US emerges as global dairy market competitor

Media Release August 22, 2013

From ‘hunted to hunter’ – US emerges as global dairy
market competitor

The United States dairy industry is turning its attention outside its own borders and could emerge as a significant competitor to New Zealand in international export markets, a global dairy expert has cautioned.

During a visit to New Zealand, Rabobank’s New York-based global dairy strategist Tim Hunt told local producers the United States, long focussed on its own domestic market, was reorienting towards the global market place, attracted by the allure of better returns across some product categories.

Until recent times, the entire US dairy industry had been dedicated to servicing its own lucrative and growing domestic market, with countries like New Zealand trying to gain access through bi-lateral trade agreements.

“Historically, the US dairy industry lived in a fortress,” Mr Hunt said. “It had a very large, affluent domestic market, which grew strongly and had very high prices. It was protected from the international market by high tariff barriers and had government support.

“But US dairy market growth has slowed in recent years, while the commodity price boom has seen international prices rise above domestic US market prices, making export returns more alluring for US dairy players.”

This, in effect, was turning the US from ‘the hunted to the hunter’ as its dairy industry sought to compete in the more attractive global marketplace, Mr Hunt said.

“The US dairy industry is becoming increasingly cost competitive in export markets due to a combination of its large-scale farm operations, easing feed costs and a lower US dollar, while it is also beginning to align products to suit the global market,” he said.

Mr Hunt said US dairy exports had already begun to steadily grow as a result, with, for example, milk powder exports increasing from approximately 300,000 tonnes in 2007 to 500,000 tonnes in 2012, and cheese exports going from approximately 100,000 tonnes to more than 250,000 tonnes in the same period.

But Mr Hunt said it was not all smooth sailing for the US as they reoriented towards world markets, with a number of obstacles to overcome.

“With the entire US dairy industry having developed to service the domestic market, they are not aligned to the requirements of exporting dairy,” he said. “Essentially, they have the wrong plants and they make the wrong products for global market exports. In addition, US regulation makes exporting hard for the industry.”

And there are also market access and customer relationship issues, Mr Hunt said. “The US dairy industry doesn’t have good access to several important markets and they also have relatively weak relationships with offshore customers,” he said.

However, progress is being made towards the US becoming a better exporter.

“Plants are being tweaked to make export products and new plants are being built to service export markets,” Mr Hunt said. “Market access is improving and relationships with offshore customers are being strengthened.”

And with New Zealand largely having lost its cost of production advantage in world dairy markets, it will be increasingly likely to compete head-to-head with the United States in coming years, Mr Hunt warned.

“Maintaining New Zealand’s edge in post-farmgate processing and marketing will be crucial to sustaining returns on farm,” he said.

ENDS

© Scoop Media