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Dairy's Five Mega-Threats


As a person who likes to consider a glass of milk as half full, it takes some effort to read the latest book by ‘Dr. Doom’, Nouriel Roubini. Titled ‘Mega Threats- ten trends that imperil our future’ it has been described as a wakeup call for humanity. As an economic analyst and forecaster Roubini is most famously credited with predicting the 2008 housing crisis. His latest book lists ten dangerous challenges for the world, and the consequences of these trends for dairy production are worth considering.


Inflation and Stagflation

The multiple injections of cash into Western economies, most notably post-Covid, have left most of the western world vulnerable to a prolonged period of inflation at over 5% and high interest rates. In a world accustomed to bank rates hovering close to zero, combined with historically low inflation, this will mean a different type of financial reckoning. Can dairy farms continue to consolidate, or expand if the cost of capital is above 10%? What effect does this have on the land and the purchase of equipment?


Russia-Ukraine Conflict

How the war has already impacted the price of feed proteins have been well established. As feed typically contributes around two-thirds of the cost of milk production increased feed costs have significant impacts on the price of milk on the supermarket store shelf. Other consequences of the war are the doubling down of government policies to generate energy biofuels, notably soy and corn, and these are also impacting feed costs, and of course fertilizer prices. The IFCN reported that combined world prices for milk in April 2022 was the highest since they started monitoring almost 30 years before. 2023 shows no sign of an end to the war or to its impacts.

The New Cold War

The Chinese-U.S. trade conflict, with the potential for it to spill over into trading sanctions if China invades Taiwan. The importance of China on U.S. milk prices is frequently underestimated. Even when China doesn’t purchase milk powder directly (or with extra tariffs through Hong Kong), it still impacts prices here by removing milk powder from countries such as New Zealand from the global market. When China’s medical officer in charge of Covid policy declared that all Chinese should boost their immunity status by consuming milk the effect on world consumption and prices were noted. It has been said before when China’s economy sneezes the world dairy markets are prone to catch a cold!

Climate Change

The narrative that cows are responsible for climate change continues to dominate the media. The question becomes how quickly policies are put in place on farms to address greenhouse gases, methane production for example. Some political realities suggest this will be slow. For example, quick wins for the planet should shift production of milk to those that are the most efficient, with the U.S. and Europe being winners from such policies and places like India losing their ability to produce. It would also mean moving milk production away from pasture-based to indoor systems. Whatever the realities Robani goes on to talk about how climate will change what we grow, where we grow, and the potential for areas to become uninhabitable. Dairy producers will however continue to find profits in energy capture, methane digestors, Agrivoltaics (solar energy mixed with agricultural production), hydrothermal and wind power.


Artificial Intelligence and Robotics

Robani is very pessimistic about the role of artificial intelligence, and robots, and their possible role in replacing humans in the workplace. While these are already on the farm, the complexity of farm work ensures that this will never be the first place for robots to be used. Factories, however, particularly the processing of food, will be transformed by the use of robotics and artificial intelligence. Robani contends that if we don’t consider carefully how robots and artificial intelligence are implemented, we will end up with huge numbers of unemployed, and dire consequences of that for society, which is relevant for food producers. Overall, the importance of AI is how jobs will change, and the skills of both farm workers and especially managers need to evolve to the new agri-technology realities.


Robani’s other pessimistic predictions include the world’s aging populations, currency meltdowns, and the end of globalization. While all of these threaten the era of economic stability and prosperity growth has brought Robani does include the Yogi Berra quip that it is ‘hard to make predictions, especially about the future’. Humans have shown the ability to overcome diversity through innovation, ingenuity and leadership. Hopefully even in the face of these ten very real threats will show us able to do this again, and keep dairy producer’s view of the glass as being half full and not half empty.


March 2, 2023


dairyherd.com


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