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A Decade of Growth

March 1, 2013

The U.S. Department of Agriculture recently reported that America’s dairy farmers produced a record 200 billion pounds of milk in 2012. Depending on your perspective, that’s both a problem, and an opportunity.

Increased milk production – and 2012’s total was up 2.1% from the 196 billion pounds produced in 2011 – is in most respects a good thing. It indicates that our industry is growing, not declining. Not all sectors of agriculture can say that. The problem that can arise from added production is reflected in the iron law of supply and demand. If there’s not enough demand for that new milk production, farmers’ milk prices will fall. That’s what happened in the first part of last year, until milk production slowed somewhat and demand caught up. New supplies of any commodity have to match up reasonably well with demand. If there’s an imbalance, prices can crater (or skyrocket, if the issue is supply not keeping up with demand).

The real driver of increased demand in the past decade has been the international market. While demand in the U.S. is growing 1.2% per year, sales of U.S. products to foreign markets are booming, rising from 5.1% of production in 2002, to 13.2% of production last year, on a total solids basis.

But this surge didn’t just happen. And it won’t continue to happen, absent the full and continued deployment of all the tools needed to keep the momentum going.

First of all, our increased export sales are the result of favorable trade policies, particularly the North American Free Trade Agreement (NAFTA). Mexico is our number one market, and continues to grow. Canada, even though it’s a protected market, is still our number two customer. Other free trade agreements in Latin America and the Pacific Rim have helped the cause, as has the overall trend towards more Westernized diets in the developing world. That’s one reason why NMPF is so heavily invested in creating favorable trade deals across the Pacific, and now, potentially, across the Atlantic with the European Union.

Another factor in increased foreign sales is the marketing expertise and intelligence provided by the U.S. Dairy Export Council (USDEC). The creation and sustenance of USDEC was always a long-term play by the U.S. dairy sector as it prepared for a globalized 21st century. Those seeds, planted in the 1990s, are now really bearing fruit, as the U.S. dairy industry capitalizes on opportunities it didn’t have a generation ago.

And one of the biggest factors behind this growth is another investment that farmers are making, in Cooperatives Working Together (CWT). Since its formation 10 years ago this spring, CWT has played a vital role in boosting U.S. dairy sales by helping assist its members in closing export deals. Last year, as a record volume of milk came from U.S. farms, CWT was essential in making certain at least some of that milk found a home in foreign markets.

Last year, CWT assisted in selling nearly 125 million pounds of American–style cheeses, 73 million pounds of butter, plus 128,000 pounds of anhydrous milkfat and 172,000 pounds of whole milk powder. To put those figures into perspective, cheese sold as a result of CWT assistance represented 83% of all American-style cheese exported, and even more importantly, 18% of all cheese exported. Since American–style cheese like cheddar is the product that most influences dairy producer prices in Federal Order calculations, these increased sales benefit all CWT contributors. Similarly, CWT-assisted butter sales were 62% of all the butter exported from the U.S. last year.

Many of America’s dairy farmers are rightly proud that they are participating in the world market like never before. But those sales don’t just happen; they result from a variety of forces, both short- and long-term, to help U.S. vendors capture market share, often wrestled away from competitors who are entrenched and tough businessmen.

As it starts its 11th year of operation, CWT continues to play a key role in minimizing inventories for butter and cheese products, thus fostering a more stable producer milk price. This is especially valuable at a time when no significant federal safety net exists for farmers. The next ten years will offer more opportunity for export sales, and more volatility in global pricing. We need tools like CWT to help take advantage of the first, and protect against the second.