Guest editorial/opinion:
Export Expertise
Sold out: Now what do we do?

Tom Suber is president of the U.S. Dairy Export Council (USDEC). He contributes this column exclusively for Cheese Market News®.

Record-high U.S. dairy ingredient prices. Customers on allocation. Steady growth in global demand. Supply pinch from Australia’s drought.

That’s our year-end situation, brought about in significant part by robust growth of U.S. dairy exports. But like the running dog that catches the car, what does the U.S. industry do in 2007? We’re now facing the little-contemplated scenario of having insufficient supply of dairy ingredients to meet our internal and external demand. This poses short-term challenges as to how our industry responds that could affect our long-term ability to maintain export volume growth.

There are a couple givens. It’s certain that we at the Export Council need continued, increased effort in our market access programs to smooth the bumps that arise in day-to-day trade. Document problems, incompatible testing methods and inadvertent — or intentional — customs clearance issues are a constantly-growing problem. Especially worrisome are rumblings from Mexico about the approaching removal of the last NAFTA barrier for milk powder in 2008.

In addition, even with the spotlight moving off of WTO and FTA talks, we must continue the important analysis of the opportunities that still arise, while pressing our industry’s needs with our government trade negotiators.

Yet cheese and dairy ingredient suppliers must answer some important questions regarding tactics, customer service and short-term goals:

• Have we harmed our ability to be considered a reliable supplier in the face of our tight supplies?

• Should U.S. suppliers even be serving export demand in the face of unmet needs from domestic customers?

• If short-term export demand needs no boost, what is the immediate objective of our market development efforts?

Over my 16 years of developing U.S. dairy exports, the world’s major buyers have always worried about our willingness to be a reliable supplier, one that exports consistently and not in times of surplus. Ironically, I think this year’s tightness has allowed us to take a large step towards dismantling that concern by showing overseas buyers that product allocation does not mean abandoning them. U.S. suppliers have maintained their exports in the second half of 2006, albeit at a proportionately reduced level.

As for trying to determine whether domestic buyers deserve preferential supply arrangements, that question is best decided by the marketplace. U.S. suppliers have come to see that export returns can match and sometimes exceed those here at home, while also holding out prospects for better growth over time.

Ultimately, though, we must keep in mind that this unusually tight global supply/demand balance will surely pass.

Yes, the U.S. market faces good, new demand in fluid milk, cheese at foodservice and dairy ingredients. And yes, we face the uncertain supply growth factors caused by mediocre farm prices, poor farm-level margins and a possible CWT cow cull early next year. Further, China, Southeast Asia and Russia continue to push net global demand, while Argentina and New Zealand can’t grow production fast enough to offset declines in exports from Australia and Europe.

Therefore, just as we maintained demand-creation work in the face of very soft demand (think 1997 and the Asia currency crisis), we must maintain our presence in front of buyers today. Perhaps it is even more important now in the face of record-high prices to justify the need to retain dairy ingredients in their products. One example includes assisting with ongoing ingredient formulation problems. Another even more important task is to bolster dairy’s defenses against attacks from soy and other ingredients by pinning down nutritional claims that can take so long to develop.

Important programs also are necessary for cheese, where U.S. supplies are way too long in yellow Cheddar. For instance, opportunities exist to expand U.S. capabilities with varieties like Gouda, for which there is strong demand worldwide. Moreover, there are untapped markets to explore, like Russia, and developing outlets for CWT-supported block cheese, which would expand U.S. cheese exports.

In short, it’s a marvelous development to be able to find immediate homes for every pound of dairy protein and lactose produced today. But industrywide and individual company programs must look beyond the short term and prepare for coming needs (i.e. dairy ingredients) and unmet needs (i.e. cheese).

Short supply creates challenges, but it also provides an opportunity to further develop export markets. Now is the time to continue to strengthen the export market development strategic plan necessary to retain and build international market opportunities to sustain industry growth.

CMN

The views expressed by CMN’s guest columnists are their own opinions and do not necessarily reflect those of Cheese Market News®.