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Despite a slowdown of U.S. dairy exports to China, there are four significant reasons for optimism, the former ambassador told USDEC members attending the April board meeting.
Speaking at the U.S. Dairy Export Council’s Board of Directors meeting in April, Jon Huntsman told a personal story illustrating his recommended strategy for exporting to China.It was 2012 when Huntsman visited the corporate headquarters of Ford Motor Company in Dearborn, Michigan. He met with Ford CEO Alan Mulally, who was trying to convince Huntsman to join Ford’s Board of Directors.
“Boy, did we screw up,” Mulally told Huntsman, a former U.S. ambassador to China under George W. Bush. “We have to rethink our strategy totally as it relates to China.”
Mulally handed Huntsman a letter dated June 12, 1924. It was addressed to Henry Ford, from Sun Yat-sen, commonly referred to as “the father of modern China.”
“I know and I have read of your remarkable work in America,” the letter said. “And I think that you can do similar work in China on a much vaster and more significant scale. In a sense it may be said that your work in America has been more individual and personal, whereas here in China you would have an opportunity to express and embody your mind and ideals in the enduring form of a new industrial system.”
In other words, the father of modern China invited Ford Motor Company to help build the automotive industry in China.
Henry Ford didn’t send a personal reply. Instead he had his secretary type the Chinese leader a letter now on display at The Henry Ford Museum and Village. “Thank you for the kind invitation,” the letter says, but “Mr. Ford has made no plans for visiting China in the very near future.”
Huntsman said U.S. dairy exporters should learn from Ford’s strategic mistake: To succeed as an exporter to China, you must play “the long game” with patience and persistence.
“We could have owned the Chinese auto sector if we played our cards right,” the Ford CEO explained, according to Huntsman's account. “We didn’t play the long game. We played the short game. We stuck with North America. We stuck with Europe which is now sucking wind with its auto sector. We did our thing in Latin America but we didn’t do Asia.”Traditionally, USDEC board meetings showcase a keynote speaker with a big-picture message on globalization. This was Huntsman’s second such address in four years. Shortly after his Republican candidacy for president ended in 2012, Huntsman spoke at the Fall USDEC board meeting. He delivered a riveting keynoted address with the message that China was moving from the greatest export machine in the world to the greatest consumption machine in the world.
Revisiting in April, Huntsman faced an USDEC audience that had experienced a 2015 in which U.S. exports to China fell 35 percent by value compared to 2014. Thus far in 2016, exports to China are down another 17 percent year over year.
“The long game for you is going to be difficult when you are in an oversupply situation because it affects prices,” said Huntsman, who did join Ford’s board and now serves on its compensation, nominating and governance, and sustainability and innovation committees. “It kills you on margins. I know what you’re going through right now. But there are reasons to be optimistic about China.”
Huntsman listed four main reasons U.S. dairy exporters can be optimistic about China:
- Increasing personal income.
“China's personal income is projected to increase quite substantially and with it, dairy consumption,” Huntsman said. “By 2020, the models show that China will be at about per capita $12,000, up 7 or 8 percent from where it is today. Chinese President Xi Jinping has this great roadmap called the “Chinese Dream” (Zhongguo meng), and if you drive around China, you'll see these billboards everywhere that have these fancy, almost revolutionary-like depictions of people looking off admiringly into the distance at the future of China, the frontier society that he's trying to forecast.
“They have per capita income models that are based on key milestones of China's rise. So, 2020 would roughly be the 100-year anniversary of the Communist Party of China... They've got other models that take them through 2049, which is of course the 100-year anniversary of the People's Republic of China. By then, they want to advance per capita levels to a point that would suggest they are a developed country and no longer a developing country. Keep your eye on that. “
- Massive urbanization.
“This is a huge deal,” said Huntsman. “I witnessed President Obama's first trip to China when I was there as a U.S. envoy. In that meeting between President Obama and then Premier Wen Jiabao, President Obama was going on about the challenges in the United States, and what are we going to do about jobs, about the environment, about health care and things like that?
“The premier of China stops him in his tracks and says, `Mr. President, how would you like to have this as a challenge? How would you like to be a country of 800 million farmers and wake up to the fact, the reality that only need 200 million farmers in the future. I have 600 million redundant farmers on my hands, and I'm not quite sure what to do with them.’
“Consequently, you see people particularly from the agricultural sector moving in to Beijing, Tianjin, Shanghai, Guangzhuo, the big eastern cities that are 20 million people, going on 40 million people. Don't forget that the urban areas consume dairy at four times the rate of rural areas. We are seeing a massive shift in terms of populations.”
- Rapidly changing dietary habits.
“For those of us who have lived there and have been going back and forth consistently for decades, it's shocking the changes that are taking place,” said Huntsman. “You read the statistics. You know China has just replaced the United States as the world's largest ice cream market. Who would have guessed that happening? Soon it will be the largest pizza market. Things are changing at a very, very rapid pace.”
- The end of the government’s one-child policy.
The end of China's one-child policy was announced last fall and the Standing Committee of the National People's Congress gave final approval in late December. It opens up new possibilities for dairy exports to China—and offers hope to many people on a personal level. As Huntsman pointed out, “I'm the recipient of an adopted Chinese daughter who was abandoned at two months of age by her mother because of the one child-policy. I am assuming this was the reason but there is no way of knowing for sure. You can now have two children in China, which means there are 90 million couples who are now eligible for a second child. I don't need to tell you what the implications could be in terms of your products going forward. It's quite remarkable.”
Beyond these four reasons, Huntsman said his outlook is based on the progress he has witnessed as a keen observer of China.
“I am an optimist,” he said. “I've been watching China, living there, breathing the air for a good part of 35 years. The more I watch the more I see a step forward, a step back, two steps forward, a step-and-a-half back. But I am convinced that they are moving in a largely positive direction. We will all be frustrated and often times confused by things that are done, but inexorably, the movement is toward reform, toward opening and broadening the marketplace.
“I remember when nothing was accessible. I go back today as I was just last week meeting with our senior economic policy people, and I see the strides that are being taken. These are very complicated issues that their regime is dealing with. This isn't a traditional free-market regime, although they are becoming one, in a sense. Again, that’s why you have to play the long game.”
Learn More:
- More Babies in China More Customers for U.S. Dairy?
- Dairy Export Opportunities Series: China
- 5 Reasons U.S. Dairy Sales to China will Grow Long-Term
Photo of Sun Yat-sen letter: Henry Ford Museum
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.
