As the U.S. dairy industry emerges from the trauma of 2009, the battle over its future is now beginning.
The world's appetite for dairy proteins fueled the euphoria of 2007. Skyrocketing prices and the global recession that began in 2008 crippled demand and drove world prices to U.S. support levels—and worse.
The question before the industry and USDA's Dairy Industry Advisory Committee is where we go from here.
The Bain report, commissioned by the Innovation Center for U.S. Dairy and released this past fall, says world demand will again outstrip supply as emerging nations increase their use of dairy proteins. Does the U.S. want to participate in these potentially lucrative markets?
We have three choices, says Tom Suber, president of the U.S. Dairy Export Council (USDEC):
- Become a reliable supplier to world markets.
- Continue to be a last-in, first-out residual supplier.
- Lock out the world market.
The third option will be necessary if the industry embraces supply management. But we then become Canada South, with little opportunity for growth. Some producers say they'd gladly take the Canadian approach—but I doubt any are willing to pony up a $25,000/cow quota.
The second option is no longer an option. The irony is that our dairy price support system did little to help U.S. producers but bailed out our competitors. "Our tax-supported system is a safety net for New Zealand,” Suber says.
In my view, the first option is the only viable one. And U.S. processors and co-ops are starting to get it. "Not every manufacturer has to be an exporter. But producing only for the domestic market would be fatal,” Suber says.
USDEC is working with manufacturers to produce Gouda cheese, a huge seller in export markets such as Mexico and Asia, and to economically produce casein and milk protein concentrates with U.S. milk to displace imports.
These are just first steps. The U.S. must prove it can be a reliable supplier—particularly of specialty milk powders.
Product innovation is key. In fact, it's not even optional.
Impediments to trade
USDA Dairy Advisory Committee