Poised to break the 10,000-metric-ton mark in 2013, South America is a different animal than China or Southeast Asia.
By Angélique Hollister, Vice president, cheese and consumer products, U.S. Dairy Export Council (USDEC)
When you think "U.S. cheese export opportunity," the first destination that comes to mind is likely Mexico or Japan or South Korea—our three largest cheese export markets. Or perhaps the Middle East or Southeast Asia—two up-and-coming cheese consuming regions. And of course you can never discount the potential of China.
Rarely would South America pop into your head.
Quietly and under the radar, South America has steadily grown into a significant market for U.S. cheese exports, and signs suggest greater opportunity lies ahead, as USDEC’s Brazil office representative Sonia Amadeo will point out in her presentation, "Opportunities for Dairy in Latin America," at the Global Cheese Technology Forum in Reno, Nev., Oct. 21-23.
U.S. cheese exports to South America increased for nine straight years through 2012 and are well on their way to breaking the 10,000-metric-ton mark in 2013. Through the first seven months, volume jumped 27% to 6,503 metric tons.
The appreciation of South American currencies against the U.S. dollar in recent years has helped build sales, in effect reducing the price of dairy imports. But the main factor driving demand is similar to that driving dairy demand in other developing nations: rising incomes creating a larger middle class and causing a shift to higher protein diets.
At the same time, South America is a different animal than China or Southeast Asia. It has a longer history with cheese—predominantly fresh white cheese, but specialty varieties as well—and cheese-knowledgeable consumers.
In addition, two dairy powerhouses—net exporters Argentina and Uruguay—boast a significant geographical advantage over the United States in providing cheese to the region’s major buyers. Chile and Brazil also have sizable dairy industries, and New Zealand cheese export giant Fonterra Cooperative Group owns Soprole, Chile’s largest dairy processor.
Conventional wisdom suggests South America would be able to service its own cheese needs through domestic production and intraregional trade. But for a variety of reasons, conventional wisdom is wrong. Not only is the Argentine dairy export sector focused on milk powder, federal regulations aimed at controlling inflation hinder export growth and diversification. While Uruguay exports cheese, it has significant volume commitments with Venezuela, Brazil and even Argentina, and lacks the capacity to meet the entire region’s needs. Chile, too, lacks capacity to produce much beyond its growing domestic needs.
Demand in general is growing faster than the South American dairy sector can service it, which has opened the door to imports beyond traditional suppliers in the European Union.
A major reason for U.S. success lies in our free trade agreements (FTAs) with Chile, Colombia and Peru. Those three deals combined are a casebook in how FTAs can propel the industry.
South American markets are very price sensitive, and the FTAs gave the United States a pricing advantage over competitive suppliers. That advantage resulted in increased interest in U.S. products and greater exposure to the United States as a supply source, even for varieties traditionally controlled by Europe, like gouda.
In 2012, Chile, Peru and Colombia accounted for 88 percent of U.S. cheese exports to the region. Through the first seven months of 2013, U.S. shipments to the three nations grew 33 percent and accounted for just over 90 percent of total U.S. exports to South America.
They continue to offer the most immediate opportunities to U.S. suppliers, although other prospects are longer term. Brazil is the most populous nation on the continent, but for the time being its tariff and non-tariff barriers make doing business there more difficult.
Cheese demand will continue to expand as South America upgrades its infrastructure, modernizes and expands its retail and foodservice industries, and grows its middle class. Other factors will further drive cheese consumption and create opportunity in the region. As a whole, South America is a fairly sophisticated market with consumers looking for new taste experiences. It is a natural producer of wine, and wine drinking is ingrained in society. The pairing of cheese with wine holds particular potential for specialty cheese varieties produced in the United States.
The growth of women in the workforce has placed a premium on convenience meals. Cheese fits perfectly as a convenient, healthful option for a child’s snack or as a lunch component.
While more people are eating out, especially pizza, the continent’s foodservice sector is still developing, with significant room for growth for international chains, equating directly to greater cheese use.
As with any export market, the key to business is service and commitment. The suppliers that have chosen to focus in South America and succeeded took their time to understand market requirements and made an effort to meet those requirements. In Colombia, for example, U.S. suppliers altered package sizes and cheese cuts to meet buyer preferences.
In general, South American buyers have been much more satisfied by U.S. suppliers’ demonstration of commitment. Should it persist, South America is likely to continue to grow as a U.S. cheese export destination.
Note: The U.S. Dairy Export Council is primarily supported by Dairy Management Inc. (DMI) through the producer checkoff that builds on collaborative industry partnerships with processors, trading companies and others to build global demand for U.S. dairy products.