The American public is consuming more dairy products and that is, for now, using up any growth in milk production.
That’s helped stabilize and even raise American milk prices for the first time in the past five years.
Still, American dairy farmers continue to push aggressively into more export markets, says Tom Vilsack, president and chief executive officer of the U.S. Dairy Export Council.
Why it matters: American dairy farmers have continued to expand into export markets, but that has also helped to drag down global prices for milk, affecting dairy farmers around the world.
“This has not been an easy time for the dairy industry over the last several years,” said Vilsack in a presentation at the World Dairy Expo. However, he said the tough times are because American dairy farmers have continued to increase production per cow.
Fifteen years ago, the U.S. used 99 per cent of its dairy production domestically. Then, constant growth meant an increasing need to export and now 15 per cent of U.S. production is moving outside the country. That includes about 70 per cent of the skim milk powder produced.
That extra 15 per cent has destabilized the world market for dairy products and was one of the major factors in the global milk oversupply of the past four years.
The opportunity for export growth is huge, says Vilsack, whose job it is to increase exports. Americans are only five per cent of the world population and as other countries like India and Africa continue to grow their populations, that will drop to three per cent in the next 10 to 15 years.
“It just makes business sense that we would be interested in those 97 per cent of consumers and ask them if they’d be interested in purchasing U.S. dairy.”
American cows produce 23,000 pounds per lactation on average, and Vilsack said the average could even be closer to 24,000.
That compares to the 1950s when American cows averaged 5,500 lb. of milk per lactation.
The U.S. is in the middle of a five-year plan to dramatically increase dairy exports. They are having success, says Vilsack. In 2018, the U.S. increased exports by $992 million over 2016.
The U.S. has plans to increase its markets around the world and Vilsack went through the opportunities he sees.
One of those is in Canada, although it wasn’t one of the larger opportunities.
More important than the increased market access for the U.S. to Canadian dairy in the agreed-upon but not yet approved USMCA is the elimination of Class 7, said Vilsack. Class 7 was milk that went into that lower-priced class and was then exported as skim milk powder and related products.
“They were exporting their supply management challenge and were selling powder at a low price and that made them hard to compete with on powder,” he said.
The U.S. dairy sector has also invested in China but there is less emphasis there due to the current trade war between the U.S. and China.
China could also be a market for whey. China is increasingly desperate for feed to grow the efficiency of its swine herd being rebuilt after devastation from African swine fever. Vilsack says he is pitching that idea to Chinese buyers.
He isn’t optimistic that the China-U.S. trade situation will be resolved any time soon. China continues to have healthy economic growth of six per cent annually and the U.S. has had eight years of job growth and its economy is healthy.
Vilsack, who was agriculture secretary under U.S. President Barack Obama, says “what we’re asking China is right, but it is very difficult for the Chinese to acknowledge.”
He recently had a European thank him for creating the trade war as it has resulted in agriculture opportunities for European countries.
A better approach would have been to have brought allies together, especially Europe and Japan, before taking on China, he says.
Lots of markets
Vilsack is looking especially to Asian markets as the future for U.S. dairy exports. That includes Japan, with which the U.S. has recently finalized a trade deal. Malaysia, Thailand and Indonesia, with their growing populations, are other potential markets. Vilsack expects to establish a major office soon in Singapore, considered an entry point to the Asian market.
Africa is a “long play” he said, but one where the U.S. needs to be, because he says other major exporters New Zealand and Europe have already invested there.