By Dave Natzke
Other than supply management, dairy processors and producer cooperatives are probably closer than ever on a number of dairy policy issues, according to leaders of both organizations. Whether that translates into consensus on dairy policy in the 2012 Farm Bill, and what impact federal budget woes have on final policy decisions – remains to be seen.
Appearing together to conclude the International Dairy Foods Association (IDFA) Dairy Forum, IDFA CEO and president Connie Tipton and National Milk Producers Federation’s (NMPF) CEO and president Jerry Kozak agreed a number of current federal programs – the Dairy Product Price Support and Milk Income Loss Contract (MILC) programs and federal order end-product pricing – were not serving the industry well. They also agreed federal milk marketing order reforms and simplicity were needed, and that environmental and processing regulations were burdening the industry at a time flexibility and innovation were needed in an increasingly global market.
Opinions diverged on the topics of supply management and export assistance, however.
In her annual keynote address, IDFA’s Tipton said the dairy industry is at a crossroads in federal policy. Tipton called 2009 a “great depression” for dairy farmers, with large losses of income and equity. She warned, however, that short-term economic pain should not direct longer-term dairy policy.
Tipton said price volatility was the biggest issue facing both processors and farmers, and that current policies created or amplified that volatility. To help change the course, she said IDFA supports simplifying the federal milk marketing order system, and improving margin insurance and risk management programs for dairy farmers.
Later in the Forum, Tipton and Kozak appeared together to provide processor and producer views on dairy policy. One area where they face a possible policy collision course is over supply management.
NMPF’s Foundation for the Future (FFTF) Dairy Market Stabilization Program (DMSP) would withhold a percentage of milk payments from farmers who surpass their base production – at times when farmer income margins are small – as a market signal to reduce milk production.
IDFA used the Dairy Forum to unveil a study showing the economic impact of the plan, had it been in place in the past decade. The study, commissioned by IDFA and conducted by Informa Economics, concluded DMSP would have been triggered four times in the past decade, with deductions in effect 18 months during the study period. Total dairy farmer milk payment withholdings were estimated at $626 million. In 2009 alone, $390 million would have been withheld, with the majority of it, $236 million, coming from five states: Wisconsin, New York, Minnesota, Pennsylvania and Michigan (find the full report at www.idfa.org).
However, Kozak countered the DMSP deductions would not be implemented alone, but instead would work in concert with a Dairy Producer Margin Protection Program, providing income insurance payments in times of low margins, offsetting the overall income declines suggested by IDFA’s study.
Citing the study, Tipton suggested dairy farmers did not fully understand the full implications of a mandated supply management program on their overall income. She also said private supply management – through processor/producer contracts based on milk volume – was appropriate, because milk processors knew their marketing capabilities and capacity.
Kozak and Tipton also sparred a bit on the Cooperatives Working Together (CWT) Export Assistance program, with Tipton implying the program created export subsidies. Kozak countered it was not government money, but cooperative/producer money, utilized under a specific business plan to create and serve export market growth.
Both Kozak and Tipton said they were pleasantly surprised in some of the consensus developed by USDA’s Dairy Industry Advisory Committee (DIAC), but reminded Dairy Forum attendees the group was advisory, with USDA making recommendations and Congress ultimately deciding the dairy provisions of the 2012 Farm Bill.
Kozak said long-term strategies – not the prevailing price of milk – would drive dairy policy. Both Tipton and Kozak said the federal budget – and how dairy policy proposals are scored by the Office of Management and Budget – would ultimately decide what dairy policy is approved, making it incumbent for the industry to develop a consensus on as many issues as possible, because Congress would not likely “have the stomach” to write policy.
Rabobank global outlook
Rabobank’s Tim Hunt provided an overview of global dairy markets during the Dairy Forum, characterizing it as being in a state of “convergence.” In the past, global markets have been fragmented, due to the perishability of products, trade distorting policies, limited connection between industry players, and the regional/national make-up of markets.
He said the international dairy market is seeing “asymmetric” growth, with traditional markets stagnant, but new emerging markets showing strong growth. He said 85% of dairy growth between 2009-2014 will be in developing markets, especially India, China and South America, which are currently unable to fill their own dairy supply needs.
Hunt said much of the U.S. export market growth can be attributed to the presence of China in the global market – either in direct sales, or in filling markets previously filled by New Zealand, which has directed more attention and product to the Chinese market.
Another reason for global growth is corporate internationalism, as western companies enter developing markets, leveraging foodservice expertise and brand and product strength to those regions.
Category convergence is also a factor, as major beverage companies, such as Coca-Cola and Pepsi, enter the dairy market. They are experts in processing, packaging and distribution, and also see potential in “healthy” beverages, both economically, and as a means to improve their “health” public image and hedge against declines in current beverage products, often focussed on sugary beverages.
Global growth is also enhanced by developing countries investing in dairy to secure supplies, and gain product and processing know-how.
Hunt said U.S. growth is hindered by current policies which encourage production of “wrong” products. He said the U.S. must address the regulatory system, become more aware of global markets and strategies, and be ready to meet customer product specifications.
Cheese just a ‘treat’?
The speaker drawing the most emotion from Dairy Forum attendees was Margo Wootan, director of Nutrition Policy for the Center for Science in the Public Interest. Participating on a “Food Policies That Are Changing the Dairy Industry” panel, Wootan said cheese should be consumed only as a treat, similar to ice cream. While a proponent of low-fat and fat-free milk consumption, Wootan was highly critical of U.S. cheese consumption, blaming it as a major factor in high cholesterol and heart disease.
“Americans are eating too much cheese, and (dairy) can’t grow that business without growing American’s fat size and clogging their arteries,” she charged.
Reminded that Europeans consume more cheese per capita than Americans, Wootan said Americans’ lifestyles and diets are different than in many European countries, including portion sizes and levels of physical activity.
Possible fluid milk strategy outlined
During IDFA’s Dairy Forum, Steven Golbach, a partner in marketing research and consulting firm, Monitor, detailed an extensive dairy consumer study, commissioned by the fluid milk processors’ MilkPEP program, to identify causes and stem the tide of declining U.S. fluid milk consumption. Golbach said study’s results conclude dairy industry profitability not only requires promotion strategies focusing on increasing volume, but also value.
Golbach said it was unrealistic to try to get consumers to increase total overall fluid consumption: U.S. per capita fluid consumption has been stagnant for more than a decade – from 224 gallons in 2000 to 223 gallons in 2009. Therefore, milk must compete against other fluids to gain a bigger share of the existing volume. Chief competitors are led by bottled water, followed by soda, soy and energy drinks. Beverages with greatest innovation and branding showed the largest growth in the decade.
During the 2000-09 period, per capita fluid milk consumption declined about 1.8 gallons, falling from 10% of total beverages consumed in 2000, to 9.3% in 2009. Carbonated beverages and juices suffered an even greater decline. However, bottled and, more recently, tap water through innovative filtration systems – increased from 7.5% of total fluid consumption in 2000 to 12.5% in 2009.
In addition to innovation and branding, the study identified matching milk marketing with “complements” to boost sales, including breakfast cereals (sales have been on the decline) and coffee/milk and fruit/milk beverage combinations (which have been on the rise).
The study also emphasized a closer tie-in to “occasions” to boost milk consumption. About 30% of all fluid milk is consumed at breakfast; with 7.3% at lunch; 4.2% in school lunch; and 17.5% with dinner at home.
An overall strategy to “defend” breakfast; “extend” success at lunch and dinner at home; and “create” new milk drinking occasions after or between meals was advised. Other occasions with opportunity – and the need for marketing priority – include post-exercise nutrient replenishment. Milk as an after-dinner indulgence – perhaps instead of alcohol, as a reward at the end of the day – was also on the list.