Dairy Talk The future starts now

October 25, 2009 07:00 PM
 
Jim Dickrell
The U.S. dairy industry has come to the proverbial fork in the road, and, as Yogi Berra says, we'll have to take it.

Bain & Company, a global management consulting firm, is completing a massive study of the globalization of dairy supply and demand. As the U.S. industry struggles to recover from its worst profitability year since the Great Depression, it also faces major decisions on what it wants to be as the global market grows and matures.

By 2013, the study suggests, there will be a "latent demand gap” of 7 billion pounds of milk worldwide. That gap will widen as economies recover and demand resumes its long-term trend of growing faster than milk supply.

The U.S. could be well positioned to take advantage of that demand gap, as it did in 2007 and 2008, if the carnage of the past 10 months can be repaired quickly. Longer-term, however, the U.S. must decide whether it wants to compete globally for these growing markets.

The U.S. industry has a range of options. It could become an insular industry, like Canada's. It could go the New Zealand route, which is almost exclusively export-focused. Or it could maintain the status quo.

Simply doing nothing, however, doesn't mean the industry won't face change. Some of the major challenges: severe price volatility; market-distorting pricing mechanisms, such as the Dairy Price Support Program; and insufficient customer focus, which leads to narrow product diversity, inconsistent service and variable quality.

If we don't change, we may give up export markets to emerging dairy powers like the Ukraine and Brazil.

The right kind of change, however, might allow us to displace a quarter of current U.S. imports. "If U.S. suppliers improve capabilities to displace 70% of imported milk protein concentrates, 50% of imported casein and 10% of imported cheese, it will deliver about $600 million back to the U.S. industry,” Bain analysts say.

The National Milk Producers Federation's refinement of its strategic dairy policy objectives are critical. What's decided in the next six months could go a long way toward avoiding the debacle of the last ten.

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