August 1, 2006
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 products?
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 status.
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 market ramifications.
Global Grocery List
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 with this?’”
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 North Africa.
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 Chicago area.$OMN_arttitle="Continental Shifts";?>