Dick Groves
Editor, Cheese Reporter

2018 Editorials

2018: The Year of the Trade Wars
December 28, 2018

What A Concept: An On-Time Farm Bill
December 21, 2018

US Could Do Worse Than Follow EU Dairy Trends
December 14, 2018

WTO Is Worst System Ever, Except For All The Others
December 7, 2018

Lower Retail Prices Could Help Boost Dairy Sales
November 30, 2018

The Thanksgiving of the Future
November 23, 2018

CCC Donations Make a Comeback in USDA Dairy Data
November 16, 2018

25 Years of BST/BGH
November 9, 2018

The Midterm Election
November 2, 2018

Things We'll Miss About the California State Milk Order
October 26, 2018

Packaging Industry Keeps Growing Thanks In Part To Dairy
October 19, 2018

Per Capita Cheese Consumption: 40 Pounds Is Within Read
October 12, 2018

New NAFTA Looks Pretty Good For US Dairy
October 5, 2018

Imitation is the Sincerest Form of Flattery, But
September 21, 2018

New California Federal Order Starts To Get Real
September 14, 2018

Dismal Performance Continues for Fluid Milk
September 7, 2018

It's Time to Terminate The War on Salt
August 31, 2018

Searching for Solutions
August 17, 2018

Agencies Should Agree on Terminology For Dairy Alternatives
August 31, 2018

USDA Assistance To Farmers Will Be Woefully Inadequate
August 3, 2018

A Decade of Global Dairy Trade Auctions
July 27, 2018

Dairy Fats Have A Healthy Future
July 20, 2018

Eating More Milk and Drinking Less
July 13, 2018

Something's Not Healthy In FDA's Nutrition Innovation Strategy
July 6, 2018

An Interesting, But Flawed, Food Safety Consolidation Proposal
June 29, 2018

25 Years of Dairy Futures Success
June 22, 2018

Vegan 'Butter' And Other Strange Foods With Lots Of Potential
June 15, 2018

EU vs New Zealand, Australia on GIs Should Be Interesting
June 8, 2018

Does More Dairy Trade Really Mean Less Price Volatility?
June 1, 2018

Midwest Cheese Manufacturing Makes A Nice Comeback
May 25, 2018

Drop In Class I Use Points To Need For Federal Order Reforms
May 18, 2018

Will California Ever Get Back to A 20% Production Share?
May 11, 2018

The Dairy Industry's Plant-Based and Animal-Free Threats
May 3, 2018

Cheese Industry Attracting Some Impressive Technology
April 27, 2018

Some Good, Lots of Bad in Food Lableing Bills
April 20, 2018

Extending Multiple Component Pricing Makes Sense, And Cents
April 13, 2018

The Significance of A California Federal Order
April 6, 2018

Front-Of-Package Labeling Isn’t The Answer To Anything
March 30, 2018

US Dairy Exports and Global Export Prices
March 23, 2018

The Dairy Industry's New Cash Market
March 16, 2018

Disappearance Statistics Illustrate Importance of Exports
March 9, 2018

US Dairy Industry Can Expect More Milk, More Opportunities
March 2, 2018

Disappearance Statistics Illustrate Importance of Exports
February 23, 2018

California Federal Order Proceeding Continues to Drag On
February 16, 2018

Storm Clouds on the US Dairy Export Horizon
February 9, 2018

Federal Orders Have Many Problems, Including Their Existence
February 2, 2018

Innovate, Innovate, Innovate
January 26, 2018

Memo To Trump, Congress: Ditch The Dietary Guidelines
January 19, 2018

The Illogical World of Retail Milk Prices
January 12, 2018

Dairy Industry Isn't Very predictable, But in 2018...
January 5, 2018

 

 

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Not The Best Of Times For US Dairy Exporters, But...

After listening to a panel on global trade, as well as speakers during several other sessions, at this week’s annual joint conference of the American Dairy Products Institute and American Butter Institute in Chicago, we concluded that these are not exactly the best of times for US dairy exporters.

The timing of this week’s ADPI/ABI conference was pretty good, from a trade perspective. On Sunday, May 5, President Trump had tweeted that he planned to raise tariffs on $200 billion of Chinese imports from 10 to 25 percent; that increase became effective today.

The administration had imposed tariffs on Chinese imports last year, and the retaliatory tariffs imposed by China definitely had a negative impact on US whey, cheese and other dairy exports to that country.

The ADPI/ABI panel was moderated by Tom Suber, of Suber Global LLC. Suber, of course, headed up the US Dairy Export Council from the time it was established in 1995 until he retired at the end of 2016.

Based on recent happenings, Suber’s time as USDEC’s president could almost be considered the “glory years” for US dairy exports. After all, the value of US dairy exports grew from $778 million in 1995 to a record $7.1 billion in 2014 before falling to around $4.7 billion in 2016.

Certainly the US dairy export picture hasn’t lost all its luster over the last two years. Dairy exports last year were valued at $5.5 billion, the third-highest total ever (trailing only 2014 and 2013), and US dairy exports reached a record-high volume in 2018, according to USDEC.
And US dairy exports have continued to reach impressive levels despite facing some significant barriers around the globe.

Still, the end of Suber’s tenure at USDEC coincided closely with the inauguration of Donald Trump as President and a new era of dairy trade, and challenges that make both the present and future of US dairy exports a bit murkier, to put it mildly.

Trump didn’t take long to shake up the dairy trade environment, withdrawing the United States from the Trans-Pacific Partnership agreement during his first week in office. According to a report released three years ago by the US International Trade Commission, if TPP had been implemented, US dairy exports to TPP member countries, mainly Canada and Japan, would have increased $2.0 billion relative to the baseline.

So therein lies one problem facing US dairy exporters: lack of new trade agreements. As Andrei Mikhalevsky, president and CEO of California Dairies, Inc., noted during the ADPI/ABI panel discussion on dairy trade (and also noted in his testimony at last week’s House subcommittee hearing on the dairy economy, as reported on our front page last week), the US hasn’t completed and passed a new trade deal in well over a decade.

Unfortunately, the US and almost a dozen other countries did complete the TPP, but then the US withdrew from it. The other countries are currently in the process of implementing the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and countries (and key US competitors) such as New Zealand and Australia are beginning to enjoy increased access to such important markets as Japan and Mexico.

Yes, the US is currently negotiating a trade agreement with Japan; talks got underway late last year. But at this point it doesn’t appear likely that any type of agreement is imminent.

Meanwhile, the US, Mexico and Canada have reached agreement on a new United States-Mexico-Canada Agreement, but in the case of Mexico the agreement basically maintains the status quo, which is duty-free US access to Mexico’s dairy market. The agreement does make some positive changes regarding US dairy trade with Canada, but a recent CoBank report noted that US dairy product access to Canada will increase only modestly under the agreement.

Also with the USMCA, there’s the problem of congressional approval. Just this week, as reported on our front page, more than five dozen dairy, food and farm groups urged every member of Congress to ratify the agreement, but given the political dysfunction in Washington these days, passage of the USMCA is iffy.

Meanwhile, another major problem that has emerged since Trump took office remains: retaliatory tariffs. Talks between the US and China on a trade agreement have hit a roadblock, and today the Trump administration followed through on its threat to hike tariffs on some $200 billion of Chinese imports. Meanwhile, China continues to impose tariffs on US dairy and other imports. And Mexico’s retaliatory tariffs on US cheese will remain in place with or without the USMCA.

Despite these obstacles, all was not bleak for the ADPI/ABI trade panelists. As Sue Taylor of Leprino Foods pointed out, US cheese exports to Mexico and China during the first two months of 2019 were down from a year earlier (by 7 percent and 44 percent, respectively, according to USDA figures), but cheese exports to other countries were higher, including an impressive 51-percent gain to South Korea. And, as reported on our front page, March cheese exports set a single-month record.


The dairy export business is fraught with challenges, some put in place by US trading partners and others self-imposed. But success is possible, as impressive gains in US cheese exports to some countries illustrate. The export business would just be a little less challenging if the Trump administration was more helpful.

Another Reminder That Federal Order Reforms Are Overdue

Last month, a request to reduce shipping requirements and increase diversion limits in the Upper Midwest federal milk marketing order was approved by Vic Halverson, the order’s market administrator. The request, as well as comments received on the request, provide some of the latest evidence that another round of federal order reforms is long overdue.

It’s actually been about 23 years since the last round of federal order reforms started. Under the 1996 farm bill, which was signed into law by then-President Bill Clinton in early April of that year, USDA was required to, among other things, reduce the number of federal orders to no more than 14 and no less than 10 (USDA ultimately settled on 11 federal orders) and to look into different ways to set classified prices.

The current federal order system, which includes class prices established by product price formulas, went into effect on Jan. 1, 2000. So by the end of this year the dairy industry will have had 20 years of experience with the current system. That alone should warrant a new look at federal orders.

But there are at least a couple of other (and probably several more) compelling reasons why federal orders need significant reforms, one of which was spelled out by Dean Foods Company in its letter opposing the shipping percentage and diversion limit changes on the Upper Midwest order.

Dean Foods is, of course, a Class I milk bottler. In its letter opposing the Upper Midwest order changes, the company noted that the request will “once again increase the reserve supply of milk” in the Upper Midwest order “at a time when the amount of milk needed for Class I purposes is declining.” From a uniform pricing perspective, a federal order “cannot be effective” with only a 6 percent supply plant shipping percentage (that’s the requested shipping percentage that went into effect this week).

The amount of Class I pounds pooled both nationally and on the Upper Midwest order has “declined dramatically” over the past decade, Dean Foods pointed out. Annual Class I receipts on the Upper Midwest order declined by 32.4 percent between 2009 and 2018, while the total amount of non-Class I pounds pooled and the estimated pounds of milk electing not to pool on the order have increased by 26.4 percent.

Given these trends, “it is hard to view the request” to lower shipping percentages and raise diversion limits as “anything but a short-term band-aid solution to a long-term issue” in the federal order system, Dean Foods noted.

Two years ago, in response to a similar request to reduce shipping percentages, Dean Foods had commented that, by “not addressing the root cause of this issue which is the decline in fluid milk consumption, we will continue to face this exact issue in the years ahead.” Two years later, here we are again, addressing the same issue.

This issue is not confined just to the Upper Midwest order. In what now seems to be an annual undertaking, Queensboro Farm Products, an operator of a supply plant under the Northeast federal order, has requested that the order’s shipping percentages be reduced from 20 percent to 10 percent for the months of September, October and November. One of the reasons cited in Queensboro’s request is declining Class I utilization.

That trend continues here in 2019. The addition of the new California federal order late last year can complicate an analysis of Class I utilization, for two reasons: first, California’s Class I utilization during the last few years of its old state order was under 15 percent; and second, more than 1 billion pounds of milk is being depooled from the California order every month, which has pushed the Class I utilization up above 20 percent.

Still, as AMS reported recently, Class I utilization in March decreased from last year in nine of the 11 federal orders, including by 15.5 percent on the Upper Midwest order (to 7 percent), and by 7.8 percent on the Northeast order (to 31 percent).

So at some point, the dairy industry is going to have to take a close look at the current federal order system in the context of declining Class I use. There are few guarantees in today’s dairy business, but continuing declines in Class I use seems to be one of them.

Meanwhile, make allowances in federal order product price formulas haven’t been adjusted for a while (the current make allowances have been in effect since late 2008), while manufacturing costs for cheese and other dairy product manufacturers continue to increase.

Just to cite one example: the current make allowance for cheese is 20.03 cents per pound. The most recent California Department of Food and Agriculture study of processing costs (covering 2016) found an average manufacturing cost for Cheddar cheese of 24.54 cents. The CDFA is no longer conducting processing cost studies, but it seems like the current make allowance for cheese (as well as make allowances for butter and nonfat dry milk) will remain woefully inadequate in the future.

Granted, increasing make allowances now might be a tough sell for dairy producers (because higher make allowances mean lower minimum federal order milk prices), but maybe it’s time to rethink the whole idea of using product price formulas in federal orders.

It’s been almost 20 years since the last round of federal order reforms went into effect. Myriad changes since then, as well as experience with the current federal order system, means another round of order reforms is overdue.


2027 Could Be A Year Of Major Milestones For Cheese Industry

There has been no shortage of milestones in the cheese industry over the years. Some of these involve production, such as reaching 10 billion pounds (in 2009), some involve consumption, such as per capita consumption reaching 30 pounds annually (in 2001), and others involve trade, such as exports first topping half a billion pounds (in 2012).

With this in mind, it was interesting to look over the US Baseline Outlook, which was released earlier this month by the Food and Agricultural Policy Research Institute and the University of Missouri Agricultural Markets and Policy team (for more details, please see the story that appeared on page 3 of our April 12th issue).

There’s quite a bit of good news in this report, including the projections that cheese production will continue to grow, cheese consumption will continue to grow, and cheese exports will continue to grow.
And, interestingly, the US will reach two cheese milestones in 2027: per capita cheese consumption will top 40 pounds for the first time, and cheese exports are projected to reach 1.0 billion pounds for the first time.

Before taking a closer look at these two cheese industry milestones, it’s worth remembering what the baseline represents. These baseline projections for agricultural and biofuel markets were prepared using market information available in February 2019. The baseline incorporates 2018 farm bill provisions and assumes a continuation of trade policies in place in February 2019, including the tariffs on US farm products that were imposed by China, Mexico and other countries last year.

So therein lie at least two cautionary notes about the baseline. First, Congress passed a farm bill late last year that expires in 2023 (at least some parts of it). That means at least one and possibly two more farm bills will be passed before the end of the period covered in the FAPRI-MU baseline (it ends with 2028).

Second, tariffs imposed last year by several US trading partners have generally been viewed as short-term retaliatory measures. These tariffs are also being imposed in response to tariffs imposed by the Trump administration. Even if President Trump is re-elected next year, his second and final term will only last until Jan. 20, 2025.

So the final three years covered by the baseline will feature somebody else in the White House. And while trade policies won’t change overnight, no matter how much longer Donald Trump is President or who succeeds him, it’s worth remembering that Trump, in his first week in office, did withdraw the US from the Trans-Pacific Partnership, indicating that major trade decisions can be implemented pretty quickly.

Those points aside, how significant is the milestone of per capita cheese consumption reaching 40 pounds in 2027? Well, as noted earlier, per capita cheese consumption first reached 30 pounds annually back in 2001, so reaching 40 pounds 26 years later means per capita cheese consumption is still growing, albeit more slowly than in the past.

Per capita cheese consumption first topped 20 pounds back in 1983, meaning it took 18 years for per capita consumption to rise 10 pounds (to 30 pounds). And prior to that, per capita cheese consumption first topped 10 pounds back in the late 1960s, meaning it took maybe 15 or so years to rise 10 pounds (to 20 pounds).

Despite the fact that per capita cheese consumption growth is slowing, it’s worth noting that recent trends have been pretty encouraging. Per capita consumption hardly budged for several years a decade or so ago, rising only from 32.43 pounds in 2006 to 32.48 pounds in 2009, but has been increasing rather impressively in more recent years, climbing from 33.24 pounds in 2011 to 37.23 pounds in 2017.

Without that “lull” a decade or so ago, per capita cheese consumption would in all likelihood reach 40 pounds a few years earlier. And it still might, given that 40 pounds would require a gain of less than three pounds over a 10-year period.

As far as cheese exports are concerned, the milestones have been coming pretty regularly since the turn of the century. It was in 2000 that cheese exports first topped 100 million pounds. In 2012, they topped half a billion pounds for the first time.

Cheese exports then reached a record 810 million pounds in 2014, but haven’t reached that level since. What these trends mean is that, first of all, cheese exports are considerably more volatile than per capita cheese consumption is; and second, reaching 1 billion pounds of cheese exports will be a major milestone, whether it’s reached in 2027 or sooner (later is also possible, but we’re optimistic it will happen sooner).

No matter when the US reaches 1 billion pounds of cheese exports, it will be compared to 1999, which was the last time the US exported less than 100 million pounds of cheese.

Rising per capita cheese consumption, coupled with growing cheese exports, implies that US cheese production will continue to grow (assuming cheese imports remain relatively steady, which seems like a pretty safe assumption, since US cheese imports reached a record high of 475 million pounds back in 2002). And in fact the FAPRI-MU baseline has cheese production approaching 15 billion pounds by 2028.

The cheese industry will be reaching some important milestones in the years ahead, but perhaps more important than statistical milestones is simply the fact that the industry will continue to grow.

 

 

No End In Sight For Trade Wars Impacting Dairy

Look up in the sky: It’s a bird. It’s a plane. Actually, it’s the latest source of fuel for the fire that is US trade policy these days.

Yes, as US trade wars, and their ongoing negative dairy impacts, continue, the US is threatening to slap tariffs on cheese, butter and yogurt imports from the European Union. This threat stems from a case that’s completely unrelated to dairy; it actually concerns Airbus aircraft. But US-EU dairy trade could become a casualty of this battle.

There are at least two fascinating and frustrating aspects to this latest trade feud, beyond just the fact that dairy products might become involved in a spat about something unrelated to dairy.

The first is just how long this trade dispute has been going on. According to a notice from the Office of the US Trade Representative, it was back on Oct. 6, 2004, that the US requested World Trade Organization dispute settlement consultations with the European Communities (now the EU) and certain EU member countries (France, Germany, Spain and the United Kingdom) concerning certain subsidies granted by the EU and certain member countries to the EU large civil aircraft domestic industry, on the basis that the subsidies appeared to be inconsistent with the EU’s obligations under the General Agreement on Tariffs and Trade (GATT) 1994 and the Agreement on Subsidies and Countervailing Measures (SCM Agreement).

In May of 2005, the US requested the establishment of a WTO dispute settlement panel in this case. Some six years later, the USTR noted, a WTO panel report, as amended by an Appellate Body report, confirmed that the EU and certain member country subsidies on the manufacture of large civil aircraft breached the EU’s obligations under the SCM Agreement.

Long story short (and this is a mighty long story), this case continues to drag on. The bottom line is that the USTR is proposing determinations that the EU and certain member countries have denied US rights under the WTO Agreement and have failed to implement WTO Dispute Settlement Body recommendations; and is proposing to take action in the form of additional duties on products of the EU, including cheese and other dairy products.

So this case dates back a decade and a half, at least as far as the US requesting WTO dispute settlement consultations with the EU is concerned. Undoubtedly it dates back even further.

And it isn’t going to end anytime soon. There’s a public hearing slated for May 15, and a comment deadline of May 28. Also, USTR anticipates that the WTO arbitrator will issue its report regarding the level of countermeasures in the summer of 2019. Potentially impacted by this dispute are not only US dairy imports from the EU, but also US imports of everything from olive oil and herrings to wine and kitchen knives.

The other fascinating and frustrating aspect of this spat is that it’s actually very much a two-way dispute. Interestingly, just a couple of weeks before the US launched its investigation to enforce US rights in the WTO dispute over EU subsidies on large civil aircraft, the EU itself was welcoming a ruling by a WTO Appellate Body in a Boeing dispute.

According to a Mar. 28 press release from the European Commission, the WTO Appellate Body ruling concluded definitively that the US has continued to subsidize Boeing illegally despite previous rulings condemning this behavior. This has caused “significant harm” to Boeing’s European competitor, Airbus.

Hmmm, where have we heard that name, Airbus, before? Ah, yes, in the US dispute against the EU.

Interestingly, this case has a timeline that’s pretty similar to the US case against the EU and Airbus. It was in June of 2005 that the EU requested consultations with the US concerning prohibited and actionable subsidies provided to US producers of large civil aircraft, according to the WTO. The EU then requested a panel in January of 2006.

The European Commission’s Mar. 28 press release provides some insight into how long this dispute has actually been going on. Between 1989 and 2006, Boeing benefited from NASA, US Defense Department and Washington state/Kansas subsidies totaling over $5 billion.

In other words, the origins of this dispute date back 30 years. And the battle continues, seemingly without end.

One additional aspect of this ongoing trade dispute is worth noting. That is, the US is now looking at slapping tariffs (or, as the USTR puts it, ad valorem duties) of up to 100 percent on certain products of the EU.

Meanwhile, the EU said the recent WTO Appellate Body decision marks the final step in compliance proceedings launched in 2012 in this “long running dispute.” Initially, the EU said it expected the US to “promptly comply” with this final ruling, but this week it threatened tariffs on many US products, including cheese.

Meanwhile, the European Council has adopted negotiating directives for trade talks with the US. The Council’s decision noted that past efforts with the US have demonstrated “difficulties” in negotiating mutually acceptable commitments in areas identified as priorities by the EU, so the EU will pursue a “more limited agreement,” excluding agricultural products.

And so it continues. The US and pretty much everybody else in the world supports something resembling “free and fair” trade, whatever that is, but history teaches us that trade wars have been going on forever, will never end, and will from time to time (such as now) threaten chaos in global dairy trade.

 

 

Farmers, Processors, Importers Deserve Better From USDA

The US Department of Agriculture has released its annual report to Congress on the program activities of the Dairy Promotion and Research Program and the Fluid Milk Processor Promotion Program. The report includes summaries of the activities for the dairy and fluid milk programs, including an accounting of funds collected and spent, USDA activities, and an independent analysis of the effectiveness of the programs.

That’s all well and good, except for one thing: the report covers 2016 program activities. And it’s not that this report has been hiding somewhere; it’s dated February 2019. In other words, it’s more or less “hot off the press,” except for the fact that it covers activities that occurred more than two years ago.

As noted in the report itself, the enabling legislation of the dairy producer, dairy importer, and fluid milk processor promotion program requires USDA to submit an annual report to the House and Senate Agriculture Committees. “Annual” report would appear to suggest that these reports should be compiled and submitted to Congress every year.


In the early years of the National Dairy Promotion and Research Program, this wasn’t a problem. For example, USDA’s report to Congress covering the National Dairy Board’s year beginning May 1, 1987, and ending April 30, 1988, was dated July 1, 1988. Less than a decade later, when the report included both the National Dairy Promotion and Research Program and the National Fluid Milk Processor Promotion Program, USDA’s report to Congress covering program activities during calendar year 1994 was dated July 1, 1995.

But lately, these annual reports have been, well, they’ve been less than annual. Back in the fall of 2017, USDA released not just one, not just two, but a total of three of these annual reports. Technically, USDA only released two of these reports, one of which covered both the 2013 and 2014 program activities and the other of which covered 2015 program activities. Both of these reports were dated September 2017, so they were both a tad late, to put it mildly.

So what’s the problem with these reports being so tardy? There are at least a couple of problems with these delayed reports.

First, the late release of the reports would appear to violate the very laws that created the dairy and fluid milk promotion programs. We know this report is required, because, as noted earlier, USDA is required to submit a report to Congress every year; it says so right in each and every one of these reports.

Just for the heck of it, we decided to check the enabling legislation for the National Dairy Promotion and Research Program (specifically, the Dairy Production Stabilization Act of 1983). The legislation does in fact require the secretary of agriculture to submit to the House and Senate Agriculture Committees four different reports, three of which don’t deal with the dairy promotion program and the fourth of which is as follows:

Not later than July 1, 1985, and July 1 of each year after the date of enactment of this title, an annual report describing activities conducted under the dairy products promotion and research order issued under this subchapter, and accounting for the receipt and disbursement of all funds received by the National Dairy Promotion and Research Board under such order including an independent analysis of the effectiveness of the program.

So it’s pretty clear that USDA is supposed to submit a report to Congress every year on the dairy promotion programs, and it’s supposed to do so by July 1 of each year. And based on the dates of the reports covering 2013, 2014, 2015 and 2016 program activities, and the fact that the report covering 2017 activities hasn’t yet been released, it’s pretty clear that USDA isn’t doing what it’s supposed to do as far as submitting these reports is concerned.

The other problem with these reports being so tardy is that at least some of the information in them is pretty dated. For example, the recently released report covering 2016 program activities includes financial statements for 2015 and 2016; the “Report of Independent Auditors” is dated May 10, 2017.

Then there’s the evaluation of the effectiveness of promotion activities by the National Dairy Promotion and Research Program and the National Fluid Milk Processor Promotion Program. This evaluation covers the time period of 1995 to 2016.

So, for example, the report looks specifically at the impacts of the dairy import assessment, focusing on cheese, given that cheese accounts for about one-third of total imported dairy products and for which there are adequate data to support a “thorough quantitative analysis.”

The analytical results indicate that the average annual level of cheese imports was higher by roughly 1.4 million pounds due to the expenditure of promotion funds collected from importers, and that the annual unit value of cheese imports amounted to roughly $3.16 per pound on average over the period 2012 to 2016 due to promotion using import assessments.

USDA statistics do show that US cheese imports rose from 339 million pounds in 2012 to 452 million pounds in 2016. But then they declined to 401 million pounds in 2017 and then to 388 million pounds in 2018. How would this evaluation be different if it used current statistics?

Dairy farmers, milk processors and importers deserve more timely reports on the promotion programs they fund.

Is Milk Production About To Disappear In Some States?

There’s an old saying about US milk production that’s been around seemingly forever. Here’s how USDA’s Economic Research Service puts it: “Milk is produced in all 50 States...”

And it’s been that way since, well, since 1959, when Alaska and Hawaii became the 49th and 50th states, respectively. Prior to that, milk was produced in all 48 states.

But today, there are a few states where there’s not a whole lot of milk being produced anymore. And we can’t help but wonder if, sometime in the next decade or so, it can no longer be observed that milk is produced in every state.

The two most recent “Milk Production” reports from USDA’s National Ag Statistics Service prompted us to wonder about the future of milk production in some states. The January report, released back on Mar. 12th (the report was delayed due to the partial government shutdown) showed that US milk production in 2018 had reached a record high of 217.575 billion pounds, but actually declined in 34 of the 50 states.

Then the February “Milk Production” report, released last week, showed that February milk production in the 23 reporting states had increased 0.6 percent from February 2018, but milk production for the entire US was up only 0.2 percent from February 2018.

In other words, milk production in the 27 states not included in the 23 reporting states actually declined in February, by 5.7 percent, in fact. So the 23 reporting states accounted for 94.3 percent of US milk production in February, up from 92.4 percent of US milk production in February 2009.

It’s also notable that the 27 “non-reporting” states had a total of 636,000 milk cows in February (the 23 reporting states had 8.7 million milk cows), down from 770,000 milk cows 10 years ago (the 23 reporting states had 8.3 million milk cows 10 years ago).

So from these statistics it’s pretty easy to conclude that milk production is slowly but surely declining in a majority of states. And production is getting close to extinct in a few of them.

There are at least three ways of looking at this. First, NASS every year publishes a list of “Licensed Dairy Herds” for each state and the US as a whole; this list appears in the January “Milk Production” report.

Excluding Alaska and Hawaii (which have their own unique issues to deal with when it comes to milk production and dairy processing), there were two states in 2018 that were down to just 10 licensed dairy herds: Rhode Island and Wyoming.

To put that in some historical context, back in 2008, there were 20 licensed dairy herds in Rhode Island and 25 licensed dairy herds in Wyoming.

There are six additional states that, as of 2018, had 50 or fewer licensed dairy herds. Those states included Alabama, 30 licensed dairy herds, down from 65 a decade ago; Arkansas, 50 licensed dairy herds, down from 150 a decade ago; Delaware, 25 licensed dairy herds, down from 55 a decade ago; New Jersey, 50 licensed dairy herds, down from 130 a decade ago; Nevada, 20 licensed dairy herds, down from 25 a decade ago; and South Carolina, 50 licensed dairy herds, down from 80 a decade ago.

Second, NASS also publishes annual milk production statistics, so we can see how production is trending in these states that have the fewest licensed dairy herds in the US. So, in 2018, Rhode Island’s milk production was down 10 percent from 2017, and was down 41 percent from 2008; while Wyoming’s milk production was actually up 2.9 percent from 2017 and up almost 5 percent from 2008.

In addition to Wyoming, one other state with 50 or fewer licensed dairy herds in 2018 has seen its milk production increase: Nevada, where 2018 milk production was up 3.5 percent from 2017 and up 31 percent from 2008.

Meanwhile, Alabama’s 2018 milk production fell 18.9 percent from 2017 and was down 60 percent from 2008; Arkansas’ 2018 milk production fell 7.5 percent from 2017 and was down 62 percent from 2008; Delaware’s 2018 milk production was down 1.4 percent from 2017 and was down 17 percent from 2008; New Jersey’s milk production was down 7.6 percent from 2017 and was down 33 percent from 2008; and South Carolina’s 2018 milk production was down 2.4 percent from 2017 and was down 24 percent from 2008.

Finally, milk cow numbers can help shed some light on milk production trends at the state level. Nevada provides a nice example here; the state has five fewer licensed dairy herds than in 2008, but 5,000 more milk cows than a decade ago. And so it’s milk production is actually growing, despite the decline in licensed dairy herds.

But Rhode Island had only about 700 milk cows last year, down 400 head from 2008 and down 1,100 head from 2000. And just to cite a couple more examples: Delaware had 4,800 milk cows last year, down 200 head from 2017 and down 1,700 head from 2008; and Alabama had 5,000 milk cows last year, down 1,000 head from 2017 and down 7,000 head from 2008.

These statistics paint a fairly bleak picture of the future of milk production in a few states. Just looking at the numbers and the trends, it would appear that milk production won’t be produced in every state by, say, the year 2030.

But that’s probably over-simplifying things, at least a little. Among other things, are any of these licensed dairy herds also licensed dairy processors, thus capturing more value for their milk?

Milk will continue to be produced in all 50 states for at least a few more years, but nothing is guaranteed in the long run.

Why Dairy Product Stocks Have To Be So Large

In recent years, warehouse stocks of American-type cheese, other cheese and total natural cheese have risen to levels that have prompted some general-interest media outlets to report that America’s stockpile of cheese has reached record highs. Publications ranging from The Washington Post to The Guardian (based in London) have covered this record cheese stockpile, often reported as a cheese “surplus,” over the past year.

One issue worth noting when it comes to any discussion of cheese stocks is that the nature of these stocks has changed dramatically over the past 30 to 40 years. Back in the 1980s, USDA’s Commodity Credit Corporation was buying hundreds of million of pounds of surplus cheese, as well as surplus butter and nonfat dry milk, under the dairy price support program.

So, for example, at the end of 1983, CCC stocks of American cheese totaled 793 million pounds, while cheese production that year totaled 4.8 billion pounds (the CCC bought 833 million pounds of cheese that year).
And the latest “Cold Storage” report from USDA’s National Ag Statistics Service notes that the record high for American cheese stocks at the end of January, just under 1.1 billion pounds, was set in 1984, when the majority of those stocks were government-owned and did indeed represent “surplus” product.

Yes, there is certainly a lot of cheese being stored in commercial warehouses around the US these days. As of Jan. 31, natural cheese stocks totaled 1.36 billion pounds, a record high for that date.

But it’s worth remembering that cheese stocks represent only part of the supply-demand equation. What’s happening on the demand side is equally if not more important. And in that context, the record level of cheese stocks makes more sense.

Back in 2011, the April edition of the Market Administrator’s Bulletin for the Northeast federal milk marketing order included an article entitled “A Closer Look at Cheese Stocks.” That article pointed out that total cheese stocks had exceeded 1 billion pounds in March 2010 and had remained above that mark through March 2011.

“Though current total cheese stocks over a billion pounds sounds like a very big number historically, it has to be viewed in context with current historically strong cheese production and commercial disappearance numbers,” the article explained. And that point is worth keeping in mind when pondering the enormity of today’s cheese stocks.

Back in 2010, the year before that article appeared, US cheese production totaled 10.4 billion pounds, or about 870 million pounds per month. For the previous two decades, that article pointed out, the cheese industry had held the equivalent of a month’s production in stock.

But by January 2011, the percent of stocks over production, 118.7 percent, was as big as it had been since 1987 (when the CCC held a fair amount of cheese), the article noted.

What about January 2019? Cheese production totaled 1.1 billion pounds and cheese stocks totaled 1.36 billion pounds, so stocks were 123.6 percent of production. That’s up a fair amount from 2011.

But what about commercial disappearance? Back in 2011, domestic commercial disappearance of cheese totaled about 10.4 billion pounds, or around 866 million pounds per month. So the industry was holding more than a month’s equivalent of domestic disappearance in cold storage.

In 2018, as we report on page 15 of this week’s issue, domestic commercial disappearance of cheese totaled about 12.4 billion pounds, or just over 1 billion pounds per month. So again, the industry was holding more than a month’s equivalent of domestic disappearance in cold storage.

But there are also commercial exports to consider. Back in 2010, the US exported 115 million pounds of American cheese and 267 million pounds of other-than-American cheese, or around 382 million pounds total.
As that 2011 article pointed out, US cheese exports had grown to about 5 percent of total production in 2011, up from about 1.5 percent five years earlier.

In 2018, US cheese exports totaled 768 million pounds, roughly twice the 2010 level. US cheese exports last year included 165 million pounds of American cheese and 603 million pounds of other-than-American cheese.

As that 2011 article explained, as the export market “has become a more consistent and significant demand point for US cheese, inventory requirements to supply such a market may impact, to some degree, the level of stocks the industry may hold.”

Adding up domestic disappearance plus exports, we come up with total commercial disappearance in 2018 of about 13.2 billion pounds, or an average of 1.1 billion pounds per month. Interestingly, as noted earlier, that’s exactly how much cheese the US produced in January.

Finally, it’s worth noting that more and more cheese is being aged before it “disappears.” So, for example, stocks of other natural cheese (besides American and Swiss) totaled 525 million pounds at the end of January, up about 200 million pounds from Jan. 31, 2009.

But, just to cite one example, US Parmesan production grew by more than 200 million pounds from 2008 to 2017, and none of that Parm was sold fresh.

Thanks to strong production as well as domestic and foreign demand, high stock levels shouldn’t be any more concerning than low stock levels.


Gottlieb Will Leave Lots Of Unfinished Business At FDA

What happens when an activist head of a federal regulatory agency resigns without seeing a lot of his goals through to fruition? In the case of Scott Gottlieb, the soon-to-be former commissioner of the US Food and Drug Administration, the dairy industry will find out in the coming months and years.

As we reported last week (for details, please see the story on page 16 of last week’s issue), Gottlieb will be leaving his post next month, after serving as FDA commissioner for just under two years. But he’s been kind of a whirlwind of activity during that time.

Chief among Gottlieb’s food industry initiatives has been the multi-year Nutrition Innovation Strategy, which he announced a year ago this month. That initiative includes several key elements, including modernizing standards of identity, reducing sodium, modernizing claims, modernizing ingredient labels, and implementing the new Nutrition Facts label and menu labeling.

Only that final item is close to completion, and that’s not really because of Gottlieb’s efforts. FDA published the final Nutrition Facts rule in May of 2016, although the final compliance dates for that rule were extended by about one and a half years under Gottlieb’s leadership. The agency had published the final menu labeling rule in late 2014, and the compliance dates for that final rule were also extended, although the regulatory steps to extend those dates were undertaken before Gottlieb became FDA commissioner.

Labeling issues aside, the Nutrition Innovation Strategy includes several ambitious undertakings that have barely made it off the ground and now will likely be delayed, perhaps indefinitely.

Chief among these is in the area of standards of identity. From a dairy industry perspective, there are at least three different, but somewhat related, initiatives underway involving dairy product standards.

First, as part of its Nutrition Innovation Strategy, FDA held a public meeting last July and also accepted public comments on several questions related to that strategy, including the issue of modernizing the standards of identity to provide more flexibility for the development of healthier products.

The agency received over 1,000 comments in response to its request, including a number of comments that addressed various aspects of dairy product standards of identity.

Second, before that comment period closed, FDA opened another docket, seeking comments on the labeling of plant-based products with names that include dairy terms, such as “cheese,” “milk,” “butter” and “yogurt.” The agency received over 13,000 comments in response to that specific request.

Third, and perhaps most important (at least in the long run), FDA late last year included, among its regulatory priorities for fiscal year 2019, the reopening of the comment period on a proposed rule, issued jointly with USDA’s Food Safety and Inspection Service back in 2005, that proposed to establish general principles that would be the first step in modernizing and updating the framework for standards of identity.

FDA’s intention was to reopen the comment period on this standards proposal sometime during the first half of 2019. After the agency has reviewed comments it receives, as well as comments submitted when the 2005 proposal was published, FDA expects to be in a position to either publish a new proposed rule or to issue a final rule based on the full record.

Reducing sodium is another key element of FDA’s Nutrition Innovation Strategy. Back when Robert Califf was serving as FDA commissioner (during the final year of the Obama administration), FDA published draft guidance that provided voluntary sodium reduction targets for a variety of food products.

In the wake of last week’s report from the National Academies of Sciences, Engineering, and Medicine updating Dietary Reference Intakes for sodium and potassium , it would appear that FDA might be poised to move ahead on finalizing those sodium targets.

So what happens with all of these initiatives, now that Gottlieb is leaving the agency in less than a month? Obviously, that depends on who the next FDA commissioner is. Or maybe on who the next commissioners are.

Looking over the recent history of FDA commissioners, they seem to fall into three categories. Some, such as Margaret Hamburg, tend to serve for relatively long periods of time (she was FDA commissioner from May of 2009 through April of 2015). Others tend to serve for relatively short periods of time (the aforementioned Califf served for less than a year).
And then there are gaps, where there are acting commissioners (such as the roughly 10-month gap between Hamburg and Califf).

So imagine a scenario in which Gottlieb is succeeded first by an acting commissioner, then a new commissioner is appointed by President Trump, then Trump loses in the 2020 election and his FDA appointee is replaced in early 2021. Under that scenario, FDA’s Nutrition Innovation Strategy might not move much over the next couple of years.

Ongoing Trade Wars Are Hurting US Dairy Exports

Full-year US dairy trade statistics were released Wednesday by USDA’s Foreign Agricultural Service, and there’s both good news and bad news in the numbers.

The good news is that 2018 was a pretty darn good year for US dairy exports. As reported on our front page this week, overall dairy exports were valued at about $5.5 billion, up 2 percent from 2017 and the highest level since 2014, when dairy exports reached a record $7.1 billion in value.

Within some individual product categories, results were also pretty impressive in 2018. Cheese exports reached 766.8, up 2 percent from 2017 and the highest level since 2014, when they reached a record 810 million pounds.

Meanwhile, exports of nonfat dry milk/skim milk powder reached a record 1.57 billion pounds, shattering the previous record, set in 2017, by more than 200 million pounds. Exports of whey protein concentrate reached a record 334.3 million pounds, up 4 percent from 2017 and more than 100 million pounds higher than in 2015. And lactose exports topped 800 million pounds for the first time ever, reaching a record 864.7 million pounds.

The bad news is actually twofold. First, last year’s impressive dairy export performance was fueled more by what happened during the first half of the year than by what happened during the second half of the year.

And second, what happened during the second half of 2018 is probably a more accurate preview of 2019 than what happened during the first half of 2018.

FAS statistics help illustrate that first point. Overall, US dairy exports during the first half of 2018 were valued at $2.9 billion, up 6 percent from the first half of 2017, while exports during the second half of 2018 were valued at $2.6 billion, down 1 percent from 2017’s second half.

Granted, just looking at export values can be misleading, since global dairy product prices fluctuate from month to month, not to mention from the first half of a given year to the second half of a given year.

So, getting into some specific products that are affected by retaliatory tariffs, FAS statistics show that US cheese exports to Mexico during the January-June 2018 period were up 1.8 percent from the same period in 2017, on a volume basis, while cheese exports to Mexico during the July-December 2018 period were down 1.1 percent from a year earlier.

Mexico, by far the leading US cheese export market, was imposing retaliatory tariffs on imports of US cheese during roughly the last half of 2018.

Meanwhile, US dairy exports to China during the first half of 2018 were valued at $304.7 million, up 11 percent from the first half of 2017, but exports to China during the second half of the year were valued at $195.6 million, down 35 from 2017’s second half. China, the number three US dairy export market on a value basis (trailing only Mexico and Canada last year), was imposing retaliatory tariffs on most if not all US dairy product exports during roughly the last half of 2018.

Among a few specific products, on a volume basis, US exports of dried whey to China were down 3 percent during the first half of 2018, then dropped 30 percent during the second half; exports of whey protein concentrate were up 31 percent during the first half of 2018 but down 37 percent during the second half; and lactose exports were up 73 percent during the first half but up only 13 percent during the second half.

With these Chinese export figures in mind, it’s worth noting that overall US lactose exports during the first half of last year totaled 463.5 million pounds, up 21 percent, or about 81 million pounds, from the first half of 2017, but then totaled 401.2 million pounds during the second half of 2018, down 3 percent, or almost 13 million pounds, from 2017’s second half.

The good news is, as noted earlier, that lactose exports last year topped 800 million pounds for the first time ever. The bad news is that lactose exports were about 62 million pounds greater during the first half of 2018 than during the second half of 2018.

So what can the dairy industry expect on the export front here in 2019? Well, considering that Mexico’s retaliatory tariffs on cheese remain in place, and that China’s retaliatory tariffs on pretty much all US dairy exports remain in place, it would appear that 2019 will be more like the second half of last year than the first half of last year.

Certainly, there’s a lot more to the US dairy export picture than just cheese exports to Mexico and dairy exports to China. Indeed, dairy exports to Mexico last year reached $1.4 billion, up 6 percent from 2017 and their highest level since 2014, despite the impact of retaliatory tariffs on US cheese exports. Also on a value basis, US dairy exports grew last year to countries including South Korea, the Philippines, Indonesia, Vietnam and Malaysia, among others.

Still, the impacts of retaliatory tariffs by Mexico and China will continue to hamper export growth this year, which means that it’s imperative that the Trump administration end these trade wars as soon as possible. That isn’t necessarily going to be easy; after all, while we’re focusing on 2018 statistics here, it’s already March and those retaliatory tariffs are still in place. That’s another two months of tariffs that are clearly reducing dairy exports, with no end in sight.

Yes, there are reports of progress in ongoing negotiations with China. But at this point, progress doesn’t mean much; ending the trade wars is what’s really needed.

Coke, Pepsi, And The Future Of ‘Milk’

With the news last week that PepsiCo, Inc., is buying CytoSport and its Muscle Milk business from Hormel Foods Corporation, two of the world’s largest beverage businesses have now entered, or further expanded into, the dairy-based beverage business in the US. And at least in some ways, they appear to be pointing the way to future of “milk” as a beverage.

The Coca-Cola Company, of course, is a partner with Select Milk Producers in fairlife, LLC. The Coca-Cola Company is the distribution partner for the products that fairlife creates, markets and sells, including beverages under the fairlife and Core Power labels.

The Muscle Milk brand, meanwhile, includes products such as ready-to-drink smoothies and protein shakes. Some of these products are labeled “non-dairy,” but they do contain such ingredients as milk protein isolate, sodium caseinate, and calcium caseinate. The Muscle Milk brand also includes recently launched Yogurt Protein Shakes, which are made with not only Greek Style Low Fat Yogurt (made from skim milk, milk protein concentrate, cream, enzymes and cultures) as its second ingredient, but also includes whey protein concentrate as its third ingredient.

In other words, dairy or non-dairy, Muscle Milk is using a fair volume of dairy ingredients in its beverages (as well as in its protein powders and protein bars).

So what does the involvement of The Coca-Cola Company and PepsiCo tells us about the future of milk as a beverage? Quite simply, it tells us that the future is going to be different from the past.

Indeed, there are a number of differences between products such as fairlife, Core Power and Muscle Milk and traditional beverage milk.

For starters, they come in different packages than does traditional beverage milk (we’re talking about the packages that are sold out of the dairy case, not the relatively recent convenience-sized milk bottles).
fairlife Ultra-Filtered Milk, for example, comes in a 1.5-liter (52-ounce) bottle (as well as an 11.5-ounce single-serve bottle), whereas traditional milk comes in quarts (32 fluid ounces), half-gallons (64 fluid ounces) and gallons (128 fluid ounces).

Muscle Milk’s beverage products, meanwhile, also are available in unusual package sizes, such as 11-ounce cartons and 15.8-ounce bottles.

The fairlife 52-ounce containers are also more colorful than most traditional milks in the dairy case. For example, many milks distinguish their fat content with colored caps, such as a red cap for whole milk.
fairlife uses different colors for almost its entire bottle. So, for example, a 52-ounce bottle of fairlife whole milk is primarily red, while reduced fat milk is blue. Needless to say, these bottles tend to stand out in the dairy case.

The Muscle Milk beverage line is also less bland than traditional beverage milks. There’s simply no mistaking these products for traditional milk products sold in the dairy case in gallon or half-gallon plastic jugs.

Another significant difference between products such as fairlife and Core Power and traditional beverage milk is shelf life. According to fairlife’s website, fairlife is pasteurized at a higher temperature than ordinary milk, for a shorter time, giving it a “much longer” shelf life unopened (shelf life is the same as ordinary milk after opening). So consumers can stock up more on fairlife than on traditional milk, knowing that, as long as it’s unopened, it will last for a couple of months in the refrigerator.

As far as fairlife’s Core Power is concerned, the company said its ultrafiltration and aseptic packaging allow it to be shelf stable for up to nine months on Elite products and up to 12 months on 26-gram products.
And these products don’t have to be sold in the dairy case or any other refrigerated area.

That’s also the case with all of Muscle Milk’s products, including shakes and smoothies.

So are there any downsides to these products being marketed by The Coca-Cola Company and, in the near future, by PepsiCo? Cost is the most obvious thing that comes to mind.

There are two aspects to the cost issue. First, exact comparisons with traditional milk products are nearly impossible, for the aforementioned reason that fairlife, for example, comes in a 1.5-liter bottle, and is sold alongside half-gallon and gallon containers.

Second, and more important, fairlife is in fact more expensive than traditional milk. Indeed, a quick check of the dairy case in one local supermarket found that a 1.5-liter (52-ounce) bottle of fairlife whole milk is more expensive than a gallon (128-ounce) of whole milk. That’s pretty pricey.

That is, at least in part, because fairlife is a value-added product. Value is added to fairlife in several ways: it has a higher protein content (per serving) than regular milk, has a longer shelf life, and is lactose-free, among other things.

There hasn’t been a lot of value added to traditional milk for a number of years, and sales reflect that fact, having declined from 55 billion pounds in 2010 to under 49 billion pounds in 2017.

Obviously, these value-added milks aren’t for everyone because of their higher price. But they just as obviously have some merit, because, well, because they are being marketed by two of the savviest companies in the beverage business. And the dairy industry could do worse than having its beverage products, or milk components, marketed by The Coca-Cola Company and PepsiCo.

 

Let Them Eat Golana

This darn plant-based dairy alternative issue is so big (at least potentially), and so complex, that we just can’t quite let it go. So for the third week in a row, we’re going to address the issue, albeit from a couple of new angles.

The issue of how to label dairy imitators has been around for, well, for roughly as long as real dairy products have been around. Back in the late 1800s, for example, there were problems with “filled” cheese, which was described by one source as “a compound of skim milk and grease, such as old butter, oleomargarine, or lard, the favorite ingredient being at present stale butter...”

That quote, by the way, dates back to 1890. And related to the issue of filled cheese and filled milk, the Filled Cheese Act of 1896 was repealed by Congress in 1974, while the Filled Milk Act of 1923 was declared unconstitutional in 1972.

More recently, cheese analogs were generating quite a bit of controversy.
For example, a 1986 USDA report, Effects of Casein Imports, noted that the variety of products included in the cheese analog group “is increasing”; products at that time included cheese substitutes (made from casein, vegetable oil, and water), imitation cheese (which can be made from proteins other than casein, such as soy), and blended products (combining, for example, natural and imitation cheeses).

This controversy didn’t just focus on imports of casein and how those imports might or might not be interfering with the dairy price support program. It also focused on what these products should be called.

So in September of 1978, the US Food and Drug Administration published a proposed rule that would have established standards of identity for milk and cream substitutes and cheese substitutes.
More than three years earlier, FDA had received a petition from the National Cheese Institute, proposing the establishment of a standard of identity for cheese analogs under the name “Golana.” The NCI petition stated that the name “Golana” was selected because it was pleasant-sounding, easily pronounced, and not related to another food. “Golana” happens to be “analog” spelled backward.

NCI had rejected the word “cheese” as a root word on the grounds that such terms might be confused with names of natural cheeses. Further, NCI suggested that the word “analog” was more applicable than words such as “alternate,” “substitute” or “imitation” because analog connotes something having properties corresponding to something else, but different in origin.

Briefly, FDA’s 1978 proposed rule explains, the petition for the standard of identity for Golana defines a cheese analog as the food made in semblance of cheese or a cheese product in which safe and suitable nonmilk ingredients supplement or replace any or all nutritive milk components.

The proposed standard would also have established nutritional equivalency requirements for Golana and a system of nomenclature for Golana-type foods based on the degree of semblance to the cheese simulated, including its nutritional equivalency to that food.

So, for example, a Golana simulating Mozzarella that conformed to the organoleptic and physical properties, as well as to the established fat and moisture requirements for Mozzarella, and contained the required levels of protein and nutrients proposed in the standard of identity for Golana would have been named “Golana mozzarella cheese analog.”

FDA withdrew that proposed rule in 1983, for reasons that are too detailed to get into here. But in light of all the current controversy over what to call plant-based dairy alternatives, maybe it’s time to revisit “Golana,” or some other pleasant-sounding name.

Another issue related to these plant-based foods concerns something the Plant Based Foods Association mentioned in its recent comments to FDA. Companies selling dairy alternatives, the PBFA said, are using common English words that consumers understand, including cheese, milk, yogurt and butter.

To PBFA’s members, and to consumers, “these words represent functionality, form and taste, not necessarily the origin of the primary
ingredient” (emphasis added).

But there’s a huge difference between the primary ingredient in dairy products and the primary ingredient in dairy alternatives. In dairy products, the primary ingredient, of course, is milk.
In many if not most plant-based dairy alternatives, the primary ingredient is actually water. Yes, many of these products are named after a plant-based ingredient, such as almond milk.

But how many almonds are actually in almond milk? That’s not easy to tell. For example, Blue Diamond’s Almond Breeze Original Almondmilk lists “almondmilk (filtered water, almonds)” as its first ingredient. The product’s nutrition information also notes that there’s all of one gram of protein per one-cup serving, while one serving of Whole Natural Blue Diamond Almonds has six grams of protein per serving.

Other plant-based products don’t necessarily have a “primary ingredient.” Here are the ingredients in Follow Your Heart’s Smoked Gouda Style Slices: Filtered Water, Coconut Oil, Modified Food Starch, Potato Starch, Sea Salt, Natural Smoke Flavor (Plant Sources), Natural Flavor (Plant Sources), Olive Extract.

Plant-based foods imitating dairy products are crying out for more regulatory oversight.

Plant-Based ‘Dairy’ Products:
FDA Has To Do Something

The US Food and Drug Administration should have learned at least two things from all the comments it received in response to its request for information on the labeling of plant-based products with names that include the names of dairy foods.

First, the agency should have learned that there’s quite a bit of interest in this subject. As reported on our front page last week, FDA received over 13,000 comments in response to its request.

Granted, some of these appeared to be form letters. For example, some comments advocating for the status quo (allowing plant-based foods to continue using dairy terms) started off as follows: “The public is waking up to the horrors of animal agriculture.” But, form letters or not, 13,000 comments indicates that there’s quite a bit of interest in this topic.

Second, the agency should have learned that the status quo is simply not acceptable on the labeling of plant-based products with names that include the names of dairy foods.

That’s because, among other things, FDA currently defines milk as “the lacteal secretion...obtained by the complete milking of one or more healthy cows...” Here in the 21st century, milk is obtained by the complete milking of one or more healthy cows, goats, sheep, camels and other animals. If nothing else, FDA needs to broaden the scope of its definition of “milk” to include other animals.

Beyond that, there are at least a couple of issues FDA should deal with here. First, we found it interesting that the Plant Based Foods Association told FDA that companies selling dairy alternatives “are using easy to understand, clear, descriptive and truthful language” on their labels.

That doesn’t necessarily appear to be the case. For example, PBFA member Daiya Foods sells a number of dairy alternatives, including Daiya Medium Cheddar Style Farmhouse Block (which we mentioned in this space last week). Yes, the label does say “deliciously dairy-free,” right under “daiya,” but the words “MEDIUM CHEDDAR STYLE FARMHOUSE BLOCK are not only in all capital letters but are also in larger typeface than is the “deliciously dairy-free” line.

The label does note that the product is “Dairy & Soy Free,” but again, the typeface is smaller than the MEDIUM CHEDDAR STYLE FARMHOUSE BLOCK.

Another PBFA member company, Follow Your Heart, markets products such as Smoked Gouda Style Slices. On this label, there are a couple of problems (from a consumer and dairy industry, if not regulatory, perspective).

First, the words “Smoked Gouda” and “Slices” are in much larger typeface than the word “Style,” so a consumer just glancing at the product will easily see “Smoked Gouda Slices” but might not see the word “Style.”

And second, the label does say “Dairy Free Cheese Alternative,” but those words appear near the bottom of the label and, again, are in smaller typeface than “Smoked Gouda Slices.”

So if FDA decides to continue allowing companies to use dairy terms to describe non-dairy alternatives, at least it should require labeling that is clear and not misleading. One possible solution would be to require the dairy term, such as Gouda or Cheddar, to be smaller than the qualifying phrase “Dairy Free” or “Dairy Alternative,” or maybe “Non-Dairy.”

FDA might even want to go as far as to define, or ban, the term “style.” We mention this because, under the geographical indication provisions of the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union, limited GI rights are being provided to the EU on Asiago, Feta, Fontina, Gorgonzola and Munster.

Under those limited rights, current users of those names in Canada can continue to use those names, but future users will be able to use the names only when accompanied by expressions such as “style,” “type” or “kind.”

Granted, this is for an agreement between the EU and Canada, but if a company decides to start producing Asiago in Canada next year, it will have to use a term such as “style,” which is the same term numerous companies are using to describe plant-based cheese alternatives. These are obviously very different products.

The second issue FDA should deal with when it comes to plant-based dairy alternatives has to do with consumer confusion. Actually, that issue is pretty closely related to the first issue, and it’s really what this controversy is all about.

Surveys conducted by and for various dairy organizations have found, among other things, that buyers of plant-based alternatives believe those products are equal to or even superior to conventional dairy products when it comes to such things as protein, vitamin and mineral content, which is not true.

Several comments also pointed out that most conventional dairy products are governed by standards of identity, while plant-based dairy alternatives are not. So maybe FDA can address this disparity when it reopens the comment period on a 2005 proposed rule that would establish a set of general principles for food standards.

Adherence to these principles, FDA explained in that proposed rule, “will result in standards that will better promote honesty and fair dealing in the interest of consumers,” among other things.

That’s really what this whole issue really boils down to: honesty and fair dealing. And so maybe FDA should deal with this issue of plant-based dairy alternative labeling when it revives its food standards proposal.

 

Plant-Based Foods Get Some Nice Endorsements, But...

The dairy business is tough enough these days without its main competitor, plant-based foods, getting ringing endorsements from entities that are at least somewhat respected. But that’s just what’s happened over the past several weeks.

Back on Jan. 14, the EAT-Lancet Commission released a report that promotes diets consisting of a variety of plant-based foods, with low amounts of animal-based foods including dairy (for more details, please see Transformation Of Global Food System, Including Less Dairy, Seen As Urgent,on page 18 of our Jan. 18th issue by scanning the QR Code above).

Then last week, Health Canada released the new Canada’s Food Guide, which includes advice for Canadians on “healthy food choices and healthy eating habits,” but doesn’t specifically endorse dairy products. Instead, consumers are advised to eat plenty of vegetables and fruits; eat protein foods (which includes lower fat dairy products such as milk, yogurt, and lower sodium cheeses); choose whole grain foods; and make water “your drink of choice” (for more details, please see ‘Healthy’ Food Choices In Canada’s Updated Food Guide Omit Dairy Foods, on page 9 of our Jan. 25th issue).

Taken together, these two reports certainly aren’t very positive for dairy, from a nutritional perspective. Canada’s updated Food Guide is especially troubling, given that country’s strong dairy industry, and the government’s role in preserving that industry through various policies.

To further illustrate how ridiculous this new Canadian Food Guide is, this week, Agriculture and Agri-Food Canada announced an investment of up to $2.7 million to support Dairy Farmers of Canada’s efforts to enhance public trust in dairy production. The news release announcing this investment notes that Canada’s dairy sector has a longstanding reputation for producing “high-quality, safe, and nutritious milk and dairy products for Canadians,” and Lawrence MacAulay, Canada’s agriculture minister, stated that building consumer confidence and trust “helps ensure the growth and sustainability of Canada’s dairy sector.”

So one Canadian agency downplays the importance of dairy products in the diet, while another announces an investment aimed at helping to ensure the growth and sustainability of Canada’s dairy sector. Seems a bit inconsistent.

There are at least two really frustrating aspects to these two reports, from a dairy perspective. First, both reports are critical of saturated fats, which seems to ignore a whole lot of recent research that has found, at a minimum, that saturated fats aren’t harmful to health and, possibly, have certain health benefits.

Indeed, it was a case of either bad timing or good timing to hear investigative science journalist Nina Teicholz, author of The Big Fat
Surprise, talk last Monday at Dairy Forum 2019 about how the past 60-plus years of lowfat nutrition advocacy has amounted to an uncontrolled experiment on the entire population, with disastrous consequences for health; and then see Health Canada release its new Food Guide, touting only lowfat dairy products, the very next day.

Actually, the number of studies finding health benefits from full-fat dairy products has risen impressively in recent years. These studies are finding that dairy fats may have beneficial impacts on cardiovascular disease, stroke and type 2 diabetes, among other positives. But you’d never know it from Health Canada’s recommendations.

Another frustrating aspect of these two reports is that they seem to endorse plant-based diets and plant-based foods for the simple reason that they come from plants, not because they are necessarily more nutritious or nutrient-dense than traditional dairy products.

This point was solidified by a new survey, conducted by Ravel and commissioned by Wisconsin Cheese Makers Association, Dairy Farmers of Wisconsin and Edge Dairy Farmer Cooperative, which found that consumers are confused about whether plant-based imitation dairy products are in fact dairy foods and whether they carry the same nutritional value (for more details, please see the story on our front page last week by scanning the QR Code).

One amazing finding from this survey is that about one-third of consumers think that plant-based foods that mimic cheese contain protein, and 21 percent think that it is of a higher quality than dairy even through the imitations have little or no protein while real dairy cheese has seven grams of protein.

In fact, two of the three plant-based foods that mimic cheese that were included in the survey — Daiya Mozzarella Style Shreds and Follow Your Heart Mozzarella Style Slices — contain exactly zero grams of protein. And Daiya Medium Cheddar Style Farmhouse Block (so much for the term “farmhouse” having any actual meaning) has one gram of protein.

So if consumers think switching from real dairy cheese to plant-based “cheese” doesn’t alter their intake of protein or other nutrients, they will be in for a big, nasty surprise.

The EAT-Lancet report is critical of highly processed foods, which is kind of laughable considering how “highly processed” many plant-based “dairy” products are. For example, the aforementioned Daiya Medium Cheddar Style Farmhouse Block is made from, among other things, tapioca starch, coconut oil, vegan natural flavors, pea protein isolate, chicory root extract, xanthan gum, tricalcium phosphate, pea starch and potato protein.

Plant-based diets are gaining credibility in some quarters, but from a nutritional perspective, they remain woefully inadequate compared to traditional dairy foods.

 

Enough Is Enough; Time To End The Government Shutdown

The partial shutdown of the US government entered its second month this week (it started back on Dec. 22, 2018), and as this idiotic political battle continues its destructive path, it’s time to declare that enough is enough, Washington. End this shutdown, once and for all, and get on with the business of governing.

We make this recommendation after listening to Dr. Stephen M. Ostroff, former deputy commissioner of the US Food and Drug Administration, at this week’s Dairy Forum 2019 in Orlando, FL.

There were at least two interesting aspects to Ostroff’s presentation before even getting into the details of why it’s vitally important to end this shutdown quickly. First, Ostroff had more time than expected to speak Monday because the speaker who was scheduled to appear ahead of him, Greg Ibach, under secretary, marketing and regulatory programs, USDA, couldn’t attend due to the shutdown.

And second, Ostroff has a unique perspective on the shutdown, having served as deputy commissioner for foods and veterinary medicine until retiring just a couple of weeks ago. In other words, Ostroff was working for FDA when the shutdown started, knows a lot about the shutdown’s impact because of that, and was only able to appear at the Dairy Forum because he’s now retired from FDA.

From Ostroff’s perspective, there are plenty of negative consequences stemming from the shutdown, some short-term and some long-term. In the area of short-term impacts, Ostroff mentioned several FDA functions that aren’t currently happening, including low-risk inspections, guidance and regulatory work, food additive/GRAS (generally recognized as safe) reviews, nutrition-related work, labeling and standards work, and communication and consumer information.

Let’s look at just one of those areas: standards work. FDA’s Nutrition Innovation Strategy, announced last March by FDA Commissioner Scott Gottlieb, includes modernizing standards of identity as one of its five key elements. This could include specific standards-related “modernization,” such as finalizing a proposed rule, published 10 years ago this month, that would revise the standards of identity for yogurt.

It will also include reopening the comment period for a proposal, released by FDA in 2005, that would establish a set of general principles for standards of identity.

As long as the shutdown continues, FDA’s work on dairy and food standards will go absolutely nowhere.

Ostroff also mentioned some long-term ramifications of the shutdown, including such things as consumer confidence and employee morale. In that latter category, he noted that, thanks to the shutdown (which isn’t the first and probably won’t be the last, and is also now the longest ever), there will be a loss of talented and skilled personnel at FDA and also more challenges in recruiting and retaining needed talents.

Every week the shutdown drags on, the consequences are worse, Ostroff said. So just from the perspective of the dairy industry needing a fully functioning FDA, it’s time to end this shutdown.

Meanwhile, over at USDA, the dairy industry has now gone more than a month since the last key dairy report was released. The monthly “Milk Production” was supposed to be released Wednesday, giving the dairy industry an idea of how milk cow numbers, milk per cow and overall milk production fared in December.

One day before that, the monthly “Cold Storage” report was supposed to be released, giving the dairy industry some hard figures on cheese and butter inventories at the end of December.

And a couple of weeks ago, the monthly “Dairy Products” report was supposed to have been released, giving the industry important data on November cheese, butter, whey products, dry milk products, and other dairy products output.

But USDA’s National Ag Statistics Service hasn’t been open since the shutdown started, so none of these reports have been released as scheduled. The NASS website includes the following “slogan”: “Providing
Timely, Accurate and Useful Statistics in Service to US Agriculture.”
Indeed it does, except when it’s not operating. Eventually, the dairy industry will once again have access to accurate and useful statistics, but initially they won’t be as timely, thanks to the shutdown.

In recent years, the US dairy industry has become more and more reliant on the export market, while also importing around $3 billion in dairy products every years. Back in November, the US exported, well, we don’t know, because those numbers aren’t available due to the shutdown.

Looking ahead, USDA has a lot of work to do in implementing the 2018 farm bill. That piece of legislation ran a total of 807 pages, but the hard work really doesn’t begin until USDA starts writing the rules for implementation.

For example, the farm bill (which was signed into law by President Trump just a couple of days before the shutdown started) establishes a new Milk Donation Program, and gives USDA 180 days to establish the program. At this point, about 35 of those days are behind us, and our guess is that work on this new program is going nowhere fast, thanks to the shutdown.

So enough is enough. It’s time for Congress and the President to start acting like grown-ups, and get the federal government up and running again. As Stephen Ostroff said, every week the shutdown continues, the worse the consequences are.

A Fond Farewell To NCI, MIF, IICA And NYA

In the dairy industry, as well as pretty much every other industry, trade associations come and trade associations go. This is a particularly notable “trade associations go” period for the dairy industry; at the beginning of 2019, the industry bid a fond farewell to four trade associations that had capably served the industry for many, many years.

As we reported two weeks ago, the International Dairy Foods Association has consolidated the governance structure of its constituent organizations — the National Cheese Institute, Milk Industry Foundation and International Ice Cream Association — under one central organization, IDFA. As of Jan. 1, 2019, those three longtime dairy organizations no longer exist.

And as we reported last week, the National Yogurt Association board of directors voted last month to dissolve and transition its assets over to IDFA. So the NYA also no longer exists.

Each of these four trade associations has had a rich and colorful history of serving the dairy industry. The oldest of the four organizations was the International Ice Cream Association, which was founded in 1900 and was known for many years as the International Association of Ice Cream Manufacturers.

Next came the Milk Industry Foundation, founded in 1908. The National Cheese Institute was founded in 1927, and finally the National Yogurt Association came along in 1986.

NCI, MIF and IICA have been constituent organizations of IDFA since 1990. Prior to that MIF and IICA were co-managed and had been based in Washington, DC, for many years.

The National Cheese Institute was a relative newcomer to Washington when it joined MIF and IICA in IDFA. NCI was actually founded in Plymouth, WI, back when that city was first becoming known as the Cheese Capital of the World.

At that time, Plymouth was home to a number of cheese companies (although some of the companies now most associated with Plymouth, including Sargento, Sartori, Masters Gallery and Great Lakes Cheese, didn’t exist back then), and was also home to the Wisconsin Cheese Makers Association (which moved to Madison in 1962) as well as the old Wisconsin Cheese Exchange (which moved to Green Bay in 1956, later changed its name to the National Cheese Exchange, and closed its doors in 1997).

NCI later moved to Chicago, and for many years was co-managed with the American Butter Institute. In a nice illustration of how dairy trade associations have come and gone over the years, NCI and ABI used to have their annual meetings in April in the same location and in the same week as the American Dry Milk Institute and Whey Products Institute; ADMI and WPI merged in 1986 to form the American Dairy Products Institute (another now-defunct group, the Evaporated Milk Association, merged into ADPI in 1997).

NCI moved to Washington in the late 1980s (shortly after the NYA was formed), and then joined MIF and IICA in forming IDFA in 1990. Meanwhile, the NYA was managed for a number of years by the American Frozen Food Institute.

With IDFA hosting its annual Dairy Forum starting on Sunday, Jan. 20th, it’s worth noting that the Dairy Forum hasn’t always been hosted by IDFA. The annual gathering, which was known as the “US Dairy Policy Forum” when it was first held back in 1985, was originally sponsored by MIF and IICA (which was then still known as IAICM). They continued to sponsor the Dairy Forum up until 1990.

Obviously there is a lot of history involved in the four organizations that no longer exist. And that raises the question: Is this really a good idea, to consolidate NCI, MIF, and IICA under one central organization, IDFA, and also to bring in another organization’s assets and operations, NYA?

Yes, this would appear to be a very good idea, for at least two reasons. First, IDFA is now operating under one set of bylaws and financial reporting requirements, as well as one budget.

Prior to Jan. 1, 2019, NCI, MIF and IICA each operated on a separate budget, and IDFA also had its own budget. And IDFA, along with its three constituent organizations, all had their own boards of directors.

Logic would suggest that operating under one set of bylaws and financial reporting requirements, as well as just one budget, would simply be a more efficient way to operate a trade association.

The other way in which this change appears to be a very good idea is in the area of industry advocacy. As Michael Dykes, IDFA’s president and CEO, noted, under its new structure, IDFA “will be more nimble, inclusive and effective in representing the interests of all segments of the dairy processing industry.” This foundation will allow IDFA to “enhance our legislative, regulatory and communication efforts and increase the return on investment for our members.”

Basically, anything that can enhance the dairy processing industry’s legislative, regulatory and communication efforts in the future is a good thing.

The National Cheese Institute, Milk Industry Foundation, International Ice Cream Association and National Yogurt Association no longer exist, but they all left rich legacies spanning many, many years.

More importantly, they left in their place a stronger International Dairy Foods Association, which bodes well for the dairy industry in the years ahead.

USDA Should Buy Milk With Extended Shelf Life

Last August, the US Department of Agriculture announced plans to purchase fresh fluid milk in half-gallon containers for distribution to The Emergency Food Assistance Program.

This was described as the first time ever that USDA was going to buy fresh fluid milk for distribution under TEFAP. And so, understandably, the agency encountered a couple of problems.

First, USDA had a little trouble getting all the milk it was trying to buy, at least initially. Specifically, USDA’s Ag Marketing Service in late August issued three separate solicitations for a total of about 82.8 million pounds of fluid milk.

The agency ended up accepting bids for a total of about 62.9 million pounds of milk. And the three purchase awards specifically mentioned that no offers were received for about 8.1 million pounds, 3.5 million pounds and 8.3 million pounds of fluid milk under the three solicitations.

Then, in October, the agency announced plans to purchase fresh fluid milk, targeting certain orders for milk in half-gallons that were not fulfilled under contracts that had been awarded in late September. Before it issued solicitations for that milk, AMS sought comments from fluid milk industry suppliers regarding the earlier procurement of fluid milk.

Then, in late October, AMS issued a solicitation seeking a total of about 15.7 million pounds of fluid milk, for delivery between late 2018 and March 2019. The agency ended up accepting bids for a total of 13.4 million pounds of milk; no offers were received for about 2.2 million pounds of milk.

Beyond the problem of buying the quantities it is seeking to buy, USDA appears to be running into another problem with its fluid milk purchases: at least some food banks can’t handle all the milk they are receiving under this program.

Late last month, it was widely reported that food pantries in eastern Iowa and western Illinois were being flooded with milk donated by USDA.
Mike Miller, CEO of the River Bend Foodbank in Davenport, IA, told the Quad-City Times, also of Davenport, that the milk was “a huge help for hungry people in our community,” but that moving all that milk (about 80,000 half-gallons of milk will be distributed to food pantries across the Quad-City region through March) “has been challenging. Milk has a limited shelf life, so we have to move it quickly.”

Miller added that food banks lack adequate storage for the milk donations, and noted that some areas of the US have had to decline these milk donations “because it’s too much to handle and milk is not usually donated.”

Handling fluid milk should become easier for food banks as they become accustomed to receiving it. But it would seem that there are a couple of other solutions here.

First, USDA could switch from buying fluid milk to buying cheese for donation under TEFAP. The agency already buys a lot of cheese every year, primarily for use in the National School Lunch and School Breakfast programs. During fiscal year 2018, for example, USDA bought some 183 million pounds of Mozzarella, natural American and processed cheese.

So not only does industry have considerable experience in selling cheese to USDA, this cheese in turn has a longer shelf life, so food pantries won’t be fighting the calendar as much when they receive shipments.

The biggest problem with this solution is that milk is one of the most requested items among families and individuals served in Feeding America’s network.

Feeding America, if you’re not familiar with it, is the largest hunger-relief organization in the US. Through a network of 200 food banks and 60,000 food pantries and meal programs, the organization provides meals to more than 46 million people each year.

So what’s the solution to this dilemma of high demand for fluid milk but inadequate resources to handle fluid milk at the food-bank level? How about buying milk with extended shelf life?

This could take at least two different forms. First, USDA could buy fluid milk that requires refrigeration but has a shelf life of two or three months rather than two or so weeks. There are fluid milk companies around the US who produce ESL milk.

Second, USDA could buy UHT milk, which doesn’t require refrigeration and has a shelf life of several months. Actually, the agency already buys millions of pounds of UHT milk every year, so it’s already familiar with acquiring and distributing it.

These ideas might solve the problem of short shelf life for fluid milk, but they might present their own set of problems. For example, milk with an extended shelf life still has to be refrigerated, so it would still challenge food banks that have limited refrigerated space.

Also, milk with an extended shelf life might come with a higher price tag. But if food banks have more time to distribute these products, and consumers can store them for a longer period of time, there would probably be less milk being wasted, making the higher price worthwhile in the long run.

As far as UHT milk is concerned, it’s worth noting that USDA, in both its August and its October 2018 announcements, referred to a fresh fluid milk purchase program, so it would have to tweak its future announcements. And US consumers aren’t all that familiar with UHT milk, at least not yet.

USDA’s fluid milk purchase program is a good idea, and can be improved by offering milk with a longer shelf life.

 

A Busy Year Ahead For FDA, USDA, USTR

As we look ahead at some things the dairy industry can expect here in 2019, assuming Washington gets its act together one of these days and the government shutdown ends, it would appear that at least three federal agencies will be mighty busy over the next 12 months. Those agencies are the US Food and Drug Administration, US Department of Agriculture and the Office of the United States Trade Representative.

Let’s start with FDA. During his first two years as the agency’s head, FDA Commissioner Scott Gottlieb has established himself as what might be considered an “activist” commissioner. And this activism will undoubtedly be carried over into 2019.

Last March, Gottlieb unveiled FDA’s Nutrition Innovation Strategy, which includes several initiatives that will potentially impact the dairy industry this year and beyond. Among other things, FDA is seeking comments on the labeling of plant-based products with names that include the names of dairy products such as “milk” and “cheese.”

The deadline for submitting these comments is Jan. 28, 2019; the docket number is FDA-2018-N-3522. After that, well, it might take FDA the rest of 2019 to read through all the comments; as of Monday, Dec. 31, the agency had already received over 8,600 of them.

More broadly in the area of food standards, FDA is planning to reopen the comment period on a proposed rule, originally issued back in 2005, seeking to establish general principles to update the framework for federal standards of identity. This is certainly an important initiative for the dairy industry; after all, as the International Dairy Foods Association recently pointed out, 37 percent of all food standards of identity are for dairy products.

Also as part of its Nutrition Innovation Strategy, FDA is looking at modernizing its definition of “healthy.” More specifically, as Gottlieb explained recently, FDA is working on updating the definition of the “healthy” claim on food labels so it reflects current nutrition guidelines and to encourage its use.

We expect any updated definition of “healthy” to be unhealthy for most dairy products.

At least one more aspect of FDA’s Nutrition Innovation Strategy will bear watching this year: sodium reduction. When he announced the Nutrition Innovation Strategy last March, Gottlieb stated that there remains “no single more effective public health action related to nutrition than the reduction of sodium in the diet,” and said he was “committed to advancing” the agency’s short-term voluntary sodium targets. We’ll see how far this initiative gets in 2019, and beyond.

Meanwhile, USDA has a couple of significant undertakings this year, starting with implementation of the recently enacted 2018 farm bill. Here, the dairy industry can expect several actions from USDA in the coming months, at least if the 2014 farm bill is any guide.

For example, the 2014 farm bill, which was signed into law in February of that year, included two new programs: the Margin Protection Program for dairy farmers, and the Dairy Product Donation Program. A final rule implementing those two programs was issued in late August 2014.

The 2018 farm bill included some changes to the MPP, including a new name (the Dairy Margin Coverage program), so we expect USDA to publish a final rule implementing those changes sometime in the next few months. The new farm bill also extends the Dairy Forward Pricing Program (which expired on Sept. 30, 2018), and we expect USDA to publish a final rule extending that program in the near future (the 2014 final rule extending the Dairy Forward Pricing Program was released in March of that year).

The new farm bill also requires USDA to establish not less than three regionally located dairy product and business innovation initiatives, so it will be interesting to see how the agency approaches the implementation of this initiative in the coming year (or longer).

One other area that will keep USDA busy this year will be with its recently released GMO (bioengineered) food disclosure standard. The final rule has a compliance date of Jan. 1, 2020, for regulated entities other than small food manufacturers, and a voluntary compliance period that runs through the end of 2021. Suffice it to say USDA will have its hands full in 2019 answering questions about this rule.

Finally, the USTR looks like it will have a mighty busy 2019, for better or worse from a dairy industry perspective.

Needless to say, the USTR had a pretty noteworthy 2018, implementing tariffs on steel and aluminum imports from a number of countries, including several key US trading partners, while also concluding talks on a modernized North America Free Trade Agreement (renamed the United States-Mexico-Canada Agreement) and launching trade talks with Japan and the European Union, among others.

How all of this plays out in 2019 will be fascinating to watch. For example, Congress has to approve the new USMCA, and at this point it isn’t certain that the US-EU trade talks will even include agriculture. Meanwhile, tariffs and retaliatory tariffs imposed in 2018 remain in place as 2019 begins, so it will be interesting to see if those tariffs end up being terminated at some point, or survive through the entire year.

Just at FDA, USDA and USTR, 2019 should be a dairy interesting year.

2018: The Year Of The Trade Wars

Let’s face it: there are times when it’s pretty easy to come up with an overriding “theme” for a particular year in dairy. In 2014, for example, it would have been pretty difficult not to come up with a theme related to the record-high prices achieved that year — records that ranged from cheese and butter to Class III and mailbox prices.

This year also seems to be pretty easy to classify: 2018 has been the year of the trade wars. It’s just been awfully difficult to find a single overriding issue that’s had as much of an impact, or as much potential impact, as the ongoing trade wars being waged between the US and some of its closest trade partners, including Mexico and China, to name two countries that greatly impact US dairy exports.

At the start of 2018, it didn’t really seem that trade wars were going to be a dominant issue. Indeed, in our first issue of 2018, we noted that the US had “basically backpedaled” on trade agreements in 2017, withdrawing from the Trans-Pacific Partnership agreement and launching talks to modernize the North American Free Trade Agreement.

The trade wars didn’t actually amount to “front-page news” until our Mar. 9th issue, when we reported that President Trump was imposing tariffs on steel and aluminum imports from a variety of US trading partners, ranging from Canada and Mexico to China and Brazil.

That move was greeted with a fair amount of criticism from a variety of dairy, food and farm organizations, several of which predicted, correctly as it turned out, that the US tariffs would invite retaliatory tariffs from US trading partners.

By July, the economic impact of those retaliatory tariffs was becoming clearer to the US dairy industry. National Milk Producers Federation estimated that the tariffs would cost US dairy farmers $1.8 billion just through the remainder of 2018, based on the decline in milk futures prices since they were imposed. And keep in mind that the tariffs remain in effect as we head into 2019.

The good news in 2018 is that the US, Mexico and Canada did agree on a new NAFTA, dubbed the United States-Mexico-Canada Agreement, or USMCA. The bad news is that, thanks to ongoing tariffs being imposed on Mexico’s aluminum exports to the US, Mexico is continuing to impose tariffs on US cheese exports to that country, which happens to be the leading US market for such exports.

Or, as Michael Dykes, president and CEO of the International Dairy Foods Association, noted at a late-November Capitol Hill briefing on the USMCA and ongoing US tariffs on aluminum imports from Mexico, IDFA’s members “are very pleased that the USMCA negotiations are complete and Mexico remains a duty-free market but until the Section 232 tariffs are lifted, US dairy’s access to the Mexican market is at risk.”

Last week provided a nice illustration of the importance of the trade war issue to US agriculture. On Monday, Secretary of Agriculture Sonny Perdue announced a second round of trade mitigation payments to dairy and other farmers suffering from damage due to trade retaliation by foreign nations.

Three days later, President Trump signed the 2018 farm bill into law, a move that drew widespread praise from various ag and dairy organizations.

But while praising one or both of those announcements, there was a clear message from ag stakeholders: the ongoing trade wars must be ended.

For example, while he welcomed USDA’s announcement of a second round of trade mitigation payments to farmers, Jim Mulhern, NMPF’s president and CEO, noted that the tit-for-tat tariffs that prompted the payments “continue to inflict damage across the farm economy,” and urged the administration “to resolve tensions with key trading partners, including China and Mexico, as the best way to assist farmers going forward.”

And Jeff Lyon, general manager of FarmFirst Dairy Cooperative, asked that the administration “quickly resolve the trade conflict that exists between US trading partners, China and Mexico, and quickly lift the retaliatory tariffs currently in place as they continue to challenge dairy markets.”

Unfortunately, the trade wars will continue into the new year, and it might well be that the real impacts of the trade wars will be felt in 2019. Keep in mind that it wasn’t until almost the middle of 2018 when countries such as Mexico and China imposed their retaliatory tariffs on various US products, including cheese and whey.

It’s worth remembering that, for example, US dairy exports to China during the first half of 2018 were up 11 percent (on a value basis) compared to the first half of 2017, but by October, they were running 8 percent behind year-earlier levels (the first 10 months of each year).

How might US dairy exports to China fare if China’s retaliatory tariffs remain in place for all of 2019? Keep in mind that China is the number one export market for US dried whey and whey protein concentrate, among other products.

The year 2018 has been a monumental year for the dairy industry, partly because California joined the federal milk marketing order system — something that would have been unheard of a couple of decades ago. The year also saw completion of an on-time farm bill, something that, as noted in this space last week, doesn’t happen very often.

But when it comes to short- and long-term impacts, 2018 will likely long be remembered in the dairy industry as “the year of the trade wars.”

 

2017 Editorials


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