Rio Grande do Sul’s dairy industry operates at half capacity and loses market share

The gap between installed capacity and supply means that dairy factories in Rio Grande do Sul are operating at slightly more than half of their potential, according to Apil, the association representing the state’s small and medium-sized dairy processors. The figures were cited as the state’s milk production reached a recent record.

Products from Argentina and Uruguay account for about 8% of the Rio Grande do Sul market, Apil said. They reach consumers at a lower cost than products made by local processors. Some imports are arranged directly by supermarket groups and pizza chains, without passing through dairy companies in the state.

“There are already pizza chains and supermarkets that can import directly or through traders. These products end up entering at a much lower cost, which affects our market considerably,” said Fernando Zimmermann, Apil’s president.

Zimmermann said competition from imported products also affects the prices paid to milk producers. “We end up entering into a dispute, with the producer thinking that the dairy processor is responsible for the low prices he receives. We are simply reacting to a market issue,” he said.

Cost structures differ between large companies and smaller processors. Bigger firms can import inputs such as milk powder and curd mass, reducing production costs. Smaller Rio Grande do Sul dairies rely almost entirely on milk collected within the state, which raises their operating costs and limits the extent to which they can pass those costs on. “We end up passing on only part of this cost, and that directly affects the price paid to the producer as well,” Zimmermann said.

Local processors have focused on raising the productivity of farms already connected to their supplier networks rather than expanding milk collection into new areas. The approach is intended to reduce logistics and technical-assistance costs.

Apil is discussing a proposed surcharge on imported products, including milk powder and mozzarella cheese from Argentina and Uruguay, with G100 and the Brazilian Association of Cheese Industries. The association is also seeking tax measures to narrow the price difference, as well as policies to encourage domestic consumption and expand credit for the sector. Zimmermann said Brazilian producers and processors must meet stringent sanitary and production requirements, and questioned whether imported products are subject to equivalent standards in their countries of origin.