The U.S. Dairy Exporter Blog: Market Analysis, Research & News
  • More Work Ahead in Becoming a Consistent Dairy Supplier

    By Tom Suber January 10, 2013

    From Day 1, the U.S. Dairy Export Council’s (USDEC’s) message to the U.S. dairy industry has been one of global trade opportunities created by the rapidly expanding middle class in emerging markets. Higher per capita incomes for the middle class, particularly when coupled with population growth, equate to a significant rise in dairy consumption—so significant that traditional exporters and those markets’ own domestic industries would not become able to meet their needs.

    USDEC has steadfastly held to its worldview, and U.S. export growth has backed that outlook. Nevertheless, it is always reassuring to hear third-party corroboration.

    We were heartened by Bain & Co.’s efforts to analyze the impact of globalization on the world’s dairy sector, a job commissioned with dairy checkoff funds by the Innovation Center for U.S. Dairy that culminated in 2009’s Globalization Report and 2011’s Globalization Refresh.

    Both reports spoke of the world’s impending global milk shortfall, recommended that the United States pursue the goal of becoming a consistent global supplier and laid out a series of goals to accomplish that end, cautioning that there was a finite window in which to act.

    Judging by U.S. dairy export growth, many suppliers acted on this vision. And the latest endorsement of U.S. potential reinforces the need for accelerated efforts toward becoming a consistent global supplier.

    A recent article in the New Zealand Dairy Exporter outlines messages presented by Rabobank analyst Hayley Moynihan at a series of recent meetings in New Zealand.

    The article jumps out for a few reasons. First, it has been rare for anyone to directly caution New Zealand, the world’s dominant dairy supplier with nearly a 40 percent share of global trade, about the surging competitive threat from the United States, let alone a well-regarded analyst from a respected and knowledgeable global agricultural research and finance firm. The gravity Moynihan gives to U.S. potential surely is a marker of changing times that illustrates long range trends that are too easily forgotten in the day-to-day challenges the U.S. industry faces in the domestic market.

    In addition, other key points echo past insights from the Innovation Center’s globalization work and USDEC’s own materials.

    • U.S. dairy export growth has been phenomenal over the last few years in a variety of markets, especially in Asia, and our share, in some markets, exceeds that of New Zealand.

    •  Increasing use of supplemental feed is undermining New Zealand’s long-standing cost advantage as it moves away from primarily pasture-based production due to geographic and environmental constraints.

    • Through dairy farming investment in China, South America and elsewhere, New Zealand itself has acknowledged its inability to build domestic milk output quickly enough to meet global demand.

    • Global growth in dairy demand is expected to continue in a way that supports prices at historically elevated levels.

    • New supply growth out of Oceania and Europe will likely remain unable to satisfy that demand, leaving a sizeable gap (what the Innovation Center and Bain & Co. call “the latent demand gap”) that the United States is poised to fill.

    As we begin 2013, these are all positive, optimistic messages. However, concerns continue over the finite window of opportunity that remains for the United States to get its strategy fully implemented to become a more consistent global supplier.

    Moynihan’s description of U.S. dairy capability is not without its cautions, as she cites short-term challenges as well as longer-term needs, including revisions to U.S. dairy pricing policy. It’s not coincidental that the Globalization Report also cited a revision of U.S. dairy policy, both federal orders and the price support program, as the most impactful step towards its goals.

    Work programs, both at USDEC and the Innovation Center, are making progress, but the Globalization Report was first published 3.5 years ago. Consequently, the need to quicken the pace in fulfilling some of those key objectives—pricing policy reform, beneficial trade treaties, tools to manage volatility and various paths to better meet the needs of global customers—stands as urgent as ever.

    (This article first appeared in Cheese Market News in January 2013.)

    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.  



    Global Marketing Research & Data New Zealand
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