What do dairy exports mean for Minnesota?
May 11, 2013
Consider the following. World population will grow exponentially. With high economic growth in emerging countries, animal-based diets will increase in importance. As that happens, global dairy demand will grow, setting the stage for the U.S. dairy industry to expand its market considerably. In 2012, U.S. dairy exports accounted for over 13% of all U.S. milk solids – a full day's worth of national milk production every week. Over the last 10 years, over half of the growth in U.S. milk production was exported. Over the last 5 years, over two thirds of new U.S. milk solids production found its home abroad. With USDA predicting U.S. milk production to grow by 30 billion pounds over the next ten years, we need to ask ourselves where the new buyers for that milk will be. Studies are projecting that growth in domestic per capita consumption of cheese will slow, and fluid milk consumption shows an unrelenting downward trend. In such an environment, we really do need dairy exports to drive our industry forward, more than we ever needed them before.
What role can Minnesota play? Are we preparing for the brave new world where U.S. dairy sector may become a major global dairy player? In order to answer those questions, I reached out to several Minnesota-based dairy companies and asked them two questions, 1) What products are they currently exporting; 2) How important will exports be for their business going forward?
I first connected with Glenn Kaping, Director of Sales, Marketing and Business Development at the First District Association, headquartered in Litchfield, Minnesota: "First District Association (FDA) has been exporting to key accounts in the Japanese market for nearly 30 years. Over those years, our exports have grown geographically to include China, and at various times countries located in S.E. Asia, Central and South America, and the European Union. In addition to geographic expansion, exported volumes have also increased and now represent approximately 35% of our lactose and nearly 30% of our whey-protein-concentrate production. Recently, FDA has experienced an increased interest in the exporting of cheese, a product we have not yet exported, but one that over the next several years may represent a growth opportunity. We plan to keep international business "front of mind" as we consider future capital expenditures and product mix decisions."
FDA is just completing a major investment cycle in their cheese plant in Litchfield that has substantially increased their capacity, but also set the foundation for further growth at the same location in the near future.
I spoke next with Polly Olson, Vice President for New Business, Sales and Marketing at Davisco Foods International, Inc. (Eden Prairie, Minnesota): "The dairy products we produce in Minnesota for exports include cheese, whey protein concentrates, lactose and specialty whey products such as BiPRO (whey protein isolate) and BioZate (hydrolyzed whey protein). Export markets are very important for our business. We are currently present in Geneva, Switzerland and Shanghai, China as well as having distribution centers located in Rotterdam, the Netherlands and Tianjin, China. We recently expanded our representative office and distribution center in Singapore to serve the demand from one of the fastest growing dairy consumption markets in the world."
Davisco Foods has been at the very frontier in advanced dairy processing and a strong supporter of fundamental dairy and food science research at the Midwest Dairy Foods Research Center.
I also spoke with Steven O'Reilly, Director of Business Development at Milk Specialties Global (Eden Prairie, Minnesota): "The core of Milk Specialties Global's business, for both domestic and export, is in value-added dairy ingredients including whey, milk and lactose. Dairy exports include whey protein isolate, whey protein concentrate, whey protein hydrolysate, milk protein isolate, micellar casein and lactose. In Minnesota, MSG manufactures and ships 2.5 million pounds of dairy products per month. Of this, approximately 170,000 pounds are exported, for 6.6% of total sales. We are currently serving a strong portion of Asian markets, with growing penetration in countries in the European Union."
Direct dairy exports from Minnesota are important, but given our geographic position perhaps even more important are indirect effects. As more milk produced in the western U.S. gets exported, our companies can capture larger shares of the domestic markets. In the words of Ed Welch, President and CEO of Associated Milk Producers Inc., "If the futures markets hold, AMPI will be moving more milk to its butter/powder operations. That's an advantage AMPI has as one of the largest butter/powder producers in the Midwest. A strong butter/powder market will also keep milk out of West Coast cheese vats and on ships leaving U.S. docks."
Planning for a future where dairy exports play an important role, Ed tells me AMPI is investing in high-value protein manufacturing and marketing. The cooperative currently exports 30 percent of their whey production, along with 60 percent whey protein concentrate, 10 percent nonfat dry milk and 10 percent of their lactose production. AMPI's primary export markets are Asia and Mexico.
Both directly and indirectly, dairy exports will play a major role in future development of the dairy sector in our state. From federal dairy policy and milk pricing to milk quality regulations – with every collective decision we make going forward – we always have to ask, how will this influence our ability to export?