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Running out of time: U.S. must make changes to supply the globe

PD Editor Walt Cooley Published on 27 April 2010
dairy products

Editor’s note: The following is the final installment of a three-part editorial commentary series by Progressive Dairyman Editor Walt Cooley about his observations traveling with members of the U.S. Dairy Export Council on a trade mission to the Middle East.

And I thought root-beer-flavored milk was a unique taste? Try date-flavored milk. That’s what Jaya Kumar, general manager of Gulf and Safa Dairies, offered me and others traveling with the U.S. Dairy Export Council on a trade mission in Dubai while we visited his company’s milk processing headquarters.

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Moving about the wood-paneled executive boardroom of the UAE’s oldest dairy company, Kumar distributes the mocha-colored beverage in food-service-sized plastic containers. He’s eager for his American visitors to taste test each of his company’s many dairy products.

The date drink’s taste, he says, is of one of his company’s signature products and one of its best-selling new innovations.

In the Gulf Region, date-flavored products are at least as prevalent as chocolate-flavored ones. Kumar says both flavors are his top two fluid milk flavors, topping strawberry and banana.

“Fluid milk is the only thing fresh milk is used for here,” he says. “The rest of our products are made with recombined milk.”

The highest-valued resource or commodity in the Middle East is water. Accounting for feed and cooling, a liter of milk can require at least 800 liters of water to produce locally. Importing dairy powders is the most economical way to produce consumer dairy products.

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Among Gulf and Safa Dairies’ other products are UHT packaged milk distributed on American Army bases in the Gulf Coast, a semi-firm yogurt product and a salty yogurt drink frequently consumed by locals during the summer and by Muslims to break the day-long fast during Ramadan. Gulf and Safa Dairies is a serious dairy powder client, buying between 9,000 and 10,000 tons of powder per year. Whole milk powder (WMP) and skim milk powder (SMP) are his primary product purchases. Yet Kumar says supply is getting hard to procure from traditional exporters.

“New Zealand is coming up with a shortfall because it is filling a gap in China for dairy products,” he says.

Farid Habibi, Group Commercial Manager at Hassani Group, whose company also purchases lots of powder for recombining and selling UHT milk in the Middle East, says New Zealand’s strained powder supply has created volatile prices for Middle East dairy buyers.

“Volatility has been very scary,” he says. “It's taken us through a rough time too.”

Habibi, who graduated from a U.S. university, says he wishes the U.S. would pay more attention to global markets like the Middle East. And his road map for how the U.S. should get there reads almost like the Globalization report, which I’ve discussed before. Both Habibi and the report say government involvement and dairy policy would need to change.

“Many of the current capability gaps that exist today in the U.S. are due to the long-term, cumulative effects of U.S. dairy policy, including the U.S. Dairy Product Price Support Program (DPPSP) and Federal Milk Marketing Orders (FMMO). Over time, both have hindered many of the incremental adaptive changes that would have enhanced global industry competitiveness.”

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Globalization report

Essentially the report says that the U.S. pricing system and government purchases of surplus dairy products when prices are low (a floor price) dissuade processors from making consistently, or not at all, products that the world wants, such as whole or skim milk powder.

“With the government as a ‘backstop’ customer, producers and processors have less need for commercial capabilities. In this way, the U.S. Dairy Product Price Support Program (DPPSP) has incented the U.S. dairy industry to be a residual supplier of global ingredients at lower values and narrowed the channels where U.S. dairy commodities satisfy primary customer needs.”

Globalization report

Some also say the U.S. all-milk price’s heavy emphasis on the price of Class III milk, sometimes called “cheese milk,” doesn’t accurately price discover for world market needs, adding to volatility.

“Additionally, Federal Milk Marketing Orders (FMMO) have led to increased price volatility, as it has limited the opportunity for the utilization of a well-developed forward/futures market for milk. While these federal programs have benefited the U.S. dairy industry in other ways, their role will need reconsideration if the U.S. intends to play a more active role in the global dairy market.”

Globalization report

Habibi says he can’t understand the U.S. dairy industry’s marketing partnership with Fonterra. Asking your competitor to help market product doesn’t seem “competitive,” he says.

“Fonterra as your marketing partner baffles us,” he says. “When it comes to marketing, the U.S. is second to none. With a bit more focus, you could easily replace Fonterra as a world exporter.”

And while Habibi waits for the day when more U.S. dairy powders that meet his needs are available for purchase, he sees more products from new dairy exporters like Uruguay and Argentina showing up in the Middle East. It’s another reminder that the clock is ticking for the U.S. to realign its dairy industry to produce for the needs of a growing group of global customers.

“We are waiting for the day the U.S. is a consistent supplier. If it comes, it will be big,” Habibi says. “When the U.S. puts their effort behind something no one can challenge them in production and quality. But as long as that safety net is there, farmers and processors will say, ‘Why should we care about exports?’” PD

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PHOTO : Date-flavored milk is one of Gulf and Safa Dairies’ best-selling fluid milk products. Most dairy products in the Middle East, besides fresh fluid milk, are produced using recombined milk from foreign dairy powders. Photo by Walt Cooley.

Read parts I and II of "Running out of time"

U.S. must become a global supplier for dairy

U.S. dairy must give better global service

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