Failure to change U.S. dairy policy will limit its potential, hurt exports

Failure to achieve needed U.S. dairy policy changes will weaken the industry and limit its potential. That's what members of Wisconsin's Dairy Business Association heard at their annual meeting in Madison Tuesday (Nov. 29.)

Sue Taylor, vice president of dairy policy and procurement for Leprino Foods, a keynote speaker at the event, was part of the U.S. Department of Agriculture's dairy task force several years ago charged with coming up with ideas for dairy policy changes. It was, she said, "a painful process for a year."

One of the biggest threats, she told members, is sending the message to foreign trade partners that the United States is not committed to being a consistent supplier to their market. There is also a need to develop products tailored to the needs of trading partners.

Leprino has developed a low-salt mozzarella cheese for the Asian market but it had to do some work to make those sales. Their buyers were used to getting product from New Zealand where most of the cows graze on pastures, which gives their milk some color. Leprino had to figure out a way to add color to its pure-white cheese to satisfy that market and to match the hue of the product to what the customers were used to.

Taylor said Leprino’s product development staff used hardware-store paint chips to determine just the right shade of cream for those Asian customers and then colored their cheese accordingly with food-safe additives.”

To get into foreign markets, U.S. traders must learn how best to serve those customers and must invest in market infrastructure. Leprino has been in the international marketplace since the 1970s with whey products and added string cheese products in the 1990s, she said.

One of their claims to fame came when Pizza Hut developed the stuffed crust pizza with cheese in the rim of the pie's crust. They needed a cheese that worked in that recipe - one that melted but didn't disappear. That's what Leprino had in its string cheese.

Several years ago the company re-thought its approach to the marketplace, hiring chefs to work with customers on product development at its Denver corporate office. They have now extended that approach to Singapore, where they have opened an office this year to serve emerging markets there.

When the company president visited with customers in Asia, they said the relationship was very transactional; there was no service. The new office includes people with sales expertise and others who can offer culinary support. The large kitchen in the new office is equipped with appliances similar to those that will be used by customers.

Its presence in that marketplace, she told DBA members, allowed the company to land a three-year contract with Domino's Pizza in New Zealand and Australia. The pizza company has promoted the U.S. cheese very publicly, she said, and Leprino feels very good about getting such a contract in two countries with dominant domestic dairy industries.

The deal is worth 12 million pounds of cheese a year and what's more, the franchisee they made the deal with also owns stores in Europe. Leprino has already gotten interested calls from other regions as a result of the deal.

Taylor believes that moves like this to serve dairy product buyers abroad will help the domestic dairy business, by building demand for dairy products, but some policy changes are needed. One of those is reform of the federal milk marketing order system. Farmers, she said, also need a predictable price and decreased volatility in order to become consistent producers for the processing side.

When asked by DBA members, Taylor said that the supply management portion of a proposed federal dairy bill will hurt the export market. Manufacturers who are spending $200 to $500 million on a dairy processing plant are not going to look kindly on a plan that will cut down on their milk supply at given times.

Leprino prefers to build its dairy plants in the United States, she said, and believes in the U.S. dairy industry, but may find it difficult do so if the supply management policy goes into effect. (Her position aligns with DBA, which came out with a statement opposing the supply management portion of the federal Dairy Security Act.) She would be even more opposed to it if it became mandatory rather than the currently proposed voluntary program.

Taylor said she doesn't believe the supply management portion of that bill would be very effective, and added that the margin protection insurance plan is likely going to be more expensive than is currently being represented.

If she were to craft her own dairy policy proposal, Taylor said it would include a Farm Savings Account into which producers could deposit money before taxes during good times and then use that money, and pay the taxes, during lean times. In early analysis this program would have as much benefit to farmers as the supply management program, she said.

Such a program would shift decisions on farm expansions and limit the number of farm purchases that are made at the end of the year basically to avoid paying taxes. But Taylor admits it would be a tough political environment to get such a measure passed.

Another proposal that came out of the USDA task force was a recommendation for margin lines of credit that would be available to first buyers of milk to help their dairy producers with risk management programs. Many smaller dairy farms are not able to muster the money or the will to try hedging or other forms of risk management. But Taylor believes that if first buyers, like cooperatives, were able to help their farmers with risk management programs it would be a step in the right direction.

Taylor also believes that the price support program needs to be reformed along with the milk pricing system. "Multiple manufacturing classes hurt the dairy industry and exports. We need to figure out a two-class system."