USDEC's Leaders Share Trade Views and Advice

By Priscilla B. Glynn

AgExporter recently had the chance to talk in-depth with several leaders of the U.S. Dairy Export Council, including Tom Suber, executive director; Marc Beck, vice president, marketing; Diane Lewis, vice president, technical services; Véronique Lagrange, director, applications and development and Latin American programs; Gerald Ostrowski, director, Asian programs; Charles Timpko, director, market research; and Mary Ponomarenko, agricultural marketing specialist with FAS' Dairy, Livestock and Poultry Division. In the article below, they share insights on trade trends, policies and opportunities.

AgExporter: What are the most promising country and regional markets for U.S. dairy products right now?

Véronique Lagrange, USDEC director for Latin American programs: Mexico has historically been and remains our largest dairy market, at over $100 million. We have a dominant share there with high-value products, whey protein, fluid milk, ice cream and ingredient products.

Brazil is a $360-million market for dairy imports. Yet our share of that market is less than 5 percent. We have a lot of competition from regional producers, but there's also tremendous opportunity for growth. For the time being, it's essentially an ingredients market. Brazil has a very sophisticated manufacturing sector, the largest in Latin America, and we're doing fairly well there, but it will increasingly become a consumer-ready, high-value market, as Argentina now is.

We have opportunities in many other countries in the northern Andean and Caribbean regions, where we have distinct advantages in terms of proximity and ease of servicing these markets. Both regional markets will be developing in the coming years, not only for ingredients, but also for consumer-ready, high-value products.

AgExporter: Which products hold the greatest export potential?

Marc Beck, USDEC vice president for marketing: Here you have to think in terms of both short- and long-term possibilities. I think the real potential lies in moving up the value-added ladder, including on the ingredient side whey derivatives and specialized milk powders.

Tom Suber, USDEC executive director: The value-added side of the industry includes ingredients as well as consumer-ready products. There are areas where the consumer-ready product is basically a commodity product; in some cases a consumer-ready product like butter is a commodity product. We have some opportunities there, but is that really where we want to focus?

We're focusing on investing in higher-value versions of commodities like basic-grade skim milk powder and basic-grade whey. Products made from these commodities can be used as ingredients or as value-added items.

Beck: The United States is a skim milk powder exporter; and there are certainly opportunities there. Essentially it's a commodity that can become a price-differentiated commodity, a value-added commodity, because specialty powders offer long-term potential. Take Australia and New Zealand: they have numerous varieties of milk powder, while U.S. producers make just two or three. We've got to produce a greater number of specialized products. USDEC's putting considerable effort into educating the U.S. dairy industry on the potential for these products, but we have a lot more work to do.

Mary Ponomarenko, FAS agricultural marketing specialist: By bringing potential buyers and sellers together, USDEC's been able to help exporters and producers get a greater understanding of market needs and how to meet them.

Suber: We've been beating the drum, so that when exporters come in and talk to manufacturers, the manufacturers have some comfort level that there is in fact a market out there. This is a partnership.

AgExporter: Do you find that dairy exporters tend to be concentrated in one or two parts of the industry?

Suber: We've seen a slightly greater interest on the side of proprietary processors -- that is, noncooperative processors, straight commercial processors whose primary goal is to make a profit -- to develop the export market. They look at it very simply as, "How is my company going to grow in the long term?" They have to figure out whether they should expand in Chicago or go into Asia for their own corporate growth. And generally they've been more prone to making objective, hard decisions, and they've found exporting to be worthwhile.

On the cooperative side, they're more focused on handling their producers' milk, and therefore they're dealing with surplus disposal concerns, more than they are concerned with marketing -- generally. However, this is not universal, and that's an important point. Cooperatives are now moving into the export arena as well. Cooperatives have a mandate to move as much milk as they've got -- but no more than that. Then you have the processors who are way out there, pursuing export markets because that's where their corporate future lies.

Gerald Ostrowski, USDEC director for Asian programs: I think it's also fair to say that the trading industry has also played a major role in our export growth. That whole segment of the industry is going to change dramatically over time. I believe that they will play a more direct role. There could be a lot of partnerships between trading companies and dairy cooperatives, which would then not need to develop their own export infrastructure.

AgExporter: How does USDEC locate key buyers?

Lagrange: In most markets, you will have 3 to 10 buyers, importers, and that's really the tip of the iceberg.

What we, as an association, do is look at the rest of the iceberg, because -- at least in the ingredient and food manufacturing sectors -- the purchasing agent influences only about 20 to 25 percent of the purchasing decision. According to our research, 75 percent of the purchasing decision has already been made beforehand by a firm's research and development and production personnel. They're the ones who develop product specifications, preselect the ingredients and put the ingredients in the product. The purchasing agent then looks for the best price.

So we try to locate and understand the real decision makers -- so we can influence them early on and try to make sure that the specifications they set can be met by U.S. products.

Charles Timpko, USDEC director for market research: I think it's fair to say that there's considerable concentration within the industries in most of these markets. So if you're looking for purchasers of whey powder, for instance, a country may have only 10 key buyers.

Ostrowski: And four or five of them probably do 80 or 90 percent of the trade.

Beck: On the ingredient side, there are recombiners and manufacturers of ice cream confectionery items, bakery goods, baby food formula and similar types of uses. When we go into shelf-ready products, value-added products, you also have wholesalers and retailers to address.

Ostrowski: I think probably the most important aspect -- one that often gets lost in the shuffle -- is that you can't do this job well from the United States. To be effective, you must have people in the marketplace day-to-day that buyers and other contacts can rely on, because they need a lot of information on different things at different times. The only way to service them well is to have people in the marketplace who represent your interests.

AgExporter: How does USDEC qualify trade leads?

Beck: Through in-country representation, we try to get as much background information about a company as we can: its size, production, buying habits, specification requirements and so on. When a company has a request for a specific product, we try to elicit their target prices. These prices very often reveal whether a company is seriously in the market for a particular item, or whether a product definition or specification issue could arise. In general, the less sophisticated the market, the more Byzantine its trade procedures tend to be.

It's actually very hard to qualify, and we're tightening the qualification process. We're getting a substantial number of trade leads. I think it's a sign that the U.S. dairy industry is getting greater recognition in the international marketplace.

But we have to be careful in tightening our qualification process. We are not the judge and jury on who's legitimate and who's not. The ultimate qualifiers of these trade leads are those who act on them --individual U.S. producers and exporters.

We have now moved our qualification process one step forward with a new pilot project in Mexico. We are following up on trade leads on both sides of the line: with the U.S. constituents, potential supplier-exporters, as well as the originators of trade leads, to find out if anything transpired. If so, great; if not, we try to find out why not.

Lagrange: We're also in the process of helping our offices work with people on price quotations. We come up with specifications that the U.S. dairy industry could meet. Or we look at the end use and ask whether we could substitute another U.S. dairy product. We also work on qualifying our products so that requests can be fulfilled by our industry whenever possible.

AgExporter: How have NAFTA and the Uruguay Round changed the picture for U.S. dairy exports?

Suber: Our expectation is for greater competitiveness for the industry, primarily because of trends we see developing because of the Uruguay Round Agreement.

Reduced export subsidies and increased market access are establishing the trend toward rising world dairy prices. World dairy prices, like prices of agricultural commodities generally, have been kept artificially low because of export subsidies. As these subsidies are reduced, it will continue to put pressure on available supply, while demand continues unabated. It's only a first start, but it's a good first start.

The North American Free Trade Agreement (NAFTA) has improved conditions for dairy trade with Mexico. Thanks to NAFTA, we now have a competitive edge in this market that no other country gets -- period. By 2004, Mexico will roll its tariffs back to zero for most U.S. dairy products.

We're moving toward a free market in the dairy economy. The sooner we get the world free of supports that cause price distortions, the better.

USDEC policy is to continue to work to reduce export subsidies and increase market access. That way we can increase the ability of the world's milk pool to satisfy the users on a truly market-oriented basis.

AgExporter: If you could give a new exporter just one piece of advice, what would it be?

Beck: It's got to be commitment.

Suber: Know your market.

Diane Lewis, USDEC vice president for technical services: Coming from the technical side, new exporters and veterans alike should take the time to review the USDEC export manual, a resource that they really need to explore when considering any export project.

Lagrange: Be patient; think relationships. In most cases, it takes at least 18 months from product development to securing a sale. After that, it could still take another year for the product to actually be delivered in-country. So be patient.

Beck: We've got to start talking about global marketing. I think at the end of the day when there's an exporter or producer out there with a product -- whether it's milk powder or table-ready cheese -- they've got to look at their market as global.

USDEC engages in lots of global activities. We have a wealth of research materials to assist people -- whether they're starting up, have some experience or have a great deal of experience.

U.S. dairy producers and exporters should review USDEC plans, activities and dollars spent in markets that they may want to enter, and then leverage those dollars with their own dollars and activities.

Ponomarenko: Also, if you're not exporting, the competing exporters are going to be selling here. That part of the equation hasn't hit home with a lot of people yet.

Ostrowski: We saw an example of that just last year. In 1997, U.S. imports of milk protein concentrate jumped 75 or 80 percent from the year before, and those imports took away customers from U.S. companies. Europe and Australia are bringing milk protein concentrate into the United States, driving down the price of milk protein concentrates in this country. This type of thing is going to occur all over the world.

AgExporter: If you could give a veteran exporter just one piece of advice, what would it be?

Beck: Our advice for novice exporters is pretty much applicable to veterans, but you could argue that veterans know their markets and are committed to exporting. Focus and flexibility are the keys -- that is, adjusting products to markets.

Lewis: Take the case of New Zealand, which is currently exporting numerous separate specifications of skim milk powder. We just can't hold onto our standardized protein-moisture-fat content levels and expect them to meet everyone's needs. We've got to be flexible.

Beck: In doing so, U.S. producers can create value-added products from an essentially homogeneous commodity. I think exporters today are not only focusing on what buyers want, but also bringing them new product variations, an approach that improves their profitability.

Ponomarenko: The bottom line is that the U.S. industry is essentially competitive in terms of production costs, particularly when compared to the European Union.

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Last modified: Thursday, October 14, 2004 PM