Report Highlights:

Overall dairy exports to Chile were up by 24% in the first eight months of CY 2015, when local producer prices were lower and are expected to maintain similar levels for CY2016. In addition, the market share for U.S. dairy products in Chile increased to 23%, positioning the U.S. as Chile's second largest supplier after New Zealand during the same period. Chile's milk production has shown nearly a 7% decrease in the first eight months of CY2015 compared to the same period in CY 2014, due droughts in early January-April. These severe droughts resulted in less pasture for animals to graze on, causing lower production.

Executive Summary:

Overall dairy exports to Chile were up by 24% in the first eight months of CY 2015, when local producer prices were lower and are expected to maintain similar levels for CY2016. In addition, the market share for U.S. dairy products in Chile increased to 23%, positioning the U.S. as Chile's second largest supplier after New Zealand during the same period. Chile's milk production has shown nearly a 7% decrease in the first eight months of CY2015 compared to the same period in CY 2014, due droughts in early January-April. These severe droughts resulted in less pasture for animals to graze on, causing lower production.

Production General:

Chile has about 6,000 dairy producers and 500,000 cows that are concentrated mainly in the southern regions of Los Lagos (known as region X) and Los Rios (known as region XIV) in Chile. These two regions account for nearly 76% of Chile's largest milk collection facilities. The Metropolitana region, in the center of Chile where Santiago is located, accounts for 7% of production, while southern regions of Biobio and Araucania account for 9% production each. Total milk production is situated at an average of 2.15 million liters (ML) a year, by major processing plants. If small industry is included production generally reaches 2.7 ML each year. Total dairy consumption is 146 liters per capita/year.

Although milk production between CY2012-CY2014 has remained stable, total milk production between January-May CY2015 has been 6.9% lower than CY2014. While dry milk production had a greater decline by 17.8% less production between 2014 and 2015 for the January-May period.

The lower production in CY 2015 is related to climate factors. The availability of water is crucial for pasture growth, and the intense drought in January – April 2015 resulted in reduced pasture production. Irrigation for pasture has been implemented by some producers, typically larger scale to reduce vulnerability caused by droughts. However, irrigation is not always possible for small and medium dairies, especially because of limited resources. In addition, irrigation depends on subterranean water availability in mainly the central valley and less on coastal area. At the same time, superficial water is available but depends on water ownership regulations which are mainly designated for energy production. Investment in irrigation systems is not economically viable for most. Such irrigation investments are only made by producers with high yields and production surface.

According to "Instituto de Investigaciones Agropecuarias" (INIA), climate change has impacted Chile's main dairy production regions by an average increase of 1.5 degrees Celsius in 2015, thus causing shortfalls in pasture production or grassland growth used for feeding dairy cows.

TABLE – Total Dairy Production

Total received by industry (million liters /ML)

Fluid milk (ML)

Dry milk (MT)

Whey (MT)

Butter (MT)

Cheese (MT)

Farmers cheese (MT)

Yogurt (ML)

Condensed milk (MT)

2002

1,605

296

67,710

10,041

11,551

53,075

7,480

127,057

24,190

2003

1,563

293

61,867

15,240

10,849

53,037

7,555

139,344

30,558

2004

1,676

289

63,633

17,037

13,084

58,849

8,296

159,828

38,698

2005

1,723

298

62,792

23,850

14,655

67,176

10,507

189,436

39,645

2006

1,818

319

69,491

24,303

17,157

62,072

9,088

157,980

43,426

2007

1,871

330

74,204

27,791

18,229

61,745

8,579

162,505

45,287

2008

1,972

323

102,955

24,849

16,765

57,369

7,960

178,215

41,501

2009

1,773

341

73,431

23,973

17,102

56,526

8,139

191,933

33,255

2010

1,896

367

82,321

29,232

21,086

64,558

8,349

198,825

36,829

2011

2,104

369

92,812

26,790

21,041

80,620

9,135

222,063

34,579

2012

2,119

389

93,197

26,721

22,205

82,307

9,049

229,996

39,828

2013

2,149

398

95,993

23,365

21,566

89,046

9,104

228,590

36,302

2014

2,149

423

103,510

21,480

21,874

81,574

9,133

227,460

36,751

2014 (jan-may)

861

178

41,236

8,812

9,106

33,078

3,845

96,196

14,118

2015 (jan-may)

802

175

33,902

8,682

9,007

33,891

3,943

98,023

15,480

Variation (jan-may 2014/2015)

-6.9%

-1.7%

-17.8%

-1.5%

-1.1%

2.5%

2.5%

1.9%

9.6%

Source: Odepa, 2015.

Source: Odepa, 2015.

Milk producer prices in Chile have a seasonal variation during the year, with price at their peak May and August, when production is at its lowest. In CY2014 milk producers received the highest price for their milk compared to CY2012, CY2013 and also in the first eight months of CY2015.

Today, in CY 2015, milk producers are receiving prices that are barely covering production costs. Four of Chile's milk processing plants collect nearly 80% of the country's total milk produced.

Chile's top five milk processing plants have shown a significant decrease between January-May 2014 and 2015. For example, Nestle, one of Chile's main processing plants reported a 15% decrease in the amount of milk it collected for the same period.

Milk reception by processing plant

Liters

Processing plant

Calendar Year (CY)

Jan-May

Variation

Market Share

2013

2014

2014

2015

%

%

Colún

532,427,334

550,930,648

216,368,773

205,990,038

-4.8

25.7

Soprole

486,285,558

506,202,291

202,231,724

195,480,345

-3.3

24.4

Nestlé

472,639,832

432,152,555

176,442,141

150,025,926

-15.0

18.7

Watt's S.A.

267,136,471

263,214,133

104,945,938

96,596,700

-8.0

12.0

Surlat

135,081,356

147,351,220

60,848,843

54,568,546

-10.3

6.8

Valle Verde

57,146,457

62,975,177

25,721,908

26,922,634

4.7

3.4

Lácteos del Sur

40,733,252

54,130,844

20,357,345

20,954,174

2.9

2.6

Quillayes

57,896,707

51,889,333

21,893,020

19,904,226

-9.1

2.5

Danone Chile S.A.

52,698,826

49,839,250

20,257,980

17,603,814

-13.1

2.2

Chilolac

16,938,512

20,170,059

8,278,786

8,449,086

2.1

1.1

Bioleche

7,630,922

9,873,510

3,821,198

5,397,503

41.3

0.7

Lácteos Valdivia

15,933,744

0.0

Lácteos Puerto Varas

6,602,685

0.0

Total

2,149,151,656

2,148,729,020

861,167,656

801,892,992

-6.9

100.0

Trade General:

New Zealand was the main supplier of dairy products in CY2014 and continues to the leader in CY2015. New Zealand is a significant investor in Chile's dairy market. For example, one of the major producers of milk in Chile, Soprole, is owned by Fonterra from New Zealand. The United States is the second main supplier of dairy products to Chile, followed by Argentina.

United States has increased exports to Chile in 24% when comparing the January-August period for CY2014 and CY2015, while both New Zealand and Argentina have decreased their exports in the same period.

Policy General:

The United States and Mercosur countries have zero import duties with Chile. New Zealand, one of the main dairy products exporters to Chile currently has a 2 percent tariff for powder milk products, which is reduced by 1 percent every year until 2017. TPP agreement signed by Chile does not modify any of the old agreement on dairy products between Unites States and Chile. Although Chile had already bilateral free trade agreements with all of TPP countries, Chilean Public authorities believe it will have a positive effect on dairy exports to countries like Japan.

Production of higher value added products, mainly cheese and fresh milk is being studied by government (INIA). Less environmental footprint production systems are a concern on government institutions.

Dairy, Dry Whole Milk Powder

Production:

Production of whole dry milk in Chile was 82.1 thousand metric tons (TMT) in CY2013 and dropped to 75.5 TMT in CY2014. In CY2015, production figures for whole dry milk are lower from for February-May compared to the same months of CY2014. This reduced whole dry milk production is related to the rain deficit that caused less pasture production for animal feed in the first four months of the year. However since May, the rain deficit in dairy producing regions has decreased and pastures recuperation has been on the rise.

In CY2015 production losses are estimated to be 7% less related to CY2014. CY2016 whole dry milk production is expected to reach CY2014 levels due to water availability and price recuperation.

Production whole Dry milk (in 1000 MT)

Months

2013

2014

2015

% Variation 2015/2014

Jan

8.6

7.3

8.8

21

Feb

6.3

6.4

4.3

-33

Mar

6.0

5.8

3.1

-47

Apr

5.0

5.4

3.0

-44

May

5.4

4.4

3.7

-15

Jun

5.1

3.1

Jul

3.9

4.8

Aug

3.8

3.8

Sep

6.9

6.8

Oct

9.6

8.4

Nov

11.3

9.9

Dec

10.3

9.5

Total

82.1

75.4

22.9

Whole dry milk production in Chile shows a seasonal variation that shows higher production numbers at the beginning of the calendar year, then decreasing during the months of April through May and moving to its highest from October through December (accounting for nearly 35% of total CY production). The majority of annually whole dry milk production is concentrated between October 15 to November 30 and spring weather conditions determine overall calendar year outcomes. Since weather conditions have been favorable for production during the CY2015 spring, production is expected to rebound towards the end of the year.

Consumption:

Total milk consumption in Chile is situated on 146 liters per capita. Per capita milk consumption has shown a yearly 1 percent increase from 2001. Chile's population is expected to grow at a 0.97% year rate between 2015-2020, a slightly lower rate than the annual 1.08% rate for the 2005-2015 period. Milk consumption is not expected to suffer any major changes in the following year. Obesity is a concern in Chile and tendency towards healthy product consumption is being promoted by government and NGOs. Dairy products are considered to be part of a healthy diet in Chile. In fact, the industry is in the process of releasing a campaign to support this.

Trade:

Imports of whole dry milk were 3,955 MT in CY 2014, nearly half of CY2013 imports. On the other hand, exports in CY 2014 had a slight increase to 20,998 MT from 19,108 MT in CY 2013. The overall trade balance has been on a constant increase from CY2012 to CY2014.

Commodity: Dairy whole dry milk, milk powder more than 1.5% fat

Calendar Year: 2012 - 2014

Unit

Quantity (MT)

2012

2013

2014

Imports

T

6,418

7,639

3,955

Exports

T

14,950

19,108

20,992

Balance

T

8,532

11,469

17,037

Dry whole milk imports January-August went from 2,392 MT in CY 2014 to 5,173 MT in 2015. During this period the United States had a market share of 7.19% of total dry whole milk imports. In contrast, Argentina reduced its market share, from nearly 33% between n Jan-August 2013 and 2014 to less than 1% of imports from Jan-August 2015.

Whole dry milk production is exported mainly to Venezuela, Cuba, Colombia and China. Its price is higher in international markets, for this reason Chile is a net exporter of whole dry milk and an importer of nonfat dry milk. Some of the exports are transfers between major firms that supply their producing plants in Central America. Imports are very sensible to price. 27% of whole dry milk production was exported on CY2014. Exports to United Arab Emirates and Brazil were high in CY2013 and CY 2014 but have been decreasing when comparing the January-August period from 2013 -2015.

Dairy, Dry Whole Milk Powder

2014

2015

2016

Market Begin Year

Jan 2014

Jan 2015

Jan 2016

Chile

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Beginning Stocks

26

26

25

20

0

17

Production

82

76

83

71

0

76

Other Imports

4

4

4

8

0

8

Total Imports

4

4

4

8

0

8

Total Supply

112

106

112

99

0

101

Other Exports

22

21

23

17

0

21

Total Exports

22

21

23

17

0

21

Human Dom. Consumption

65

65

65

65

0

65

Other Use, Losses

0

0

0

0

0

0

Total Dom. Consumption

65

65

65

65

0

65

Total Use

87

86

88

82

0

86

Ending Stocks

25

20

24

17

0

15

Total Distribution

112

106

112

99

0

101

(1000 MT)

Dairy, Milk, Nonfat Dry

Production:

Production of nonfat dry milk more than doubled in CY2014 to 28.1 TMT, according to official government data from ODEPA. Production for the beginning of the year has been lower than the same months in 2014, due to the same reasons as whole dry milk -- rain deficit at the beginning of the year which resulted in less pasture production that affected milk yields/production.

Nonfat dry milk production (1000 MT)

Months

2013

2014

2015

% Variation 2015/2014

Jan

2.2

3.2

2.5

-22

Feb

2.0

2.0

2.3

15

Mar

1.3

2.5

2.3

-9

Apr

1.3

2.2

2.1

-5

May

0.7

2.0

1.8

-9

Jun

0.5

1.4

Jul

0.2

1.6

Aug

0.3

1.6

Sep

0.6

2.3

Oct

1.4

2.9

Nov

1.7

2.9

Dec

1.9

3.4

Total

13.9

28.1

11.0

Source: ODEPA, 2015

Source: ODEPA, 2015

Dairy, Milk, Nonfat Dry

Production of nonfat dry milk shows a seasonal variance that is higher at the beginning and the end for the CY. Since weather conditions were favorable for production during the CY2015 spring. Thus, production is expected to recuperate towards the end of the year, but a total lower production is expected for CY2015.

Consumption:

A slight increase on consumption is expected for the following years, as population acquires more healthy eating habits. In Chile nonfat dry milk is preferred over whole milk powder, which is minimal.

Trade:

Nonfat dry milk imports have been lower in CY2014, compared to the two previous years. Exports of nonfat dry milk were 1,969 MT on CY2014, a higher quantity than CY2013, when exports were only 111 MT. The trade balance was -3,528 MT on CY2014.

Commodity: 040210, Milk And Cream, Concentrated, Whether Or Not Sweetened, In Powder, Granules Or Other Solid Forms, Of A Fat Content, By Weight, Not Exceeding 1.5%

Calendar Year: 2012 - 2014

Unit

Quantity (MT)

2012

2013

2014

Total Imports

T

10,103

6,678

5,497

Total Exports

T

4,383

111

1,969

Balance

T

(5,720)

(6,567)

(3,528)

Imports of whole dry milk for the January-August 2015 period have been higher than the previous year resulting in an increase from 2,887 MT in January-August 2014 to 6,382MT in January-August 2015. United States imports represent 51.97% of Chiles CY2015 nonfat dry milk imports so far.

Exports of nonfat dry milk are mainly to Venezuela and Colombia, but quantities are very low compared to whole dry milk exports. This is because nonfat dry milk prices are lower on international markets so there is an incentive on exporting whole dry milk and importing nonfat dry milk.

Dairy, Milk, Nonfat Dry

2014

2015

2016

Market Begin Year

Jan 2014

Jan 2015

Jan 2016

Chile

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Beginning Stocks

3

3

2

13

0

12

Production

17

28

17

17

0

17

Other Imports

5

5

5

5

0

5

Total Imports

5

5

5

5

0

5

Total Supply

25

36

24

35

0

34

Other Exports

2

2

2

1

0

1

Total Exports

2

2

2

1

0

1

Human Dom. Consumption

21

21

21

22

0

22

Other Use, Losses

0

0

0

0

0

0

Total Dom. Consumption

21

21

21

22

0

22

Total Use

23

23

23

23

0

23

Ending Stocks

2

13

1

12

0

11

Total Distribution

25

36

24

35

0

34

(1000 MT)