Dairy Market Stability Amid H5N1 Bird Flu Concerns

About H5N1 Bird Flu

The recent H5N1 human infection, referred to as avian influenza, in the United States (US) has become a major global issue. The H5N1 virus, also known as bird flu, occurs naturally in wild birds and was first identified in Southern China in 1996. After disappearing for several years, a new strain of H5N1 was rediscovered in Canada and the US in 2021 and has been spreading across the US ever since.

Avian influenza can be classified into two types: Low Pathogenic Avian Influenza (LPAI), which generally causes mild symptoms, and Highly Pathogenic Avian Influenza (HPAI), which is associated with severe symptoms and a high fatality rate in infected poultry. The current outbreak of the H5N1 flu virus is considered an HPAI.

Figure 1. Two types of avian flu viruses

The H5N1 flu virus can infect a wide range of animals, not only birds such as chickens and ducks but also livestock, including dairy cows. Dairy cows are particularly important for the US as dairy milk production (HS code: 0882) in the country accounts for over 13.64% of 2022 global production. It has the second highest production rate in the world, after India (14.39%).

Figure 2. Animals affected by the current H5N1 bird flu

Figure 3. Dairy milk production (HS code: 0882) in the US per World Production

According to the United States Department of Agriculture (USDA), the likelihood of bird flu-infected poultry or meat entering the market is very low. This is because the symptoms of bird flu appear quickly, allowing for easy detection before distribution. The USDA's stringent inspection programs also prevent this from happening. Additionally, milk produced by infected dairy cows tends to be more yellowish than regular milk, meaning it’s easy to detect before distribution, reducing the possibility of it entering the market.

Considering these facts, the potential impact of bird flu on the dairy milk market can be categorized into three major cases: the mortality rate of infected dairy cows (affecting supply), the reduction in milk production from infected cows (affecting supply), and the decrease in demand due to consumer awareness of infected milk in the market (affecting demand, influenced by psychological factors).

Among these, the first and second factors related to supply would require more research data to be quantified.

Introduction to Past Similar Research

The first study, conducted by the USDA in 2008, examines how news about bird flu affects consumer behavior in the poultry market. This research used data from 2004, when the H5N1 strain, similar to the one currently prevalent, was widespread. The study analyzed records over a two-year span from Oct-04 to Oct-06, focusing on whether consumer purchases declined during the weeks immediately following the initial bird flu news reports.

The study simultaneously analyzed the Italian market and other markets. During the analysis period, an average of 324.4 bird flu articles were published weekly in Italy, and in Oct-05 alone, 2,455 articles were published across Europe, indicating the severity of the situation. The study found that larger numbers of bird flu news reports led to larger reductions in poultry purchases. However, most impacts were limited and began to diminish within five weeks.

The study noted limitations in applying these results to predict US consumer behavior, as the consumption volume in the US is larger than in Italy, and meat consumption patterns differ between the two countries.

Figure 4. Weekly reduction in poultry purchases associated with a marginal increase in Italy-specific newspaper reports

Case Study

For this study, it's necessary to establish the timing of the first report on H5N1 bird flu affecting dairy cows and track the subsequent changes in US dairy milk prices. By checking Google News, Tridge found that the first news article containing both keywords "bird flu" and "dairy" was first published on March 25, 2024. Whether there was a significant change in dairy milk prices before and after this article was published needs to be analyzed. Due to data collection limitations, Tridge used the monthly milk class prices provided by the USDA instead of daily prices (Figure 5).

In Figure 5, "Class" refers to the classification according to the Federal Milk Order System (Figure 6), and "Factor" can be understood as the value obtained by multiplying the prices of the dairy products included in each Class by their respective weights.

Figure 5. Federal Milk Order Class 1 and Class 2 Advanced Prices and Pricing and Pricing Factors, 2024

Figure 6. Terms and Definitions of the milk Classes and Factors

The price in March is $18.8/cwt, according to the Figure 5 data comparing the prices before and after the article about the potential impact of bird flu on dairy milk, which was released on March 25, 2024. In comparison, the prices in February and April are $17.99 and $19.18, respectively, showing no significant difference.

To draw more meaningful conclusions, compare the average Class 1 Base Price and its volatility for 2023 with those before and after March (Figure 7). The average Class 1 Base price for 2023 was $19.2 per cwt, which is not significantly different from the March figure. Additionally, the volatility of the Class 1 Base Price in 2023 was 6.45%, higher than the overall volatility for 2024 of 3.88%, and also higher than the volatility from March to April, which was 1.70%. Therefore, news about bird flu potentially affecting dairy milk did not significantly impact consumer purchasing behavior.

Figure 7. The Volatility of Federal Milk Class 1 and Class 2 Advanced Prices and Pricing and Pricing Factors, 2024

Conclusion

Tridge has explored general information about bird flu and how the news related to the past and present outbreaks of H5N1 has influenced consumer behavior patterns. Looking at Italy’s case, Tridge observed that the news about H5N1 bird flu significantly reduced the consumption of poultry products, but consumption returned to normal after five weeks. Furthermore, in the analysis of dairy milk in 2024, Tridge found that upon comparing the prices before and after the news about the potential impact of bird flu on the dairy milk market published on March 25, 2024, there was no significant change in consumer behavior patterns.

Currently, dairy milk in the market is facing challenges as bird flu has been detected, creating difficulties for suppliers. However, even if H5N1 is detected in pasteurized milk, the pasteurization process removes the risk factor. Dairy milk suppliers could consider temporarily lowering prices for four weeks before normalizing them again. However, as Tridge previously mentioned, each dataset analyzed in this article has its limitations, and there are various factors that can influence consumer behavior. Therefore, it is essential to examine the issue from multiple angles.