WASHINGTON — The U.S. dairy industry is not set up to accommodate a global market and it must take steps to address increasing globalization, speakers concluded at the joint annual meeting of the National Dairy Promotion and Research Board, the National Milk Producers Federation and the United Dairy Industry Association.
Speaking before nearly 1,000 dairy producers, Clinton Anderson, partner at the global business consulting firm Bain and Company, said a study conducted for the Innovation Center for U.S. Dairy with assistance from Bain concluded that the U.S. dairy industry can address globalization by increasing its competitiveness both domestically and overseas and by seizing an estimated “latent demand gap” that will create a global shortfall of approximately 7 billion pounds of milk by 2013.
More significant role
Recognizing that globalization is playing a more significant role in the U.S. dairy industry, the Innovation Center for U.S. Dairy, with staff assistance from Dairy Management Inc. and the U.S. Dairy Export Council, prepared a strategic analysis of the global dairy landscape.
The objective of the study was to provide the U.S. dairy industry an understanding of the impact of globalization on internal and external markets, and to identify strategic options to accommodate that impact.
Driven by emerging markets, Anderson said the study concluded that worldwide demand for dairy products will return to growing faster than available supply, and that traditional sources of supply will not be able to fully satisfy growing consumption.
He went on to say that low-cost suppliers from South America and Eastern Europe will eventually become more capable competitors for a larger share of the global demand, leaving the U.S. with a finite window of opportunity in which to create a defensible competitive position.
“China and Southeast Asia will continue to be major net importers due to rising incomes and an increasingly urban population, and Mexico, Algeria and Saudi Arabia are also forecast for consumption to outpace production,” said Anderson.
“On the supply side, Oceania is currently a low-cost producer, but future growth will see limits imposed by water and land scarcity to increase productivity beyond current levels.”
The study also said the impact of globalization is pervasive enough to affect all domestic dairy companies, whether they choose to directly participate in international dairy trade.
The study said that structural constraints get in the way of the U.S. accommodating globalization. Some major challenges the report cited include severe pricing volatility, market distorting pricing mechanisms and, generally speaking, insufficient customer focus that leads to narrow product diversity and inconsistent customer service.
Strategic responses
In response, the study authors laid out several possible strategic responses to the current and projected environment. Responses ranged along a spectrum from an industry (like Canada) that focuses exclusively on the domestic market to an industry (like New Zealand) that focuses primarily on exports.
Maintaining the status quo was identified as an option as well, but the study said that inaction will lead to a less competitive U.S. industry.
Recently the Innovation Center Globalization Task Force adopted a “consistent exporter” strategy to develop global opportunities for the U.S. milk supply, including broad industry efforts to gear U.S. products and pricing policy to simultaneously facilitate domestic and international growth.
