MADISON, Wis. — Overall consumption of milk and dairy products by U.S. consumers has been increasing for the past 25 years.
“Consumption has been going up fairly steadily which is critical for dairy farmers,” said Peter Vitaliano, National Milk Producers Federation economic policy and market research vice president. “Because if people do not consume milk and dairy products, the dairy industry does not have a job.”
Currently, Vitaliano said, about 17% of total U.S. milk solids are exported.
“That’s a critical, growing market,” he said during a seminar at the World Dairy Expo.
“Years ago the big trade issue dairy was concerned about was competition from imports,” he said. “That was important at a time when the world market was heavily subsidized and many countries dumped their surplus products on the world market.”
Around 2003 to 2004, Vitaliano said, the world market was transformed into a viable commercial market through changes in governments, growing middle class incomes and consumption in developing countries that were dairy deficient.
“Dairy imports to the U.S. dropped to 3% to 4% and now import competition is yesterday’s problem,” Vitaliano said. “U.S. dairy farmers have the domestic market all to themselves.”
Despite the healthy picture of U.S. dairy exports, Vitaliano said, the United States is still mostly exporting nonfat skim milk solids.
“The picture is very different for milkfat because we export much less milkfat and we import more,” Vitaliano said.
“We’re not making much traction in terms of the international market contributing to the markets for U.S. dairy farmers,” he said. “That’s something that has to change and probably the best opportunity for doing that is to get our cheese exports boosted up.”
For the domestic market, the U.S. population is growing.
“That means every year more people are consuming milk and dairy products,” Vitaliano said.
The per-capita consumption is also a positive picture.
“There is a very steady growth of cheeses,” Vitaliano said. “The rate of increasing consumption is much heavier on non-American cheeses like mozzarella.”
Vitaliano talked about U.S. butter consumption over the past 100 years which has been impacted by lots of headwinds.
“During the roaring ‘20s, consumers ate 18 pounds of butter per year and that started slipping during the Great Depression when affordability became a concern,” he said. “World War II brought butter rationing, then margarine offered steep competition and following that there was a war on dietary fat consumption.”
Butter consumption has recently started to recover which has been helped by checkoff funded research.
“That research finally showed fat is not the issue and carbohydrates are the culprit,” Vitaliano said. “Butter consumption is getting back close to where it was in 1965, but we’ve got a long way to go to get back to post World War II levels.”
Dairy consumption is relatively insensitive to changing prices and economic conditions.
“If retail prices of butter change by 1%, we only loose about one-eighth of consumption and the same is true for cheese and milk,” Vitaliano said.
“Exports are a little more sensitive to prices because we have to compete with other suppliers like New Zealand and the European Union,” he said.
In addition, U.S. consumers don’t change their buying habits much when their income increases.
“When incomes go up, consumption tends to go up less than 1%,” Vitaliano said.
The market for milk and dairy products outside of the United States are people that have middle-class incomes, Vitaliano said.
“When consumers around the world have economic ability to purchase somewhat relative expensive products like dairy, they do so enthusiastically,” he said. “Middle-class consumers have been growing faster in countries that are dairy deficient which is critical.”
In a few more years, Vitaliano said, the U.S. share of the world milk production will exceed the share of middle class consumption spending.
“That’s why it’s important to export dairy products,” Vitaliano said.
“The U.S. has come relatively late to the dairy export game,” he said. “New Zealand is a major competitor because they have needed to export most of their dairy products for years.”
New Zealand has been closely tied to the United Kingdom.
“The United Kingdom joined the European Union some years ago and the New Zealanders lost that access so they had to become good at exporting to other markets,” Vitaliano said.
Until recently, the European Union government was heavily involved in providing safety net support for its dairy farmers, Vitaliano said.
“The advantage was that program provided money for the commercial dairy industry to export dairy products with government subsidies so they got a free education on how to become major league exporters and they’re good at it,” Vitaliano said.
“The U.S. has had to play catch up,” he said. “We haven’t paid much attention to the world market until recently, but it is critical.”
For more information about the National Milk Producers Federation, go to www.nmpf.org.