California processors must expand their capability and flexibility to create the products that the world wants.
Processors say California is competing to seize global opportunities
It’s only a 3¢ differential, but it speaks volumes about California’s dairy export advantage.
Freight rates between California and Beijing, China, amount to 7¢ per pound, compared with 10¢ per pound between California and Chicago. That overseas shipping benefit is just one indicator of the global opportunities for California’s dairy industry, say the state’s processors.
"Exports are a matter of survival," says Andre Mikhalevsky, California Dairy Inc.’s (CDI) president and CEO. "There’s opportunity out there, and we’re fully capable of grabbing that opportunity."
Exports now account for 13% of U.S. milk production and have provided an avenue for growth over the past decade, says Matt McKnight, senior vice president for the U.S. Dairy Export Council (USDEC).
Moreover, U.S. dairy product pricing is now largely aligned with global markets, especially with major competitors such as the New Zealand, the European Union, Australia and Argentina. Buyers know the U.S. is a safe, consistent dairy supplier, he adds.
"The U.S. is in a better position than anybody to take advantage of global growth," McKnight says.
Leprino dairy economist Allison Specht says her company sees real growth overseas, especially in Asia. While Leprino will use its new plant in Greeley, Colo., to service the U.S. market, the company will rely on its three California processing plants—with their distinct geographical advantage—to fill opportunities abroad.
Leprino opened an office in Singapore a couple of years ago to work with customers in developing more ways for them to use cheese. "We can compete not only on price, but also as the cost of production increases in New Zealand and Australia," Specht says.
"Exports are a matter of survival," says Andre Mikhalevsky, California Dairy Inc.’s (CDI) president and CEO.
Over the next three years, McKnight sees huge export demand for skim milk powder, whole milk powder and cheese. In fact, John Jeter, Hilmar’s president and CEO, says his company has increased its cheese production to meet global demand.
"The system of make allowances and selling [products] to the government didn’t prepare the industry for what’s ahead," Jeter says. "We need to get to the point where we can use milk and dairy products to their highest [financial] returns."
However, both McKnight and Mikhalevsky warned that there is a "finite window of opportunity" for U.S. dairy exports as countries such as China use their substantial capital to chase supply.
California also needs to increase its milk processing capacity, Mikhalevsky says. The state’s dairy processors must expand their capability and flexibility to create the products that the world consumers want. The state also needs to overhaul its current "antiquated" pricing system, he says.
- June/July 2013