Exports Critical to Future of California’s Dairy Industry

March 28, 2013 05:54 PM
Exports Critical to Future of California’s Dairy Industry

Dairy processors say the state is competing to seize global opportunities.

It’s only a 3-cent differential, but it speaks volumes about California’s dairy export advantage.

Freight rates between California and Beijing, China today amount to 7 cents per pound, compared to 10 cents per pound between California and Chicago. That overseas shipping benefit is just one indicator of the global opportunities for California’s dairy industry shared by a panel of dairy processors today at the Western United Dairymen’s 2013 Convention in Sacramento, Calif.

Led by Matt McKnight of the U.S. Dairy Export Council (USDEC), three speakers representing California Dairies Inc. (CDI), Leprino Foods Co. and Hilmar Cheese Co. repeatedly emphasized the demand and value that the global market holds for the U.S. dairy industry, particularly in California. All agreed that exports are critical to their companies’ future.

"Exports are . . . a matter of survival," said Andre Mikhalevsky, CDI’s 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 allowed an avenue for growth over the past decade, McKnight said. Moreover, U.S. dairy product pricing is now largely aligned with global markets, especially with major competitors such as New Zealand, the European Union, Australia and Argentina. Buyers know the U.S. is a safe, consistent dairy supplier, he added.

"The U.S. is in a better position than anybody to take advantage of global growth," said McKnight, senior vice president with USDEC.

Leprino dairy economist Allison Specht said 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 -- and we are -- not only in price competitiveness but also as the cost of production increases in New Zealand and Australia," Specht said.

Over the next three years, McKnight sees huge export demand for skim milk powder, whole milk powder and cheese. In fact, panel member John Jeter, Hilmar’s president and CEO, said 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," said Jeter. "We need to get to the point where we can use milk and dairy products to their highest [financial] returns."

Both McKnight and Mikhalevsky warned that there is a "finite window of opportunity" for U.S. dairy exports as countries like China use their substantial capital to chase supply. China is looking to buy offshore dairy farms and processing plants.

California also must increase its processing capacity, said Mikhalevsky. The state’s dairy processors must expand the capability and flexibility to produce the products the world wants. The state also needs to overhaul its "antiquated" pricing system, he said.

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