by Lynn Petrak
As the world shrinks, the global market for U.S.-made
dairy products expands.
Is the glass of milk half
full or half empty when it comes to the export market for U.S. dairy
As with any global outlook these days, the answer
truly depends on the region, product and timing. On one hand, demand for
dairy products worldwide is growing, and U.S. manufacturers of goods
ranging from skim milk powder to ice cream bases to cheese are taking
advantage of burgeoning markets across all continents. On the other hand,
thorny global trade issues have varying effects on U.S. firms, while energy
costs and geopolitical instability are causing jitters among many in the
global supply chain.
|U.S. Dairy Exports
||Total milk solids,
|Source: U.S. Department of Agriculture/U.S. Dairy Export Council|
Overall, though, if economics is based on supply and
demand, then the demand side of the equation for dairy in international
markets is encouraging. According to the Arlington, Va.-based U.S. Dairy
Export Council (USDEC), total dairy exports reached a record-breaking $1.66
billion in 2005, up a full 10 percent from the previous year. Volume was up
14 percent in the same time frame, reaching 1.81 billion pounds of product,
as measured by milk solids.
The upswing can be attributed to a confluence of
factors. One significant trend impacting global demand for U.S. dairy
products and ingredients is the industrialization of nations. “The
factors bode well for dairy because as less-developed countries
economically develop, dairy is a fundamental part of that development,
whether it’s in infant formula, milk or as food chains spread
capability,” says Tom Suber, USDEC president, noting that it has been
documented that increases in per capita income have been linked to greater
animal protein in the diet.
|2005 U.S. Dairy Exports|
|Product||Volume (mt)||% change
’05 vs. ‘04
|Skim milk powder||287,994||+6|
|Fluid milk and cream (KL)||21,183||-28|
|Source: U.S. Dairy Export Council|
Clay Hough, senior vice president and general counsel
for the Washington, D.C.-based International Dairy Foods Association
(IDFA), underscores the parallel track of increased affluence and dairy
intake. “Economic growth in countries translates into rising
purchases of value-added, branded products, including dairy protein,”
he says. “Working hand in hand with that, as markets grow in these
areas, they become attractive for U.S. restaurants that, as they move in,
use a lot of dairy ingredients.”
To be sure, there are many parts of the world where
growth in disposable income is leading to a greater consumption of
animal-based proteins. There are some particularly noteworthy regions in
both developing and established countries, where the U.S. dairy industry is
making strong inroads.
Asia is one example. “There is continued and
steady economic growth in the Pacific Rim, with 7 percent growth projected
for 2006 in Asian countries,” Hough says.
Within Asia, China’s status as a more powerful
market is becoming cemented more every year. “China is the fastest
growing for everything,” Suber says. “China is increasing
consumption of milk, infant formula, ice cream and yogurt, and it is
pulling in dairy ingredients of all types, whether in lactose for infant
formula or milk powder for reconstitution in milk or whey protein for
formulated foods and animal feeds.”
According to USDEC, dairy exports from U.S. producers
to China rose 28 percent from 2004 to 2005. The total volume of 68,746
metric tons sent to China makes it the largest market, volume wise, among
nations with whom the U.S. trades.
South Korea is another major and growing Asian market.
USDEC charts dairy export growth in that country as up 121 percent in 2005.
Elsewhere in that region, Japan upped its imports of American-made dairy
goods to the tune of 38 percent last year.
In recent years, Southeast Asia has become a greater
focal point for dairy exports due to shifting economies and changing eating
preferences. In 2005, dairy exports to Southeast Asia grew 35 percent.
“They are sophisticated food processors of snack foods and other
formulated foods,” Suber says.
The Southeast Asian market also exemplifies the
approach those in the U.S. dairy industry take when developing products and
programs for foreign markets. “A substantial part of Southeast Asia
is Muslim, so more U.S. dairy companies wish to be halal-certified,”
Suber says of the religion-based certification of certain foods and
beverages, adding that USDEC works with processors to help them get halal
Beyond Southeast Asia — and despite of the
current regional conflicts flaring up in the area — the Middle East
and North Africa are also becoming more frequent users of U.S. dairy
products. According to USDEC, imports to the Middle East and North Africa
climbed 80 percent from 2004 to 2005. “The Middle East is a growing
market because of the fact that its population is growing and its income is
growing because of oil,” Suber says.
Back in the Western Hemisphere, there have also been
increases in U.S. dairy exports. Shipments to Central America were up 27
percent, while deliveries to South America rose 88 percent.
Sales of U.S. dairy goods into Central America has
been affected by the implementation of the Dominican Republic-Central
American Free Trade Agreement, (DR-CAFTA), which applies to six countries
in the region: the Dominican Republic, Costa Rica, El Salvador, Guatemala,
Honduras and Nicaragua. A recent deal, helped along by those in the U.S.
dairy industry, creates duty-free quotas for fluid milk, milk powder,
yogurt butter, cheese and ice cream, and is designed to lead to positive
long term growth to shipment in those nations.
The situation with Mexico is a bit different.
“There are unique factors with Mexico,” Suber explains.
“Mexico is already the world’s largest dairy importer of nonfat
dried milk and milk powder, and they do a good job of growing their milk
supply every year, but they can’t keep up with burgeoning demand; 25
to 35 percent of milk there is supplied by imports.” In 2008, he
adds, milk powder tariffs go down to zero, per the NAFTA agreement, and the
effect will be felt.
Other issues simmering in Mexico have kept the U.S.
dairy industry busy in trade relations. Last year, USDEC worked with the
U.S Trade Representatives office to deal with Mexico’s decision to
slap a 30 percent punitive tariff on U.S. dairy blend exports in response
to failure by the United States to comply with a particular World Trade
Organization (WTO) ruling. The recent contested presidential election in
that country also has had American dairy exporters monitoring potential
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Just as various regional markets for U.S dairy
products are growing, but not necessarily in lock-step, there are
differences in the types of dairy products shipped to foreign markets.
Tonnage wise, the bulk of shipments are skim milk
powder. According to USDEC, nearly 288,000 metric tons of skim milk powder
exited the shores of this country in 2005, a 6 percent increase over the
previous year. Within that group, the strongest gains came from Mexico, at
18 percent growth, and Southeast Asia, at 20 percent growth.
Whey sales jumped 31 percent in the last year alone to
become the second largest export category, which is all the more remarkable
because of its comparatively recent marketplace entry. “Just a few
years ago, our biggest winners in terms of growth — whey and lactose
— were waste products from cheese,” Hough says. “The
problem was from an environmental standpoint — ‘What do you do
Suber, too, says by tapping the market for whey, the
U.S. dairy industry has made a name for itself in international circles.
“We have actively gone places to create markets for that product
because we are so competitive with it. We have tried to create
opportunities for it to be used in yogurt, animal feed, infant formula and
a lot of places where we were not historically competitive until the
past couple of years,” he says. “The numbers bear us out on how
well that has gone.”
Lactose has followed a similar path for growth. Sales
of lactose increased 18 percent from 2004 to 2005, used for both finished
food products and as an ingredient in feed. One burgeoning market for
lactose is Southeast Asia, where sales climbed 55 percent to make that area
of the world the second largest buyer of U.S. whey behind Japan, according
to USDEC data.
Compared to ingredients, exports of finished product
sales are more up and down. Export sales of cheese last year reached the
57,509 metric ton mark but percentage-wise dipped 6 percent. Most of the
losses were attributed to declines in the traditionally stalwart
cheese-importing nations Mexico and Japan, due to due to competition from
other countries in those regions.
That said, there is a lining in the clouds for
cheesemakers. Cheese exports are on the rise in other areas of the globe,
including South Korea, South America, the Caribbean and Canada, which is
now the second largest buyer of U.S. cheeses.
Meanwhile, fluid milk consumption declined 28 percent,
also linked to competition from other non-U.S. producers in parts of the
world market. Butter sales declined 28 percent from 2004 to 2005, but at
the same time, demand for butter grew 143 percent in the Middle East and
On the positive side for finished dairy products,
exports of yogurt increased worldwide by 16 percent, 88 percent in the
Caribbean alone. And after three subsequent years of losses, export sales
of ice cream products climbed nine percent in 2005, with nearly half of
purchases originating in Mexico.
Mapping Global Growth
Behind the numbers, dairy manufacturers address
product demand and potential markets in different ways. Both large
conglomerates and mid-size dairies are pursuing opportunities for product
sales beyond the 50 states.
Kraft Foods, Northfield, Ill., for instance, continues
to expand its global sales. In addition to selling brands of packaged food
products, Kraft ships dairy products to other destinations. For the second
quarter of 2006, the company reported strong positive reception in the
European Union to its Philadelphia-brand cream cheese, as well as strong
volume gains of Kraft cheese in the Middle East and Africa.
Dallas-based Dean Foods, which has focused efforts on
building its U.S. brand equity in recent years, also has bolstered its
international presence. Dean products are available in Spain and Portugal,
marketed through the company’s Leche Celta division.
Those that specialize in certain types of dairy
products are also experiencing market success abroad. Dippin’ Dots,
Paducah, Ky., first expanded distribution of its unique flash-frozen ice
cream product beyond the United States a decade ago through a partnership
in Japan. Today, that relationship is still flourishing, as are
partnerships in several other regions. “Our strongest market is
Mexico and the potential in Asia is immense,” reports Ed Fritz,
director of international marketing, adding that Dippin’ Dots has
built a new plant in South Korea and executed a master license for Kuwait
and the United Arab Emirates in the Mideast. “China, India and Europe
are on the strategic market horizon.”
As Fritz points out, meeting international customer
needs is not a one-flavor-fits-all solution. “The cultural and
country-specific flavors and taste preference are a constant work in
progress,” he says. “It is truly challenging, as there are
subtle differences in intensity, sweetness and flavor richness between
similar cultures such as Mexico and Panama.”
Beyond finished products like ice cream and cheese,
the flourishing market for ingredients like lactose and whey and whey
protein, among others, continues to be evident in the amount of time and
work that U.S. producers are putting into their export business.
At Hilmar Ingredients, a division of Hilmar,
Calif.-based Hilmar Cheese Co., director of marketing Gwen Bargetzi says
the company is fortunate to be a part of an ever-dynamic market. “I
don’t think we invented the market but we were able to leverage the
unique milk supply we had,” she says of Hilmar’s early and
strong inroads in that market.
Bargetzi believes business will only continue to boom
due to health and nutrition issues that impact developed and developing
countries “One primary reason why whey protein is used is for
nutritional value — because of its branch chain amino acids and
protein digestibility, it is a superior source. Infant formula is a very
important use, and I think it will be big for the Olympics coming on in
China,” she predicts, adding that Hilmar is concentrating its
marketing work in areas where there are not existing strongholds for whey
protein suppliers, such as China, Eastern Europe and Latin America.
Glanbia Nutritionals, Monroe, Wis., also has invested
more in foreign markets, aiming to strengthen a buying base for its milk
solids. Meanwhile, a few years ago, whey/whey protein supplier Davisco
Foods International, LaSueur, Minn., opened the first American whey
ingredient office in Europe in Geneva, Switzerland. Since then, the company
has exported ingredients for use growing range of nutraceuticals, infant
formulas and food products.
Lynn Petrak is a freelance journalist based in the