This urbanized country of 126 million people needs more milk than a dwindling number of aging Japanese farmers can produce.
It seems like a simple, win-win proposition.
But as three fellow U.S. dairy farmers and I are learning on a mission to Japan and Hong Kong this week, global dairy trade is anything but simple. You have to work continuously at relationships, never taking them for granted, especially when aggressive competitors can’t wait to push you aside.
We’re here as board members of Dairy Management Inc., sizing up our investment to increase exports through the U.S. Dairy Export Council.
U.S. milk for countries with a shortage
Spend time in a city like Tokyo, 13 times the size of Chicago, and you are reminded that 95 percent of the world’s population lives outside the United States.
Unlike the United States, many countries are unable to produce enough milk to keep up with their own domestic demand.
Japan is among these milk-deficit countries. Since 2000, Japanese milk production is down 14 percent.
Several reasons are behind the decline. Many Japanese farmers have reached retirement age with no one to take over the farm, so they just leave the business.
A series of natural disasters—most recently an earthquake on Hokkaido (the center of milk production in Japan)—has further hindered growth.
Japan has a growing problem. We have a solution: continue to increase U.S. exports here.
Several societal trends make Japan a promising market for U.S. dairy farmers to get a strong return for our investment in exports:
- Waning agriculture sector. Japan is a nation of 126 million people, but agriculture comprises only 1 percent of the GDP (Gross Domestic Product). Japan must import food to survive.
- Huge urban population. Japan is the 10th most populous nation in the world, just ahead of Mexico, U.S. dairy’s top export customer. Only 8% of Japan’s population lives in rural areas.
- Desire for U.S. dairy products. U.S. dairy exports to Japan were valued at $291 million last year, a 41 percent increase over 2016.
How milk from my farm ends up in Japan
My family’s California farm has 1,100 cows. Milk from those cows goes to our own creamery and processing facility.
There, we produce products for frozen yogurt sold by Menchie’s, TCBY and Yogurtland. These are international companies.
On Monday, our group visited a Menchie’s store in Tokyo. My fellow farmers and I had the satisfying experience of knowing the milk in these tasty treats may have come from my cows in California.
Whenever I visit a chain that uses my milk, I look for opportunities to engage the staff. I enjoy talking to the employees about my farm and the cows that produce milk for their products.
Employees are delighted to learn how my farm cares for the well-being of our cows. To cite one example, we grow the cows’ nutritious feed on our own land.
The Next 5% plan
Last year, the United States exported $5.48 billion worth of dairy products to countries around the world. On a total milk solids basis, U.S. exports were equivalent to 14.7 percent of U.S. milk production.
I truly believe we can increase that by five percentage points—to 20 percent of total milk solids production—as outlined by USDEC’s Next 5% plan.
Consider the opportunity for upside in Japan, our fifth largest customer. The country already imports nearly 10 percent of U.S. cheese exports, 6 percent of U.S. whey shipments and 13 percent of U.S. lactose sent to other countries.
That’s impressive, but we can do much more for this dairy-friendly country.
World’s biggest cheese importer
The country imported 272,776 metric tons in 2017, nearly 50,000 metric tons more than the second place nation, Russia. Trade was up seven percent through the first seven months of 2018.
Despite this steady growth, Japanese per capita cheese consumption is still only about 5.5 pounds per year. There is ample additional room for growth when you consider U.S. consumption of more than 36 pounds annually.
In the past, most of the cheese consumed in Japan was on pizza or in baked goods. That is changing. Applications are broadening.
On this trip, we’re seeing Western foods featuring cheese as well as fusion foods that merge cheese with more traditional Japanese tastes.
In one of the most significant and encouraging consumption shifts, consumers here are buying more natural cheese, including high-end artisan varieties, for stand-alone home consumption, often pairing it with wine.
Competition for market share
Over the past 25 years, U.S. suppliers have built strong relationships in the Japanese market. We are proud of that effort.
But the United States faces increasing competition, most notably the European Union. The EU’s market share in Japan has grown from 21 percent in 2010-14 to 30 percent in 2017. Our U.S. market share has remained flat at 21 percent.
We can fend off the Europeans and other global dairy competitors with focus and perseverance as we move assertively toward The Next 5%.
Markets go up and down, but the long-range potential to significantly increase U.S. dairy exports remains a solid opportunity for dairy farmers and everyone else in the U.S. dairy industry.
Tasting the fruit of my labor here in Japan illustrates how the dairy checkoff program delivers value to U.S. dairy farmers. The future in Japan looks bright as USDEC and its member companies execute their plan to increase U.S. dairy exports to unprecedented heights.
Scott helps manage Scott Bros. Dairy, which has been in continual operation in Southern California since 1913. He is one of four U.S. farmers on the Dairy Management Inc. board traveling in Asia this week to examine the dairy checkoff program’s investment in exports.