Brazil’s dairy industry stands strong through challenges

Editor’s note: Passport to Cheese is Cheese Market News’ feature series exploring the dairy industries of nations around the world. Each month this series takes an in-depth look at various nations/regions’ dairy industries with coverage of their milk and cheese statistics and key issues affecting them. The nations’ interplay with the United States also is explored. We are pleased to introduce our latest country — Brazil.

By Rena Archwamety

MADISON, Wis. — Brazil, whose dairy industry has grown rapidly over the past decade, ranks No. 5 in the world for milk production behind the European Union, the United States, India and China. Cow’s milk production in 2015 totaled 35.3 million metric tons. The country also ranks third in cheese output, according to the International Dairy Federation’s (IDF’s) World Dairy Situation 2016 report.

“We have an incredibly high number of dairy farmers in Brazil,” says Andrés Padilla, senior analyst, beverages and dairy, Rabobank International Brasil, noting that while there has not been a definitive study on the exact number, the country has at least 300,000 dairy farms of varying sizes. “A lot are still small scale ... it depends on the region. In the south of Brazil, which is a very strong dairy-producing region, there are a lot of small properties. In the center west, there are larger properties.”

Dairy consumption is widespread in Brazil, and cheese and fluid milk consumption grew rapidly from 2002-2014 when the country’s economy was doing well, Padilla says. When Brazil’s economic recession started in 2014, growth slowed, but declines were smaller than forecasted.

“People decided to stop consuming other goods before dairy consumption,” Padilla says.

“Dairy is a pretty basic staple. People traded down on the quality of some products, which affected some more expensive brands. But in general, the market has been quite resilient to the recession.”

The market for dairy products still is fairly polarized with a variety of manufacturers, Padilla says. The largest players in Brazil are Nestlé, then Lactalis — which in recent years acquired a number of Brazilian food and dairy businesses — followed by Itambé, a cooperative based in Minas, and Vigor, a producer in San Paulo.

As for cheese processors, the company Polenghi Indústrias Alimenticia leads the market in Brazil with a value share of 11 percent, according to a December report from Euromonitor on dairy in Brazil. The report notes the company’s lead is due to a wide portfolio that includes culinary, snacking and sandwich options. Its products also are available through foodservice and are recognized for their high quality. Cheese sales in Brazil are set to grow at a compound annual growth rate (CAGR) of 4 percent, reaching sales of BRL25.6 billion (US$8.1 billion) in 2021, Euromonitor adds.

During the recession, Padilla notes some of Brazil’s larger players gained market share and increased revenues, while smaller, more local companies have struggled more.

“I think the consolidation process will continue in coming years,” he says.

Cheese accounted for approximately 40 percent of the net milk equivalents available for consumption in 2015, followed by fluid milk (25 percent) and powder (18 percent), according to the IDF report.

• Cheese in Brazil

Mozzarella is the most-consumed cheese in Brazil, typically used on a daily basis for breakfasts, sandwiches or on pizza, according to Padilla. Second is Prato — a yellow cheese similar to Gouda, with a mellow flavor — followed by Requeijão, a traditional Brazilian spreadable cheese. There also is a large presence of artisanal cheese in Brazil.

“It’s hard to estimate a percentage, but I would say around 15 percent of all cheese is still consumed or produced on an artisanal basis,” Padilla says. “Not so much in state capitals, but in smaller cities there is quite a bit of artisanal cheese. When you go to local, regional markets you see those products for sure.”

Traditional artisanal Brazilian cheeses have been passed through generations and are present in traditional recipes, according to Slow Food Brasil. Among Brazil’s many varieties of traditional cheeses are Serrano cheese, Mantiqueira Parmesan and Canastra cheese.

Serrano cheese is one of Brazil’s oldest handmade cheeses, likely developed in the settlement of Campos de Cima in the Serra do Rio Grande do Sul and Santa Catarina in the first half of the 18th century when Portuguese migrated to the mountainous region where they raised cattle. Slow Food Brasil notes that the craft of making Serrano cheese has been passed from generation to generation, and it continues to be one of the main products of family farming in the producing regions. Serrano is a raw milk cheese with a semi-hard mass, strong flavor and aroma and slightly buttery texture. Originally it was made in large pieces weighing more than 5 kilograms, cured for 40-60 days and marketed two to three times a year. Over time, with more commercial facilities and consumer demand, smaller varieties of this cheese were produced. Currently, it is found in rectangular or round form, between 1 and 2.5 kilograms, and cured for 10-30 days.

Mantiqueira Parmesan is produced in the highlands of the Serra da Mantiqueira in Minas Gerais, Brazil’s main milk-producing state, along the borders with São Paulo and Rio de Janeiro. Since the 19th century there have been reports of this cheese in the region. Slow Food Brasil says there are two versions of its origin: one that it was derived from an Italian recipe, and one that it was brought by a Dane. It is a straw-yellow cheese with a smooth, unctuous crust, cylindrical shape and flat surface. It has a compact mass with frequent presence of eyes, salty taste, and milk and fat aroma that are accentuated as it matures.

Mantiqueira Parmesan is widely consumed by local people, melted on the stove top or used in dishes like the popular rice and cheese.

Canastra cheese is a traditional product made in Serra da Canastra, Minas Gerais. An estimated 1,800 families produce this cheese in the region, and several are part of a Canastra cheese producers association. However, this cheese is in danger since many children of small farmers in the area do not want to continue their work, Slow Food Brasil says. Canastra cheese is a semi-hard, yellowish-white cheese with a tendency for a soft, buttery texture. It is compact and cylindrical, weighting from 1 to 1.5 kilograms, and has a slightly acid and pleasant taste. The cheese typically is cured for 21 days before consumption.

• Exports and imports

According to official USDA data, cheese production in Brazil totaled 751,000 metric tons in 2015, while imports totaled 21,000 metric tons and exports totaled 3,000 metric tons.

USDA’s annual dairy report on Brazil, published in October, says the country’s 2016 cheese production was forecast to decrease due to a milk shortage in the market and estimated small growth in the fast food sector. Due to reduced fluid milk suppliers, cheese imports for 2016 were projected to increase by 92 percent. Cheese imports from Uruguay and Argentina significantly increased in 2016, and cheese imported from these countries included mainly Parmesan and Prato used in the foodservice sector.

Meanwhile, USDA reports that while Brazil is not a strong cheese exporter, its cheese exports are forecast to increase by 2 percent in 2017 as companies are trying to improve their production and will target exports to Russia this year. Recently, Russia opened its cheese, milk powder and butter market to Brazil by registering some dairy plants to export to that country, USDA notes.

Economic and trade policies over the past decade have focused mostly on other South American countries such as Argentina, Uruguay, Paraguay and Venezuela, Padilla says.

“There has not been much push to open up to other markets recently, so Brazil is behind other large dairy-producing countries in market access,” Padilla says. “For Brazil to export, it is expensive for access. They have to pay tariffs, so Brazil is not that competitive. But there are some exports to the Caribbean and Africa — Portuguese-speaking countries like Angola and Mozambique. Most exports are in South America.”

Due to the lack of trade agreements, imports to Brazil from most countries outside South America also face high barriers. Argentina is the main provider of imported milk powders, cheese and butter, Padilla says.

“But there also are quite a few European imports,” he adds. “They get taxed, but are consumed by the higher-income section of society. They will pay a premium for Brie, Roquefort and other cheeses.”

• Industry forecast

Rabobank’s most recent Brazil Agribusiness Quarterly notes that milk processing in Brazil declined by 4 percent in volume during 2016 but is expected to return to growth in 2017. Milk output is set to increase by 1-2 percent in 2017, as farmers’ margins are positive and feed costs are expected to decrease gradually in coming months.

In January and February combined, Brazil’s dairy trade deficit totaled 27,000 metric tons, three times the level seen in the first two months of 2016, Rabobank reports. With a stronger value for the Brazilian real, and global markets still in recovery, Rabobank forecasts that imports will continue at high levels in the second quarter, limiting increases in farmgate milk prices.

As for recent challenges, Padilla notes that there was a drought in Brazil from 2015 through part of 2016, but the weather has been more favorable the last six months. The recession has had more impact on Brazil’s dairy farmers, and rising grain prices the last 12 months have decreased profitability.

“It was the worst recession in almost 100 years, with unemployment rising and some major challenges to consumer spending power. Even then, dairy consumption remained resilient, which is a very good sign for the industry,” Padilla says. “As the economy starts to rebound, we will see growth. Not as fast as through 2014, but we will see return to growth in dairy products.”

He adds that Brazil likely will not be a net exporter any time soon with challenges to market access, but more focus will be on the domestic market and domestic opportunities. There also will be opportunities for foreign investment in Brazil’s dairy sector. (See “Emmi acquires stake in Brazilian dairy” on page 6.)

“I think Brazil remains a very attractive market for international players,” Padilla says. “It’s one of the largest producers of dairy, with a high acceptance of dairy products. Those companies not yet operating in Brazil will continue to look at this market for potential targets of acquisition.”

CMN

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