The state of the dairy industry is strong

By Aarian Marshall

© Copyright Agri-Pulse Communications, Inc.



President Obama may have equivocated a bit yesterday during his State of the Union address, but those attending the International Dairy Foods Association's (IDFA) annual Dairy Forum seem sure: The dairy industry is a very, very good place.

The buzzword of the Palm Desert, Calif., conference, which wraps up this morning, seemed to be “opportunity.” “I have a very bullish outlook,” declared Bruce Scherr, chairman and CEO of agricultural market research group Informa Economics, during an almost jubilant opening session.

The key to dairy's future success, all agreed, is exports. “We have the best milk supply, the best farming system (and the) the best processors,” said Andrei Mikhalevsky, president and CEO of California Dairies, Inc. 

Lets Talk Food

The transformation of U.S. dairy from bit player to, as Scherr described it, a “centerpiece of global growth,” is already well underway. The U.S. Dairy Export Council (USDEC) estimates the country exported $6.11 billion worth of product in 2013, up 30 percent from the year previous. And the industry has expanded its reach from 76 countries in 2000 to 110 in 2013, according to Cornell University adjunct professor Bob Boynton.

China, in particular, is demanding more milk even as its domestic dairy industry founders. “Management practices (in China) are lagging,” noted Phil Plourd, president of dairy research service Blimling and Associates and another presenter at the dairy forum. “Frankly, [the Chinese dairy industry] has been slower to develop than we've thought.”

The Asian country was the sixth largest export market for U.S. dairy goods in 2000, but only the second by 2013. USDEC data shows the U.S. dairy industry exported $635 million worth of product to the country between January and November 2013 - a 67 percent increase from that same period in the previous year.

Other countries, including many in Asia and sub-Saharan Africa, also look poised to increase their dairy imports, Dairy Forum participants said.

Mikhalevsky said the U.S. is “uniquely positioned” to take advantage of those opening markets. The country is “geographically located right between two excellent markets…in Asia and Africa,” he said. The country has the “highest quality milk in the world.”  And its infrastructure gives it the “ability to ramp up and take advantage of opportunities.”  Mikhalevsky, who has worked with both international and U.S. dairy companies, also said the U.S. has a reputation for manufacturing safe food. “Very rarely do I run into anybody who says I don't trust that product because it's from U.S.,” he said.

But Plourd warned that industry must be wary of the risks inherent to entering nascent markets. “As 10, 12, 15 percent of U.S. production goes into export market…that's a risk that we're engendering quietly as we go down the export road,” he said. If European dairy, for example, comes on strong and steals market share from the U.S. industry geared up for a certain level of export, that could mean losses for many along the supply chain. “I think the rewards are worth taking the risk,” he said. “But I wonder if there's enough appreciation for the risks inherent (in focusing on exports.)”

At a panel on trade agreements, participants reminded Forum-goers of another possible export barrier - or opportunity. That's the current negotiations within the Trans-Pacific Partnership (TPP) and Transatlantic Trade Investment Partnership (TTIP).

“It really isn't an exaggeration to say these two agreements could transform the US dairy industry,” said Craig Thorn, an agriculture trade veteran with DTB Associates, LLP.

TPP, negotiated between the U.S. and Australia, Brunei, Chile, Canada, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam, was initiated in 2005 but reached its 19th round in August of last year. If the U.S. can reach its goals and lower both tariff and non-tariff barriers in participating countries, there are at least two very tantalizing prospects for the dairy industry: Japan and Canada. They are “two very large dairy markets and two of the most protected markets in the world,” said Thorn.

Though TTIP, between the U.S. and the EU, seems less promising for dairy, Jim Murphy, former United States Trade Representative for Agricultural Affairs, urged industry not to count it out. The EU represents 800 million consumers, he said. “It's a mature marketplace, but that's a lot of people.”

The U.S. hopes to break down non-tariff barriers, particularly those dealing with sanitary and phytosanitary (SPS) measures.

It will also go to bat against over-stringent geographical indicator (GI) rules, through which the EU hopes to prevent foreign companies from using standard, place-based food names like “feta,” “mozzarella” and “parmesan.” A loss on that issue could be catastrophic for the U.S., requiring intensive rebranding work that could quash any dairy foray into European markets.

Still, Daniel Sumner, an agriculture professor at the University of California, Davis, said working hard on dairy export markets is worth it. “It's a really a long-term investment,” he said. But “you have to think of the payoff.”

#30

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