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Dairy export panel bullish on growth, global opportunities

Dec. 9, 2013 | 0 comments

MADISON

While weather plays the leading role in agricultural prices — including dairy — export markets are the single greatest mover behind Mother Nature.

"I wouldn't have said that five years ago," says John Umhoefer, executive director of the Wisconsin Cheese Makers Association, which serves state members who make cheese, butter and whey.

Umhoefer was part of a panel at the Wisconsin Dairy Business Association's annual meeting in Madison last week.

Tom Suber, president of the U.S. Dairy Export Council, started working on dairy exports in 1990 when he set up the National Dairy Board's export program. When Dairy Management Inc. used milk check-off funding to set up USDEC in 1995, he was tapped to lead it.

The percentage of the U.S. milk supply going into the export market began to climb in 2002-2003 but the global financial crisis in 2008 put a halt to that growth. Today, it has rebounded to the point where exports account for 15.5 percent of U.S. milk, based on a total solids basis, Suber said.

Up until 2002, exports and imports of dairy products pretty much cancelled each other out, he said.

Our cheese exports are triple what they were five years. Part of that is due to NAFTA — the North American Free Trade Agreement. "Mexico is our number-one cheese buyer. We dominate their imported cheese production. NAFTA opened their border to us and us alone."

The second-largest market for U.S. cheese is Southeast Asia followed by the Middle East, North Africa, China and Canada, Suber told DBA members.

"Half of any new milk goes to the export markets," he said. While fluid milk sales are static or declining, some domestic markets are also growing, including consumer demand for yogurt.

Suber said that export markets for U.S. dairy products are being driven primarily by rising demand in the developing world. With the rise of the middle-class in India, Indonesia, China and Mexico, consumers want formula for their babies and better food for their families.

Fluctuation in the dollar have some impact on the export markets, he added, but only when there are major changes. "In 2002 when the dollar got weaker it helped exports, but week-to-week and month-to-month fluctuations don't affect exports at all. They don't matter."

One thing that can and will have an impact on exports, if not handled properly, is trade agreements. If not negotiated properly, they can freeze U.S. products out of markets.

Suber said that there is a European campaign underway to eliminate the use of certain cheese terms by others.

Some of those "geographic indicators" are brie, parmesan, asiago, muenster, feta, gorgonzola, gruyere, harvarti, provolone, ricotta and fontina. Those names were developed by the cheese industry in certain regions of Europe and now they don't want cheesemakers in other countries or in other parts of the world to use them.

"We are the world's largest exporter of parmesan cheese," he noted.

European trade negotiators have been "very savvy on this" he said. They are negotiating trade deals with individual countries.

Success in making sure these geographic indicators are protected for Europe could also lead to similar restrictions on what he called a second tier of cheese names — cheddar and mozzarella.

Making what they want

Dean Sommer, director of cheese technology at the Center for Dairy Research on the University of Wisconsin-Madison campus, said one of the ways cheese and other dairy exports have improved is to give buyers what they want.

Companies can't be content to ship a product that is well-liked here and assume that consumers or processors there will find it to their liking in another country.

"Pizza is made in different ways in different parts of the world," he told the DBA audience.

Pizza makers in some parts of the world don't like the browning on top of the cheese and they want the melted cheese to stretch from the plate to the mouth. To them that's a successful pizza cheese, he said.

If that is not the performance of the cheese they have bought, there likely won't be another export sale of that product.

The CDR is a technical resource for the dairy industry and for exporters who need to look for ways to give their international customers what they are looking for, Sommer said.

One product they are helping industry with is the manufacture of ultra-filtered, stirred-curd, pressed block Gouda cheese. "It is traditionally made in wheels and brined so it's a very expensive process." As such it is seen as fine table cheese, but industry is looking for a way to produce it more simply in large quantities.

Gouda (pronounced gow-da in some parts of the world) is the third-most consumed cheese in the world. Sommer said it is the most important cheese in Russia and Mexico and the second-most in Japan.

Work at the center is focusing on testing for flavor as well as performance — things like how cheese melts and how it grates. Once those results are done the center makes them available to the industry.

The CDR is getting lots of questions about freezing cheese from companies that are interested in exporting product. "They want long shelf life and are wondering if they can freeze certain cheeses and how it will affect the products."

The center's scientists are working on lower salt cheese for Pacific Rim countries. "If we take salt out we need to change cultures to get the right flavors. We are experimenting with the use of whey permeate to use as a substitute for some of the salt."

Another issue being looked at by the center's dairy scientists is making whey as export buyers want it.

When cheese is colored, like the orange cheddars consumers like in this country, the whey becomes orange too. Customers buying whey want it to be white. Some colored whey is bleached to return it to the white color, but some export buyers don't want the benzoic acid that is used in the bleaching process.

Sommer said the center is looking into ways to keep the color from getting into the whey to begin with. If they could do that it would "solve everybody's problem."

The European Union has a new requirement that whey can't be used from colored cheese.

As U.S. exporters become more attuned to foreign markets, some companies are just now starting to make whole milk powder, which is a huge category for export.

Trade missions

The Center for Dairy Research also opens its doors to cheese trade missions from other parts of the world. They come to the center, try making various cheeses and test the functionality of those products.

In many cases these trade missions insist on having their photos taken with the UW-Madison sign or something that says they were in Wisconsin. "This isn't our idea," says Sommer. "They want to go back home and show that they were in the promised land."

Mike Brown is the director of dairy economics and policy for Glanbia Foods, Inc., an Irish-based company that was originally formed by the merger of Waterford and Avonmore cooperatives. Glanbia means "pure food" in Gaelic, the native Irish language.

With $4.5 billion in worldwide sales the company manufactures cheese and other dairy products. In 2012 the company processed 8.1 billion pounds of U.S. milk through its plants in Idaho and New Mexico.

Through a newly built Cheese Innovation Center in Idaho, the company is doing its own research and development with an eye to increasing exports, he told the DBA audience.

The company has a long history of exports from Ireland and has exported U.S, lactose and whey protein concentrate for almost 20 years.

Cheese exports have risen dramatically in the last five years, he said, and they play a significant role in the company's growth plans.

"Nearly 10 percent of our cheese and 70 percent of our whey volume was exported in 2012. Our goal is become the preferred world supplier of U.S. cheese and whey products.

"We're in the 'consistent supplier' mode now and we want them to call us before they call Fonterra," he said, referring to the New Zealand dairy export powerhouse.

Brown said current free-trade agreements can play a big role in export growth but it's also important for exporters to make an effort to understand local cultures and practices. "We need to be there and pay attention to their local needs.

"Markets around the world often have their own requirements and they're often different from U.S. specs," he said. "We need to respect their cultures and their traditions."

Glanbia is a member of USDEC and Brown said there are numerous ways countries can try to keep U.S. products out of their markets. "It's nice to be able to call them and get help with these kinds of problems because the government doesn't have the staff to do it. Besides, most of the trade is with companies not with foreign governments."

Specialty cheeses

Chris Gentine grew up in his grandfather's Sargento cheese business, working there through high school and college and then taking a position with his father's Masters Gallery Foods, a cheese packaging and distribution company.

Since 2006, he and his wife have run their own company, Artisan Cheese Exchange, an export management firm focused on American-made artisan, specialty and organic cheeses. It markets 20 brands in 15 countries throughout Asia and Europe.

He told DBA members that it is a thrill showcasing the value-added side after growing up in the commodity side of the cheese business. The idea for this company came out of a conversation with a chef.

Many of the high-value added cheeses he markets have risen to the top as winners of various cheese contests — including those run by the Wisconsin Cheese Makers Association, the American Cheese Society and the World Cheese Awards in London.

The products he sells come from California, Oregon, Vermont, Utah and Wisconsin. "Many of the cheese mongers there can't believe theses cheeses come from America and they're so great."

Foreign cheese makers and vendors are seeing the quality of U.S. cheese. "Last week of 2,800 cheeses in the World Cheese Awards, the U.S. got into the supreme round with five cheeses in the top 15. There were 262 judges."

Since these specialty and artisan cheeses are higher priced, they have primarily gone to countries where people are used to eating cheese as an item in itself. "In some regions of the world they don't ever just eat cheese. It's a foreign concept to them," he said.

What has been important in his business is to find local tastes and preferences and bring those to the markets.

These high-end markets are looking for something unique and products like the Pleasant Ridge Reserve, produced in southwest Wisconsin from grazing cows, fit right into their product mix, he adds.

He has placed 35 U.S. cheeses in a market case in Japan.

Bullish on growth

Suber said he's bullish on dairy export growth because of the incremental demand spread across middle-class growth in developing countries.

"It is a consumption-driven formula and the United States provides a mid-priced range of products."

The panelists said they believe if federal policy dictates a change in, or the elimination of, federal milk marketing orders, they would be okay with that. Umhoefer said Wisconsin cheese makers believe they can thrive in the absence of a federal order system.

Brown said the federal orders may have served a useful purpose in the past but have outlived their usefulness. "We don't need them."

When we're not regulated, Brown added, it raises the value of milk and raises money to pay farmers more for their milk. The fluid markets have stagnated, he added, because of the regulation applied by federal orders.

"We've almost made it impossible for them to innovate." As an example, the Quaker company just came out with a new breakfast drink that has fiber in it, he said, and they kept it just below the level that would require it to be regulated as a Class I dairy product.

"Federal orders didn't save our hides in 2009 and you have to ask yourself if we need that Byzantine system," he added.

Will rising global dairy production eat our lunch?

U.S. exports grow, but what's the outlook for production in various regions

JAN SHEPEL

Associate Editor

MADISON

Dairy experts who spoke on a panel at last week's Dairy Business Association (DBA) annual business conference in Madison are bullish on the ability of U.S. companies to find new markets for domestic dairy products in other countries.

But dairy producers wanted to know if growing dairy industries in these export destinations or regions are going to rise to the challenge and fill the needs of those markets even as demand grows.

Tom Suber, president of the U.S. Dairy Export Council, an entity that is funded by dairy check-off money, said a study showed that the United States has a window of opportunity to build these dairy export markets before others take them.

In some regions of the world, he said, domestic dairy industries would never be able to fully meet the demand of their populations, which are growing in numbers and in their desire for better protein sources.

Mexico, which is one of our primary global destinations for dairy products, is at about 35 percent of self-sufficiency when it comes to dairy supply, he said.

Countries that bear watching in terms of future dairy production and export sales, would include Brazil and Argentina, primarily because they are agricultural powerhouses, Suber said. Others on the panel said dairy production costs in Brazil are some of the highest in the world.

India and Pakistan may have the ability to feed their own people in the future, Suber said, but he doesn't believe they could grow their dairy business beyond that point to become export competitors.

New Zealand, a perennial dairy export powerhouse, will continue to be one, he said, as the island nation keeps growing its dairy business, but Australia's dairy industry is facing issues with continuing drought and water shortages. He doesn't believe they would challenge dairy exports as they might have in the past.

Africa will be a continent where demand for dairy products will far outstrip any ability of the region's producers and processors to make products for export, Suber said.

The European Union won't be able to produce enough dairy to meet world markets and he doesn't think Russia will be able to ramp up production to any extent that could challenge current dairy exporters.

If Canada changed its system to allow more production it would have the potential to challenge some dairy exports, Suber added. Currently, Canadian dairy farmers are limited in their production by a quota system.

Mike Brown, a dairy economist with Irish company Glanbia Foods, commented that Brazil and China have higher dairy production costs than the United States. Glanbia has dairy processing plants in Idaho and in New Mexico.

A recent Rabobank study compared dairy production costs in various parts of the world and found that the United States "is in the driver's seat," said Brown. "We're in a very good position."

In addition to its product mix and its dairy product supply the United States has other advantages. "We're a good country to do business with. We're good people to do business with," Brown said. "Not everybody can say that."

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