MADISON — If U.S. farmers keep producing dairy products at their current pace, they will have to find new and expand existing export markets or face even lower mailbox prices, a high-level dairy export official said at a Professional Dairy Producers of Wisconsin event here Dec. 6.
Matt McKnight, chief operating officer at the U.S. Dairy Export Council, told attendees of the PDPW’s Food & Policy Summit that this year, U.S. dairy farmers will produce about 22 billion pounds more milk than will be consumed in the U.S. If milk production stays on its current growth curve, that gap will grow to 32 billion pounds by 2022, he said, meaning increased exports will be crucial to farmers finding a home for the milk they produce.
If that doesn’t happen and production outpaces demand even more than it is in 2017, that could mean even lower milk prices, he said.
“If the dairy industry is going to grow, we’ve got to branch out to more markets,” McKnight said. “We must diversify our portfolio. We can’t have all our eggs in one basket.”
Most of the growth in the U.S. export market in recent years has come from sales to Mexico and China, McKnight said, but those markets are somewhat unstable with trade agreements and marketplace competition facing uncertain futures.
The possibility of the North American Free Trade Agreement being renegotiated has many agriculturists wary, McKnight said, especially since Mexico is this country’s No. 1 trading partner. Dairy exports to Mexico were up 24 percent in 2017 and account for 25 percent of U.S. exports.
“This is why trade agreements become so important to us,” he said. “We’ve got to make sure our policymakers understand how important (those agreements) are.”
U.S. Dairy Export Council officials had set a goal of increasing U.S. dairy exports from 15 to 20 percent of production by 2021, McKnight said, which will be no small task.
“We have to do this if we are going to expand our industry,” he said. “Not only in the volume aspect but the value aspect.”
In 1965, the U.S. had 5 percent of the global population but 35 percent of the middle class dairy consumption. By 2030, the U.S. will still have 5 percent of the population but less than 10 percent of the consumption, McKnight said.
Nearly 80 percent of the population growth will be in Asia and Africa, and in both of those regions, middle class consumption is slowly growing.
In some cases, U.S. dairy processors might have to make products that are somewhat foreign to them that aren’t popular in the U.S. but are consumed in other countries.
In Africa, a popular product is fat-filled milk, which involves using milk solids and adding a non-dairy fat source to it, McKnight said. The market for that product is 1 million metric tons of milk, but the U.S. currently doesn’t make any products that can go into that market.
Some of the products that foreign consumers want to buy are “absolutely vile” and might trigger a “gagging reflex” in American consumers, McKnight said.
“It doesn’t matter if we like it — they do, and they pay the price for it,” he said.
U.S. processors could gear up to produce some of those products, but that is not without risk considering the instability of international markets.
Still, the U.S. dairy industry doesn’t have much choice — it needs to find more markets for its products, McKnight said.
“We do the market research and present it to (dairy processors),” McKnight said. “If they are going to make a product that is for export only, they might want to take it in smaller bites, since they will have to gear up a facility to make those products. It is up to them if they want to make the investment.”
The U.S. will “have to fight tooth and nail” against the European Union for new export markets, McKnight said, since EU exports have increased dramatically after the region’s quota system was abolished in 2015.
“They have a very aggressive look — their companies are export driven,” McKnight said.
The EU has been trying to tighten the screws on the U.S. dairy industry by proposing to enforce geographical indicators on cheese products, which would stop U.S. dairy companies from using generic names such as Parmesan and feta.
McKnight said the EU is pushing the GI issue because dairy officials there aren’t happy that U.S. cheesemakers have been bringing their products to European cheese contests and winning awards, as well as dominating the world competitions in the U.S.
“The world thought U.S. cheese was Kraft singles,” he said. “But we have beat the Europeans on their soil in their contests with their judges. Now they’re afraid of us. The rest of the world is recognizing our quality.”
Wisconsin Milk Marketing Board CEO Chad Vincent agreed that exports are crucial to the future of the Wisconsin and U.S. dairy industries.
“If we don’t continue to sell internationally, we’re going to be in a world of hurt,” he said. The WMMB and the 16 other state and regional dairy organizations are going to have to provide more funds to the Dairy Export Council to make that possible, he said.
He said he hopes within five years, any Wisconsin dairy processor who has thought about exporting understands how to do it and can make an informed decision about whether to gear up for foreign markets.
“We want to make exporting as easy as possible for folks,” he said.
Since he took over as CEO a year ago, Vincent said the WMMB has shifted some of its promotion to out-of-state markets as opposed to in-state.
“It’s not an issue with people in Wisconsin knowing Wisconsin is about cheese,” Vincent said. “It’s an issue with others across the country knowing Wisconsin makes the best products.”
Consumers in other parts of the U.S. don’t know that they are eating Wisconsin cheese because the state emblem and identifying markers might not be on the packages that come from America’s Dairyland.
“If they’re buying a piece of Belgiosio or Sartori cheese, they might have no idea the cheese is coming from Wisconsin,” he said. “We need to help the branded guys tie their brand to Wisconsin. We’re trying to get a Wisconsin cheese logo on all cheese that leaves the state.”
The WMMB is running 800 programs, and Vincent said the organization is “trying to do way too much.” He said over time the farmer-led organization will be focusing more on the programs that can make the most difference when it comes to moving Wisconsin dairy products.
Vincent said he is frustrated with school milk issues that limit the amount of milk that is consumed by this country’s children.
“We want to get milk to kids because it is great for them and we want them to become lifelong consumers,” he said. “The milk we give them in schools is in a cardboard box, it’s usually skim and it’s usually warm.
“It’s political, it’s bureaucratic and it’s frustrating.”