Key Areas for U.S. Dairy Exports in Year Ahead

Another year will soon be in the books and given market conditions, it was, from an export perspective, a pretty good one. Through 10 months, U.S. dairy exports grew 11 percent to $4.4 billion. Volume of major products rose a combined 5.5 percent to more than 1.3 million metric tons. Despite slower action later in the year than earlier, these are good numbers.

The gains came in the face of deteriorating economic growth worldwide, largely unfavorable commodity pricing vs. competitors in Oceania and Europe, historic global milk production gains from January to June, the specter of the U.S. drought, and a mélange of political happenings detrimental to business, from the divisive U.S. presidential election to escalating violence in the Middle East.

U.S. export performance into such headwinds highlighted just how far the U.S. industry has come in becoming a consistent global dairy supplier—the goal recommended by the Globalization Committee of the Innovation Center for U.S. Dairy as the best path forward for long-term industry health. Indeed we saw some landmark achievements this year, such as the first major steps toward producing whole milk powder (WMP) in the United States and strong movement towards manufacturing nonfat dry milk/skim milk powder (NDM/SMP) to the high-spec demands of thriving overseas food and beverage makers.

Equally impressive has been the resolve of the U.S. industry. Historically, when world markets grew less friendly, many abandoned them until favorable conditions returned, or they criticized exports as not worth the effort.

Not this time. In what is a clear sign of the maturation of the industry as a global supplier, they have continued to fight for the business. We are seeing, perhaps for the first time, widespread recognition that we are in a global marketplace for keeps, this is a long-term proposition and there is no turning back. Facilitating such an attitude by helping U.S. suppliers get into the market, stay in the market and develop the tools to meet customer expectations has been the objective of the checkoff-funded USDEC programs.

Moving forward, the U.S. industry must be prepared for the volatility inherent in the global sector, closely monitoring the myriad of factors that affect supply, pricing and demand. Here are some of key areas to watch in 2013.

• Global milk production. It’s not just U.S. farmers who are struggling with low margins. Rising feed, energy and labor costs are affecting milk output in Europe, Oceania and South America as well. Poor weather and low margins have already lowered milk production gains in the second half of this year and are likely to further constrain output through 2013. Under current conditions, USDEC anticipates a potential global undersupply somewhere between 40,000-110,000 metric tons for NDM/SMP, about 54,000 metric tons for WMP and as high as 40,000 metric tons for cheese (depending on the ability of the European Union to mount an economic recovery, which will determine how much it consumes internally).
• The European Union. The bloc not only enters 2013 having failed to resolve sovereign debt issues that sent the Eurozone into recession and depressed exports from Asia (significantly contributing to global economic softness), it failed to agree on a budget framework for 2014-2020. The once-every-seven-year budget discussions (scheduled to restart in early 2013) could drive the bloc deeper into recession, drive Britain or possibly other nations out of the alliance, cut agricultural subsidies, and spin-off into further economic troubles for the rest of the world.
• The weather. As of Dec. 4, more than three-quarters of the contiguous United States was suffering moderate to exceptional drought conditions—down only 4 points from peak dryness in mid to late July. The 2012 drought is far from over.
• U.S. free trade negotiating activity. Not only have second term presidents in recent history raised their focus on foreign policy, trade is one area where analysts believe President Obama can find bipartisan support. The signs bode well for U.S. trade policy, which has largely been stuck in neutral for the last few years. The United States and other countries participating in Trans-Pacific Partnership (TPP) talks took an aggressive stance already, slating three full negotiating rounds in 2013 and setting a goal to complete the TPP FTA before the end of the year.
• Port labor issues. Contract negotiations between the International Longshoreman’s Association and the U.S. Maritime Alliance remain deadlocked despite federal mediation. Should the two sides fail to reach an agreement by Dec. 29 (the date the current contract extension expires), all ports along the East and Gulf Coasts could halt operations. What’s more, the dispute is not an isolated one. Clashes between port labor and operators are growing more common globally as world trade rises and workers are asked to do more or ports attempt to mechanize to improve efficiency.
• Foodservice chain results. Almost in defiance of the slowdown in global economic growth, foodservice chains (key to U.S. cheese export growth) continued rampant expansion in 2012 and for the most part posted strong results. The latest statements from major and minor chains alike indicate no slowdown in restaurant proliferation, however, some have hinted at potential softening of sales in emerging markets due to slowing economic growth.

At least a half dozen additional items could have made the list. The farm bill is in limbo. Non-tariff trade barriers are spreading. And the “fiscal cliff” threatens all business, not just dairy.

There will be no easing of challenges for 2013. But with an eye on long-term growth, U.S. suppliers are demonstrating they are prepared to handle it.

(This article first appeared in Cheese Market News in December 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