The global situation is different now for U.S. suppliers than it was in 2008 and 2009, exporting agency says.
The U.S. has reached a tipping point where dairy exporting is no longer an option but a necessity, says the U.S. Dairy Export Council (USDEC).
In 2010, the U.S. shipped 13% of the nation’s total milk solids overseas and imported volume equivalent to only 2.8%, posting a record trade surplus.
While that is positive news, it carries implications of how critical overseas business has become to the U.S. dairy sector.
"It brings an obligation. It is now imperative that we service international customers and protect volume and market share gains,” says Marc A.H. Beck, USDEC senior vice president, market development. “The U.S. cannot absorb back into the domestic market 13% of the annual milk solids produced in this country. And as we produce more milk, most of it has to go to international customers because domestic consumption is slow growing and opportunities to displace imports have significantly narrowed.
“Subtracting foreign demand would stunt industry growth, quickly build large cheese, butter and powder stockpiles, and send U.S. prices reeling,” Beck adds.
The real opportunity lies in overseas markets. Strong global demand growth is driving broad-based import buying in China, Russia, Southeast Asia, Mexico and the Middle East.
In 2010, world dairy trade rose 9% to nearly 46 million tons milk equivalent, according to the U.N. Food and Agriculture Organization’s (FAO’s) “Food Outlook.” FAO projects a 4.5% gain to 48.2 million tons this year.
The global situation is different now for U.S. suppliers than it was in 2008 and 2009 when milk shortages overseas created a supply void into which U.S. companies stepped. Now, supply is strong in general through most of the world, but it is still insufficient to handle demand.
The Organization for Economic Development (OECD) and FAO noted in the “OECD-FAO Agricultural Outlook 2011-2020” that dairy globalization together with domestic and trade policy reforms have shifted international dairy markets from a supply-driven paradigm (characterized by excess production and depressed world prices) to a demand-driven paradigm that is responsive to market signals and changing consumer preferences.
“The sector is increasingly shaped by the prospect of sustained high prices for dairy products,” OECD-FAO noted. “Higher international prices are creating incentives for investment, expansion and restructuring in local dairy industries.”
Says Beck, “That is where U.S. policy and U.S. processors need to be geared—not on churning out product but on creating products that meet the ever growing, ever changing needs of a global market.
“We need a new mindset and skill set,” Beck adds.” We need to be better marketers. We need to be more aggressive and smarter. We are no longer falling into this space because of supply challenges in New Zealand or Europe. Now, demand growth is the primary driver.”
The responsibility to defend and grow U.S. dairy export market share and expand the U.S. trade surplus falls on the U.S. industry working with government to create conditions that support U.S. participation in a globalized dairy market.
- Pursuing beneficial trade treaties.
- Reducing interference from non-tariff trade barriers by creating a better U.S. system to address such issues and pursuing tougher international guidelines to minimize instances before they occur.
- Improving forward contracts, futures markets and risk management tools to allow the U.S. industry to cope with the rising volatility inherent with a fine balance in global demand and supply.
- Reforming Federal Orders and price support programs to remove internal constraints to pursuing global markets and to position the U.S. industry to be as nimble and flexible as it needs to be to succeed.
Says Beck, “We need to create an environment that provides the best returns for us.”