Markets on the Move

May 28, 2012 10:29 PM
Markets on the Move

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There’s plenty of upside potential for U.S. dairy products overseas

Just back from a two-week dairy trade mission to Asia in May, Ross Christieson sees big payback ahead for those U.S. dairy manufacturers who seize the region’s beckoning opportunities.

"There’s huge demand out there, but we have to put work into our products and packaging to make sure we can supply that demand," says Christieson, international business development consultant for the California Milk Advisory Board.

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While Christieson is excited about the countries his group visited—Taiwan, South Korea and China—he also points to other markets with growing dairy demand. With their burgeoning economies, Mexico, Southeast Asia and the Middle East increasingly seek dairy products in their diets. Traditional markets like Japan also remain strong.

"Japan is one of the world’s largest cheese markets," he says. "The U.S. is doing well in picking up share from Australia and New Zealand. The Chinese cheese market is small compared to Japan—maybe one-tenth its size—but in 10 to 15 years, it will probably be of equal size."

Joining Christieson on the trip were six California cheese processors who produce for the bakery sector. "They were blown away by the amount of interest in and demand for their products in each of the markets we visited," he says. "We had more than 250 one-on-one meetings between the trade mission group and buyers during those two weeks."

Even as demand surges for whey and milk powder, there’s still plenty of growth in overseas demand for added-value products such as cheese. "Cheese exports have grown 18% every year for the past five years," Christieson says.

Mozzarella remains the leader in U.S. cheese exports. Cream cheese holds the No. 2 spot, with demand in the Asian bakery sector growing 20% a year. "U.S. sales of cream cheese are growing very fast," Christieson says. "The U.S. has a great advantage because our cream cheese is whiter, with a better and more consistent flavor, than what New Zealand and Australia produce."

By the end of the trade mission’s first day, one California cream cheese manufacturer had learned what packaging modifications his company had to adopt to supply that market. "He realized his company needed to produce a different size and format to meet the needs of the market," Christieson says.

World demand for dairy products has consistently outpaced supply as many Asian and Middle Eastern economies move into a period of sustained economic growth.

"In 2010, the U.S. overtook Australia in cheese exports," Christieson says. "We’re now No. 3 behind the European Union and New Zealand. Last year, we exported 225,000 tons of cheese. That’s a lot by world market standards—and there’s a lot more upside left."

Breakout Markets

Mexico buys more U.S. dairy products than any other country, becoming the U.S.’s first billion-dollar dairy export market in 2011. During the first quarter of 2012, sales to Mexico climbed 32% over the previous year. "Because of our proximity, Mexico buys everything from us: fluid milk, ice cream, yogurt, cream, butter," says Alan Levitt of the U.S. Dairy Export Council. "It’s our No. 1 cheese market and huge on dairy ingredients, such as milk powders and whey."

The Southeast Asian countries of Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam, combined, are the second-largest market for U.S. dairy products. "It’s become the
largest dairy importing region in the world—more than China or Russia," Levitt says. "There are more than half a billion people and an underdeveloped dairy industry there."

The six-nation region, which accounted for $963 million in U.S. dairy business last year, primarily buys milk powders and whey protein, much of it going into infant formula. "With sales of $244 million in the first quarter of this year, that could be a billion-dollar market in 2012," Levitt says.

China is the third-largest country for U.S. dairy exports, behind Mexico and Canada. Its $361 million in U.S. business in 2011 was more than double the amount of 2007-09, Levitt says. "Even though China is ramping up its own milk production, it still has huge demand," Levitt says. "For infant formula in particular, consumers prefer imported product." China is also increasing its fast-food sector, resulting in rising cheese sales.

Looking ahead, India can’t be ignored, Levitt believes. "There will be a point where the demographics of India, in terms of population and gross domestic product growth, will be inescapable," he says. "They won’t be able to supply their own needs. They’ll be like China was
five years ago." 

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