More Higher-Value Items in Dairy Export Mix

Regular readers of this column know U.S. dairy exports have been steadily rising over the past decade-plus. The volume of U.S. milk solids shipped overseas grew from the equivalent of 5.5 percent of total annual solids produced in this country in 2000 to 13.3 percent of solids produced last year. And as we mature as an exporting industry, the composition of those exports is changing. Not only are we exporting more dairy products, we are shipping a far greater percentage of higher value, higher profit items than ever before.

Take whey for instance. Of the 330 million lbs. of whey U.S. suppliers exported in 2000, around 91 million lbs. (just over 27 percent) was higher value whey protein concentrates (WPCs) and whey protein isolates (WPIs). By the end of 2011, not only had total U.S. whey shipments risen nearly fivefold to around 1.6 billion lbs., WPCs and WPIs comprised 59 percent of volume or 970 million lbs.

WPC and WPI export value reached more than $200 million in 2011, a greater than 10-fold increase from the $18.5 million posted in 2000.

The reasons for the gains are fairly clear: Consumers overseas are looking to eat healthier; rising disposable incomes are allowing them to buy products that offer a greater nutritional impact; and food and beverage manufacturers are developing products using ingredients catering to their populations’ needs. The good news: dairy fits the mold perfectly. Because their own domestic dairy industries cannot produce the quantity or, often, the quality they seek, emerging markets have turned to imports.

As populations rise and food and beverage categories develop and become ingrained in nations’ cultures and diets, the potential for the U.S. dairy industry will only grow. A perfect example is the follow-on formula (FOF) and growing-up milk (GUM) sectors—subsections of the broader infant formula category. FOF is generally fed to infants 6-12 months old, while GUMs are often marketed to children up to their pre-teen years.

FOF and GUM may be unfamiliar to many parents in the United States, where infants generally transition to regular fluid milk at around 12 months. But global FOF volume (1.1 billion lbs. in 2011) is about equivalent to standard infant formula, and GUM volume (1.6 billion lbs. in 2011) will soon achieve double that of infant formula, driven primarily by emerging markets.

What’s more, FOF and GUM represent the fastest growing segments of the overall milk formula category. Retail sales in the Asia-Pacific, which accounts for more than two-thirds of the global market, registered a compound annual growth rate of more than 15 percent from 2006-2011, hitting $16.8 billion last year, according to Euromonitor International.

The market is huge and growing, fueled by a combination of consumer pull and manufacturer push.

For consumers, FOFs and GUMs offer convenience (no refrigeration) and a relatively cost-efficient source of nutrients. Parents are willing to spend to provide their children the best, especially those in nations where economics or population-control measures limit the number of offspring or quality concerns plague domestic alternatives.

For manufacturers, because FOF and GUM are exempt from composition and advertising regulations governing standard infant formula, they provide broader product development potential and far more marketing opportunities than regular infant formula.

Manufacturers in China, Singapore and elsewhere are investing heavily in what they see as a major growth market, and most are importing significant quantities of dairy ingredients to make the products, including WPC, demineralized whey, skim milk powder and milk protein concentrate.

Such ingredients and the FOF/GUM sector represent only a sliver of global high-value dairy opportunity. Other product categories, such as medical nutrition, and other milk components, such as colostrum, suggest we have only scratched the surface of what could be a very bright high-value future.

(This article first appeared in Agri-View in July 2012.)

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.