Udder improvement: buoyed by high milk prices and economic recovery, Argentine dairy farms are back in business.

The Argentine milk industry has moved on to greener pastures. After spending a few yeas in a rough spot, growth--and profits--have returned for dairy producers. The industry grew last year and the year before that, riding the crest of a wave of strong recovery that began at the end of 2003. Prior to the recovery, the country's milk producers had spent four long, painful years in decline.

A virtual case study on the industry's health is Mastellone Hermanos. The company, which controls 55% of the Argentine milk market through brands such as La Serenisima, is investing and expanding. Just over a year ago, it cut costs by refinancing 97.8% of a US$329 million debt burden. The company had defaulted when global milk prices plunged in 1999 and 2000. Then Argentina devalued its currency in 2002, causing the company's dollar-denominated debt to triple and, in the process, become instantly impossible to service.

For Pascual Mastellone, Argentina's recovery has been a thankfully gradual and sustainable one, and strong enough to drive growth in the company's now largely domestic business. "The domestic market itself has been recovering over the last two years, and it is expected to continue, which will limit our exports," Mastellone says. "If current macroeconomic conditions continue, Argentina will play an important role in the international market in the coming years."

Now out of default, Mastellone Hermanos plans to invest $10 million in projects to create new growth, which will allow the company to double its production of powdered milk in the coming years. The company will expand a milk-drying plant in the Trenque Lauquen industrial park as well as increase processing capacity at its General Rodriguez factory, the largest of its type in Latin America. Once complete, the Trenque Lauquen industrial plant will raise by more than 1 million liters daily the processing capacity for milk used to make both cheese and powdered milk. Mastellone sales hit $422 million in 2005, up from $390 million a year earlier.

Last year, the company exported $52 million in dairy products, mainly powdered milk, to 32 countries. The company expects to ship $75 million this year. Mastellone exports consist of milk and other products considered to be surplus not absorbed by the domestic market, which remains its priority. "Although our company's objective is to cover all domestic market needs, last year we had exports of around $50 million," says Jorge Luduena, Mastellone's manager for overseas business. Overall, the Argentine dairy industry exported a record-high $638 million in products last year, up 20% from 2004. Higher milk prices played a role in the increase.

According to a report from the Argentine Dairy Industry Center (CIL), the milk and cheese business is more profitable than many other agricultural activities, including powdered soy, thanks to rising milk prices. According to CIL estimates, the domestic dairy sector will grow by as much as 7% a year beginning this year, a trend that could continue long term. For 2006, the organization expects domestic production to reach 10.30 billion liters. "With this increase, there is no doubt export volumes will rise," says Jorge Secco, manager of the dairy trade group.

The country's dairy industry employs more than 270,000 and is the fourth-largest segment in the food-production industry, responsible for 12% of the food segment's economic impact, surpassed only by dietary oils and meat production, according to business school Universidad Argentina de la Empresa. Mastellone Hermanos isn't alone in its quest for growth. Its competitors Sancor, Danone, Milkaut Molfino and Manfrey are also out for business.

JUAN PEDRO TOMAS * BUENOS AIRES