Perspective on Global Opportunity – 28 Years in the Global Dairy Sector

Dennis L. Erpelding

The author retired from Elanco, a division of Eli Lilly and Company, at the end of 2017 after over 28 years traveling globally engaging with governments and all food chain stakeholders advancing policy that supported innovation in the animal health sector.  He successfully worked on new laws, regulations and policies in the Americas, Asia and Europe that supported food animal production.  He served in numerous volunteer leadership roles including as Chairman of the Food and Agriculture Export Alliance, on the Executive Committee of the U.S. Dairy Export Council and as Chairman of the U.S. Meat Export Federation.  Now he is a consultant and speaker advocating for agriculture leveraging his global experiences and networks.  He can be contacted via email at [email protected].         

 

Milk – dairy – is truly the food that is so essential to life, whether in the United States or Asia.  The nutritional components of milk help a child grow and develop and make the body strong and mind sound.  The U.S. dairy sector has the ongoing opportunity to build their global presence and increase their contribution to feeding the world.

Four key aspects will be critical to succeeding globally that will benefit both consumers globally and the U.S. dairy farmer.  The key success factors are:  1) understanding consumer demand growth, 2) leveraging production competitive advantages, 3) expanding dairy product trade and 4) proactive issues preparedness and management.  The opportunity will be there – will the U.S. be there – hopefully yes!

Raised on a diversified Iowa dairy farm, employed at an AMPI cheese plant, educated as an Iowa State University Dairy Science student, working with dairy breed associations, in milk marketing and with dairy farmers from Illinois, to Colorado, to California and to China, provides insights from experiences.  A life engaged in the dairy sector, the last over 28 years – from 1989 to 2017 – travelling extensively globally and working on innovation and policy, provides perspective into the global opportunity for U.S. dairy.

 

Understanding consumer demand growth:  Demographics and economics are the drivers

The global population is about 7.4 billion people now compared to 5.2 billion 1989, or 42 percent growth.  In the U.S. there are about 323 million people now compared to 247 million in 1989, or 31 percent growth.  Both the U.S. domestic market, GDP US$ 18.6 trillion, an increase from US$ 5.7 trillion in 1989, or 326 percent growth, and the global market, GDP US$ 75.8 trillion, an increase from US$ 20.1 trillion in 1989, or 377 percent growth, will grow.[1]  The combination of the demographics for population growth and economic growth mean there will be more consumers with more income for which dairy can be a key part of their diet.  Looking forward, the FAO estimates global population will exceed 9 billion, thus many more mouths to feed, and the greatest growth of those to feed will be outside the U.S..[2]

 

1989 Now Growth U.S. % of Global
Population Global 5.2 billion 7.4 billion 42 %
Population U.S. 247 million 323 million 31 % 4.4 %
GDP Global – US$ 20.1 trillion 75.8 trillion 377 %
GDP U.S. – US$ 5.7 trillion 18.6 trillion 326 % 24.5 %

In the past three decades the U.S. has gone from an almost solely domestic focused dairy industry, with food aid or subsidized product being the primary exports, to a more globally focused industry with core dairy products and dairy ingredients being exported.  The shift has necessitated a changing mindset throughout the U.S. dairy industry as well as in the governmental policy sector.  This evolving mindset needs to continue as consumers around the world have very diverse ideas on how dairy can be a part of their diet, for example drinkable yogurts and puddings and ‘milk’ with juices and fruits.

Dairy case in Asia – options. Photo © D.L. Erpelding

In understanding consumer demand, as one globalizes their view, strict dairy definitions need to be broaden with a view that dairy includes the traditional fluid milk, cheese and ice cream, but very importantly, dairy also needs to include products for which dairy is a significant component or ingredient – including pizza, desserts and nutritional drinks.

Further as one considers markets globally, food safety, nutrition and affordability are key.  In global markets, affordability, determined by consumer affluence, is the primary determinant of what consumers can buy.  Yes, there are evolving segments of affluence, that may consider options such as various production practices, but, for the billions, affordability is key.  Many consumers live on a few baht, dong or yuan per day and purchasing tradeoffs are normal for food, housing, school and clothing.  Understanding the market segments and targeting product offerings is key to successfully meeting consumer needs and choices.

Recognizing demographics and economics, undoubtedly, consumers will gain more affluence and with such they will also have the luxury of seeking products that come from varying production practices.  Yes today, sometimes marketers and buyers may inquire about production practices, and seek to use such in negotiations and differentiation, but to the extend this is currently on consumer radars it would be the most affluent in Asian societies.

Interestingly, in over 28 years of travel in Asia, I have never heard a consumer ask about GMOs or other numerous production practices such as the use of rbST, antibiotics, genetics or grazing.  What they do ask about is food safety, nutrition and affordability.  They want to include dairy in their diet and the question is how do they include dairy affordably?  The U.S. can be that trusted safe, nutritious and affordable supplier.

Leveraging production competitive advantages:  Keep innovating

The U.S. is fortunate to have an excellent natural resource base of arable land and fresh water – world arable land of 48,626,474 square kilometers and U.S. arable land of 4,058,625 sq. km., about 8%.[3]  Further, the U.S. has historically been an innovator as it relates to genetic selection, nutrition, health management and production practices.  This innovation has allowed the U.S. to increase production in the most efficient and sustainable manner and have a competitive advantage relative to other producers around the world.

Innovation throughout the agriculture sector, including via crops and livestock, has kept the U.S. ahead of most of the world the past half century.  Inputs have been relatively level while output has dramatically increased the past decades.  However, as one views global agricultural ‘total factor productivity’, the U.S. is mid-tier the past decades.  Other countries are rapidly adopting innovative practices placing them in a more competitive position relative to the U.S.. [4]

The competitive advantage of the U.S. is to leverage innovation and be the most efficient and sustainable dairy producer.  In general, maximizing milk production – volume, protein and fat – via the lowest cost results in the most efficient and sustainable milk supply.  Historically the U.S. agriculture sector, including the dairy sector, has been a leader in adopting innovative technology and thus companies brought new technologies to the U.S. first.  However, in recent years, companies are often taking a parallel country approach to bringing new technologies to the market and thus the competitive advantage for the U.S. as an early adopter is decreasing.

Maintaining competitive advantage throughout the dairy food chain will be key to ongoing global market expansion and profitability.  Each sector of the dairy industry needs to ensure they maintain access to the most innovative practices to maintain competitive advantage.

Dairy cows in China – improving quickly. Photo © D.L. Erpelding

With limited natural resources globally, and with some countries needing to prioritize how their resources are used, such as China, those countries with the resources need to ensure they are using them in the most sustainable and efficient manner to be responsible contributors to the global food supply.  The U.S. is well positioned globally, recognizing that other countries have the opportunity – New Zealand with grazing and Western Europe with arable land.  But many areas lack the development or policies to provide for capturing the opportunity, for example, central Africa has the resources, but political instability and corruption risks are unlikely to result near term in a productive dairy sector.  South America has the resources as well, but currently supply and demand as a region is relatively in balance.

Reflecting on the past decades, housing, genetic selection, nutrition improvement and health management have dramatically improved milk production per cow.  Innovation around mastitis prevention and antibiotic use, production and rbST use, and semen and sex selection, each have provided dramatic increases in milk production.  Traveling Asia, one can see the advantages of improvements in genetics, animal care and nutrition.  U.S. dairy farmers need to protect their ability to use technologies of their choice that can provide that competitive advantage for selling into the global markets.  The dairy industry must let innovators know that innovation is encouraged and welcomed.

Expanding dairy product trade:  Access is key

The global market has opportunity and with that comes some risk.  The population and economic demographics affirm the opportunity.  However, political risk does exist.  Broadly in pursuing export markets it is critical to diversify amongst countries as well as products to the greatest extent possible.  Minimizing risks by broadening countries, market segments and product offerings is important as the U.S. dairy industry becomes a more export-oriented sector.

Market cycles have and will continue to happen.  Global dynamics beyond the control of the dairy sector will influence these cycles, specifically economic and political.  The dairy industry needs to focus on the controllables and manage through the non-controllables.

Dairy trade requires market access.  Bilateral and multilateral trade agreements are essential to opening the door for increased trade.  Quota and tariff negotiations open the market doors, with technical (TBT – technical barriers to trade) and sanitary (SPS – sanitary and phytosanitary) aspects being important to fully access the opportunity.

The historical focus on quotas and tariffs is rapidly changing with a focus on SPS and TBT measures as consumers demand safe food and sometimes politicians seek to erect barriers to inhibit trade.  A country’s food needs are met via domestic production, and complementary imports.  Understanding domestic food security goals, limitations around land and water availability, and local politics are critical to determine true import market opportunity.  Ideally markets are open to free trade, but, domestic capacity and capability, or political based non-scientific protectionism aspects often are factors in determining market access.

For expanding markets, political engagement around quotas and tariffs is important and ideally the SPS and TBT measures can be addressed via technical engagement working toward common interests to have a scientific-based approach that facilitates trade and enhances consumer confidence.

Negotiations around opening markets has resulted in access and opportunity for exports.  For the past three decades, but especially in the past two decades, the U.S. dairy sector has transitioned from an almost solely domestic focused dairy industry with less than three percent exported, with food aid or subsidized product being the primary exports, to a more globally focused industry with 14.7 percent exported, including dairy products and dairy ingredients being exported.[5],[6]  This export focus parallels similar transitions in the beef, pork and poultry sectors as each now export a significant portion of their production.

The U.S. dairy industry is fortunate to have the U.S. Dairy Export Council (USDEC), operating under the Dairy Management Inc. (DMI) umbrella, as a coordinated industry voice with deep staff expertise, focused on identifying new markets and working to open and expand access.  This export focused body represents the U.S. dairy export sector well and as exports continue to increase, support and engagement in USDEC is essential.  The dramatic rise in exports can in part be attributed to a singularly focused organization with a dedicated mission.  The visionary leaders of the U.S. dairy industry invested on behalf of the dairy sector and now all dairy farmers are benefiting from export market demand.

Issue preparedness and management:  Proactive strategy and approach essential

Consumer are demanding safe food, while seeking information on nutritional facts, and buying based upon affordability.  Consumer confidence in food safety is critical to increasing consumption for domestic and imported product.  The total global dairy food chain needs to work together with legislators, regulators and all food chain stakeholders to ensure food safety and thus consumer confidence in the food they consume.  Knowledge sources with factual information are important to address questions.  Differentiating genuine informational consumer inquiries from activists’ inquiries helps to address true consumer interests.

Building and maintaining consumer confidence requires a proactive approach to ensure information is available and plans are in place to communicate with consumers globally.  Anticipatory issue preparedness and management is crucial to successfully addressing questions and maintaining consumer confidence.  Today’s consumers desire more information, and the transparent sharing of information helps build confidence in the total global dairy food chain.

GMOs (genetically modified organisms), antibiotics and rbST (recombinant bovine somatotropin) each can be explained to consumers in a factual and understandable manner garnering consumer acceptance for their use and role in milk production.  Activists’ false information needs to be met with factual information in a transparent, open and understandable way.  Safety and benefits information, from trusted individuals, can overcome misinformation from activists with an agenda.

The anticipatory approach provides a process to carefully identify risks, potential exposure and preparedness through which when done properly can often negate an issue.  The best situation is that issues never get on the consumer radar screen due to the industry proactively addressing consumer concerns with facts.

In order to successfully manage issues, once the risks are identified, a ‘public affairs toolkit’ is important so the dairy industry is prepared to address questions openly and factually.  The toolkit needs to include the core scientific information, consumer research that provides insights into consumer questions and information needs, and then materials that can be shared with stakeholders and consumers.

Globally consumer confidence is important, and all stakeholders need to work together globally to build and maintain consumer confidence.  It is in no one’s interest to ever have a consumer concerned about the safety of the dairy products they consume.  Food scares are bad for all.  Differentiation can be around brands and such, but safety should never be a point of differentiation as all milk should be safe when provided to consumers.  Coordinated collaborative efforts globally can serve all consumers.

Summary:  Perspective on global opportunity

Milk provides the nutrients essential to sustaining life – a noble dairy sector purpose.  Understanding consumer demand growth, leveraging production competitive advantages, expanding dairy product trade and proactive issue preparedness and management can position the U.S. dairy industry well to compete in and expand their global dairy presence.

Over 28 years engaging globally indicates safety, nutrition and affordability are the primary purchasing determinants.  Consumer choice is important, and educated consumers are open to innovation that results in increased efficiency and sustainability.  Dairy farmers need to champion new technologies and work with the food chain to ensure their political and consumer acceptance globally.  Today, governments via laws, regulators via regulatory process or marketers via unsubstantiated differentiation sometimes inhibit innovation and change.  Policy and marketplace efforts need to focus on advancing innovation for the betterment of consumers and farmers.  These efforts need to focus on advancing laws, implementing regulations and establishing marketplace approaches that enable dairy farmers to produce and sell safe, nutritious and affordable dairy products globally.

Looking forward, shape your sector’s environment, be at the table, lead, engage, collaborate and capitalize on the global opportunity – it is your future and your family’s future.  Ensure that you are framing your future … you have a vested interest!

Reflecting on my Iowa dairy farm days, I always looked to the horizon out of the west barn doors while milking the cows.  Little did I know that far into the west was the global horizon of the east with billions of mouths seeking to improve their lives – and dairy is a key nutritional component to enhancing their life.  All should be proud of the role they play in feeding the world!

[1] https://data.worldbank.org/indicator/SP.POP.TOTL
[2] http://www.fao.org/news/story/en/item/35571/icode/
[3] https://data.worldbank.org/indicator/AG.LND.AGRI.K2
[4] https://www.ers.usda.gov/data-products/agricultural-productivity-in-the-us/summary-of-recent-findings/
[5] http://usda.mannlib.cornell.edu/MannUsda/viewDocumentInfo.do?documentID=1105
[6] http://www.usdec.org/research-and-data/top-charts