Guest Editorial
A market no longer under the radar

by Matt McKnight

Matt McKnight is vice president of export ingredients marketing and industry affairs for the U.S. Dairy Export Council. He contributes this column exclusively for Cheese Market News®.

Note: This is the first in a five-part series on burgeoning Southeast Asian dairy markets and opportunities therein.

Which Asian nation, over the past five years, has increased the value of its U.S. dairy purchases more than any other in Asia?

If you said China or Japan, guess again.

Based on eight-month trade data, Indonesia is on track to be a $138-million market for U.S. dairy products this year, up more than eightfold from 2002, when exports were just $16 million. In fact, at this pace, Indonesia will quietly become the No. 5 global buyer of U.S. dairy products by the end of 2007.

What’s more, Indonesia is a microcosm of how the global dairy landscape is changing and a textbook example of how U.S. suppliers can bolster their overseas business.

A few of the basics: Indonesia is a politically stable market of more than 220 million people, with a local economy projected to grow a very healthy 5-8 percent annually through 2012. This large population, serviced by a rising number of modern supermarkets, hypermarkets and western-style foodservice establishments, becomes more nutritionally aware by the month. Diets are shifting to higher protein as incomes creep upward. And the nation cannot produce enough milk domestically to fill mounting demand.

Indonesia is the world’s third-largest importer of skim milk powder/nonfat dry milk (SMP/NDM). It also ranks in the top 10 for imports of dry whey, lactose and whole milk powder. As a nation still developing its appetite for dairy, dry ingredients make up the bulk of what we sell them.

This year, U.S. shipments to Indonesia are on track to top 36,000 metric tons of SMP/NDM, 12,500 metric tons of whey proteins and 18,000 metric tons of lactose. We’re also selling a growing volume of cheese — 837 metric tons through August, up 82 percent from a year ago.

Consumer milk consumption in Indonesia — liquid, powdered and sweetened condensed — grew more than 10 percent through the first four months of 2007 (the latest consumption data available) and is being driven “mostly due to the increased awareness of the health benefits of milk,” according to USDA.

And domestic per capita consumption is only part of the Indonesian market. The nation also is a food and dairy production base for the region, manufacturing infant formula, sweetened condensed milk and other products utilizing domestic and imported dairy ingredients and then re-exporting those products to markets in Africa, Japan and the Middle East.

What the U.S. dairy industry has achieved with dairy ingredients can be achieved with cheese. Southeast Asian nations have shown a consistent pattern of dairy adoption — moving from sweetened condensed milk to UHT milk to yogurt drinks to cheese. Indonesia has passed the UHT stage. Now major international companies, like Danone, are investing in yogurt-style drinks.

Making sure the preferred cheese is U.S. cheese requires marketing similar to what U.S. cheesemakers already have done in Japan, Korea and Mexico. U.S. cheese has a reputation as being for hamburgers and pizza. Indonesian consumers will buy natural varieties if they know how they taste and how to use them and understand that the United States has a history as a high-quality cheese producer. Processed Cheddar currently is “the next big thing” in Indonesia. If patterns hold as they did in Japan, Korea and Singapore, fresh cheeses will follow, then other varieties.

Rising dairy demand in Indonesia hasn’t been lost on U.S. dairy exporters. Suppliers have taken the market more seriously, improving service with efforts to get products Halal-certified and improving packaging and technical specs to withstand the hot, humid weather and rough handling. This has made the United States a regular supplier — not just a supplier of last resort for donations and feed. In addition, U.S. suppliers and U.S. Dairy Export Council programs have taken steps to educate the Indonesian food and dairy industries and help them create and market new products utilizing U.S. dairy ingredients. In doing so, they have cultivated a higher value market in which consumers and manufacturers understand and seek out the nutritional and functional benefits of dairy.

And yes, some of the increased U.S. share is due to favorable market conditions. High international prices and a weak dollar have improved U.S. competitiveness. European market reforms have taken EU export subsidies down to zero for now, making their products more costly. New Zealand has redirected its efforts toward higher value products and markets, and drought in Australia has choked off supply. Combined, those events have created a supply vacuum that the United States has been able to fill.

While some U.S. suppliers are providing better service and consistently better products to Indonesia than in the past, there is plenty of room for further development in ingredients and cheese through guaranteed supply, consistent pricing and efforts to understand the market — including the needs of Indonesia’s mushrooming infant formula industry. Suppliers shouldn’t be content to simply go after the low-value market; opportunities exist to sell higher-value functional ingredients as well, if we approach the business strategically.

Global conditions have benefited U.S. dairy business in Indonesia, but U.S. efforts to build the market have been even more beneficial and should keep Indonesia on every exporter’s radar screen.

CMN

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