The length and breadth of the current down cycle in global dairy trade has some wondering whether we are undergoing a structural change in long-standing market fundamentals that would bode poorly for US dairy exports in the years ahead.
While trade in 2016 will remain soft, those looking for growth can take solace in a couple facts:
- We’ve been in a similar position before. The US share of world dairy trade deteriorated with the global financial crisis in 2009, but rebounded stronger than ever because the fundamentals driving dairy demand remained sound.
- Recent US Dairy Export Council (USDEC) research concludes that those same fundamental factors continue to hold true, and today’s downturn will similarly succumb to them over the next few years.
At the time, that seemed like significant growth. But overall world dairy exports actually grew 30% more than Bain forecasted, and US dairy exports grew 50% more than forecast.
The Innovation Centre’s decision to pursue a position as a consistent supplier to best capitalise on global opportunity – and the industry’s positive but ongoing response to that recommendation – were major reasons behind the significant growth in US share of global dairy trade over that period.
Moving forward, instead of 6.5% growth, USDEC research suggests a 2014-2020 CAGR of 3.7%. In pure volume terms, that translates on average to an additional 380,000 tonnes of finished product crossing borders annually rather than the 546,000 tonnes a year the industry saw from 2007-2013.
In other words, dairy exports will still grow, but not as quickly as before.
At the same time, New Zealand and, in particular, the European Union (EU) have invested heavily in capitalising on global dairy demand growth projections. Free from the limits of milk production quotas in 2015 (for the first time in 30 years), key producers in the EU have moved aggressively to expand dairy exports. With a half-percentage-point gain in EU milk production equal to 5.5 million additional tonnes of milk – equivalent to 713,000 tonnes of WMP or 592,000 tonnes of cheese – the bloc has the scale to turn a favourable dairy export market into a harsh one.
The way forward
The bottom-line message is that the United States needs to step up its game and compete harder to take advantage of continued gains in emerging-market dairy demand.
US suppliers responded when the Innovation Centre laid out a strategy to become more consistent global suppliers, and the industry will need to step up again to heightened competition in the years ahead. There is no secret formula for doing so – it revolves around good business practices: Continuing to produce consistently high-quality products, understanding and manufacturing to the specifications of overseas end-users, upgrading customer service, investing in relationships with overseas buyers, seeking out better supply chain efficiencies. In addition, improvements in governmental regulations would facilitate necessary innovation.
As part of the dairy checkoff’s strategic planning process, USDEC is working with the Innovation Centre to further develop strategies to assist US industry, address the competition and drive resumed growth in export sales.
• Tom Suber is president of the US Dairy Export Council.
