New Zealand and EU Shift Dairy Product Mixes

The Russian embargo and reduced sales to China have prompted U.S. competitors to focus more on skim milk powder, cheese and butterfat. 

Changes in key global dairy markets have forced New Zealand and European dairy suppliers to shift their product mix while targeting different markets.

In 2015, both export giants moved more heavily into butter and skim milk powder, broadened cheese marketing efforts and pushed more strongly into key U.S. markets, including Southeast Asia, South Korea, Japan, the Middle East and even Mexico. Export competition has intensified sharply over the past year, as noted by the recent Global Dairy Outlook Webinar sponsored by USDEC and Dairy Foods magazine.

Seventeen months ago, both New Zealand and the European Union saw buying dry up from their top customers.

At its peak—the year ending July 2014—China bought almost 850,000 tons of whole milk powder (WMP). Nearly 90 percent of it came from New Zealand. Just on WMP alone, more than a quarter of New Zealand’s milk supply moved to China.

Since then, China’s WMP imports have fallen to less than half of that peak pace.

Meanwhile, the Russia ban on European dairy products in August 2014 shut off a market for 20,000 tons of cheese and 2,500 tons of butterfat per month for EU suppliers.

Here’s the math: all told, in the year ending July 2014, imports from China and Russia were equivalent to about 18 million tons of milk (14 million from China, 4 million from Russia). In the year that followed, those imports dropped to 10 million tons, milk equivalent (9 million from China, 1 million from Russia, not counting purchases from customs partner Belarus). In other words, over the course of a year, 8 million tons of milk backed up on the world market looking for a new home.

New Zealand WMP exports to China will be down about 350,000 tons this year. But the country's dairy suppliers have been able to offset most of that loss by selling more WMP to the Middle East/North Africa (MENA) region and Southeast Asia. Their WMP exports outside of China were up 48 percent in the year ending September 2015.

They’ve also channeled more milk into cheese and skim milk powder. Cheese exports were up 15 percent in the year ending September 2015, with increased sales to MENA (+22 percent), South Korea (+27 percent) and Mexico (+142 percent). In addition, skim milk powder exports were up 8 percent, with more going to Southeast Asia (+18 percent) and Japan (+86 percent).

European exporters have been similarly aggressive in finding other markets.

EU-28 cheese exports outside of Russia were up 25 percent in the year ending September 2015. Exports to Mexico, South Korea and Japan were up 73 percent in that time, and shipments to MENA were up 18 percent.

They’ve also shifted milk into skim milk powder and butter. In the year ending September 2015, European exports of skim milk powder were up 19 percent, with gains to MENA (+15 percent) and Southeast Asia (+16 percent). In addition, exports to Mexico, Pakistan, Japan and Bangladesh jumped from 14,000 tons to 77,000 tons. Meanwhile, exports of butterfat were up 27 percent, with a large increase in sales to the MENA region (+81 percent) and China (+578 percent).

During this shift in global trade, U.S. exporters didn’t directly lose sales. The United States doesn’t export dairy to Russia, and it sold only small amounts of WMP to China. But U.S. suppliers now face heightened competition on the global market as New Zealand and Europe find new homes for their export supply.

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The U.S. Dairy Export Council fosters collaborative industry partnerships with processors, trading companies and others to enhance global demand for U.S. dairy products and ingredients. USDEC is primarily supported by Dairy Management Inc. through the dairy farmer checkoff. How to republish this post.