The U.S. dairy industry is not set up to accommodate a global market and it must take steps to address increasing globalization, speakers concluded at the joint annual meeting of the National Dairy Promotion and Research Board (NDB), the National Milk Producers Federation (NMPF) and the United Dairy Industry Association (UDIA).
Speaking before nearly 1,000 dairy producers, Clinton Anderson, partner at the global business consulting firm Bain & Company, said a study conducted for the Innovation Center for U.S. Dairy with assistance from Bain concluded that the U.S. dairy industry can address globalization by increasing its competitiveness both domestically and overseas and by seizing an estimated “latent demand gap” that will create a global shortfall of approximately seven billion lbs. of milk by 2013.
Recognizing that globalization is playing a more significant role in the U.S. dairy industry, the Innovation Center for U.S. Dairy, with staff assistance from Dairy Management Inc. (DMI) and the U.S. Dairy Export Council (USDEC), prepared a strategic analysis of the global dairy landscape. The objective of the study was to provide the U.S. dairy industry an understanding of the impact of globalization on internal and external markets, and to identify strategic options to accommodate that impact.
Driven by emerging markets, Anderson said the study concluded that worldwide demand for dairy products will return to growing faster than available supply, and that traditional sources of supply will not be able to fully satisfy growing consumption. He went on to say that low-cost suppliers from South America and Eastern Europe will eventually become more capable competitors for a larger share of the global demand, leaving the United States with a finite window of opportunity in which to create a defensible competitive position.
“China and Southeast Asia will continue to be major net importers due to rising incomes and an increasingly urban population, and Mexico, Algeria and Saudi Arabia are also forecast for consumption to outpace production,” said Anderson. “On the supply side, Oceania is currently a low-cost producer, but future growth will see limits imposed by water and land scarcity to increase productivity beyond current levels.”
The study also said the impact of globalization is pervasive enough to affect all domestic dairy companies, whether they choose to directly participate in international dairy trade. “Clearly, as the dairy economy of the past two years demonstrates, world economic factors will affect dairy price in the United States. And, while not the market that will deliver the most robust growth over the next 5 to 8 years, the U.S. internal market totals over 16% of world dairy consumption, the largest single market outside the European Union. Consequently, any successful long-term global strategy for U.S. suppliers must also focus attention on its huge internal market for U.S. produced dairy products and ingredients.”
The study said that structural constraints get in the way of the United States accommodating globalization. Some major challenges the report cited include severe pricing volatility, market distorting pricing mechanisms and, generally speaking, insufficient customer focus that leads to narrow product diversity and inconsistent customer service.
In response, the study authors laid out several possible strategic responses to the current and projected environment. Responses ranged along a spectrum from an industry (like Canada) that focuses exclusively on the domestic market to an industry (like New Zealand) that focuses primarily on exports. Maintaining the status quo was identified as an option as well, but the study said that inaction will lead to a less competitive U.S. industry.
Recently the Innovation Center Globalization Task Force adopted a “consistent exporter” strategy to develop global opportunities for the U.S. milk supply, including broad industry efforts to gear U.S. products and pricing policy to simultaneously facilitate domestic and international growth. “Producers, dairy cooperatives, manufacturers, processors and suppliers will begin to soon determine how to work together pre-competitively to address globalization and will identify priority programs of prospective work,” said Tom Suber, president of the U.S. Dairy Export Council (USDEC), which assisted Bain on the study.
“Over the last few years, we’ve seen how big a factor the world market is to our domestic market,” said Suber. “And in 2009, we saw a loss of our export sales contribute to oversupply in the U.S. market. We’ve discovered that for dairy, like the Thomas Friedman best-seller, “The World is Flat.”
Innovation Center for U.S. Dairy provides a forum for the dairy industry to work pre-competitively to address barriers to and opportunities for innovation and sales growth. The Innovation Center aligns the collective resources of the industry to offer consumers nutritious dairy products and ingredients, and promote the health of people, communities, the planet and the industry. The Board of Directors for the Innovation Center represents leaders of more than 30 key U.S. producer organizations, dairy cooperatives, processors, manufacturers, and brands. The Innovation Center is supported and staffed by Dairy Management Inc.™ For more information, contact firstname.lastname@example.org.