Tapping International Dairy Markets a Priority, Says Reed

Chris Torres
Staff Writer

CARLISLE, Pa. — Globalization is creating great opportunities and great challenges for dairy producers in the U.S.

Alan Reed, senior vice-president of U.S. manufacturing and ingredient marketing at Dairy Management Inc., told nearly 100 people at the Professional Dairy Managers of Pennsylvania Dairy Industry Forum last week here at the West Pennsboro Fire Hall that he believes the industry has no choice but to embrace the new realities of a global market if it hopes to grow.

“You can’t escape the impact of globalization,” Reed said.

Even though the recession has cut into the growth some countries such as China and India have experienced lately, Reed said the market will eventually rebound and that will mean more opportunities for U.S. producers.
But the key is creating something “they want” and at a high quality.

“We can’t keep doing what we’re doing. It will only get worse,” he said. “It’s not just the production. It’s turning the milk into a product the world wants.”

Exports, which were as high as 12 percent, have fallen to around 7 percent as the recession has impacted economies around the world.

When it recovers, Reed said he expects other players in the milk market to emerge. Countries such as Brazil and Belarus will likely enter the market and may be able to sell product for a cheaper price.

He pointed to a study commissioned by the Innovation Center for U.S. Dairy which found that the world’s middle class will increase by about 800 million consumers by 2030.

A lot of these consumers will likely begin to consume more sources of animal protein and dairy products as their financial situations improve.

In fact, demand is expected to exceed supply and increase by an equivalent of 7 billion pounds of raw milk by 2013, according to the study.

The question of whom will fill that demand is up in the air. The U.S., he said, is at a disadvantage to other countries like New Zealand and Australia because the quality of ingredients coming from those countries is better.

But the pasture fed system, which requires a lot of land in both countries, will have to transition to corn and silage, Reed said, if production is to increase.

Other emerging export countries such as the Baltic state countries and Brazil can produce product a lot cheaper than here in the U.S.

But questions about safety and quality are concerns.

Reed said U.S. producers will have an opportunity to tap in, but only with changes to the country’s pricing system and price support programs.

Dry skim milk powder is in very high demand around the world. But unlike non-fat dry milk, it is not made in the U.S. and can’t be sold to the Commodity Credit Corporation when excess product is on the market.

The country’s pricing system, he said, is confusing, out-of-date, and creates a lot of volatility, which is something foreign investors don’t like.

“We need to find a way to grow and reduce our volatility. We need to find a way we’re better than what’s on the world market,” he said.

The Role of the PMMB
The meeting also included a talk on the role of the Pennsylvania Milk Marketing Board (PMMB) in dairy pricing.

Right now, according to John Howard, staff attorney for the milk marketing board, the average blend price paid to producers is around $14.17 when you take into account the state’s over-order premium.

The minimum wholesale price of milk, which includes fuel costs and container costs and guarantees processors a minimum 3.4 percent profit, is $3.01 a gallon.

The minimum retail price, which includes the price of putting the milk on the shelf and guarantees a retail profit of 2.5 percent, is at $3.31.

Robert Schupper, dairy category manager at Giant Food Stores, said the PMMB has been a “godsend” when it comes to pricing dairy products in stores and that the chain fully supports the over-order premium.

He said the company operates on a profit of 1 percent or less on all dairy products, due to short shelf life and current low demand.

“We need to do everything possible to keep this industry viable,” Schupper said, adding the chain has entered into local partnerships to get milk from more local sources and it has changed its inventory system to allow stores to restock its inventory when needed instead of having scheduled deliveries.

In fact, “buying local” is what’s driving consumer demand these days.

“It gives us a big advantage over other retailers,” he said.

About 98 percent of fluid milk in its Pennsylvania stores comes from Pennsylvania farms.

But getting people to buy milk is still a challenge, especially when it competes against products such as Coca Cola and Pepsi.

“Milk consumption continues to decline as a beverage and that is a major, major issue in the industry,” he said. “We need to think about milk as a beverage.”