As the dairy industry gathered at World Dairy Expo in Madison, Wisconsin, the week wrapped up with a lot of optimism for what’s ahead for the U.S. dairy industry.
Four national dairy leaders were featured at the Global Dairy Summit, held by the Wisconsin Department of Agriculture, Trade and Consumer Protection (DATCP) on the expo grounds. The panel presentation, moderated by Corey Geiger, dairy lead economist at CoBank, covered the topics of global dairy product prospects, domestic dairy production and manufacturing trends, consumer dairy product purchasing patterns, and the future of dairy ingredients.
Dairy exports
Since the U.S. Dairy Export Council (USDEC) was founded by Dairy Management Inc. (DMI) in 1995, the amount of the U.S. dairy supply that is exported has grown from 3% to 17%.
With the U.S. population fairly stable and dairy present in over 90% of households, growth for the industry is going to come from outside the country's borders.
“The industry realized quite a few years ago, it’s going to be outside of our borders, and started investing in USDEC and the tools that we have to use, leveraging farmer dollars, other dollars, to make sure that we have that presence around the world,” said Krysta Harden, president and chief executive officer, USDEC.
Since 2019, almost a fourth (24%) of new cheese production has found a home outside of U.S. borders.
“Demand is rising in many destinations as the economy’s improved,” Harden said.
With offices around the world, USDEC is working with customers, chefs and consumers to help them understand how to incorporate dairy ingredients and products into their cultural favorites.
“The more we do that, the more demand there is,” Harden said.
With growing demand, there needs to be growing supply. The milk supply in the U.S. has been tight the last couple of years. The European Union (EU), one of the U.S.'s biggest competitors, also has a very tight supply of milk. New Zealand has milk available and is starting to compete with the U.S. in some of the more reliable markets.
While the EU and New Zealand will want to continue their part in the global dairy marketplace, Harden said that due to a lack of natural resources and regulatory systems, they won’t be able to grow in production like the U.S. dairy industry can.
Growth in exports is important for the U.S. dairy industry now and into the future. As stated earlier, exports account for 17% of the U.S. dairy supply.
Harden said, “I ask every dairy farmer, ‘Are you willing to cut your production by 17 percent or do you want just your neighbor to?’ What would we do with that extra milk if we didn’t have markets outside of the U.S.? Where would that go?”
The other reason is to provide more opportunities for farms that want to grow and expand.
“How are you going to do more if you don’t have the potential, hope and the view that more people around the world can enjoy and appreciate a good, healthy, nutritious diet coming from U.S. dairy?” Harden asked.
Utilizing the best genetics and U.S. farmers' efficient and productive methods to increase per-cow production to create the milk supply, paired with strategic partnerships and collaborations, will allow the U.S. to take advantage of the global dairy marketplace.
Domestic milk processing
In an overview of what’s going on with milk processing in the U.S., Mike McCully, president and owner of McCully Consulting, said, “There is a historic amount of new investments coming in to milk processing in the U.S.”
By McCully’s calculations, there is over $7 billion in new processing investment in the dairy industry right now.
“We have companies putting a lot of money into investments here that are very bullish about the future of dairy,” he said.
Most of the investment is coming from private companies and, in some cases, groups of large farms. The new plants are mainly for cheese production and packaging extended shelf life milk products, with only a couple of new milk powder plants.
This wave of investment brings optimism to the industry as well as some challenges.
The new plants are positioned in areas of the country where there is cheap, surplus milk. That will disappear and the industry will be in an environment where plants will be chasing milk.
“That’s very different than what we’ve seen in the past, where we’ve had milk chasing plants, cheap milk and growth in milk in some areas trying to encourage plant investments. We’ve got that now,” he said.
With the tight milk supply, this increase in processing will result in higher premiums, higher milk prices and more than likely plants chasing milk from other parts of the country.
“Not everybody’s going to win out on this,” McCully said. There will be plants that will not have milk, some plants will close and both farms and processing plants will consolidate.
These investments equate to 50 to 60 million pounds per day of new milk demand. The biggest region is the southern plains with more than 20 million pounds. The Midwest will see 12-15 million pounds, West at 8-12 million pounds and Northeast with 8-10 million pounds per day.
A lot of these new facilities had commitments for milk before they broke ground. Without a boost in milk production, other plants are not going to have milk available to them.
“I think it’s going to be largely milk powder plants in some regions that will lose out. There’s going to be some shifting around of cream and fat, so we’re going to see, potentially, some reduction in butter production in a few of these areas,” McCully said.
Consumer perspective
Heather Anfang, president of dairy foods and executive vice president at Land O’ Lakes Inc., a farmer-owned cooperative, addressed what is going on with consumers and how consumers are thinking about dairy.
“Nearly all households buy dairy products,” Anfang said. Cheese is in 97% of U.S. households, milk in 92%, butter in 93% and yogurt in 82%.
American households spend $13 a week on dairy products. At $87 billion, dairy is the number one retail grocery category.
There are three main themes that influence consumer behavior: health and eating habits, financial pressure, and sustainability.
Health and wellness is a big part of consumers’ lives today. They are looking for ways to get more nutritious foods into their diet, especially protein.
“Dairy is a real nutritional powerhouse here,” Anfang said, in relation to providing protein as well as in the space of functional fluids and gut health.
The rising cost of living has put financial pressure on U.S. consumers. Things are more expensive in the grocery store and for a time retail dairy prices were higher than food. Dairy has come back down in pricing, which is helping consumers think better about the affordability of dairy.
“So you think about the nutrition, the protein, the functional health that dairy offers to consumers, at the value that it does and the ubiquity that it is in our diet, there’s just continued opportunity for dairy to grow,” Anfang said.
Nine out of 10 consumers say sustainability is very or somewhat important to them, but it remains an evolving space in what it means in what they want to see and pay for.
“Dairy has an amazing story to tell in terms of the efficiency, the productivity and the sustainability that has been happening over generations in the dairy industry, and we have the stats to show it,” Anfang said.
In looking at the performance of dairy products, both cheese and butter continue to do well.
“Cheese can really play a very nice role in that protein delivery to the diet that consumers are looking for,” she said.
On average, Americans eat 42 pounds of cheese a year, which is still less than the per-capita cheese consumption rate in Europe.
Demand for butter is also strong. Consumers are learning more about butter as a natural ingredient and are incorporating it as they do more cooking from home.
In new product offerings, Anfang said they are always looking at the following areas: convenience, authenticity and values, taste and experience, and health and wellness.
Dairy products will continue to be offered to consumers in different packaging and different formats to provide different ways for consumers to integrate dairy into their lives. There has been a shift in consumers where dairy still fits into everyone’s lives, but it is no longer a one-size-fits-all approach.
Dairy ingredients
Remembering the days of a U.S. base support price for non-fat dry milk that was higher than the global price, Dave Lenzmeier, chief executive officer of Milk Specialties Global, pointed out the marketplace for U.S. dairy has changed.
“Now we have a level playing field across the globe, and that’s really opened up a tremendous amount of opportunities for all of us,” Lenzmeier said.
As a manufacturer of milk replacers, bypass fats and methionine supplements for animal nutrition, and more recently human nutrition products, Lenzmeier said he loves making their products in North America.
“The depth of the supply chain, the sophistication of the producer, the efficiency of the yield that we’re getting is exceptional,” he noted.
Productivity increases over the past 10-20 years have U.S. dairy farms delivering high fat and protein milk in a volume and scale that’s hard for other regions of the world to contend with.
“A lot of the global companies that say they really want to buy sustainably produced dairy products should be shifting their purchases to North America where the output per cow is 10 to 20 percent better than what we see around the world,” Lenzmeier said.
He added that as a business, they are big believers in sustainability and have made a lot of investments in it, including sourcing milk from farms with anaerobic digesters.
Lenzmeier joined the bullish bandwagon in seeing opportunities for U.S. dairy producers to continue to grow their milk supply.
“Protein demand is strong right now,” he said. “It’s strong across multiple categories, which is great for dairy.”
He anticipates more growth in bioactives like lactoferrin for immune support, alpha-lactalbumin for cell support and MFGM (milk fat globule membrane) for brain health, as well as fortified protein snacks.
“We’re seeing that high protein growth growing from a demand standpoint globally, and some of our major competitive geographies are going to have some real limitations,” Lenzmeier said.
“That leaves a gap that’s got to be filled, and North America is in the best spot of anybody to fill that demand opportunity.”
