here that all the analysed countries have indicated milk
production, the number of dairy animals and yield instability above the world average
during both periods. From the above-mentioned discussion, it may be concluded that the
higher growth does not cause higher instability.
4.4 Global dairy trade growth
We now turn to analyse the time profile of the global dairy trade. Table 5 provides some
of the features of the development in the global dairy trade in terms of export value and
volume, percentage change in value, and share of dairy trade in milk production and the
world’s total farm exports and overall merchandise exports over the period triennium
158 R. Ohlan
ending (TE) 1982–2009. A glance at column 2 of Table 5 makes it clear that the volume
of global dairy exports has grown substantially and rapidly. It increases remarkably from
42.63 million tonnes in TE 1982 to 52.94 million tonnes in TE 1988 before declining
slightly to 49.81 million tonnes in 1991. Thereafter, it again started to rise and jumped up
from 58.08 million tonnes in TE 1994 to 68.52 million tonnes in TE 2000, which further
reached to its peak of 95.75 million tonnes in TE 2009.
The trade orientation of the dairy industry, measured as the share of dairy exports in
total milk production, has been registered a commendable rise – climbed up from 9.04%
in TE 1982 to 10.11% in TE 1988, 11.59% in TE 1997 and 12.03% in TE 2000 that
further jumped up to its peak of 13.72% in TE 2010.
4
It indicates that growth in global
dairy trade has outpaced that of production over the past three decades. It also suggests
the increasing importance of exports in the world’s dairy economies. It may partially be
stimulated by a range of new products, expansion of cold storage facilities, improved
shelf life, improvements in processing, preservation, marketing, packing, logistics and
transportation, though high costs are still a constraint. The main drivers for dairy products
consumption remain increase in incomes, population and urbanisation, together with the
growing popularity of dairy products, particularly among consumers in developing
countries (FAO, 2009).
However, the world dairy market is still very thin. In TE 2009, 86% of milk
production does not enter international trade. This result indicating that the bulk of the
global dairy products is consumed within the country of production is consistent with an
earlier study, i.e., Gerosa and Skoet (2012). A look at column 5 of Table 5 reveals that
the average annual value of the world’s dairy exports declined from $13.08 billion in
TE 1982 to $11.42 billion in TE 1985, a 12.69% or $1.56 billion fall. It was resulted in a
decrease in share of dairy exports in total agricultural exports from 5.77% to 5.37%
during the same period. Thereafter, the value of global dairy exports soared substantially
– went up from $11.42 billion in TE 1985 to $28.81 billion in TE 1997. It declined again
slightly to $26.60 billion in TE 2000, because of the fall in prices. Afterwards, it again
started to increase and reached to its peak of $59.40 billion in TE 2009, a 32.80 billion
or 123% increase compared with TE 2000. The share of dairy trade in total farm trade has
also increased slightly from 6.30% in TE 2000 to 6.36% in TE 2006 before taking a dip
slightly to 6.17% in TE 2009.
It may be noted that the global economic recession took its toll on world dairy trade
during 2009 down by $13.51 billion, i.e., (–) 20%. The value of world dairy trade has
increased from $53.51 billion in 2009 to $64.71 billion in 2010, but has not been fully
recovered, which was $67.73 billion in 2008. A glance at column 7 of Table 5 makes it
clear that during the last two decades the world dairy trade has kept pace with growth
in the world’s total agricultural trade while the dairy trade orientation has exhibited a
rising trend.
It may be seen from the results presented in the last column of Table 5 that under
WTO regime the share of dairy trade in the world total merchandise trade has declined.
On average, share of dairy trade in overall merchandise trade has plummeted from 0.63%
during pre-WTO period to 0.45% during post-WTO period. It indicates that under WTO
regime the world’s overall merchandise trade has grown faster than that of dairy trade.
An examination of the data available at the FAO official website brings out that the bulk
of the world dairy trade is in cheese, butter and milk powders.
Growth and instability in dairy production and trade: a global analysis 159
Table 4 Estimates of instability of world major milk producers: animal number, yield and
output (in %)
160 R. Ohlan
Table 5 Growth in global dairy trade
Year
(TE)
Volume of
global dairy
exports in milk
equivalent
(million tonnes)
Global milk
production
(million
tonnes)*
Dairy
exports as
share of
production
(%)
Value of
global dairy
exports
(US$ billion)
Percentage
change in
value of
global dairy
exports (%)
Share of
dairy
exports in
agricultural
exports (%)
Share of
dairy
exports in
merchandise
exports (%)
a b c = (a/b)100
1982 42.63 471.71 9.04 13.08 46.15 5.77 0.67
1985 46.81 504.68 9.28 11.42 –12.68 5.37 0.60
1988 52.94 523.88 10.11 16.26 42.34 6.35 0.65
1991 49.81 537.52 9.27 20.66 27.08 6.48 0.62
1994 58.08 529.03 10.98 24.53 18.75 6.79 0.63
1997 63.28 546.07 11.59 28.81 17.45 6.33 0.54
2000 68.52 569.72 12.03 26.60 –7.69 6.30 0.46
2003 74.62 603.23 12.37 29.07 9.31 6.31 0.43
2006 87.06 648.57 13.42 42.04 44.61 6.36 0.40
2009 95.75 697.79 13.72 59.40 41.29 6.17 0.42
Source: Author’s own calculation based on data available in FAO database
4.5 Estimates of growth in dairy exports of world leading exporters
A general idea about the impact of the WTO’s AoA on the growth of global dairy exports
may be obtained by comparing exports growth rates for before and after 1995 when the
AoA came into effect. Table 6 gives the CAGRs of the value and volume of dairy exports
at the global level and in the leading exporters before and after WTO. The FAO database
indicates that Germany, France, Netherlands, New Zealand, Belgium, Denmark, Italy,
Ireland, USA and Australia are the biggest exporters in 2010, which together accounted
for 70% of the world’s total dairy exports in value terms. Table 6 depicts that the
CAGR of the value of world dairy exports has increased slightly from 6.26% during
1980–1994 to 6.55% during 1995–2010, but the difference in growth rates is not
statistically significant at any conventional level of significance. But, in case of export
volume, it has significantly improved – increased from 2.31% to 3.66% during the
same period.
It may be seen from the results presented in the second last column of Table 6
that this difference in growth rates is statistically significant at the 5% level.
It implies that during the post-WTO phase, growth in world prices of dairy products has
slowed.
A comparison of growth in value of dairy exports before and after the WTO AoA
provides some informal evidence that AoA of the WTO has failed to boost the value of
world dairy exports. This result indicating that change in the growth rate of the value of
the world dairy export between the pre- and post-WTO periods is statistically
insignificant is in line with the findings of Jachnik (2004), Cox and Zhu (2005) and Shaw
and Love (2001). It may partially be attributed to trade-distorting effect of strong
protectionist policies and production subsidies particularly in Organization of Economic
Cooperation and Development (OECD) countries (OECD, 2012).
Growth and instability in dairy production and trade: a global analysis 161
Table 6 Estimates of growth in dairy exports of world leading exporters
162 R. Ohlan
Under the WTO regime, most of the important dairy exporters, viz. Netherlands,
Belgium, Italy, USA and Australia, have witnessed a significant decline in the growth
pace of their dairy export values, a CAGR declined from 6.49%, 8.10%, 14.25%, 7.69%
and 7.45% during 1980–1994 to 4.02%, 3.49%, 8.45%, 3.39% and 3.64% during
1995–2010, respectively. France, Denmark and India have experienced an increase in a
CAGR of their dairy export values from 5.20%, 5.77% and 10.25% during pre-WTO
period to 9.15%, 13.36% and 28.23% during post-WTO period, respectively. It may be
noted that under the WTO regime India’s dairy exports have grown faster than the
world’s leading exporters in both value and volume terms. However, because of low
base, India is still a minor player in international trade of dairy products, i.e., 0.33% share
in the value of the global dairy exports in TE 2010. The chief dairy product exported
from India is casein for which the world market is thin. The low per-capita availability
of milk owing to high population pressure, low level of milk processing, high
transportation cost, stringent food safety, a frequent ban on export of dairy products, poor
quality and hygiene standards of dairy products being exported, insufficient international
marketing efforts and highly protected world dairy markets are key reasons behind
its below-par export performance. However, it reflects the country’s domestic policy
orientation as well.
We now briefly review the main characteristics of the dairy industry in leading
exporters of dairy products. It is widely known that Germany is the world’s largest dairy
exporter with a share of 14% in 2010, and the biggest producer of milk in the European
Union, producing about a fifth of all European milk. It is a net exporter of all dairy
products (except for butter). Almost half of all milk produced in Germany is exported.
The dairies process around 30 million tonnes of milk, of which 14 million tonnes,
almost half, is intended for export. The number of dairies in Germany has been
decreasing, largely because of mergers. As the amount of milk processed has been
increasing, the number of establishments has been decreasing. The principal reason
behind the consolidation process is economic efficiency and improved marketing,
in addition to investment and innovation in an increasingly globalised and competitive
market.
Its primary export product is cheese for which world market size is largest and
demand is growing fast. The most significant and largest export markets for German
cheese products are Italy, the Netherlands and France within the EU and Russia, the USA
and Japan outside the EU. The high level of mechanisation, conservation of breeds and
development of the dairy industry based on different local breeds and feedstuffs make it a
sustainable system in Germany.
It may be added here that in absolute terms, France’s dairy export value has grown far
higher than other leading exporters, a whopping CAGR of 7.51% during the last three
decades. With a production of 24.42 million tonnes in 2011 of cow’s milk, France is the
second largest producer in the European Union, behind Germany. Its chief dairy exports
are cheese, butter and skimmed milk powder. High quality, high per-capita availability
of milk, high milk processing by large-scale plants, importance of innovations, diverse
varieties and export subsidies are key reasons behind faster growth in dairy exports from
France.
Denmark’s dairy exports have also grown considerably during the last one and
a half decade. Exports of dairy products, in particular, cheese, preserved milk
products and butter, account for more than 20% of all Denmark’s agricultural exports.
Growth and instability in dairy production and trade: a global analysis 163
Denmark’s dairy industry consists of the international dairy group Arla Foods
and 30 smaller dairy companies, together processing 4.7 billion kg milk from
a total of 61 production plants in Denmark. The Arla group processes more than
90% of Denmark’s milk pool. The remaining 30 Danish dairies are evenly
distributed between cooperatively and privately owned companies. The small
dairies typically specialise in various product areas within cheese, butter and liquid
milk production. A large part of their production is exported by specialised exporters.
The largest market for Denmark’s dairy products is the other European Union countries.
The domestic market is, to a large extent, a market for domestic dairy production,
although imported cheese and yoghurt now account for approximately 25 and 20%,
respectively, of total domestic consumption. The market share of foreign milk
remains moderate. Like the processing sector, Denmark’s milk producers have
witnessed tremendous structural change, with production now taking place on a small
number of large farms. In 2010, about 4100 dairy farmers each had an average of
127 cows and a milk quota of 1142 tonnes. This places Denmark’s dairy farmers
among the largest and most modern in Europe. More than half of the cows live in new
loose-housing systems.
With an export value of nearly $6.56 billion in 2010, the Netherlands is the
world’s fourth largest dairy exporter and accounts for 10.29% of the world’s total
dairy exports in 2010. The dairy industry in the Netherlands has achieved its strong
competitive international position based on high standards for technology and quality.
The Netherlands is also a major importer of dairy produce, re-exporting much of its
imports to the rest of Europe and beyond. Its dairy sector is characterised by a high
degree of organisation. From our foregoing analysis, it should be clear that commercial
production, organised dairy sector and milk processing at large scale are key factors
behind considerable exports of dairy products. Next, we examine the growth in dairy
imports in leading importers.
4.6 Estimates of growth in dairy imports of global major importers
Table 7 focuses on the growth in dairy import of the world’s leading dairy importers
in terms of both value and volume for pooled years and before and after the
WTO periods. The FAO database shows that the first 10 importers of dairy products
are Germany, Italy, United Kingdom, France, Belgium, Netherlands, China, Spain,
Russian Federation and USA, which together provide destination for 58.55%
of the world’s total dairy imports in value terms in TE 2010. Under the WTO regime,
the highest compound annual growth among significant dairy importers in terms
of quantity is reported for China (9.35%) followed by Spain (5.41%), Germany (5.06%),
UK (4.59%), France (1.68%), Belgium (1.56%), Russian Federation (1.40%),
Netherlands (1.38%) and USA (1.23%). During the same period, dairy imports of all
studied countries have grown in both value and volume terms. However, most of the
important dairy importers have seen a significant decline in the growth tempo of their
import values. These include Italy, France, Belgium, Netherlands and Spain. In contrast,
the growth rates of dairy import value of the UK, China, USA and India have accelerated
under the WTO regime.
164 R. Ohlan
Table 7 Estimates of growth in dairy imports of global major importers
Growth and instability in dairy production and trade: a global analysis 165
In absolute terms, UK’s dairy imports value has grown considerably perhaps
because of:
• fall in domestic milk production owing to decline in the number of dairy cows, fallen
from 3.2 million in 1980 to 1.8 million in 2010: a 43% reduction
• a large proportion of processed milk used in liquid form.
For example, in 2010, around half (51%) of the milk processed in the UK was used for
liquid milk. A further 26% was processed as cheese, with the remainder used for milk
powder and condensed milk (10%), cream (2%), butter (2%), yoghurt (2%) and other
products (3%). It may be added here UK has a negative trade balance in dairy products in
2009 – mainly in butter and cheese.
Under the WTO regime, China has also seen faster growth in imports of dairy
products. Much faster increase in domestic demand owing to increases in disposable
income, increasing awareness of the health benefits of dairy products and the increased
availability of refrigeration is the chief reason behind the sharp growth in dairy import
into China. Owing to the drastic growth of dairy imports, China has implemented the new
Test, Quarantine and Supervision methods for imports of dairy products in May 2013.
Dairy imports in India have also grown faster but because of low base, it represents a tiny
portion of milk products total consumption.
In sharp contrast, dairy imports in Spain have declined significantly. It may partially
be because of:
• a decrease in household consumption of fluid milk, as the macroeconomic
environment shows no sign of improvement and unemployment continues to
hover above 20%
• increase in milk production owing to improvement in yield.
Likewise, Belgium’s dairy imports have declined and it has become the net exporter of
dairy products under the WTO regime. The major recent changes in the dairy industry in
Belgium include:
• increase in milk deliveries
• rapid upward movement in average size of dairy farms
• gains owing to economies of scale
• improvements in productivity
• more value-added products (branded cheeses, baby food)
• changes in the environment, e.g., larger clients.
4.7 Instability in dairy trade
We now analyse the extent of instability in the world dairy trade. Table 8 contains
instability index for dairy exports at the world level and for individual leading dairy
exporters in both volume and value terms for pooled years, before and after WTO periods
and percentage change in two time periods. At the global level, the exports of dairy
products have become more volatile during the post-WTO period – uncertainty index for
166 R. Ohlan
export value has increased by 29.16% and declined by 82% in terms of volume.
A cursory look at Table 8 makes it clear that uncertainty behaviour of individual dairy
exporters is diverse.
Among the first 10 leading dairy exporters, Denmark’s dairy exports are found most
volatile with the value of instability index of 31.01% whereas Ireland’s dairy exports
are relatively consistent with 8.79% deviation from the growth trend during 1995–2010.
The important dairy exporters in which instability in dairy export value has
increased under the WTO regime include: France with 52.76%, Australia with 49.14%,
New Zealand with 28.32%, Italy with 27.19%, Denmark with 18.97%, Ireland with
4.23% and the Netherlands with a 4.19% increase. As far as India (the world’s largest
milk producer) is concerned, instability in its dairy export value has increased
from 50.85% during the pre-WTO period to 59.06% during the post-WTO period,
an 8.21 percentage points increase.
Instability in volume of dairy export at the global level has declined by 82%. The first
10 leading dairy exporters (except for New Zealand) have also seen a fall in instability
in import volume. From our above-mentioned discussion, it is clear that during the
post-WTO phase, instability in volume of dairy export has declined at the global level
and for most of the major exporters while export value has become more uncertain.
It indicates the increasing volatility in world dairy prices. This may be due to:
• decline in buffer stocks
• US participation as a commercial exporter of dairy product
• increased concentration in milk production (Jim, 2010).
At the global level, dairy export volume has increased while its instability has
significantly declined. It indicates that there is no significant association between growth
and instability of dairy products exports.
4.8 Dairy imports instability in world leading importers
In this subsection, we estimate uncertainty in volume and value of dairy imports in the
world’s leading importers, India and the world at large for before and after the WTO
periods and percentage change in two time periods. The results are presented in Table 9.
The table illustrates that at the global level milk imports in value terms are far
more uncertain than volume. Under the WTO regime, uncertainty in global dairy import
volume has declined by 8.28%. In sharp contrast, instability in dairy import value has
increased by 28.86% during the same period. This is an evidence of increasing global
dairy market volatility under the WTO regime. This result lends further support to
Kashtanova (2010) finding of increased instability in the world milk prices. Of top 10
dairy importers, Russian Federation import value is found highly uncertain with a value
of instability index 32.10 during the post-WTO period while USA reveals consistent
dairy import behaviour with only 11.01% deviation from the growth trend. It may be
noted here that instability in milk production in the USA is also found at low level.
Under the WTO regime, most of the studied countries (except for Italy, Belgium, China,
Russian Federation and USA) have reported a decline in variability in their dairy import
value. During the whole period under study, the highest dairy import instability is
reported for India. However, it is not a significant dairy importer. It is clear that the WTO
has failed to reduce the variability in dairy import prices.
Growth and instability in dairy production and trade: a global analysis 167
Table 8 Dairy exports instability in world leading exporters
168 R. Ohlan
Table 9 Dairy imports instability in world leading importers
Growth and instability in dairy production and trade: a global analysis 169
5 Concluding remarks
In the study, we have analysed the pattern and sources of growth and instability in milk
production and trade at the global level and in the world’s leading producers, exporters
and importers in the context of the WTO regime applying a simple before and
after approach. The growth trends in global milk production and trade for the pre- and
post-WTO periods have been systematically documented. For both periods, various
standard production and trade structure and growth performance indicators, viz.
production and trade shares, CAGR, additive decomposition model and instability
indices, are estimated and compared. To examine the statistical significance of change
in growth rate, the ‘t’-test has been used. The basic characteristics of the dairy industry in
leading exporters of dairy products are briefly reviewed.
We find that during the post-WTO period the global milk production has been grown
at a higher rate than the pre-WTO period. Under WTO regime, China, New Zealand,
Brazil, USA and Poland have seen statistically significant increase in growth rates of
their milk production. The variability in milk production at the global level has declined.
Similarly, the majority of leading milk producers (except China and Brazil) has also
witnessed a decline in instability in their milk production. This finding supports the
hypothesis that higher milk production growth does not cause higher instability. In other
words, this finding supports several real business cycle theories of economic fluctuations,
which do not consider a relationship between output growth and its variability. As far as
instability in milk yield is concerned, USA, Pakistan, Russian Federation, Germany and
New Zealand have seen a fall in variation whereas China, Brazil, France and Turkey have
witnessed higher yield variability under the WTO regime.
Under the WTO regime, India’s milk growth performance has adversely affected.
Its milk production growth rate has decelerated, which came through a slowdown in
growth tempo of the number of milk animals. While during the same period, the growth
rate of India’s milk yield has improved significantly. Other studied countries, which have
significantly improved their yield growth rates under the WTO regime, are China, Brazil,
New Zealand, Russian Federation and Turkey. Among the leading milk producers,
USA, Germany, France and New Zealand have experienced a statistically significant
improvement in the growth rate of the number of dairy animals. These countries
have witnessed a considerable growth in milk production as well. It appears from the
above-mentioned discussion that the number of dairy animals plays an important role
in growth in milk production. The decomposition of milk output growth also indicates
that growth in milk production is mainly driven by an increase in the number of dairy
animals rather than yield.
Our results show that global dairy trade has kept pace with overall agricultural trade.
Under the WTO regime, the trade orientation of dairy products has increased. However,
a comparison of growth in value of dairy exports before and after the WTO’s AoA
provides some informal evidence that it has failed to boost the value of world
dairy exports. It may partially be attributable to continuation (and enhancement) of
trade-distorting domestic subsidies, export subsidies and import restrictive measures in
many developed countries. At the global level, dairy export volume has increased while
its instability has significantly declined. It indicates that there is no significant association
between growth and instability of dairy products exports.
We observe that the share of dairy exports in overall merchandise exports has also
exhibited a declining trend. The policy implication is that to foster the trade in dairy
170 R. Ohlan
products more concentrated efforts are required at the global level. Under the WTO
regime, uncertainty of global dairy imports in terms of value has hiked substantially
whereas in volume terms it has reduced. It implies that dairy markets have become more
volatile.
It is noted here that the global dairy markets are seller’s markets. It means that there
are larger numbers of buyers and a few sellers in the global dairy markets, i.e., the global
dairy market is characterised by oligopolistic market features. We note that higher
per-capita availability of milk, commercial production, organised dairy sector and
milk processing at large scale are key factors behind considerable export of dairy
products.
Finally, we note that the demand for dairy products at the global level has been grown
much faster than global milk production mainly owing to robust international income
growth, population growth and further westernisation of diets. This has created a latent
demand gap. In addition, an analysis of the data available at the official website of the
FAO brings out that the world prices of dairy products have gone up sharply, monthly
dairy price index (2002–2004 = 100) has climbed up from 198.2 in January 2013 to 258.8
in April 2013, resulted from a tightening of supplies to the world market. Furthermore,
dairy prices are expected to continue to increase in the near future owing to global
weather, supply issues in the feed markets and strong demand from developing countries.
The main policy implication of the study is that there is a need to strengthen the domestic
dairy sector by focusing on improvements in yield and encouraging the processing
of milk to meet the fast-growing demand for a large lacto-vegetarian populated country
like India.
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Notes
1
The author is grateful to two anonymous referees of this journal for bringing his attention the need
to
separate review of theoretical literature and literature with empirical research results.
2
For example, import quotas and export subsidies were permitted largely unconditionally for trade
in agricultural products but not for trade in manufactures.
3
Even before the AoA, there have been attempts to achieve the expansion and liberalisation of
world trade in dairy products under International Dairy Arrangement (IDA) that remained in
operation for 15 years from 1980 to 1994. On 1 January 1995, the International Dairy Agreement
replaced International Dairy Arrangement functioned under the WTO auspices for the first two
years of its existence, i.e., up to 31 December 1997, whereupon the Agreement was terminated
(WTO, 1997).
4
The share of global milk production entering world trade is still low, at 14%, compared with
shares of other farm commodities, such as wheat, coffee, soybeans, or bananas at 30–40% in TE
2010.
