How to Build on U.S. Dairy Growth in Southeast Asia

Sales to the 10 ASEAN countries have tripled in five years but U.S. suppliers are just getting started.

Last October, Mead Johnson opened a $325 million pediatric nutrition complex and manufacturing facility in Singapore to service Southeast Asia and the broader region. The project marked the single largest investment in the company’s history.

Mead Johnson is not alone. A host of local and multi-national food and beverage manufacturers as well as foodservice chains have poured billions into facilities in the region to service rising Southeast Asian demand. The activity has created a regionally integrated, thriving food manufacturing industry and driven the need for dairy ingredients and cheese.

The United States has been a direct beneficiary. U.S. dairy exports to the 10-member Association of Southeast Asian Nations (ASEAN—Brunei, Burma, Cambodia, Indonesia, Laos, Malaysia, the Philippines, Singapore, Thailand and Vietnam) more than tripled in value to $1.3 billion from 2009-2014. The region accounted for 35 percent of U.S. nonfat dry milk/skim milk powder exports last year and about 20 percent of our lactose and whey product shipments. It’s our second-largest market, trailing only Mexico.

And this is only the start. Solid GDP growth projections (5-6 percent through 2019 in the six main U.S. target markets in the region—Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam) and ongoing efforts to deepen intraregional economic integration through ASEAN should continue to fuel food manufacturing, consumption and dairy demand.

The challenge for the United States remains a need to identify and meet local buyers’ needs in order to compete with Oceania and Europe, who are after the same business.

In the past, U.S. suppliers faced criticism from Southeast Asian end-users over service issues, product inconsistency and the inability or disinterest in meeting specifications.

To their credit, U.S. companies are addressing those concerns by:

• -- Investing in personnel and in-country operations dedicated to overseas end-users
• -- Building U.S. whole milk powder manufacturing capacity
• -- Adapting manufacturing systems to make products that meet buyer specifications (including low-spore skim milk powder)
• -- Getting their cheese and dairy ingredients Halal certified

The efforts are paying off.

In part due to renewed U.S. suppliers commitment, U.S. share of dairy imports in Indonesia, Malaysia, the Philippines, Singapore and Thailand rose from 12 percent in 2009 to 17 percent last year, according to data from the Global Trade Atlas. If you factor in Vietnam (which Global Trade Atlas does not track), U.S. share rose even higher.

But the region’s competitive dynamics don’t stand still. China’s slackened dairy buying in 2014 gave New Zealand reason to refocus on Southeast Asia, while the impending end to European Union (EU) milk quotas coupled with last year’s Russian ban on European dairy imports prompted the EU to more aggressively seek alternative outlets for dairy exports, including Southeast Asia.

Assistance for our U.S. suppliers is why the U.S. Dairy Export Council organized the U.S. Dairy Business Conference in Singapore this year. The conference, slated for April 16-17 at the InterContinental Singapore, will serve as a platform to address lingering misconceptions of our industry, proactively reinforce the positive path we are on, and illustrate the ongoing U.S. commitment. It provides a perfect opportunity for U.S. companies to demonstrate interest, make contacts, explore partnerships and strengthen relationships. (Registration is now closed, but for more information on the conference, go here.)

At the same time, it will give USDEC members a more accurate take on the region’s dairy needs. Southeast Asia is sometimes viewed as a less developed market in terms of dairy demand. Although per capita consumption has a long way to go to catch up to the United States, the blossoming of the food and beverage sectors reflects sophisticated regional dairy needs. The multi-billion-dollar infant/toddler formula and recombining sectors, for example, require high-value product made to specifications as or more stringent than any buyer in the world.

Even those buyers who have an improved opinion of the United States tend to view us as a commodity player. Commodity opportunities are still plentiful, but we also have competitive capabilities in medium and higher value segments—if we seek to understand and can serve these sophisticated demands.

The same goes for cheese. We have only scratched the surface of cheese consumption and export potential in Southeast Asia. However, while some regions are focused on processed cheese and foodservice applications, highly urbanized areas like Singapore that boast five-star hotels and upscale dining offer growing opportunities for specialty and artisanal cheese.

The U.S. industry needs to reinforce U.S. readiness and commitment to compete with other major global players across all categories, but especially high-value.

Many Southeast Asian buyers are not aware of the strides taken by the industry to upgrade capabilities and commitment. That’s not going to change overnight. It takes time to build relationships and generate trust. But we continue to head in the right direction.

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.   

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