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Perspective: Export Expertise

Shawna Morris is a trade policy advisor with the U.S. Dairy Export Council. She contributes this column exclusively for Cheese Market News®.

DR-CAFTA showing early payoff

Last week, the Dominican Republic became the fifth country out of six to begin implementing the hard-fought Dominican Republic-Central American Free Trade Agreement (DR-CAFTA), following El Salvador, Honduras, Nicaragua and Guatemala. That leaves only Costa Rica, which has not yet voted on the measure in its own legislature, to complete the deal.

Separately, the United States and Panama completed free trade agreement (FTA) talks in December. Labor provisions must be finalized before it can be submitted to Congress, but all market access and technical issues are completed.

With these deals, the United States aims to boost dairy exports to a growing, dairy-deficit region. Central America is home to about 39 million people — a little more than the population of California — with a Gross Domestic Product that is growing 4.1 percent annually. The seven nations import more than 130,000 tons of dairy products per year, according to U.S. Dairy Export Council (USDEC) data.

As the aforementioned four countries implemented the agreement last year, U.S. dairy exports to the region have taken off. Total value of U.S. shipments to Central America increased 18 percent last year to $38.4 million. U.S. cheese exports to the region jumped 37 percent to 3,061 tons. Exports of whey proteins increased 8 percent to 6,419 tons. Although starting from very small volumes, shipments of lactose and ice cream each increased 15 percent.

DR-CAFTA already is strengthening the markets of Central America. More importantly, it’s bringing more people into the formal economy and stabilizing business conditions, encouraging investment. Wal-Mart, for instance, now has 413 stores in Central America, with plans to build more in the coming years. This bodes well for continued growth in dairy consumption.

For its part, USDEC and its members have been working to plant their stakes in the market. About 40 percent of the region’s dairy imports come from intra-regional trade, primarily from net exporters Nicaragua and Costa Rica. The United States supplies about 12 percent of the region’s dairy imports. The biggest import markets are Guatemala, El Salvador and Honduras.

In the last two years, participation at industry trade shows like the Americas Food and Beverage Show in Miami and the Gastronomic Festival and the Wine Festival in El Salvador was critical in establishing contact with key buyers. The quickest way into the market is by working with leaders in the region, like Dos Pinos, Nestlé and Estrella Azul, as well as local distributors.

In addition to trade-servicing trips to all these markets, USDEC carried out in-store cheese promotions in Honduras and El Salvador. USDEC also joined with the U.S. Meat Export Federation and the USA Poultry and Egg Export Council to conduct deli seminars in Honduras, Costa Rica and El Salvador and Panama to educate local retailers about food safety and merchandising. In-store tastings were carried out in conjunction with the two cooperators, and mini trade shows were held for suppliers of cheese, meat and poultry, enabling them to meet with local importers and retailers.

These sorts of marketing and development efforts will be necessary if U.S. sales are to flourish in these tropical markets. In addition to intra-regional trade, U.S. suppliers face competition from long-entrenched New Zealand (and to a lesser extent, Europe and Australia). These also are generally underdeveloped markets for high-value products.

But DR-CAFTA and the Panama FTA give U.S. suppliers an advantage, and an opportunity. The Central America agreement provides duty-free access for U.S. whey, lactose and condensed milk as well as establishes new duty-free quotas of more than 10,000 tons for U.S. cheese, ice cream, milk powder, butterfat and other dairy products. These quotas grow annually, and over-quota tariffs phase down to zero over the span of 10-20 years. The Panama FTA, once implemented, will provide immediate duty-free access for U.S. whey and a limited number of other products, plus immediate in-quota access for more than 3,800 tons of product, including U.S. milk powder and cheese.

The Cooperatives Working Together (CWT) export-assistance program provides additional prospects. Since January 2006, U.S. suppliers used CWT to contract for 356 tons of cheese, 1,033 tons of butter, 480 tons of whole milk powder and 367 tons of anhydrous milkfat to Central American nations. Used strategically as a market development tool, CWT allows U.S. brands to build distribution and share in retail and foodservice channels.

So think of Central America as where Mexico was maybe a decade ago. Throughout the implementation of NAFTA, U.S. suppliers steadily increased their share in Mexico, even as the overall pie expanded, while the local economy enjoyed a new level of stability. With DR-CAFTA implementation (mostly) under way, Central America has the potential to develop in a similar fashion.

CMN

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