Dairy exports: U.S. must take the next steps

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U.S. dairy exports hit record highs for volume and value in 2013. The challenge now is to maintain consistency and develop potential for continued growth, according to two speakers at the Dairy Farmers of America (DFA) annual meeting in Kansas City, Mo., March 18.

Tom Suber, president of the U.S. Dairy Export Council (USDEC), congratulated DFA farmer members and the rest of the U.S. industry for achieving record dairy export sales in 2013.

After year's of ”talking the talk,” the U.S. dairy industry was finally “walking the walk” when it came to being a leading participant in the global dairy market, becoming the third-largest dairy exporter in the world, and the largest single-country cheese exporter, Suber said.

Recapping 2013, he noted exports had the biggest impact on farm-level milk prices in the fourth quarter of 2013, at a time when milk production in New Zealand, a major dairy exporter, was recovering.

Despite attaining some monumental export numbers last year, ”there's still more work to be done,” Suber said.

Suber took a “buyer's view” of the global dairy market’s future.

As the global market for dairy products grows and available inventories shrink, buyers are seeking “supply security,” wondering where milk and dairy products will come from, he said. In addition, with improved economic returns in dairy industry, investors are also looking for consistent milk supply areas to invest.

In recent years, the U.S. is now seen as an attractive, reliable supplier – leading the world in milk production, as well as in the middle of the cost curve among major milk producers/exporters – resulting in back-to-back record years for U.S. dairy exports, Suber said.

As a percent of total solids production, U.S. exports have grown from 3.7% in 1996 to 11.0% in 2008; dipped to 9.3% in 2009; but bounced back – an important global market indicator of U.S. resourcefulness – in 2010, to 12.7%, according to Suber. It has increased each year since then and, as a percentage of total solids production, exports totaled 15.5% in 2013.

 

The next steps

While supply is the major concern right now, emerging issues put the U.S. dairy industry at a pivotal point, Suber said.

He said those issues included price volatility, product diversification, tight quality specifications and dairy processing capitalization. Attention to food safety, including training, traceability guidelines, tighter testing protocols driven by customers and regulators, and consumer confidence, will be critical.

Suber outlined steps to sustain U.S. export growth while moving towards becoming a consistent supplier:

• press ahead on price reforms

• pursue an ambitious trade policy agenda

• continue to develop better risk management tools

• lead the way to assure buyer and consumer confidence – individually and collectively

• “double down” on talking to customers, with an eye toward future innovation

 

Waldvogel

“Export growth will not be a straight line, but our path is the right path,” said Jay Waldvoel, DFA’s  senior vice president of strategy and global development.

He said several macro factors – the free flow of information and capital – were helping drive global demand for dairy – especially in China.

“There are more people in more places with more money,” Waldvogel said.

Among the first investments in emerging economies is food, and dairy is seen as a highly nutritious protein source worldwide, as people seek to feed not only their children, but maintain nutrition throughout their lives. In other cases, dairy is seen as an indulgence, and consumers are seeking more options.

Despite a growing appetite for dairy, most major dairy importers will not be able to produce their own milk due to climate, land and water availability. He noted, for example, China has 22% of the world's population, but just 7% of the farmland and 3% of the world's water.

And, despite enormous financial investments in China's dairy sector, 2013-14 milk production totaled 70 billion lbs., down from 2010-12 by 6%-15% due to animal health issues and dairy farmer exodus.

The U.S. is increasingly being seen as a global dairy supplier, Waldvogel. And, compared to other potential suppliers, it may also hold the greatest potential.

New Zealand's dairy production system is changing from low-cost, grass-based operations to freestall barns and milking parlors, he noted. Higher input, labor and land costs will take away some of New Zealand's economic advantage.

Waldvogel said the European Union creates a dichotomy, with some areas thriving when quotas come off, while others will drop out without subsidies. And, while milk quotas may be lifted, "cow quotas” related to environmental and other regulations will prevent growth in some areas.

While strong grain prices are encouraging agricultural investment in Brazil and Argentina, good returns from grain production will slow investment in the dairy sector, with its different production and marketing cycles. And finally, political strive in another area seen as an emerging dairy production center, the Ukraine, will slow growth there.

With the 10-year average U.S. domestic consumption up just 0.4%, the U.S. dairy industry will have to look outward. Citing the impact on U.S. milk prices between March 2010 and February 2014, the value of exports add to dairy farmer prices “is real.”

Waldvogel put up some red flags for the future, warning the export market could lose its luster if milk loses its “safety” image; non-tariff trade barriers, including bans on management practices, get in the way of trade; business transactions are not executed properly; or another, new low-cost supplier emerges.

DFA's global sales revenue is expected to reach $800 million by 2016, four times the total for 2010, Waldvogel said. He urged DFA and the rest of the U.S. dairy industry to identify, develop and expand customer relationships, strive to be elite suppliers of value-added dairy products; and use all available resources, including the Cooperatives Working Together (CWT) program.

“It will not be a straight line, and there will be bumps in the road,” Waldvogel concluded.


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