Test its wings: fledgling U.S. dairy export industry

Dairy Foods, Oct, 2004 by Alan Levitt

Challenges are many, but the rewards have great potential as U.S. dairy industry players increasingly look outside mature domestic markets to rapidly expanding global dairy consumption for future growth.

The framework for American dairy product exports has painstakingly been established over the last decade by various U.S. dairy processors and trading companies, as well as the U.S. Dairy Export Council (USDEC). At the time USDEC was founded in 1995, stateside dairy interests were roundly criticized as being 30 years behind competitors from European and Oceania countries, reports Tom Suber, USDEC president.

"We've narrowed that gap considerably over the last decade," Suber says. "Though we've still a long way to go, we've established a U.S. presence in most major markets by demonstrating our reliability as a supplier of a wide variety of high-quality dairy products to meet customers' needs. Our ongoing growth of unsubsidized product sales is just one indication the U.S. dairy industry has come of age in the export market."

Case in point: In 1995, subsidized milk powders and butter accounted for 44% of U.S. dairy exports. In 2003, only 22% of U.S. exports were subsidized. Milk powder is still a prominent export category, but now it's joined by higher-value products like whey proteins, lactose, cheese, fluid milk and ice cream (see accompanying charts). Furthermore, total dairy exports have topped $1 billion four years running, and are poised to establish a new high in 2004.

Davisco Foods International Inc., Eden Prairie, Minn., entered the global whey protein market more than 20 years ago by establishing overseas offices, and was instrumental in developing the market in Japan. "We've always operated in a market that doesn't require any subsidies. You can get the business, if the pricing is there," says David Curta, Davisco's international sales manager. Today, the major U.S. exporter of whey products focuses R&D and marketing efforts on milk proteins for use mainly in infant formula, sports nutrition and functional food/nutraceutical products.

"The only infrastructure for international dairy business is found in USDEC," notes Ted Jacoby Sr., president of St. Louis, Mo.-based T.C. Jacoby & Co. Inc. "They have done a good job of putting together a bi-partisan, cross-industry consortium of players--traders, co-ops, processors, proprietary handlers--to lay the groundwork for the day when we move international. Setting up the infrastructure correctly is critical to success. It's not just a slam-dunk," he says. The trading firm moved into the international trade arena about 10 years ago, and exports fluid milk, cheese and other products to Mexico and Canada.

Multinational trade agreements, product demand and market barriers all significantly influence U.S. dairy export industry growth. But the greatest positive impact on the market is the significant commitment to global exports by major processing players, reports John Jeter, CEO and president of Hilmar Cheese Co., Hilmar, Calif. The majority of Hilmar's whey proteins and lactose are exported to customers in 45 countries. "As the U.S. dairy export industry has matured, it has begun to develop a global mindset versus the earlier domestic/commodity/support program mindset," Jeter says.

Investments in overseas offices combined with product improvements and growing international whey protein markets have made U.S. players a much more viable part of global multinationals' supply base. Though trading companies do a good job of promoting U.S. products abroad, Davisco is committed to maintaining first-hand contact with end users.

"It's an opportunity for the U.S. manufacturers to really understand what a new market is looking for," Curia says. "'You gel better returns with personal contact, rather than relying on phone, fax and e-mail. Most of the buyers, particularly China. really want to know the manufacturers and work with them, and don't want too many intermediaries involved."

Competing in the international dairy market remains difficult, but is no longer impossible.

"One of the important changes in the international dairy industry and U.S. dairy exports over the last decade is that U.S. suppliers now see international customers as valued and continued customers, rather than as a means or place to dispose of surplus inventory." says Jim Geyer, vice president of the ingredient division of Foremost Farms. The Baraboo. Wis.-based cooperative markets and customizes its whey products for use in food and feed product applications around the world.

Home & Abroad

While the progress outside our borders is encouraging, some exporters believe U.S. exports would be even more successful if not for the constraints of domestic U.S. dairy policy and inequitable global trade rules. Beyond policy, domestic demand can limit the supply of product for overseas sales and leave little room for globally competitive pricing.

As relative latecomers to the world market, U.S. dairy exporters work with domestic policies that were implemented--and international agreements that were negotiated--before the industry took a global view.