Dairy Product Exports

A boon for the dairy industry
By Dorothy Noble

Celebrating his export success, Michael Strange, president of Bassetts Ice Cream, displays pints of his product at the Great Wall in China.
Photo courtesy of Bassetts Ice Cream.

Last year, U.S. dairy product exports achieved a record, topping $5.1 billion. What's more, the exports escalation continues. May 2013 figures show $629 million in shipments - another record. The dollar amount was 26 percent higher than May 2012. Calculating on a total solids basis, May exports were equivalent to 16.9 percent of U.S. dairy production, according to the U.S. Dairy Export Council (USDEC).

Producers have generated a positive trade balance in dairy products for the nation each year since 2007.

Because of accelerating value-added product sales, such as cheese, U.S. dairy product exports have risen in value and in quantity. Cheese accounted for 22 percent of sales in 2012, whey 16 percent and lactose 11 percent, while nonfat dry milk amounted to 26 percent. Included with albumin and whey protein concentrate, whey and lactose now account for 30 percent of the value of U.S. dairy product exports.

Milk powder led the latest exports, rising over 31 percent during April and May of this year over 2012. Lactose exports improved almost as much, increasing 29 percent from last year.

While Mexico and Canada remain our largest customers, the emerging markets in China and Southeast Asia are figuring more prominently. Depending on the particular dairy product involved, dairy industry analysts agree that opportunities are strong for sales to the Middle East, North Africa and countries such as Russia and South Korea.

Protectionism can hamper growth

Unfortunately, trade barriers have limited some large markets. For example, Jaime Castaneda, senior vice president of trade policy for the USDEC, notes that while the U.S. is relatively open to products from the European Union (EU), trade barriers make Europe a difficult place for U.S. dairy exports. EU tariffs for dairy are roughly triple ours, plus they have been pushing a worldwide policy to force realignment of the U.S. cheese business, along with a host of regulatory burdens, such as duplicate inspection requirements.

Although U.S. milk has a reputation for high quality, some countries object to rBST and demand low somatic cell counts and low thermoduric spore counts.

The U.S. Trade Representative negotiates more favorable trade with foreign nations. In July, the U.S. and the EU held the first round of the proposed Transatlantic Trade and Investment Partnership (TTIP) negotiations aimed to further market access and alleviate regulatory burdens. The next round of TTIP talks is scheduled for the second week in October and will be held in Brussels.

The 18th round of the Trans-Pacific Partnership negotiations also met in July. This proposal seeks to advance a framework to boost competitiveness and expand trade and investment with the robust economies of Asia Pacific. The 19th round was scheduled for August 22 to 30 in Brunei.

In December 2012, President Barack Obama signed legislation granting permanent normal trade relations (PNTR) to Russia. Both the USDEC and the National Milk Producers Federation supported PNTR as a major step toward reopening business with this large dairy buyer.

Numerous industry, federal, regional and state programs assist current and prospective U.S. exporters. Although the Farm Bill has not been passed in its entirety, almost $4.7 million of the USDA's Market Access Program for dairy exporting for fiscal year 2013 was funded.

At Hopeway Dairy Farm in Greensburg, Pa., the Frye family has used precision reproductive management for several years. This Holstein's neck monitor uses an accelerometer to measure three different motions. The system's computer denotes the peak periods of activity to pinpoint estrus.
Photo by Bob Ferguson.

Dairy processors seize opportunities

Promotional efforts directed to particular countries and development of products to capitalize on international demands can counter trade impediments.

Cheese exports for several years now have exceeded cheese imports. Diane Bothfeld, Vermont's deputy secretary of dairy policy, said, "Our support of national and international competition increases production and potential. It opens doors." Pizza chains in Asia use mozzarella made in Vermont. Bothfeld observes that fast food restaurants abroad, such as Taco Bell, typically import U.S. cheese. Bothfeld sees heightened exports as foreign buyers become more aware of our dairy quality and nutritional benefits.

Agri-Mark, with plants throughout the Northeast, processes and owns the Cabot brand of Vermont cheddar. Cabot has won the World's Best Cheddar award twice. Agri-Mark's McCadam makes award-winning New York cheddar, Muenster and European-type cheeses. Agri-Mark has also invested in marketing whey proteins globally. Currently shipping a range of dairy products to 43 countries, Agri-Mark's director of communications, Doug DiMento, said, "We can meet dairy product export requirements."

Greg Rodriguez is export manager for Grassland Dairy Products in Greenwood, Wis. He said, "It's in a dairy farmer's interest to work with manufacturers' requirements." Noting long-term potential, Rodriguez also observed how weather patterns have affected some exporters, thereby helping the U.S. competitive position.

Craig Alexander, director of dairy ingredient sales for O-AT-KA Milk Products Cooperative in Batavia, N.Y., sees continual growth. He observed, "We need to be competitive in exporting for a home for our growing milk supply." Experienced in exporting, O-AT-KA develops customized formulations to meet specific country taste profiles, nutritional requirements and ingredient specifications. The cooperative's thermal processing maximizes shelf life. Mexico enjoys O-AT-KA products, and Alexander predicts more opportunity there, as well as in Canada and the Middle East. The Cooperatives Working Together program, developed by the National Milk Producers Federation (NMPF), assisted O-AT-KA with butter and cheese exporting information.

Cayuga Milk Ingredients, LLC recently broke ground for a new plant in Auburn, N.Y. Chief Executive Officer Kevin Ellis sees worldwide potential as other countries gain wealth. When producing at their projected 2 million pounds per day of raw milk intake next year, the plant will offer skim milk powder, whole milk powder, nonfat dry milk, milk protein concentrate and milk protein isolate to the export market.

Successful exporting has not been limited to large companies. Food Export-Northeast, through the Branded Program (http://bit.ly/Xbjj9d), provides matching cost reimbursement for many international marketing activities. Michael Strange, president of Bassetts Ice Cream, Philadelphia, Pa., credits the program and the Small Business Administration for assistance. Bassetts began exporting five years ago, and exports now account for 40 percent of the company's business. Strange says the Export-Import Bank helped him with insurance issues. Strange added, "I wouldn't ship ice cream without cargo insurance." China is his largest customer, but he also ships to the Bahamas and is talking with additional countries.

At the Pennsylvania Dairy Summit in February, Elanco's Dennis Erpelding told dairy managers that global demand for dairy is rising and importers seek reliable suppliers.
Photo by Bob Ferguson.

Future looks bright

Alan Zepp, risk management program manager for Pennsylvania's Center for Dairy Excellence, said, "Exporting has created a new environment that enhances long-term profitability for the industry."

Several of the major global suppliers have been experiencing production shortfalls due to weather conditions. The revised production forecast of EU-27 for 2013 at 139.2 million metric tons is only slightly higher than 2012. New Zealand's 19.2 million metric tons of production forecast is about 6 percent lower than its 2012 milk production. Argentina's 1.2 million metric tons of milk production forecast is about 4 percent over its 2012 figure. Australia's production, at 9.7 million metric tons, is projected to be lower, although only slightly. The U.S., with ample exportable supplies, is in a competitive position to fill the gap. U.S. milk production in 2013 is expected to grow from 90.9 million metric tons to 91.6 million metric tons.

Consequently, the USDA has forecasted fiscal year 2013 dairy product exports at $5.3 billion.

Alan Levitt, vice president of communications and market analysis for the USDEC, indicated that the U.S. dairy industry is relatively diverse and thus structurally fragmented in contrast to New Zealand. "Our focus has not always been export-oriented," Levitt observed, referring to the past several decades. The USDEC helps the industry cope with challenges with services that "help cut the learning curve" for exporters.

Carol Kitchen, senior vice president of global ingredients for Land O'Lakes, St. Paul, Minn., noted, "The U.S. market is an important supplier of high-quality, consistent dairy proteins to the increasing demand of dairy, particularly in China and Southeast Asia. During the past five years, buyers have become more interested in U.S. material, and U.S. suppliers have become more responsive to export customer needs through improved service and additional capabilities. As this demand continues to grow and other historical suppliers are unable to meet that growth, a window of opportunity is open for the many U.S. suppliers."

John Frey, executive director of Pennsylvania's Center for Dairy Excellence, said, "The opportunity is for us to continue improving quality to further strengthen our reputation as producing the highest-quality milk in the world. Also, to actively engage in cooperative leadership to encourage support of entities like [the] USDEC, [which] works tirelessly to strengthen our global position and expand markets for U.S. dairy."

Former dairy farmer George Greig, now secretary of Pennsylvania's Department of Agriculture, explained, "Pennsylvania and other states in the Northeast are close to ports, which gives us a great advantage in exporting." Greig also sees greater exporting opportunities: "As economies [in other countries] start improving and disposable income increases, they look to us to raise protein levels and for safe protein. We have a reputation for the safest food. In Pennsylvania we work to ensure this. We continue to work with [the] USDA and sister agencies to increase exports of agriculture products." Considering the opportunities opened by Australia and New Zealand's weather difficulties, Greig stressed, "We need to maintain stability."

The commissioner of the New York State Department of Agriculture & Markets, Darrel J. Aubertine, noted major droughts in New Zealand and Australia and said, "I certainly see markets in the Far East and China's middle class especially, and we'll help fill the void with new products annually." Aubertine pointed to Greek yogurt and policies to develop the new products. "Demand worldwide bodes well for the health of the dairy industry," he added.

Dennis L. Erpelding, Elanco's director of international government affairs, stresses that the U.S. has the land and water, combined with policies, genetics and nutritional health management, to be a reliable long-term supplier of dairy product exports. "The international market is looking for likely dairy supplies as demand continues to grow," he said. In addition, he notes that dairy producers have an interest in working collectively with farmer associations and the government to produce what they want in the manner they want.

"With our land and water base, our innovation enables us to stay ahead of competition long-term," stated Erpelding.

A glance at the most recent USDA Foreign Agricultural Service's semiannual Dairy: World Markets and Trade report (http://bit.ly/11JS1Jl), released July 16, 2013, shows that U.S. dairy is well-positioned globally. Not only does the herd exceed 9 million head, but the production per head far exceeds that of other countries. Only Japan, with less than a tenth of the U.S. herd, comes close with 9.4 metric tons of fluid milk per cow. Without considering costs, U.S. dairies produce about 9.8 metric tons per year; Australia produces about 5.9, New Zealand 4.1, the EU 6.1, Argentina 5.4, China 4.1, Russia 3.7 and Brazil 1.6 metric tons.

Dairy farmer Dennis Wolff, formerly Pennsylvania's agriculture secretary and now with Versant Strategies in Harrisburg, Pa., has led trade missions and built international success marketing Holstein genetics. He also served on the Agricultural Technical Advisory Committee of the World Trade Organization.

"The U.S. dairy industry is becoming a major supplier to the world markets as opposed to just using these important markets to sell our surplus," said Wolff. "With domestic consumption flat, growing export opportunities will be the lifeblood to grow the U.S. dairy industry going forward. This will make for more volatile prices and it is why margin insurance would be a good risk management tool. However, I do not think tying it to supply management sends the right message to our global trading partners, because they want a reliable supplier."

The author is a writer-researcher specializing in agriculture. She currently resides in central Pennsylvania.