February 13, 2014

Diederik Brasser
Founder & Director
Trilobes BV

Most people would consider Germany the best place to grow BMW’s and accept to import that car. We also accept that soybeans are grown in large volumes in Brazil and USA and import to buy this product. We regard that as logical because the resources in these countries are excellent for growing soybeans and we do not hesitate to import these in large volumes; around 30-40% of the world production in soybeans is traded internationally. But when it comes down to milk only 8% is exported around the world. Milk is still regarded as a “should be domestic product”, even though there are large differences in production resources & cost between regions. As the demand for (safe) dairy grows, is “100% domestic production” still a sustainable solution from economic and environmental view?

In the latest FAO 2012 statistics cow milk has become the largest agricultural product in the World in dollar terms (US$ 187 billion, 625 Million tons). The World demand for milk has grown steadily over the past decade. Till 2020 the World demand is expected to grow to 825 Million tons (LEI, 2012). Most of this demand growth will come from emerging countries located in the tropics. These countries (except for India) do not have a long tradition of producing milk. For example the domestic milk production in the ASEAN countries covers only 5-30% (varies per country, Rabobank ASEAN 2013) of consumption. So they are now largely dependent on the import of milk powder. Therefore a number of  “dairy deficit” countries have a governmental policy to expand their milk production.  China for example has been very successful in expanding their milk production, to around 37 million tons. But demand is currently growing at a quicker pace; the current shortage of 5-6 million tons Milk Equivalent (ME) is likely to grow in the coming years. Though a number of large dairy projects are coming on steam, smaller producers are leaving in large numbers. Chinese milk production is also part dependent on imported feed. This makes it hard to produce at acceptable cost.

Thus filling the Asia deficit by increasing domestic production is not an easy road. The natural resources in Asia for making milk are simply not ideal. For milk production optimal conditions are abundance of feed, land, water (it cost 10-15 liters to make 1 liter of milk) and a moderate climate. Therefore importing dairy from “optimal regions” may be a better alternative to meet part of the future growth.  In a report from the IFCN (2012) the carbon footprint of making milk (average around 3,25 kg CO2 per liter) is more than double that of major milk producers such as the EU, USA and ANZ. As the carbon footprint of oversea transport is very low, there is an overall environmental benefit in shifting part of the extra needed milk production towards more optimal regions. More important, when feed, land and water are in abundance, this will also reduce production cost.

However, importing all milk deficit in powder could not appeal the consumer demand (of the fast growing Asian middle class) for fresh and liquid. But there is a new solution in transporting milk in liquid. Trilobes BV and its offspring, MilkWays Holding BV (directed at the dairy market) have developed integrated maritime “aseptic (ultraclean) supply chains” for the bulk transport of liquid milk, safe and cost-efficient. These supply chains have already been delivered to the fresh orange juice industry and facilitate the export of millions of tons of OJ from Brazil to the rest of the World. Fresh orange juice, deteriorating within days in a fridge, can be kept in good condition for over a year in these advanced and proven systems. Trilobes, has worked for parties like Cargill, Pepsico, Mitsubishi Corp and the large Brazilian OJ producers.

The new milk supply chains provided by MilkWays could transport up to 100 to 500 million liters of liquid milk from “efficient milk production regions” oversea to “milk deficit” regions. This will cater the local dairy industry as they can produce premium & safe products with this quality “raw material”. It also shifts “added value” to the importing countries and processing close to the (consumer) market will enable to make products suiting local taste. Liquid/fresh milk could provide a third pillar, besides domestic milk and imported powder. Jointly providing the base for a healthy, broader-based, national dairy industry delivering a wide spectrum of dairy products at acceptable cost. We see long-term relations between farmers in producing regions (ANZ) and local processors of milk (in Asia). The long term would provide sourcing security for the buyer processor as well as income security for farmers. As these supply chains can be very well monitored, product safety can be guaranteed.

This new transport option also creates interesting opportunities for agro investors. With a long-term buyer/processor on one side and MilkWays delivering a safe and cost-efficient supply chain, investors in these new dairies can have a long-term secure cash-flow.

Seeing this new supply option delivering safe milk at a competitive price, governments may rethink their “over pushing” domestic production of certain agricultural products. Why produce most of the milk domestically-against all odds- if on the same land other products can give a better yield? Some give “food security” as a reason, but if local milk production is based on imported feed (and needs 10-15 liters of water per liter produced), this can hardly be seen as real security. And why not focus on those products that can be produced efficiently locally, for example nuts, fruits, palm oil etc.? Shouldn’t countries focus on what they are best in? We already seem to accept that with soya, wheat and BMW’s.

Drs Diederik J.S Brasser, Managing Director MilkWays Holdings BV, Trilobes BV, diederik.brasser@trilobes.com, +31-629-516335

Mr. Brasser will be a speaker at Global AgInvesting Middle East in Abu Dhabi, February 24-26, 2014. 

Large orange juice infrastructure; terminal and tanker ship with 35.000 tons OJ capacity  

The opinions expressed in this editorial are the author's own and do not reflect the view of Global AgInvesting.