If you haven’t heard about the E.U.’s latest request for the U.S. dairy industry, you probably will soon, especially from your co-op. Several processors sent letters to their dairy producer members in early May informing them that if they cannot ship milk that is on-farm tested to be lower than the E.U.’s legal somatic cell requirement of less than 400,000 SCC per milliliter (mL), they may not have a market for their milk later this fall.

The letters are the first producer-level communication about a change to E.U. trade policy that has been brewing since late last year.

Background
Since the late 1990s when an agreement between the U.S.-E.U. was put in place, the 27-member block of European states has permitted imports of U.S. dairy products and ingredients made from commingled milk that tests under its legal limit of 400,000 SCCs/mL – the lowest in the world. However, earlier this year E.U. officials informed the USDA they were going to change the rules.

“The E.U. used to permit verification of meeting its SCC level at the plant for U.S. products it was importing. Now the E.U. has indicated we need to test back at the farm level in order to continue to certify our products are in compliance with E.U. regulations,” says Shawna Morris, vice president of trade policy with National Milk Producers Federation (NMPF) and the U.S. Dairy Export Council (USDEC).

The E.U. had asked for compliance by Feb. 1, but have since given processors more time to comply. Morris says the new requirements could begin to be enforced towards the end of this year.

According to 2009 USDA Foreign Agriculture Statistics, at stake is more than $68 million in dairy product exports, most of which is food prep products, whey and lactose. In addition, the request also covers imported foods, so that some domestically sourced dairy ingredients used in E.U.-bound food would also need to comply if they are present at certain thresholds in the final product. The scope of this request touches “just about everyone throughout the industry,” Morris says, given current industry practices.

“A lot of the efficiencies that have been developed to move milk between different companies and even different regions of the country, which have been cost-saving, will make tracking and documenting E.U. compliance much more challenging,” Morris says.

So instead of giving up current cost-savings in storing and transporting a single stream of milk supply, processors will likely request members comply with the E.U.’s request. For example, many value-added whey products are produced with commingled solids. Co-ops say segregating E.U. and non-E.U.-compliant milk solids would require most processors to have duplicate storage and handling facilities and is not cost-effective or not feasible.

How will it impact producers?
Foremost Farms USA, based in Baraboo, Wisconsin, is one such co-op that has already sent a letter to its members about getting ready to comply with the new E.U. regulation. Joe Weis, vice president of member services and milk marketing for Foremost, says specific details about compliance still aren’t available, but explained what most co-ops do know.

One of the unanswered questions, Weis says, is which SCC test will be used to determine a farm’s compliance – the regulatory test submitted to the state or the co-op’s payment sample. Compliance will be determined based on a three-month rolling geometric average. (See graphic on page 26 for a discussion of how to calculate the average.) Weis says a geometric average is often more conservative than an arithmetic average.

An additional standard plate count test will be needed, as E.U. regulations require two monthly SPC tests. U.S. regulations only require one.

Weis says he’s talked with other co-ops and guesses that 20 percent of most co-ops’ farms or about 10 percent of their milk supplies, may be affected by this new change. Only about 2 to 3 percent of his milk supply is unhappy with the change; the rest is seeking out help to comply.

“Those estimates will vary from region to region,” Weis says. “Obviously, there are certain climates in the U.S. where dairying is more challenging.”

The E.U. is not a market to ignore for Foremost, which sells pharmaceutical lactose and whey protein concentrate to E.U. buyers.

“The U.S. plays the international market well when it comes to whey products because the government has never offered a market for those products like they have for butter, cheese and NFDM,” Weis says.

Weis says the E.U. has already been using the differences in SCC regulations between itself and the U.S. for some time to imply that their product is more safe or preferable.

“I see these changes as part of the continuous improvement part of doing business and staying competitive,” Weis says.

A roundabout way?
Morris says NMPF and USDEC have an ongoing dialogue with the USDA about the validity of the new requirements.

“The safety of the product isn’t something of concern here,” Morris says. “The conversation we’ve been having with our government is the extent to which these are appropriate requirements for importing U.S. products, given that they don’t go to the heart of appropriate import requirements – that we ship only safe food.”

In a worst-case scenario for trade relations, U.S. Trade Representative Ron Kirk could appeal with the World Trade Organization the validity of the rule as a barrier to free trade. That process could take years to sort out.

Morris says NMPF is currently investigating specific cases of how the E.U. has applied its own regulations within all 27 of its member states. Studying these examples may help clarify details in how to apply regulation and may help uncover inconsistencies in its application.

One baffling exception to the regulations to the on-farm SCC testing requirement of all dairy products currently exists.

E.U. regulations currently allow whey byproducts from cheese that has been fermented for 60 days or more to be exempt from the on-farm somatic cell count test requirements. Since whey is drawn off the vat from cheese production at the same time for both cheese that is aged for more than 60 days as it is for cheese aged less than 60 days, some argue why whey and milk solid products need to comply with on-farm SCC testing. “If some whey is exempt, shouldn’t it all be exempt?” they say.

“As part of the overall work on this issue, we are seeking solutions that would keep trade flowing between the U.S. and the E.U.,” Morris says. PD

• Walt Cooley

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