He has served 39 years in the dairy industry, the last 13 at Darigold in executive positions, including president and CEO. It's safe to say Jim Wegner is a U.S. dairy industry and exports expert.
Wegner officially retires in January from Darigold, a Seattle-based co-operative that has been a U.S. Dairy Export Council member for 19 years and won the Tom Camerlo Exporter of the Year Award in 2007. USDEC tapped Wegner's expertise by asking a few questions about the changing role of exports in the U.S. dairy sector.
Q: Global markets are in a down cycle. How worrisome should that be for the U.S. dairy industry?
JW: We are witnessing a shift in the dynamics of global dairy supply and demand. The pricing volatility that the industry has experienced over the past 15 years is a textbook example of how important it is to keep supply and demand in balance in order to minimize the extreme lows in milk prices.
Overall U.S. domestic consumption of dairy products has been fairly flat. The industry must come to grips with the fact that as U.S. dairy farmers continue to grow and produce more milk, all of that incremental milk production will need to be exported to find a market. There is no longer a government price support system to purchase and store excess powder, butter and cheese.
We have become increasingly reliant on consistent export growth to keep U.S. supply and demand in balance. As a larger percentage of U.S. milk production must go to exports, the industry will experience the greater impact of global market forces. The United States accounts for only 4 percent of the world's population, there is a huge and growing market of hungry and more affluent consumers outside of our borders wanting to improve their diet.
Q: What will be the greatest challenge those market forces bring to U.S. export growth?
JW: A consistently strong U.S. dairy export market is essential. It is no longer something that is nice to tap into when global prices are high. If we didn't have exports, U.S. milk production would need to decrease by nearly 20 percent unless there is a significant reversal in domestic consumption. The industry needs to commit to consistently supplying the export market, because it is now critical to facilitate the future growth of the U.S. dairy industry.
Our industry must be more innovative in meeting the needs of our customers by providing the kinds of products that they want, not just the products that we utilize in the U.S. We need to think long term instead of short term and be willing to invest, innovate and adapt to provide the kinds of products, packaging and services that are relevant to our global customers.
We also have to deal with regulatory matters. Some processing technologies used in other parts of the world are not approved for use in the United States. Our standards of identity are not synchronized with the rest of the world: standardized skim milk powder vs. nonfat dry milk, or 82 percent BF butter vs. 80 percent BF butter.
Q: How is the U.S. industry doing so far in dealing with this new volatile reality, particularly from a milk production perspective?
JW: Milk price volatility is a simple function of supply and demand. Dairy producers can be their own worst enemy when they continue to increase production during periods when demand has diminished, exacerbating and prolonging the problem.
The U.S. Federal Order milk pricing mechanism was developed at a time when exports weren't a significant factor. The Federal Order pricing surveys do not incorporate most export sales into the pricing formulas.
Every milk producer in the United States needs to understand and appreciate the significance of exports, even if they come from an area where the milk that they produce is not being exported. The record milk prices that every producer received in 2014 were a result of exports and global markets.
Q: The competition certainly seems to be stepping up its game.
JW: Our global competitors are changing as well. While the European Union (EU) is the largest milk production region in the world, most of that milk was consumed within the area. However, now that the EU has lifted quotas, milk production is growing at the same time that Russia has restricted imports. The result is that more milk from the EU must be exported to Asian markets. In addition, China has worked diligently to increase dairy production internally to reduce reliance on imports.
Q: What are the United States" greatest strengths? What will help us stand out from our competition?
JW: We have a great reputation for food safety that must be maintained. But our greatest strength is that we have the land, resources and infrastructure to efficiently make a significant contribution to feeding the world. The lack of adequate land and resources for growth constrains future expansion in New Zealand as well as China.