A dramatic increase in dairy exports has helped boost Wisconsin milk prices to near-record high levels.
The latest statistics show that dairy exports increased 18 percent last year to 1.8 million tons. That helped lift the average price for all grades of milk to $23.20 per 100 pounds, topping the record $22.10 set in November 2012.
Corey Geiger is managing editor of Hoard's Dairyman magazine, and has a strong background in the dairy industry, including milk marketing, dairy policy, business planning and dairy product promotion. He stressed the importance of dairy exports in a member educational seminar during the Farm First Dairy Cooperative's annual meeting Feb. 14, at the Radisson Paper Valley Hotel and Convention Center.
Recently, Geiger accompanied the U.S. Dairy Export Council (USDEC) on a trade mission to the Middle East, where he witnessed the arrival of shiploads of U.S. dairy products.
"While we are all price conscious, at the end of the day, we more often than not do business with people we like and get along with. The same holds true for dairy exports. Relationships matter," he emphasized. "The U.S. Dairy Export Council, and its staff, serves as the bridge that connects potential buyers to U.S. dairy companies in the global marketplace."
Geiger noted that USDEC is unique in the global dairy arena because instead of directly selling products. It develops relationships, and connects U.S. dairy processors to potential international customers.
"Not only does USDEC help dairy farmer-owned cooperatives, but proprietary plants, ingredient suppliers and export traders can also receive assistance," he said. "Those groups all pay membership fees to access the organization's marketing might. USDEC has 115 members among its ranks."
USDEC was launched in 1995, when Dairy Management Inc. (DMI), which represents the dairy producer-funded checkoff, earmarked seed money for it.
"Currently it has offices in 11 different locations around the globe to assist in making connections between buyers and sellers," Geiger remarked. "It's had a remarkable return on investment. Nearly 20 years after its creation, almost one in six tanker loads of milk are now leaving our shores in the form of dairy products."
A new middle class in many developing countries has been driving much of the growth in U.S. dairy exports. While China represents the largest growing dairy market due to its sheer population size, there are a number of opportunities in other regions, as well.
In 2012, Mexico ranked first with over $1.2 billion in U.S dairy product purchases, while Canada ranked third at $554 million. Southeast Asia at $921 million and China at $443 million ranked second and fourth, respectively.
"In 2013, Mexico had $1.43 billion in purchases and Southeast Asia was next at $1.28 billion. Countries in the Middle East and North Africa leapfrogged China to take third at $788 million," reported Geiger. "Likewise, China passed Canada for fourth at $706 million. Canada fell two spots to round out the top five at $569 million."
Geiger views the Middle East as an especially important emerging market because while it is blessed with vast reserves of fossil fuels, water and arable land are among the limited resources.
"As a result, the region imports 90 percent of its food," he said. "In 2011 alone, this collective group of countries imported 1.2 million metric tons of dairy products or roughly nine pounds for every person. That makes it the world's second-largest dairy importing region with China holding down the first position.
"If that statistic wasn't enough to turn marketers' eyes, the fact that 50-60 percent of the population there is under 30 years of age should draw one's attention. If the people in this demographic become lifelong dairy consumers, the long-term sales horizon could be bright."
While the U.S. has grown sales from two-13 percent over the past decade, Geiger believes more can be done to foster additional sales. "That includes becoming a consistent, steady supplier of dairy products that fit into the culture and traditions of the region's customers," he affirmed.
New Zealand and the European Union are the major U.S. competitors in the dairy export market. "New Zealand, accounts for 35 percent of the world's trade," Geiger noted. "The European Union and its 28 nation's account for another 32 percent of the world's trade. The U.S. comes in third at 20 percent. That 20 percent figure was much smaller just a decade ago when our exports nearly matched our imports."
New Zealand has six million dairy cows and 4.4 million citizens in an area nearly identical to the size of Wisconsin and Indiana combined. "New Zealand dairy production has risen 77 percent over the past 20 years," Geiger said. "Their national dairy herd has grown from three million in 1989 to six million head in 2009, but there are questions about how much more growth the Kiwi's can squeeze out of their islands."
Geiger noted that three European nation's account for 49 percent of the continents milk production: Germany, 21 percent; France, 18 percent; and the United Kingdom, 10 percent.
He suggested that Europe is setting the table to become an even larger player in dairy exports in 2015 when quotas that existed since 1983 expire. "That combined with their strategic moves of signed free trade agreements with other countries to trademark cheese names through a process called geographical indicators are two strategies that present major hurdles for the U.S."
A key to the U.S. becoming a consistent, long-term global supplier of dairy products is dairy genetics.
"The real-world success story is anchored by a sixfold growth in semen exports over the past three decades," emphasized Geiger. "We definitely think that a correlation can be drawn from our country's long-proven track record on dairy genetics to the growing body of evidence that the U.S. has transformed into a reliable global dairy product supplier."
Through studying market needs, understanding cultural nuances and relationship building, both A.I. companies and breeders have steadily built a sizable export market. "It will take a similar road map by dairy co-ops and processors alike to develop long-term sales relationships and grow America's market share," Geiger asserted. "As we follow this proven blueprint, we all must remember this is a marathon and not a sprint."
Geiger noted that Asian countries are pleased by recent U.S. investments in whole milk powder plants, further expanding our country's export opportunities. "It has been pegged by some industry economists that by year's end, the U.S. could be producing 10,000 metric tons of whole milk powder each month as three cooperative-owned plants come online," he said.
Ron Kirk, the immediate past U.S. trade representative for the Obama administration, has found that many countries believe the quickest way to revive their economies is to link to the U.S. via trade agreements. However, Kirk acknowledged that while we need to open new markets, we also need to keep holding current trading partners accountable to fair trade practices.
Geiger related that some Wisconsin producers may be laboring under the false notion that only dairy exports from Wisconsin affect their milk check, not those from other states.
"It really doesn't matter which states lead in dairy exports or the source," Geiger emphasized. "From a national dairy price perspective, what matters is the supply and demand balance. Export dairy products sales benefit all of us as dairy producers, no matter where those products originate."
He noted that exports comprise 50 percent of our milk powder, and that every penny on nonfat dry milk adds 8.6 cents to Class IV, Class II and Class I prices. "Even those producing milk in high Class I markets like the Southeast should support dairy exports because it's Class III cheese and whey sales and Class IV butter and dry powder sales that set the Class I product price." Geiger said.
"Also, we export more than half of our whey protein concentrate, and every penny on whey adds 5.9 cents to Class III," he said. "Every pound of dairy product that leaves our shores is another pound that isn't competing for domestic sales.
"So I really don't care if a few states account for the grand majority of exported products," remarked. "The more exports that leave our shores, the less product at home. That helps buoy prices for all of us."