Executive Hot Seat
What key issues will the dairy industry face in 2009?
Quintin Frey
President
Turkey Hill Dairy
Key issues that the dairy industry will face next year include a slower world economy that will impact sales internationally and domestically. Dairies will have to carefully manage sales and marketing activities to maximize unit movement. I believe we can expect increased price pressure on lower commodity costs like oil, plastic and milk. Providing the country does not slip further into a recession, I believe dairy can have a good, but not a record, year.
Jim Green
President and CEO
Kemps LLC
The dairy industry will continue to be challenged by increasing pressure on consumers’ wallets, forcing them to make tough choices as they fill their grocery carts. Although the intense commodity inflation of the past two years has begun to subside, other economic forces including the worldwide credit crisis and recession will continue to significantly impact consumer behavior and dairy purchases in 2009.
Our response must be to step up our innovation efforts, not only in terms of creating new value for the consumer in products and packaging, but also driving productivity improvements and cost reduction in our manufacturing facilities and supply chain.
Although these are challenging times, I have never been more optimistic about the future of our industry. Part of my optimism resides in the fact that industry-wide efforts involving producers and processors are taking place like never before to build consumer loyalty to dairy, emphasizing its natural goodness, its nutrient density and its value. This is a great time to sell and market dairy products.
Marty Margherio
President
Farmland Dairies LLC
Issues that the dairy industry will face in 2009, in my view, are the following: a possible long recession, slowing consumption, less disposable income, rising imports, unstable markets and new product introduction costs. Fuel and energy costs will remain a challenge.
Mike Reidy
Senior Vice President
Procurement, Logistics and Business Development Leprino Foods Co.
Sales demand: With the recent financial turmoil, processors are keenly interested in the impact of the economy on all aspects of demand – from the foodservice segment to the manufacturing segment to the retail segment. We have already witnessed some demand destruction in 2008 (some sectors more so than others) and we are concerned about the potential for further weakness in demand. Hopefully, the recent softening in dairy prices will drive a resurgence of demand.
The various factors influencing demand are intricately interconnected. We have learned over the past few years how significant a driver the world market is in terms of U.S. prices. We are witnessing that again right now as available product volumes increase outside the United States, the U.S. dollar strengthens against virtually every other major world currency, world product prices fall and U.S. exports diminish. With much of the current export volumes representing the completion of calendar year 2008 contracts, we will be watching the world markets carefully for their influence on U.S. dairy prices in 2009.
Input costs: The dairy industry was not immune to the dramatic increases in the cost of many raw materials in 2008. From packaging supplies to cleaning chemicals to construction materials, the pace and magnitude of cost increases in 2008 were unprecedented. While some of these costs have just recently begun to moderate, others continue to escalate. The volatility of these prices will mandate careful attention and diligent forecasting of material costs.
And, with the election behind us, we are keenly interested in the impact of the new administration on the broader costs of doing business, such as health care and taxes.
Food for fuel: Much as is the case with the observations on input costs, we will be watching carefully what happens on the farm side for the producer’s cost of production. The impact of the ethanol industry on feed costs, particularly corn, has been profound. It remains to be seen what direction these various intertwined issues will take in 2009 – with falling corn and ethanol prices, tightened to non-existent credit for ethanol producers and a new administration that is focused on alternative fuels.
Sustainability: This is an issue that has critical importance for all of us, not just the dairy industry. The issue is vast in its scope and urgent in its timing. There are a number of initiatives underway specifically focused on dairy from the farm level through to the end consumer. We intend to be an active participant in these initiatives with the hope of developing comprehensive, accurate and highly standardized measures of reporting things like carbon footprints. Just as importantly, we in the dairy industry are constantly looking to improve the efficiency of our operations in an effort to be good stewards of the world’s resources.
Nutrition: Milk is among nature’s perfect foods. We will need to continue to carry that message into 2009 with even greater fervor. The Child Nutrition Act and its various related programs are up for reauthorization in 2009. We need to make sure that lawmakers and regulators clearly understand the absolutely critical need to maintain adequate levels of dairy (milk, low-fat cheese, yogurt) in these feeding programs. Likewise, we need to take advantage of the recently authorized health claim available to dairy through the combination of calcium and vitamin D.
Obviously, there is a wide range of key issues facing the dairy industry in 2009. However, knowing the power of milk as the perfect food, we continue to be excited about the opportunities the future holds.
Executive Hot Seat appears quarterly in Dairy Field Reports.
Quintin Frey
President
Turkey Hill Dairy
Key issues that the dairy industry will face next year include a slower world economy that will impact sales internationally and domestically. Dairies will have to carefully manage sales and marketing activities to maximize unit movement. I believe we can expect increased price pressure on lower commodity costs like oil, plastic and milk. Providing the country does not slip further into a recession, I believe dairy can have a good, but not a record, year.
Jim Green
President and CEO
Kemps LLC
The dairy industry will continue to be challenged by increasing pressure on consumers’ wallets, forcing them to make tough choices as they fill their grocery carts. Although the intense commodity inflation of the past two years has begun to subside, other economic forces including the worldwide credit crisis and recession will continue to significantly impact consumer behavior and dairy purchases in 2009.
Our response must be to step up our innovation efforts, not only in terms of creating new value for the consumer in products and packaging, but also driving productivity improvements and cost reduction in our manufacturing facilities and supply chain.
Although these are challenging times, I have never been more optimistic about the future of our industry. Part of my optimism resides in the fact that industry-wide efforts involving producers and processors are taking place like never before to build consumer loyalty to dairy, emphasizing its natural goodness, its nutrient density and its value. This is a great time to sell and market dairy products.
Marty Margherio
President
Farmland Dairies LLC
Issues that the dairy industry will face in 2009, in my view, are the following: a possible long recession, slowing consumption, less disposable income, rising imports, unstable markets and new product introduction costs. Fuel and energy costs will remain a challenge.
Mike Reidy
Senior Vice President
Procurement, Logistics and Business Development Leprino Foods Co.
Sales demand: With the recent financial turmoil, processors are keenly interested in the impact of the economy on all aspects of demand – from the foodservice segment to the manufacturing segment to the retail segment. We have already witnessed some demand destruction in 2008 (some sectors more so than others) and we are concerned about the potential for further weakness in demand. Hopefully, the recent softening in dairy prices will drive a resurgence of demand.
The various factors influencing demand are intricately interconnected. We have learned over the past few years how significant a driver the world market is in terms of U.S. prices. We are witnessing that again right now as available product volumes increase outside the United States, the U.S. dollar strengthens against virtually every other major world currency, world product prices fall and U.S. exports diminish. With much of the current export volumes representing the completion of calendar year 2008 contracts, we will be watching the world markets carefully for their influence on U.S. dairy prices in 2009.
Input costs: The dairy industry was not immune to the dramatic increases in the cost of many raw materials in 2008. From packaging supplies to cleaning chemicals to construction materials, the pace and magnitude of cost increases in 2008 were unprecedented. While some of these costs have just recently begun to moderate, others continue to escalate. The volatility of these prices will mandate careful attention and diligent forecasting of material costs.
And, with the election behind us, we are keenly interested in the impact of the new administration on the broader costs of doing business, such as health care and taxes.
Food for fuel: Much as is the case with the observations on input costs, we will be watching carefully what happens on the farm side for the producer’s cost of production. The impact of the ethanol industry on feed costs, particularly corn, has been profound. It remains to be seen what direction these various intertwined issues will take in 2009 – with falling corn and ethanol prices, tightened to non-existent credit for ethanol producers and a new administration that is focused on alternative fuels.
Sustainability: This is an issue that has critical importance for all of us, not just the dairy industry. The issue is vast in its scope and urgent in its timing. There are a number of initiatives underway specifically focused on dairy from the farm level through to the end consumer. We intend to be an active participant in these initiatives with the hope of developing comprehensive, accurate and highly standardized measures of reporting things like carbon footprints. Just as importantly, we in the dairy industry are constantly looking to improve the efficiency of our operations in an effort to be good stewards of the world’s resources.
Nutrition: Milk is among nature’s perfect foods. We will need to continue to carry that message into 2009 with even greater fervor. The Child Nutrition Act and its various related programs are up for reauthorization in 2009. We need to make sure that lawmakers and regulators clearly understand the absolutely critical need to maintain adequate levels of dairy (milk, low-fat cheese, yogurt) in these feeding programs. Likewise, we need to take advantage of the recently authorized health claim available to dairy through the combination of calcium and vitamin D.
Obviously, there is a wide range of key issues facing the dairy industry in 2009. However, knowing the power of milk as the perfect food, we continue to be excited about the opportunities the future holds.
Executive Hot Seat appears quarterly in Dairy Field Reports.
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