Interim trade deal with Japan a start, but more work needed
On Wednesday, President Trump and Japanese Prime Minister Shinzo Abe signed the “first stage” of a bilateral trade agreement. The deal covers market access for certain agricultural and industrial goods and digital trade, including improved access for U.S. dairy.

More progress necessary
As noted in the press release, “U.S. dairy industry encouraged by interim Japan trade deal, urges U.S. to complete the job in negotiations to come,” the agreement is an upgrade from the status quo. It does provide U.S. dairy suppliers with improved access to Japan and cuts into the advantage enjoyed by the EU from its bilateral deal with Japan and by New Zealand and Australia through the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

“To continue that progress toward closing the competitiveness gap with both CPTPP and EU suppliers, it’s essential that the U.S. secure further market openings and assurances in the second stage of negotiations,” USDEC President and CEO Tom Vilsack said in the release.

Once complete dairy details are released, USDEC will assess the gains and continue “to work with the administration to secure the additional elements that are still needed to ensure a strong final dairy package in a comprehensive agreement.”

The USTR’s Office said in a statement that it would conduct further negotiations with Japan aimed at “a comprehensive agreement that addresses remaining tariff and non-tariff barriers and achieves fairer, more balanced trade.”

Representatives voice concerns about dairy
Prior to the deal’s signing, five U.S. Representatives sent a letter to USTR Robert Lighthizer expressing “serious concerns” with the dairy provisions of the interim  deal. Reps. Ron Kind, Gwen Moore and Mark Pocan from Wisconsin and Suzan DelBene and Peter Welch from Washington criticized Congress’s late involvement in the talks and pointed to “inferior market access for U.S. dairy compared to competitors” like the EU and New Zealand, as well as the lack of agreement on geographical indications.

Markets still finding support
Global markets have good support, mostly on the basis of continued weak supply growth. Demand is adequate. SMP benefits from the absence of EU intervention stocks, which are mostly worked through the supply chain, though it remains to be seen when buyers will push back on prices that already are up more than 30% from a year ago.

European whey prices have improved as well, in part due to higher SMP prices, greater use in calf milk replacer, and lighter cheese/whey production.

NZ August milk output
Milk production in New Zealand was 1.394 million tons in August, a record high for the month, but up just 0.8% from last year’s strong showing. In the first three months of the 2019/20 season, production was up 2.8%.

China imports of milk powder, whey, lactose, butterfat and cheese were down 5% in August. SMP and cheese imports were higher; WMP, whey, butterfat and lactose were lower. In the May-August period, imports of these commodities were down 10% vs. a year ago.

Likewise, New Zealand exports were mixed in August, with year-over-year gains in SMP (+87%), infant formula (+51%) and fluid milk (+41%) offset by declines in butterfat (-27%). WMP volume was flat. August, however, is the lightest month of the year for New Zealand exports, representing just 3% of annual volume.

In its draft short-term outlook, the European Commission projected EU milk production at +0.8% in Q3 and +1.0% in Q4, to bring the full-year growth rate to +0.5%. Most of the 2019 production gains are attributed to Ireland. At mid-year, EU cow numbers were down more than 1% from the prior year, with the greatest culling in Germany, Italy, Netherlands and France.

South America update
Milk production is approaching the seasonal high in Argentina and Uruguay. In August, Argentina production was up 2.1%, the first real increase in 10 months. Farmer profitability has improved and weather has been mild. Uruguay production was down 4% in August, which is an improvement on the declines seen throughout 2019.

If line is trending up, currency is strengthening vs. U.S. dollar (U.S. dollar is weakening). This is favorable for exports, because it increases import purchasing power. If line is trending down, currency is weakening vs. U.S. dollar (U.S. dollar is strengthening).  This is unfavorable for exports, because it decreases import purchasing power. Currency exchange rates are calculated for Wednesday of each week. Source: Oanda.com.

 

Chedraui partnership looks to give U.S. cheese a boost in Mexico
Mexican retailer Chedraui kicked off a two-year partnership with USDEC this month with a “Cheeses from the USA” merchandising blitz. The partnership will see dedicated “Cheeses from the USA” cabinets in 32 upscale stores, backed by extensive point-of-purchase (POP) promotions like cooler clings and floor graphics. In-store audio and video will entice customers to visit the special sections.

Through the end of the year, Chedraui will feature “Cheeses from the USA” on half-page ads in its monthly newsletter (1.5 million are printed and distributed, with electronic distribution casting an even broader net). USDEC will promote “Cheeses from the USA” via Chedraui’s social media platforms and loyalty program, with recipes, nutrition data, cheese descriptions and other information.

Chef demos
Chef Ingrid Ramos will conduct demos at one store per month using “Cheeses from the USA.” The demos will seek to educate customers on applications and tastes of U.S. cheese and elicit trial.

Regular oversight
USDEC Mexico staff will oversee all the activities, including meeting with the store and deli-cheese section managers, monitoring the “Cheeses from the USA” sections to make sure they are well stocked and properly arranged, ensuring POP materials are properly positioned and in good condition, and verifying audio and visual messaging is functioning as intended.

Still to come
Additional activities will be added in 2020, including retail and deli staff training similar to training recently conducted successfully in the Middle East as part of the USA Cheese Specialist Certification Program for Retail Professionals.

Chedraui has about 7.9 million regular customers. About 2.7 million of those are classified as upper income level, and the vast majority of those regularly purchase imported cheese.

The partnership aligns with USDEC’s broader efforts to build demand momentum for U.S. cheese through engagement, education and communication.

Show of USMCA support continues this week with Michigan roundtable
USDEC President and CEO Tom Vilsack led a roundtable discussion hosted by the Michigan Farm Bureau to rally support for the U.S.-Mexico-Canada Agreement (USMCA). He was joined by leaders from across the political spectrum and the agriculture, small business and manufacturing industries. Citing USMCA’s benefits to American farmers, workers and consumers, Vilsack called for “Washington to act quickly to deliver on USMCA and revitalize our trade relationships with our North American neighbors.” For more information, see the USDEC press release, “Vilsack and Michigan producers champion USMCA.”

USDEC board meeting: Brexit and the U.S.-UK trade deal
The United States and UK seem eager for a trade deal once the Brexit process concludes. But when it will conclude, what it will look like and how open the UK will be to negotiating a trade deal that addresses agricultural tariffs and non-tariff barriers remain unknown.

USDEC will welcome a special guest next month to the Board of Directors and Membership Meeting at Chicago’s Swissôtel who might be able to shed some light on such questions.

Antony Phillipson, British Consul General in New York and Her Majesty’s Trade Commissioner for North America, will address the general session the afternoon of Oct. 15. Phillipson is the UK’s leading diplomat with responsibility for U.S.-UK trade and the dialogue around Brexit and a potential UK/U.S. trade agreement.

To register for the board meeting or to download the complete agenda, go to USDEC Board of Directors and Annual Membership Meeting. Go to “Making Halal Work for You” to register or get more information on the subsequent halal seminar on Oct. 16.

USDEC comments on proposed sodium limits in Colombia, infant formula registration in China
As part of our ongoing review of draft legislation sent to the WTO for public comment, USDEC submitted comments last week to FAS on proposals from Colombia and China.

Colombia: sodium limits
Colombia has notified the WTO of its intent to set maximum sodium levels in specific foods, including butter and certain types of unripened cheese of HS 0406.10 (pasta filata cheese, cream cheese and campesino-type cheese). The draft regulation is based on recommendations from the World Health Organization (WHO) that were only intended as guidance.

The approach that Colombia has proposed—setting a maximum sodium level in its regulations—is a significant departure from the practice of other nations that centers on dietary guidelines to consumers and accurate nutrient content labeling. It is expected to have significant consequences for U.S. exports: It could completely block exports of certain U.S. dairy products from entering the Colombian market. USDEC’s comments strongly discourage Colombia from moving forward with any statutory limits for salt. Please contact Dacia Whitsett-Morrow at dwhitsett@usdec.org with questions.

China: infant formula registration
China has notified the WTO of proposed modifications to its infant formula registration requirements. USDEC raised concerns with what appears to be a shift from as-needed to mandatory inspection, and also any requirements to disclose proprietary information. Please contact Eddy Fetzer at efetzer@usdec.org with any questions.

New opportunities in Indonesia warrant regulatory review
USDEC anticipates next week’s U.S.-Indonesia Dairy Roundtable in Jakarta could lay the groundwork for new opportunities for exports to Indonesia. USDA FAS partnered with the government of Indonesia to bring U.S. dairy suppliers and Indonesian buyers together for the Sept. 30 event to facilitate new business. In light of the meeting, USDEC encourages U.S. companies to ensure that their halal certifications and plant registration are in order. See Volume 2 of USDEC's Export Guide for more information on the requirements to ship to Indonesia. Contact Sandra Benson at sbenson@usdec.org for more information.

Fonterra announces new business strategy, restructures
Fonterra Co-operative Group unveiled a new back-to-basics business strategy aimed at reversing two straight losing years and reviving farmer faith in the struggling business. The strategy, which Chairman John Monaghan cited for its “simplicity,” focuses on two business areas—ingredients and foodservice—prioritizes New Zealand milk (it will begin “rationalizing” off-shore milk pools) and reorganizes sales and marketing by three geographical regions (rather than “ingredients” and “consumer and foodservice”).

Staff changes
The three geographical regions are Asia Pacific (APAC), Greater China (GC) and Africa, Middle East, Europe, North Asia, Americas (AMENA). Judith Swales will lead the APAC unit and Kelvin Wickham will head up AMENA. The co-op has already begun the recruitment process for CEO of the GC group. Robert Spurway, who was COO of global operations, is leaving the company to pursue other opportunities.

For ingredients, Fonterra said it would focus on meeting nutrition needs across people’s life stages, with four main product categories: pediatrics, medical and aging, sports and active, and core dairy. For foodservice, it plans to build on its success in China and develop new markets, particularly in Southeast Asia.

Specialty cheese plant consolidation
Fonterra also said it would consolidate its North Island specialty cheese operations, closing its Te Roto plant in Paraparaumu and transferring operations to its Eltham facility. The co-op said it was losing money operating two specialty cheese plants. The move will consolidate costs and make the business sustainable, Fonterra said.

Buyer found for DFE Pharma
Just prior to the results announcement, Fonterra reported that it had agreed to sell its 50% stake in DFE Pharma to a fund managed by CVC Capital Partners, a global private equity and investment advisory firm. Dutch dairy giant FrieslandCampina was Fonterra’s joint venture partner on DFE Pharma. Fonterra’s Kapuni site on the North Island will continue to manufacture lactose for DFE Pharma via a long-term supply contract.

Coupled with the proceeds from the sale of Tip Top ice cream, the sale will reduce Fonterra’s debt by more than NZ$1 million (about US$630,000), exceeding the co-op’s goal of NZ$800,000 (about US$504,000). (Company reports)

Synlait starts Pokeno production despite legality questions
Nutritional powder is coming off the line at Synlait Milk’s new Pokeno, North Island, manufacturing plant despite a pending Supreme Court case that could derail the entire operation. A neighboring landowner cried foul earlier this year, claiming the plant’s land is not zoned for manufacturing (see Global Dairy eBrief, 5/17/19). The NZ$260-million (about US$164-million) facility, which Synlait says was built as a direct response to consumer demand, can produce 45,000 tons of product per year, including infant-grade SMP, WMP and infant formula base powders. New Zealand’s Supreme Court expects to begin hearing arguments on Oct. 21. (Stuff.co.nz, 9/24/19)

Keytone looks to build Asia business
New Zealand’s Keytone Dairy has made two shipments of packaged WMP and SMP worth NZ$1 million (about US$630,000) to Sam’s Club over the past month as part of a supply contract inked this past spring. The company, which sells the powder under the Sam’s Club brand, recently added about 5,000 tons per year of capacity to its blending and canning plant in Christchurch.

Earlier this year, Keytone also introduced a formula created specifically for diabetics as well as a “junior” formula for children aged three to seven—both products aimed at Asian markets. (Company reports; Small Caps, 9/23/19)

Mergers, acquisitions and joint ventures
The Australian Competition and Consumer Commission (ACCC) gave the greenlight to Saputo’s acquisition of Lion Dairy and Drinks’ specialty cheese business. The ACCC, however, cautioned against any further consolidation in the Tasmanian dairy sector . . . South Africa’s Competition Tribunal approved the sale of the nation’s largest dairy company, Clover, to Milco SA, subject to a deal that would limit Clover job cuts to 277 positions (rather than the 516 originally planned). (Farm Online, 9/26/19; BusinessDay, 9/25/19)

Company news briefs
Idaho Milk Products held the ribbon cutting on its new $30-million plant expansion in Jerome. The project increased milk handling capacity to 4.4 million lbs. per day (1 million lbs. greater than before the project) . . . China’s Beingmate Baby & Child Food is proposing changing its name simply to Beingmate. Fonterra, which owns nearly a 19% stake in the company, is against the name change, as it might imply a retreat from the company’s core infant formula business . . . Nestlé opened its upgraded and expanded MILO manufacturing plant in Chembong, Malaysia. The site is the “world’s largest” MILO facility, Nestlé says . . . China’s Yili Group officially launched its Ambrosial Greek-style yogurt line in Southeast Asia with a press event in Singapore last week. Yili is marketing the line through a tie-in with the Alfa Romeo F1 racing team. Yili is playing up the Greek roots of the product with a Greek-style font on the packaging and a culture that it says was developed by the Agricultural University of Athens. (USDEC Southeast Asia office; Company reports; Stuff.co.nz, 9/23/19; MagicValley.com, 9/21/19)