Global Scale

Written by Emily Battmer

Focus on global exports critical for the future of dairy

As demand for dairy rises abroad and U.S. exports continue to grow, DFA has set its sights on becoming a leader in the global marketplace. Working with organizations like U.S. Dairy Export Council (USDEC), and building innovative plants for ingredients destined for overseas markets, the Cooperative is thinking globally to deliver increased opportunities to our member-owners.

The value of U.S. dairy exports now exceeds $7 billion every year, based on 2014 figures. One of seven milk trucks leaving American farms is destined for export. The United States has become the world’s leading supplier of cheese, skim milk powder and whey products, bringing nutritious, high-quality American dairy to families around the world.

Much of the growth in U.S. dairy exports has occurred in the past two decades — in 1995, U.S. exports totaled just $982 million. Alan Levitt, vice president of communications for USDEC, says this rapid growth has allowed the U.S. dairy industry to continue to expand.

“We’ve got a relatively mature domestic market, and for the last decade, U.S. milk production has increased about 16 percent, which is the equivalent of 29 billion pounds of milk,” Levitt says. 

This growth translates to milk from 1.3 million cows, and more than half of that new milk is exported. This means that if a dairy farmer has expanded his or her herd over the past decade, it is mostly because the U.S. dairy industry has begun tapping into overseas markets, Levitt says.

“Every year, better genes and improved farm practices make our cows more productive. Those productivity gains will cover the growth in the domestic market,” he says. “But if you want to bring another generation into the business or add cows to your herd, you have to be able to sign new markets, and increasingly, those markets are overseas.”

While dairy production has, until this year, outpaced domestic demand, global demand for dairy has grown significantly over the past decade as countries around the world have experienced increasing consumer spending power. As a result, U.S. dairy exports have grown an average of 16 percent per year.

As U.S. dairy exports continue to grow, Levitt says it is USDEC’s job to help U.S. dairy exporters identify global market opportunities, minimize costs and risks and understand the nuts and bolts of doing business globally. Global trade can be complicated, and Levitt says it takes the right products with the right packaging and the right specifications to succeed in global markets — and those requirements vary from one market to the next.

Despite the complexities of global trade, Levitt says the U.S. industry has an advantage when it comes to meeting the strict standards for exported ingredients. Our quality and safety systems are among the best in the world — buyers know that when they purchase dairy from the United States, they’re getting a safe, quality product, Levitt says.

Another major advantage for the U.S. dairy industry is our ample and diverse supply. The United States is the world’s largest cow’s milk-producing country, and our climate is varied enough from coast to coast and season to season that we are always producing.

“Even though California is experiencing drought conditions this year, we have plenty of milk because the whole country is almost never in a drought at the same time,” Levitt says.

This differentiates the U.S. industry from other major exporters like New Zealand, which is less diversified. If there is a drought in New Zealand, it is likely to impact the whole country, Levitt says.

The U.S. dairy industry is not without its challenges. While U.S. dairy is growing its exports, Levitt says the primary focus is still the domestic market. While this is a good thing for the industry, it can be a disadvantage when competing with other exporters who are more focused on global trade. For example, the United States exports about 15 percent of its milk production, while some other countries can export as much as 95 percent.

Levitt says it’s important for the U.S. industry to balance domestic and global needs to keep both markets strong — weakness in global trade can have an impact on the domestic dairy market.

“If we’re not globally competitive, then we risk losing share in our home market to competitors from overseas,” Levitt says. “We’re all competing for share of stomach, and if U.S. dairy isn’t globally competitive, we risk losing share to other competitors or other foods.”

The U.S. industry’s focus on domestic consumption is also challenging because it can impact companies’ policies and the way they invest in production. For example, a U.S. dairy company might choose to build and invest in plants that serve the domestic market, and are not equipped to meet the strict regulations placed on exported dairy products.

This is a challenge that DFA knows well. Director of export sales ingredients Filiberto Heras says the list of specifications for exported dairy products is lengthy — low spore content, heat stability and nitrate levels are just a few of many standards U.S. dairy exports have to meet.

Recognizing the significance of global trade, Heras says DFA is making the investment to manufacture products that consistently meet those specifications. One example is DFA’s Fallon, Nev., facility, built in 2014 from the ground up specifically to meet global standards.

“Fallon is giving us the opportunity to manufacture ingredients that comply with export requirements,” Heras says.

Heras says that Fallon is the first facility of its kind in the United States, and DFA is the first U.S. company that has the ability to use nitrogen in the packaging process of whole milk powder. Nitrogen extends the shelf-life of the product from six months to two years — a big leap that helps make DFA’s ingredients more competitive in the global market.

DFA’s investment in the Fallon plant is an example of the Cooperative’s growing commitment to world trade. Board Director Dan Senestraro, who also serves as chairman of DFA’s Global Trade Committee, says the global market has become a focus for DFA and the rest of the industry only in the past five to 10 years.

“Early on, I’m not sure we really knew why we were creating a committee on global trade,” Senestraro says. “We just knew we needed to be more deliberate in our thinking about global trade and what it means for our company and our industry.”

Now, Senestraro says the committee meets several times a year to discuss DFA’s global trade strategy and goals, and hear from speakers involved in all aspects of trade, from logistics to politics.

Senestraro says the committee meetings bring DFA management and Board members together to focus on global trade — something he says is vital for a U.S. dairy company that has relatively little experience in the international market.

“We’re learning,” he says. “We’re relatively new in the marketplace, and we have to be a little more deliberate in our approach to global trade than we might need to be if we had been doing this for a long time.”

Already in the past 10 years, Senestraro says DFA has learned a lot about exports, and has shifted its strategy to focus more on global trade. Previously, DFA was not closely involved with moving surplus product, like whey powder and nonfat dry milk (NFDM).

Now, the Cooperative has taken on most of those sales itself, working to sell NFDM and whey directly instead of letting a third-party handle exports.

“We have people on the ground now making sales,” Senestraro says. “Our strategy is to leverage our relationships with customers who already have a global presence and piggyback on what they’re doing to make more sales overseas.”

Senestraro says the creation of the Fallon plant is an example of this more intentional approach. Global trade has moved from being an afterthought to a priority for DFA, and Senestraro says he expects our commitment to global trade to continue to grow.

As the Cooperative continues to build its export business over the next five to 10 years, Senestraro says he anticipates some volatility. Overall, though, the long-term outlook is optimistic.
“We’re a long-term player,” he says. “Our producers are multi-generational farmers and long-term thinkers, and we understand that we’re going to go through some rough spots, but we’re in it for the long haul. We’re going to stick it out.”

Levitt shares Senestraro’s optimism. However, he says global trade is cyclical and world markets are currently weak, creating a challenging situation for the U.S. dairy industry.

“We had really strong prices two years ago. Everyone overproduced, and now we’re seeing the backlash of that,” he says. “For the United States, our exports have increased 10 of the past 11 years. This year, they’ll be down.”

Still, Levitt says the fundamental drivers of global demand — rising populations and rising consumer incomes — are intact, and if the U.S. dairy industry can ride it out until conditions improve, the long-term result will be continued growth in the global market.

“I’m encouraged that U.S. exporters are hanging in there and not walking away from the export market,” Levitt says. “At some point, the markets will turn around, and the U.S. dairy industry will be there like it has been.”