The U.S. dairy sector has evolved into an exporting powerhouse, but the international supply chain crisis is hitting the industry so hard that some are beginning to fear production may deteriorate.
Warehouses are filling up with dairy products because they can’t get into shipping containers, and that’s creating hardships that could eventually reach all the way back to farms, according to industry officials like Michael Dykes, President and CEO of the International Dairy Foods Association.
It’s a message that Dykes and some of the most influential voices in the U.S. dairy business took to Capitol Hill last week. David Ahlem, president and CEO of Hilmar Cheese Co., Stan Ryan, president and CEO of Darigold, Tim Galloway, CEO of Galloway Co., were among the officials who met with lawmakers and their aides.
“I’ve got members telling me they’re looking for space in warehouses, but they are filling up,” Dykes told Agri-Pulse.
Jason Mischel, president of sales and milk procurement for the South Dakota-based Valley Queen Cheese, said the situation is becoming dire.
Valley Queen Cheese sells about 60% of the lactose it produces to buyers in New Zealand. The product is usually trucked to Minneapolis and then by rail to a West Coast port.
When the congestion at those ports became intolerable, Valley Queen Cheese began sending its lactose to the Charleston, S.C., port, but eventually the congestion snarled shipping there too, he said.
Now the company just struggles to get containers.
“In the last two weeks when the trucks go to the railyard to get containers, they’ve only been able to get empty containers about half the time,” Mischel said. “Right now, we’re about six weeks behind on containers we would need to ship to New Zealand. We would need about 50 containers all at once if we’re going to get caught up.”
That’s not likely to happen, but even if it did, the company probably couldn't afford it. The lactose that Valley Queen Cheese exports is worth roughly 50 cents per pound, making a 40,000-pound container load worth about $20,000.
“You can’t pay $15,000 of freight for that,” Mischel said.
The lack of containers available – especially to producers located long distances from major ports – is largely due to Chinese exporters paying more to shipping companies to return containers to China empty rather than allowing them to be filled with U.S. ag exports.
It was a subject that Dykes said he brought up in a meeting with Federal Maritime Commission Chairman Daniel Maffei.
“He said, ‘You guys are competing against the opportunity cost of returning an empty container,’” according to Dykes.
Mischel agreed with that assessment as his company continues to look for more storage capacity.
“For now, we are literally just storing it, waiting for an opportunity to get it shipped,” he said. “We have sought outside warehouse availability … Some have said no, we don’t have any more room.”
It’s a situation that many dairy manufacturers are facing, said Dykes.
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“If we can’t get the product out, we’ll reach a point where we’re just not going to make that product anymore and therefore we just don’t need as much milk.”
Mischel said Valley Queen Cheese hasn’t reached that point yet but conceded that it could happen.
It’s just one of the reasons that the House is fast-tracking legislation introduced in August by Reps. John Garamendi, D-Calif., and Dusty Johnson, R-S.D. Their Ocean Shipping Reform Act of 2021, which would prohibit shipping companies “from unreasonably declining export cargo bookings if the cargo can be loaded in a safe and timely manner,” is scheduled to be voted on Wednesday.
“We’re seeing in a very real way how American ag exporters are being impacted,” Johnson said. “We’ve worked hard over the past few months to build momentum (behind the bill). We have every expectation that this will pass out of the House on Wednesday.”
Some 75 Republican and Democratic House members are co-sponsoring the legislation, and more than 200 agricultural organizations and companies are supporting it.
“Unlike 20 years ago when we exported very little, the U.S. dairy industry today is the third-largest dairy exporting nation in the world, selling 16% of our annual milk production to trading partners around the world,” Dykes said. “The Ocean Shipping Reform Act will provide real, long-term solutions for the myriad issues congesting U.S. ports and slowing U.S. dairy exports.”
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