Food Aid: A New Commercial Business Channel

In late 2008, the World Health Organization (WHO) proposed new, preliminary rules for supplementary foods designed to treat and prevent moderate malnutrition. Those guidelines suggest that roughly one-third of the protein in food aid products (making up 8-10 percent of the product by weight) should be animal-derived. WHO’s recommendation opened the door for U.S. dairy suppliers to a whole new business channel of substantial size.

The traditional role for U.S. dairy in food aid was confined to the occasional times when surplus nonfat dry milk, taken off the market as surplus at the rock bottom price floor of USDA’s price support program, could be donated to food aid providers. Recent nutritional research and promotional efforts to establish the valuable role of dairy protein to malnourished populations bring valuable commercial opportunities for U.S. dairy ingredients suppliers.

Global estimates indicate that up to 500 million people in the world suffer from moderate acute malnutrition and a shocking 32 percent of all children in emerging markets are underweight and/or exhibit signs of stunted growth. USDEC estimates immediate demand for more than 15,000 tons annually of U.S. dairy ingredients for supplementary foods to meet just a slice of that need, with enormous potential for growth.

Here are some of the basics you will need to know to turn food aid opportunity into a reality.

Food aid products are distributed by various aid organizations to people in need around the world due to famine, war, natural disaster or other conditions that threaten their subsistence.

There are three major streams of food aid relevant to U.S. products and dairy ingredient suppliers: U.S. government food aid, which primarily is delivered through the U.S. Agency for International Development (USAID) and USDA; the United Nations, through agencies such as UNICEF, World Food Programme (WFP) and UNHCR (the U.N. Refugee Agency); and private voluntary organizations, such as Doctors Without Borders or Save the Children, which receive a mix of public and private funding.

These aid organizations might buy dairy ingredients directly, but the increasingly prevalent means by which they operate is to obtain processed products from food manufacturers here and abroad. In fact, multi-ingredient food processors purchase in the marketplace the majority of dairy ingredients used in food aid, create the final product, and then sell their finished products to aid organizations.

The aid organizations, however, are still integral to the ingredient-buying decisions that food manufacturers make. WFP and USAID, for example, have approved commodity lists, and products they buy and distribute must conform to established guidelines. Private organizations can choose their own commodities to distribute if they are using private funds, but must select from approved commodity lists if they are programming (i.e., buying) with U.S. government funds.

Prior to 2009, milk powder was the main dairy product on the approved commodity lists, and typically used as a stand-alone commodity. Last month, in keeping with WHO’s recommendations and based on data compiled and submitted by USDEC, USAID granted preliminary approval to whey protein concentrate 34 (WPC34) and WPC80. (USDEC is currently preparing applications to add sweet whey and whey protein isolates as well.)

Food aid organizations and manufacturers servicing the market want more options. For example, where WFP typically distributes a fortified corn-soy blend for emergency food, it is now adding a dairy-enhanced corn-soy blend for children under age two, to maximize physical and cognitive development in this short but critical age period. Likewise, USAID recently requested bids for an “emergency food product” with dairy that can be delivered by road, sea or air and specifically meets the nutritional needs of the most vulnerable groups, such as pregnant and lactating mothers.

To prepare for sales directly to USAID or WFP, U.S. dairy ingredient suppliers should register as vendors with USAID and WFP (both of which have established procedures). But USDEC expects demand for dairy from U.S.-based food companies servicing the sector to be where the best opportunities lie. We see those sales rising in the coming two years and recommend contacting such companies directly to explore a supplier relationship.

This is a viable commercial market, but challenges remain.

One is overcoming misconceptions about dairy in the food aid community. In some developing markets, whey is still considered suitable only for animal feed—even by local governments.

We as an industry have quite a bit of work to do, educating the food aid community on whey: its origin, its production, its nutritional composition, U.S. volume, and its price relative to milk and other proteins—all efforts USDEC has spent significant time pursuing.

Another challenge is the novelty of the market. In the United States, dairy ingredient sales for food aid were practically zero in 2008. Extra effort might be required to get a foot in the door and capture share from foreign suppliers.

Commercial relationships that provide U.S. dairy ingredients in small initial quantities at a good price are essential to launching competitive products. If they are successful, we can expect to see the U.S. market continue to expand and U.S. dairy ingredients suppliers starting to play a major role in feeding the world’s poor while building their businesses.

(This article first appeared in Cheese Market News in September 2010.) 

The U.S. Dairy Export Council represents dairy farmers, proprietary processors, cooperatives, ingredient suppliers and export traders. Its mission is to enhance U.S. competitiveness and increase global sales of U.S. dairy ingredients and products.