Two years after a groundbreaking report highlighted the opportunities and challenges of an increasingly globalized dairy industry, the Innovation Center for U.S. Dairy (IC), working with Bain & Co., completed a refreshed view of world dairy fundamentals and concluded that growth prospects remain intact.
The ICsought to update the research to determine if fast-changing international dairy market conditions since the 2008 global financial crisis altered the initial findings, conclusions and recommendations to the dairy industry.
"Just as in the first study, our latest analysis showed that long-term demand for dairy products will remain strong, driven primarily by emerging markets. At the same time, traditional sources of supply are constrained and will fall short of expected needs," says Clinton Anderson, a partner with Bain & Co., an internationally recognized business consulting firm. "In fact, the demand gap is likely wider than anticipated a few years ago, and the window of opportunity remains open, with the United States
well-positioned as a supplier to take advantage."
Over the last three years, China, India, Southeast Asia and the Middle East/North Africa have shown continued demand growth, the report notes. More than 75% of the projected increase in world non-fluid dairy consumption from 2010-15 is expected to come from these four regions. Meanwhile, Russia's dairy production has dipped and potential low-cost producers such as Brazil and Ukraine have failed to develop their supply capabilities. Other sources such as Argentina and Belarus have good potential but are relatively small. New Zealand and the European Union, despite modest production increases, will be unable to keep up with emerging market needs, the 2011 report update concludes.
In the original report, researchers identified a number of structural weaknesses that could prevent the United States from capitalizing on the global market opportunity. As a result, the IC Board recommended a series of pre-competitive industry initiatives to help the U.S. industry improve its competitiveness and stake a position as a globally consistent supplier. Programs targeted reform of U.S. pricing and risk management policies, increased access to international markets and improved responsiveness to serving product needs of global buyers.
"The refreshed study confirmed the findings of the initial report," says Kevin Toland, chair of the IC's Globalization Operating Committee (GOC) and CEO and president of Glanbia USA and Glanbia Nutritionals. "The 'Consistent Supplier' strategy is still sound and we're on the right track," he notes.
"However, the report also says the U.S. dairy industry has yet to make critical policy reforms needed to fully benefit from the global opportunity," he points out. "Policy reforms, whatever their details, must encourage key outcomes: pricing and supply flexibility, customer focus and volatility management. If we don't make needed changes, we will miss out on sustainable volume and value growth. Unmet demand will accelerate the expansion of other producers, and the U.S. industry will see lower competitiveness and less ability to meet market needs," Toland warns.
The window of opportunity cited in the 2011 report update won't remain open indefinitely, echoes Tom Suber, president of the U.S. Dairy Export Council, which manages the globalization program on behalf of the Innovation Center.
"As an industry, we have a limited ability to control the 'size of the prize,'" he says. "What we can control is time – how quickly we move into this space to build a defensible, sustainable position against the inevitable emergence of new suppliers.
"Global buyers see the United States as the natural source of future supply. But they await improved U.S. policies and practices that will permit a greater reliance on the United States as a consistent global supplier rather than as a residual one," Suber explains.
Drawing from the insights and conclusions from the updated report, the IC GOC will continue work programs in seven strategic areas: price risk management, quality and traceability, product standards, sales and marketing capabilities, innovation, as well as monitoring of industry efforts in pricing reform and trade treaties.
Additional information from the "Dairy Globalization Refresh: 2011 Update," is available on the Innovation Center website at www.usdairy.com/globalization.