Brazilian Dairy Slowing but Recovering Towards 2020

After a decade of sustained growth in the consumption of dairy products, the Brazilian dairy industry is facing a more challenging scenario with declines in consumption expected in the period ahead. The current economic crisis is having an impact on real incomes, which have been declining in 2015 and are likely to see further declines in 2016.

picture of Brazilian Dairy Cows

Real income is highly correlated with growth in dairy consumption. Slower population growth and ageing will also take some additional speed off the market. The slowdown in growth can also be explained in part by the maturing consumption in some categories, in particular in liquid milk. At 39 litres per person, Brazilians consume more than most other Latin American countries and are not far off levels seen in some developed countries.

Preserving industry margins

The weaker demand growth comes at a time when production costs are rising for both farmers and the industry. Exchange rate devaluation and high inflation will mean higher production costs for farmers. Industry margins will also be put to the test given the lower flexibility in passing higher prices on to customers at a time of high production costs. This will make it more challenging for the industry to preserve margins and for farmers to remain profitable. Dairy companies will need to adapt to this tougher environment where inflationary pressures will push production costs up at a time when weakening demand will challenge price increases at wholesale and retail outlets.  

First decline but then recovery

Following the decline in consumption in 2015 and 2016, we expect a gradual recovery from 2017 onwards, posting marginal growth for the five-year period to 2020. As the economy returns to growth in the 2017 to 2020 period and beyond—with expected growth of around 0.5% of GDP in 2017, 1% in 2018 and 2% for 2019 and 2020—dairy consumption will gradually recover to post marginal growth for the five years to 2020.