Milking the market: Brazilian dairy farmers want to be the world's milk supplier, and they're starting out with Mexico.

Brazil is crawling with cattle. Now the world's top beef exporter is setting its sights on foreign dairy markets. Brazilian farmers say they are going to attempt to take on the U.S. dairy business and win the hearts and minds of milk drinkers living south of the Rio Grande, competing along the way with subsidized dairy products from the United States.

In June 2005, the Brazilian government and the private sector convinced Mexican officials that Brazilian dairy producers would make good import partners. Mexico had closed its borders to Brazilian dairy products on mad cow concerns, but the Brazilian government had always suspected that claims of the disease were part of a trade battle between Brazil and North American countries.

"We don't know why Mexico closed its doors to Brazilian dairy because we surely never had problems with mad cow disease in Brazil" says Andre Mesquita, president of Serlac Trading, a company that links Brazilian dairy farmers with commercial exporters.

For now, Brazil's dairy producers are excited about the possibilities Mexico alone represents. The country is one of the world's largest importers of dairy, bringing in roughly US$1 billion annually in condensed and powdered milk, according to Brazilian government data. "Competency and product is the only way we can compete with the U.S. in Mexico," says Jorge Bubez, president of Leite Brasil, the country's milk producers' association. "In order to gain market share, someone has to lose market share. It's not like demand for milk is exploding."

Of the 530 billion liters of milk produced annually worldwide, 7% is exported, according to the Brazilian Confederation of Dairy Cooperatives in Brasilia. That export market grows at a steady 2% annually. Only China and southeast Asia stand out, where powdered milk imports are growing 10% a year, according to Serlac. So strong, in fact, that the world's No. 1 dairy exporter, New Zealand, has started to pull out of Latin American and African markets to meet Chinese demand.

"New Zealand is leaving. Mexico is a new, big opportunity, and all this translates into more open markets for us," says Renato Beleze, president of Confepar, a cooperative of 7,000 farmers that produces the Cativa and Polly brand of dairy products in Parana state.

Nationwide, exports of milk in concentrate, including condensed and powdered milk, has grown to $74 million in 2004 from just $5 million in 2000. In 2005, milk literally splashed out of Brazil between January and November, rising to $111.1 million in the period. That's just 2.3% of Brazil's total output, according to data provided by agriculture market-research firm Scot Consultoria.

That's not bad for a sector that was hurting just five years ago. The dairy industry began expanding after Brazilian dairy farmers won a 2001 anti-dumping dispute in the World Trade Organization against European Union imports. The end result meant less market share for E.U. companies selling to Brazil, and incentives for dairy producers here to rev up production. According to Scot analysts, Brazil no longer needs to import milk and production should ramp up enough to make it a global figure in the industry.

Production. Brazil has room to grow. New Zealand has three cows per hectare, compared to nine per hectare in Brazil. Brazil can increase production easily without necessarily clearing the Amazon to do it. Farmers only need to breed cows that produce more mile Brazilian cows produce 1,000 liters; by comparison, U.S. dairy cows produce an average 10,000 liters per year. "Brazil will soon become one of the biggest world players in the international dairy market," says Vicente Nogueira, an economist at the Brazilian Confederation of Dairy Cooperatives.

The government is trying to help out dairy farmers by enacting a new regulation in July of 2005 that shows global buyers that Brazil is serious about sanitation. The new rules apply quality-control measures on dairy farms before they can sell milk to local markets. The Ministry of Agriculture will monitor the farms. 'As it is, many dairy farms are not monitored at all," says Adir Salla, a farmer in Londrina, Parana. "This will put an end to informality in the sector and improve milk quality."