Argentina’s dairy sector is struggling due to the economic crisis, with a 13% drop in milk production in early 2024 and a projected decrease of 7% for the year. Rising input costs and inflation are affecting both production and domestic consumption, which is expected to decline by 7% to 1.6 million tons. While the devaluation of the peso has improved export competitiveness, the sector faces ongoing challenges despite government measures to support it.
Argentina’s dairy sector is facing severe difficulties this year due to the country’s ongoing economic crisis, according to the latest global dairy report from the United States Department of Agriculture Foreign Agricultural Service (USDA FAS). Inflation and foreign exchange controls are affecting milk production, export competitiveness, and domestic consumption.
Impact on Milk Production
Argentine dairy farmers are heavily reliant on domestically produced inputs such as feed, machinery, and fuel. The rising costs have led many to reduce production or seek additional funds, with some operating at a loss. Consequently, milk production has plummeted. From January to June 2024, production fell by 13% compared to the same period in 2023. The total milk production for 2023 was 11.7 million tons, but this is expected to decrease by 7% to 10.8 million tons in 2024. Despite a brief recovery in milk prices due to reduced production, the sector has struggled with output levels over the past five years due to rising costs and economic instability.
Export Market Performance
The devaluation of the Argentine peso has made the country’s dairy products more competitive internationally. Lower prices for foreign buyers have boosted export volumes, with a 10% increase in dairy exports in the first five months of 2024 compared to the same period in 2023. Notably, cheese exports are expected to rise from 85,000 tons in 2023 to 100,000 tons in 2024.
Domestic Market Challenges
Domestically, the economic crisis has led to increased dairy product prices, further strained by inflation which has eroded consumer purchasing power. Forecasts suggest a 7% decline in domestic fluid milk consumption, expected to fall to 1.6 million tons in 2024. This decline in consumption poses a significant challenge for the industry, which must choose between focusing on the more lucrative export markets or continuing to cater to the price-sensitive domestic market.
Government Measures
In response to the crisis, the Argentine government has implemented several measures to support the dairy sector. In December 2023, it reopened agricultural export registrations and introduced a “blended” exchange rate for agricultural exports, combining the official rate with an unofficial local rate. This has provided a more favorable rate for exporters, enhancing their global competitiveness.
While the government measures have provided some support for dairy exports, the broader economic environment remains challenging. High inflation, particularly affecting food and non-alcoholic beverages, continues to limit growth in domestic dairy demand. The Argentine dairy industry faces an uncertain future as it navigates these economic hardships..
