Driving in Right Direction to Meet Global Dairy Demand

Over the last decade, the value of U.S. dairy exports has increased 21 percent per year.

For nearly 20 years, I’ve been answering the same question—the one parents often get from the back seat on long car rides: Are we there yet?

The United States’ progress and impact as a serious global supplier are undeniable.

• Over the last decade, the value of our exports has increased 21 percent per year.
• Volume has grown 12 percent annually.
• We now export more than 15 percent of our milk solids production, compared with less than 6 percent in 2003.
• Last year, we accounted for more than 17 percent of world dairy trade, up from about 7 percent 10 years ago.

Moreover, by all indications, long-term growth in global demand will continue to strain supply. It’s nice to be in a sellers’ market most of the time, but it’s a real challenge for our customers.

In a presentation to the European Dairy Association this spring, Torsten Hemme of the International Farm Comparison Network estimated the world will need 520 billion lbs. more milk in 2024 than it did in 2012—an increase of about 44 billion lbs. per year. To meet that demand the world will need to add the production volume of New Zealand every year for the next decade.

So now we hear a new question, from buyers who are tasked with delivering dairy products and ingredients to our consumers: Where is the next sizeable milk shed going to come from?

It’s not an academic question. It’s a very real one for importers of dairy solids, after a year in which every bag of milk powder cost 40 percent more than it did the year before.

Over the last several years, the returns for dairy have become very attractive, drawing capital to the entire sector. Other suppliers are investing at home and on their customers’ turf to build more production and processing capacity. Importers, especially China, are opening their wallets to secure supply around the globe.

At the same time, relatively pricey dairy ingredients are prompting formulators to look at soy, palm oil and other non-dairy ingredients.

So while the last decade hardly could have gone better for U.S. dairy exporters (and the United States would seem to remain the most promising milk shed), we’re still staring at a finite window of opportunity to establish the primacy of our value proposition as first-tier suppliers. If we don’t show continuous improvement, our competitors—both dairy and non-dairy—will chip away at our position.

Are we there yet? The reality is that the goal-posts will keep moving. We aspire to be a consistent global supplier, but the job isn’t done.

Many of the items on our to-do list laid out in 2009 by the Globalization report issued by the Innovation Center for U.S. Dairy®, established by America’s dairy farmers through the checkoff, still must be addressed. For instance:

• We still need a pricing system that ensures investment capital is drawn to its best and highest value. We need that system to drive production to meeting the needs of our customers here and abroad. And it needs to be transparent enough so price signals move up and down the supply chain quickly and so volatility can be better managed.

• Negotiating beneficial trade agreements also can improve our competitiveness and expand opportunities, particularly as so many deals involving other countries come to fruition. The Trans-Pacific Partnership (TPP) can give us better access to Canada and Japan, while improving the rules of trade based on science. The Transatlantic Trade and Investment Partnership (TTIP) can open the door to sell our products to Europe, while ensuring our rights on common cheese names are preserved.

• We’ve made great strides to improve our customer focus and assure buyer confidence. Efforts to diversify our product portfolio and tighten our specs in recent years have been impressive. But there’s always more to be done. One place to start is to revise outdated USDA rules for new plant processing equipment that can make adding new capacity 20-30 percent more expensive in the United States than elsewhere in the world. We also need to be vigilant in adopting best-of-class food safety and traceability practices to ensure a quick response if a crisis occurs. While we’ve made progress and U.S. processors representing nearly 70 percent of the U.S. milk supply have recently signed commitments to adopt new Innovation Center enhanced traceability guidelines, the industry must pay ongoing attention to traceability because we’re only as strong as our weakest link.

All this is to say we can get better. The world isn’t waiting on us. Pressure for new supply sources is strong and if we don’t supply the volumes with quality and commitment that instills confidence, then today’s receptive environment will drive investment capital to bring it forth from somewhere else.

Are we there yet? I feel comfortable saying we’ve arrived, even if we still have a ways to go.

(This article first appeared in Dairy Foods magazine in June 2014)

Image copyright: 123RF Stock Photo

The U.S. Dairy Export Council is primarily supported by Dairy Management Inc. through the dairy farmer checkoff that builds on collaborative industry partnerships with processors, trading companies and others to build global demand for U.S. dairy products.