At one time the global market was a dumping ground for surplus dairy markets, and then it became the land of opportunity.

Despite the current economic downturn, the world market remains a viable marketplace for the U.S. dairy industry.

“Long-term it looks pretty promising,” says Bob Cropp, professor emeritus of ag economics at the University of Wisconsin-Madison.

Last year, the U.S. exported 10.8 percent of its dairy products. That amount is forecast to be down about 20 to 40 percent in 2009, due to a greater world supply and declining world demand. However, Cropp is forecasting improvement to be seen in 2010 and beyond.

“A 2 percent growth in world demand is estimated annually,” he says. Most of the countries the U.S. currently exports to and many developing countries hold big market potential.

Those countries are looking for ways to improve the nutritional quality of their food and one way to do so is with the addition of dairy proteins. That is what led to the growth in non-fat dry milk and whey protein demand just a few years ago.

More-developed countries like China and Japan are no longer just looking at milk powders. They are developing a taste for cheese as well.

“Not only will we export dairy powder,” Cropp says, “but I also think the U.S. will produce cheese for export.”

This dairy economist admits there has been a big push to improve milk production in other countries; however available land will be a large constraint on their growth. In addition, as income improves in those countries, the demand for dairy products will grow faster than the production itself.

Argentina and Brazil have the land base needed; yet they will most likely continue to fall short of the increasing demand.

Russia has been increasing its production but at a pace far lower than the demand growth and therefore has been a big market for cheese and butter from the U.S.

Some countries may prove successful at increasing production to meet demand, but Cropp questions if those products can be offered at a price competitive with the world market.

Main competitors with the U.S. on the global market will be the European Union and New Zealand and Australia.

New Zealand and Australia have a 30 percent share of the export market. With moisture returning to the area after a long drought, New Zealand has gained 7 to 8 percent of its production back. This country exports 90 percent of its market, says Cropp.

The European Union also has 30 percent of the world’s exports and is most likely the region the U.S. can best compete with, according to Cropp. He says that as the government removes support to dairy producers there, the milk price is in decline. Until recently, subsidies had also been pulled from exports, giving other countries a competitive advantage.

While the European Union and Oceanic region were losing strength in the export arena, the U.S. stepped in and established its own customer base. Mexico and Canada are buying the most U.S. dairy products. The Asian market is also snatching up U.S. product, as are a long list of developing countries like Egypt and Vietnam.

“Clearly, the U.S. could be very competitive,” Cropp says.

In order to meet the demands of other countries, the U.S. will need to produce the products they seek.

There has and will be a growing market for milk proteins. Whey proteins are another promising area. They are used to boost nutritional content in existing food products in the U.S. and around the world. The U.S. will also need to make some more refined proteins for export.

There is good growth for cheese and not just Cheddar, says Cropp. He notes there’s currently a shortage of Gouda in the world today. Plus, companies like Pizza Hut and McDonald’s are investing in overseas markets and they are likely to use the American products they’ve grown accustomed to when stocking their restaurants.

Products like ice cream and fluid milk will continue to have a very small share of the export market.

Just as in the U.S., it is supply and demand that drives the global marketplace.

“The economic condition across the world right now is what really dampened the export market,” Cropp says. “As people’s income goes up they will begin to eat more animal products.”

The world price is also a reflection of how production is doing in other countries. Milk production had been down in Australia and New Zealand from the drought and that caused higher prices across the globe.

“We never used to think of having a global market for the U.S. Up until the last several years, it was just a place to get rid of surplus,” Cropp says. “That has changed.”

Today, the U.S. milk price is not just a reflection of how much milk is produced and sold here. It is also impacted by how much milk is produced and sold around the world.

“We’ve got a new risk factor,” Cropp says.

Yet it is commonly known that where there is risk, there is also opportunity. PD

Karen Lee
Editor
Progressive Dairyman