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Taking a world view to sustain dairy profitability

Roger E. Beers Published on 28 June 2012

There was a time when exports and imports of milk products were the only “global” news a U.S. dairy farmer needed to concern himself with. But after two decades of trade pacts and corporate globalization, this is no longer the case.

Globalization is the current reality in the dairy market. To compete as a leader in the world dairy market and remain profitable in the future, American farmers must be prepared for developments in every part of the world.

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Taking a world view of your operation’s production of quality milk is a critical factor in sustaining long-term profits. Think globally and you’ll have a better chance at sustained profits in a business environment where it’s never easy to predict just how, when and why new challenges – and new opportunities – may come.

Meeting global standards will be essential for long-term profitability
The dairy industry felt an immediate impact when one U.S. retailer chose not to accept milk produced using BST. What might lie ahead when global consumer channels demand more stringent standards for quality, production and sustainability practices?

U.S. dairy farmers should get to know emerging consumer quality and safety initiatives and understand what demands might be around the corner for the milk they produce.

The Safe Quality Food (SQF-1000) Initiative meets the needs of U.S. dairy producers with an internationally compliant certification system for verifiable assurance that your products have been produced in accordance with all SQF standards and requirements.

The upfront cost of an SQF certification plan is worth the long-term, profitable marketability of your milk as global food retailers drive demand for higher quality and safety in processed dairy foods.

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The mission of the Global Food Safety Initiative (GFSI) is the improvement of food safety standards worldwide through efficiency in the supply chain, reduced costs and the assurance of food safety to consumers.

Ideally, each of these benefits should promote a more stable and profitable global market for U.S. dairy foods, but every dairy farmer should consider how the global consumer demands advocated within the GFSI affect their processors’ standards for a quality, safe supply of raw milk.

If this, then that
We often hear about global demand for dairy products and the impact on profitability. But we rarely hear about global events that affect operating costs and our ability to stay competitive, sustain operational efficiency and continue to grow profits through quality milk production.

World events can seem entirely unrelated to the American dairy industry and still have significant implications on your operating costs.

There’s no way to predict and fully prepare for most such events – instead, farmers have to understand how these events affect their business and work with their suppliers to find the best opportunities to manage costs and sustain profits when the going gets tough.

The housing crash and dairy chemical costs
Prior to 2007, the explosion in new home construction in the U.S. and abroad drove the manufacturing of PVC building materials to an all-time high. The caustic alkalis commonly found in chemicals on U.S. dairy farms are a key byproduct of PVC manufacturing.

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Following the housing market crash, worldwide PVC production slowed, diminishing the supply of caustics and resulting in higher chemical costs on dairy farms. Farmers engaged suppliers to help manage operating costs with alternate cleaning and sanitation solutions.

Suppliers with expertise in the application of viable options enabled producers to sustain profits and milk quality.

The Tohoku earthquake and udder health costs
Before 2011, Japan produced roughly one-third of the world’s iodine – a key disinfectant chemical in many teat dips, sprays and udder washes.

The devastating earthquake and tsunami brought Japan’s export of iodine to a standstill. As a result, dairy hygiene product prices skyrocketed, presenting an unforeseen challenge to dairy producers’ bottom lines. With non-iodine disinfectants already available, dairymen and their suppliers were able to exercise the best available option to keep mastitis prevention costs in check while protecting quality bonuses on the milk check.

China’s demand for U.S. hay and your feed costs
China currently imports roughly half its hay supply and its need for quality hay will only intensify as worldwide demand for milk production continues to increase. Chinese dairy producers recognize the value of quality alfalfa in U.S. hay and this demand is sustaining higher hay prices.

That’s very good news for U.S. hay producers but bad news for domestic dairy producers feeding hay to their dairy cattle. Dairymen are relying heavily on feed suppliers and nutritionists to make decisions on the opportunity costs of dry feed ingredients to keep feed costs in line with operating costs and profitable milk production.

Europe’s demand for higher-quality U.S. milk
New European Union standards will make their way into the U.S. milk supply very soon. A bulk tank somatic count of 400,000 cells per mL is already being demanded of U.S. farmers who rely on income from exports to Europe, so it’s important to be prepared to meet this demand.

U.S. producers are sticking to the fundamentals – good udder preparation; clean, dry bedding; intelligent cull and treatment programs and sound dry/fresh cow management programs – to minimize gaps in their mastitis management programs and protect their quality milk premiums.

Stay informed, strive for quality, and opportunities will come
Globalization is a daunting concept and can be intimidating for even the best dairy manager. But if your farm managed to sustain profits through the global and domestic economic crises of recent years, then your success was the result of informed decisions – from the size of your herd to the impact of every operating cost – on the health of your bottom line.

You didn’t make those decisions in a vacuum, so why take a chance as the world market for your milk continues to expand?

Every part of your operation’s supply chain can help protect your profits as global demand for dairy production keeps growing, so don’t take these resources for granted. Suppliers that share a world view in helping you get the most out of your dairy will offer you the best long-term opportunities for profit.

Suppliers with practical application expertise and innovative products will further ensure that you’re in the best position to react when challenges and opportunities arise in the global dairy market.

Meeting the ever-increasing consumer demand for quality milk throughout the world is the bottom line. The ability to do so profitably will be the deciding factor in sustaining America’s status as the world leader in quality milk. PD

Roger Beers
President/CEO
A & L Laboratories Inc.

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