Report Highlights: 

Chile’s dairy production is expected to increase again this year, as weather has been more favorable for grass production which is the primary feed input for milk production.

Executive Summary: 

Chile’s milk production is expected to increase slightly in 2014, as a result of better weather conditions for pasture production. Chilean milk producers are expecting the industry to expand slightly this year by 1 percent as large producers increase their operations, as well as improvements in farm technology and animal genetics.

Production: 

Chile’s total milk output increased 1.13 percent from 2.65 billion in 2012 to 2.68 billion liters in 2013. Production increased at a slower rate than during the previous year, due to adverse weather conditions during September - December 2013, due to decreased precipitation and higher than normal temperatures delayed the growth of pastures in major milk producing areas. Approximately 80 percent of Chile’s milk production herd is fed by grazing in fields, and supplemental feed is used mainly by large producers and during the winter months. 

Better weather conditions during the spring 2014 positively contributed to the pasture available for dairy herds to feed off of. Thus, also contributing to Chile’s total milk production increasing slightly higher than in 2013 less than last year. Total dairy production is estimated to increase nominally by one percent in 2014.

Chile currently has an estimated 16,000 dairy farmers with approximately 460,000 cows in production, of which 80 percent are considered small producers and the whole dairy industry employs directly and indirectly an estimated 35,000 persons. 

Trade: 

Historically, Latin American countries have been the main destination for Chile’s dairy exports, led by Mexico. Nearly 50 percent of its production was exported in the form of whole dry and condensed milk.

New Zealand became the top supplier of dairy products to Chile in 2013. The US was Chile’s third supplier of dairy products after New Zealand. The value of Chile’s dairy products imports increased again during 2013 as a result of a fall in the exchange rate. As a result of an increase in imports of milk products from New Zealand, Chile imposed a three percent surcharge on cheese and butter imports. The surcharge had no effect on total imports as it was only in effect for 20 days. There was no request of extending or renewing it by the Industry or the GOC.

Chile’s dairy imports exceed exports in 2013. In CY2013 the trade balance expressed in fluid milk equivalent fell significantly when compared to the previous year and preliminary figures for 2014 show a significant comeback.

Policy: 

Although Chile bound its dairy product import duties (HS 04.02, 04.05, 04.06) at 31.5 percent in the Uruguay Round, a flat import tariff of 6 percent is applied on nearly all imported dairy products. Additionally, a value-added tax of 19 percent is charged at the consumer level on all goods, domestic or imported. Chile has cero import duty only for Colombia and the United States for whole and non-fat dry milk as a result of the Free Trade Agreements with these countries. Non-fat dry milk has entered duty free from the U.S since 2007 and whole dry milk since 2011. Colombia has had duty free access for both, whole and non-fat dry milk since 2012. For all other countries that have signed agreements with Chile, dairy products are excluded from the tariff reduction schedule 

As a result of Chile’s trade agreements, the dairy industry expects to keep increasing exports by XXX% in the next 5 years?. The US – Chile FTA provides for a 3,500 metric ton (MT) duty free quota for Chilean dairy products. This volume increases 10 percent each year until Chile gains duty free access in 2016. The agreement with the EU offers a duty free quota of 1,500 Tons, with a yearly increment of 5 percent. Duties applied to these products are 40 and 38 percent respectively. No preferences were agreed for dairy products in the Chile-Japan trade agreement. 

In an effort to increase domestic consumption of milk and milk products, the industry and producers continue their promotional campaigns. They have agreed to form and finance an association (Promolac) that manages the contributed funds in promotional campaigns, mainly through TV and printed media. Industry sources have indicated that such promotion has been an important factor in total domestic dairy product per capita consumption that reached 150 liters in CY2012.

Dairy, Dry Whole Milk Powder

Production:

Close to 75 percent of Chile’s production of dry milk is whole milk powder. Production of whole dry milk in CY2014 is expected to stay at nearly the same level as CY2013. For 2015, production of whole dry milk is only expected to increase slightly in spite of a predicted increase of milk output as was indicated by an industry contact. 

Consumption: 

Dry milk is available for sale in all Chilean supermarkets and smaller grocery stores. Families that do not consume large quantities of milk or do not have refrigerators to keep UHT fresh after opening prefer dry rather than fluid milk. Ultra high heat treated milk (UHT milk) is very common in Chile because you can store the containers for long time without refrigeration, but once opened the containers have to be kept in refrigerators. Government food programs also account for a significant proportion of dry milk consumption. Government tenders for dry milk may be filled by either domestic or imported product. During the winter months, the industry reconstitutes fluid milk from dry milk produced during the summer, in order to produce dairy products that have a constant demand throughout the year. Domestic consumption of dry milk will decrease slightly according to the Ministry of Agriculture projections. Fresh fluid milk, mainly UHT, consumption is replacing the fall of whole dry milk consumption. 

Trade: 

Chile’s imports of whole dry milk depend on domestic production and on the exchange rate. 

Although, Chile's milk processing industry projects an increase in its export markets in the coming years as they become more competitive and the price incentive increases, industry sources indicate that this will depend on the exchange rate with the US dollar. Chile’s main export markets are in Latin America, particularly Venezuela, Peru, Colombia and Mexico.

Dairy, Milk, Nonfat Dry

Production: 

Chile’s NFDM production stayed at similar level in CY2013 when compared to the previous year in spite of an increase in milk production. Production in CY2014 is expected to increase over 20 percent as higher international prices affected imports to fall. 

Consumption: 

Chile’s food industry determines to a great degree the consumption level of NFDM in Chile. Leading products made from NFDM are chocolate, ice cream and yogurt. The consumption rate of these products is in line with Chile’s economic growth. In the outer years, utilization is expected to continue to increase, but at a slower rate. 

Trade: 

The US has become again an important supplier of NFDM (non fat dry milk) for Chile. Competitive US prices for NFDM is the main reason for US milk imports, as Chile remains a price sensitive buyer