U.S. dairy farmers are starting their fifth year of low milk prices. Those record high milk prices of 2014 have been followed by four years of milk generally ranging between $15 and $17 per cwt. Is this the new normal?
Tom Vilsack, former secretary of agriculture under the Obama administration, doesn’t think so. Vilsack, who is now the president and CEO of the U.S. Dairy Export Council (USDEC), was a guest speaker at the Great Lakes Dairy Conference on Feb. 7 in Frankenmuth, Mich. He provided some insight during a one-on-one interview with Michigan Farmer before his keynote speech.
Vilsack’s goal is to bump U.S. exports of milk products from 16% to 20%, noting that the past couple of years have provided progress. He outlined several reasons he thinks 2019 is going to be a better year:
- Exports still are strong, and imports are down.
- The USDEC has received help from the Department of Agriculture through its export assistance program, which will allow USDEC to do significantly more promotions and create partnerships in key markets.
- The U.S., Mexico and Canada agreement might be ratified. “I’m confident and hopeful that as a result of the USMCA ratification discussions and negotiations, the retaliatory tariffs that are currently assessed against Canada and Mexico will at some point in time in 2019 be lifted,” Vilsack said. “And, when they are, that certainly will allow us to continue promoting those two important markets.”
- Tensions and tariffs might ease between China and the U.S. resulting in more opportunities in that country.
- The European dairy surplus is being depleted. “The Europeans have learned their lesson,” Vilsack said. “They thought they could sell that surplus at a profit in a rising market, which ultimately resulted in depressing market prices around the world. That surplus has now been essentially eliminated through a series of interventions. So, I think you are going to see a stronger pricing system in 2019.”
- And, finally, Vilsack hopes the administration understands the importance of getting negotiations completed with Japan. “Currently, we are at a competitive disadvantage in a market that could potentially grow and expand significantly,” he said. “A combination of all of those things, along with a slightly different situation globally with the EU now reducing its surplus that had been an overhang on the powder market, leads me to believe we are going to have a good 2019.”
Agreement needed with Japan
Vilsack was particularly focused on the Japanese dairy market, which is the fourth-largest export destination for U.S. dairy exports behind Mexico, China and Canada. Japan’s dairy market is expected to continue to grow, potentially doubling U.S. market share, according to a study released Jan. 30 by the USDEC.
The study, Vilsack said, allows “the administration to be fully armed when going into negotiations with Japan.”
A major conclusion of the report is that every major dairy exporter except for the U.S. is part of one of two trade deals with Japan, those being the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and a newly signed European Union Japan Economic Partnership Agreement.
“We wanted to make sure they (the administration) understand that this was a $290 million market that we saw the potential to grow from 13% of market share to 24% of market share in the next 10 years — maybe even triple the amount of value being sold to Japan,” Vilsack said.
A failure to negotiate a free trade agreement for dairy, Vilsack says, would not only result in the U.S. not being able to take full advantage of that increase, but would result in a decrease in market share. “It could be as much as $185 million cumulative over the first five years, and north of billion dollars of lost opportunity in a 10-year time frame,” he said.
The study projected a competitive disadvantage, resulting in lost U.S. dairy sales of $5.4 billion over 21 years.
“The Japanese have to understand that they need to make these concessions, especially if they want to continue to sell their autos here in the U.S. and their electronics,” Vilsack said. “I’m hopeful, as the Japanese have already made concessions in some of these other trade agreements. One would expect they would be willing to make similar concessions in the U.S.”
The USDEC will continue to look for places where demand will increase. Vilsack noted that it’s anticipated the global domestic product will grow 3.5%. “If it does, it means there will be more middle-class consumers in places like Asia, North Africa and the Middle East, as well as Mexico, Central America and Latin America,” he said.
The USDEC recently received $5.2 million from the USDA’s Agricultural Trade Promotion Program as part of the export tariff relief package. With those funds, Vilsack says they are looking to expand opportunities in some South American countries, such as Chili and Peru.
“It will also enable us to do a lot more work in Southeast Asia, on the ingredient side,” he said, noting that they are establishing what he believes to be a center of excellence in Singapore. “We want to take advantage of the innovation that’s taking place in food in that region of the world. We want U.S. dairy to be part of it.”
The funding also will be used to advance work focused on cheese with the university in China.
When asked about Cuba, Vilsack said restrictions that were eased under the Obama administration are now back in place under President Donald Trump, including having to pay for product in advance. “You have to pay in dollars, and the Cubans don’t have that many dollars,” Vilsack says. “However, it is a market that over time we should absolutely be engaged in. It’s a multibillion-dollar market for agriculture, with 80% of their food being imported. It’s a market we should dominate, but frankly, the barriers make it virtually impossible to do significant business down there.”
The USDEC is funded through USDA’s foreign agricultural service and dues paid by members, but the principal source is Dairy Management Inc., which operates and controls the dairy checkoff. “The reality is, we’re going to have to sell more product overseas because our producers are the best in the world,” Vilsack said. “There is tremendous opportunity. And, it all starts with the ability to fund these efforts, and that’s directly tied to the checkoff.”