Mexican import data suggests strong year for U.S. cheese exports
U.S. dairy suppliers saw retaliatory tariffs erode their competitive pricing advantage in Mexico in the second half of 2018, but U.S. cheese exports to our No. 1 market remained positive, according to year-end Mexican Customs data. In fact, Mexican import data suggests the United States not only managed to increase cheese volume to Mexico last year, but also to gain share.

Mexican Customs data shows cheese imports from the United States rising 4 percent to 96,249 metric tons in 2018 vs. the previous year. Import share reached 75 percent, up from 72 percent in 2017 and 67 percent in 2016.

(It should be emphasized that these are Mexican import numbers. U.S. export data from USDA is currently unavailable due to the partial government shutdown. U.S. export data historically differs from Mexican import data. Through the first 10 months of 2018 (the latest available numbers), U.S. export data indicated U.S. cheese shipments to Mexico were essentially flat.)

As many USDEC members could attest, the positive Mexican Customs numbers do not reflect the seriousness of the negative impact of the tariffs. Rodrigo Fernandez, USDEC Mexico office representative, believes Mexican Customs data could have shown a 10-12 percent increase in U.S. cheese volume to Mexico in 2018 and a greater-than-75-percent market share for the United States if the tariffs were not in place.

USDEC spoke with many members, and without a doubt, the removal of retaliatory tariffs is their No. 1 priority.

Backing U.S. exports
Accelerated USDEC programming in 2018 was also a factor in defending U.S. share in the face of the tariffs, including extensive trade serving with buyers. USDEC trained more than 540 retail and foodservice staff at 13 cheese trade seminars across Mexico and held retail cheese sampling in 193 stores totaling more than 2,200 demo days.

A new social media campaign focused on U.S. cheese generated 1.3 million visits over the year on Facebook, Instagram and Twitter (the goal starting the initiative was 1 million).

“That social media component is very important to maintaining the U.S. cheese profile and presence during such challenging times,” says Fernandez.

Strong foundation remains
While detrimental to business, the retaliatory tariffs did not make U.S. cheese more expensive than competitors from Europe or Oceania—it reduced the U.S. pricing advantage.

“We still own a geographic advantage. We still have a committed base of U.S. suppliers,” says Fernandez. “And, most importantly, we still have more than two decades of building relationships in the Mexican market and developing the market itself so that consumers expect and prefer U.S. cheese.”

The longer the tariffs remain in place, particularly with New Zealand, Australia and the EU gaining increased access to Mexico through their respective trade agreements, the more challenging the market will become for U.S. suppliers. USDEC continues to work toward tariff removal.

Intervention stocks nearly depleted
The European Commission accepted bids to sell 18,514 tons of SMP out of intervention this week, at a minimum price of €1,585/ton (US$1,802/ton), leaving just 3,651 tons left from stockpiles that exceeded 375,000 tons at this time a year ago. In just the last four months, the Commission has moved nearly 250,000 tons out of holdings. The next, and perhaps final, tender will be held Feb. 5.

Recent market firmness has brought buyers off the sidelines. Prices continue to mostly tick higher in both Oceania and Europe. In general, SMP is firm (prices up nearly 30 percent from this time a year ago) and butter is steady. Cheese is under pressure from the weak U.S. market. Whey remains firm but dependent on continuing demand from China. WMP prices have lifted since November on strong Chinese buying, but haven’t moved far off 2 ½-year lows.

EU production and exports
Reduced EU powder production since last spring has contributed to the market tightness. EU SMP output was down more than 5 percent in the April-November period, a decline of 9,500 tons of powder per month. The trend accelerated in November, with production off approximately 9 percent.

Meanwhile, EU exports were very strong in the final months of 2018. In the September-November period, shipments of SMP were up 29 percent from a year ago. Whey (+10 percent, year-over-year) and cheese (+5 percent) exports also were above year-ago levels.

Oceania dairy output
Milk production in New Zealand was up 4.4 percent in December, keeping the 2018/19 season-to-date growth rate at 4.4 percent as well.

With excellent pasture conditions, we expect strong shoulder production, leading to record-high output in 2018/19, up 4-5 percent from last season. Look for strong SMP/butterfat production in the months ahead, especially as product stream valorization has shifted in favor of butter/powder.

In contrast, Australia experienced its worst spring flush in at least 15 years, capped by a 7.8-percent production decline in November. Parts of southern Australia hit record high temperatures this week in excess of 45° C (113° F). We expect less export availability from Australia for the balance of the season.

If line is trending up, currency is strengthening vs. U.S. dollar (U.S. dollar is weakening). This is favorable for U.S. competitiveness. If line is trending down, currency is weakening vs. U.S. dollar (U.S. dollar is strengthening). This is unfavorable for U.S. competitiveness. Currency exchange rates are calculated for Wednesday of each week. Source: Oanda.com.

 

Chile rejects dairy import safeguards
Chile’s Comisión Nacional de Distorsiones de Precios (CNDP) rejected a proposal to implement tariffs on milk powder and cheese imports aimed at safeguarding the domestic dairy farming sector. The CNDP decision was published this week.

Throughout last year, USDEC worked long and hard behind the scenes to provide information and arguments against the safeguards, including filing formal comments with Chile urging against the imposition of them, working with a former Chilean Ambassador who testified on USDEC’s behalf at Chile’s hearing on the topic, and sustained engagement with the U.S. government to ensure its messaging about the need to preserve open trade with Chile mirrored our own.

The country’s National Federation of Milk Producers (FEDELECHE) backed the measures, which would have added a 27 percent tariff to cheese imports and 30 percent to milk powder.

Chile has grown into a Top 10 market for U.S. cheese and SMP since the implementation of the U.S.-Chile Free Trade Agreement in 2004. The country’s rejection of the safeguards is a significant victory for U.S. dairy—not only preserving existing business built over years but also laying the groundwork for future growth.

It comes at a perfect time, with the USDEC cheese trade mission to Chile and Peru around the corner (see story below). Chile is a growing market for gouda cheese, with gouda imports more than doubling over the last five years to over 25,000 tons. Yet U.S. gouda shipments to Chile are minimal. The safeguards decision coupled with the mission create an opportunity for U.S. suppliers to capitalize on gouda potential. (USDEC staff; USDEC South America office)

EU-Japan trade deal enters into force next week
The EU-Japan Economic Partnership Agreement (EPA) goes into effect next week on Feb. 1. Year 1 provisions (with prorated volumes) will apply until the start of Japan’s new fiscal year on April 1, at which time Year 2 provisions will kick in.

The deal provides the EU with minor increased access in milk powder, whey, butter and other products. The biggest gains come in cheese, where Year 1 TRQs of 20,000 metric tons (applies to most 0406 HS Codes) rise to 31,000 metric tons by Year 16 and are calculated in year 17 based on the compound annual growth rate of cheese in Japan, considering the quota of the previous year. In-quota tariff rates gradually decline and are eliminated in year 16. For more detailed information on all the EPA provisions, see the “EU-Japan EPA” link in the Tariff Agreements section of the USDEC Export Guide (corrected version published January 24). Contact Sandra Benson at sbenson@usdec.org with any questions.

Membership renewal deadline around the corner
As of Jan. 22, USDEC received completed membership renewal forms from about half the current membership. Renewal packets reflecting the dues increase approved by members last fall were mailed to all 108 members in early December. The renewal deadline is Feb. 15, 2019. Please send in your renewal today to avoid losing access to the members-only portions of the USDEC website (including the USDEC Export Guide), the members-only Global Dairy eBrief newsletter and all other member benefits. If you have questions about renewal, please contact Luke Waring at lwaring@usdec.org.

Mission highlights U.S. cheese opportunities in Chile and Peru
Connect with local cheese buyers in Chile and Peru at USDEC’s March 10-15 member cheese mission to Santiago and Lima. Spend two days in each country with opportunities to learn about the markets from local experts including regulatory authorities, regional marketers and importers.

The trip includes site visits to retail stores and food processing companies, one-to-one meetings between USDEC members and potential buyers, and a networking reception in a mini-trade show environment. Space is limited and almost full. If you are interested, please contact Ryan Hopkin, rhopkin@usdec.org.

Join USDEC at U.S. Ingredient Innovation Seminar in Mexico
Compared to milk powder, Mexico is a relatively modest user of other dairy ingredients. USDEC is looking to change that with the April 9 U.S. Ingredient Innovation Seminar in Mexico City.

“With education, there are clear opportunities for local food processing companies to incorporate U.S. dairy ingredients—particularly proteins and permeate—into formulas for a wide variety of food applications,” says Merle McNeil, Latin America business unit director.

The seminar hopes to lay the base to grow those uses by:

• Educating potential U.S. dairy ingredient end-users (R&D, procurement, marketing) on the functionality and nutrition of U.S. dairy proteins and permeate for a broad range of food and beverage applications.

• Connecting USDEC members with potential buyers in the region via member presentations, one-to-one meetings and a networking reception in a mini-trade show environment.

Space is limited. If you are interested in participating, please contact Ryan Hopkin, rhopkin@usdec.org. Based on participant feedback, USDEC plans to schedule subsequent seminars for specific industry market sectors.

 

Glanbia, A-ware join forces on new Irish cheese plant
Glanbia Ireland and Dutch cheese and dairy manufacturer Royal A-ware are teaming up to build a €140-million (about US$159-million) greenfield cheese manufacturing plant in Belview, Ireland. The plant, which will be built near Glanbia’s infant nutrition plant, will handle nearly 500,000 metric tons of raw milk per year, producing cheese for the EU and global markets.

After spending €343 million since 2014 to facilitate a 42-percent increase in milk production from its farmers, Glanbia said it needed to diversify its product mix and create “a new route to market” for that milk. (RTE, 1/22/19; Agriland, 1/22/19; Checkout, 1/22/19)

Lactalis buys dairies in Egypt, India
France’s Lactalis bought Egyptian cheese and dairy company Greenland Group for Food Industries and the milk products business of India’s Prabhat Dairy. Lactalis acquired Prabhat’s Sunfresh Agro Industries via its wholly owned Indian subsidiary Tirumala Milk Products and purchased Greenland through its Middle Eastern joint-venture operation Lactalis-Halawa.

Greenland operates five plants in Egypt, including a whey production facility. Prabhat makes milk, milk powder, butter and ghee at two plants, and exited dairy production to focus on its cattle feed business. (Almal News, 1/23/19; DairyReporter.com, 1/23/19; VC Circle, 1/22/19)

Thai foodservice markets poised for growth
Franchise business in Thailand is thriving, particularly in the food and beverage sector. Minor DQ Ltd., the franchisee for Dairy Queen in Thailand, plans to double the number of Thai units to 1,000 by 2023, with 40 coming on line this year. Thailand is already the third largest Dairy Queen market outside of the United States.

Thoresen Thai Agencies, a shipping company that broke into the franchise market last year with Pizza Hut in Thailand, opened the first Thai Taco Bell this week in Bangkok. The outlet features a menu adapted specifically for Thai tastes. (USDEC Southeast Asia office; Reuters, 1/22/19)

Mergers, acquisitions and joint ventures
New Zealand dairy cooperative Westland Milk is reportedly considering proposals from more than 25 parties, including Canada’s Saputo, interested in buying all or part of the business. The co-op announced a capital structure review last month. (Stuff.co.nz, 1/23/19)

Company news briefs
Nestlé opened a new R&D center in Limerick, Ireland, to support innovation in milk-based maternal and infant nutrition products for the global market. The $30-million facility is adjacent to Nestlé’s Wyeth Nutrition plant . . . Mexico’s Grupo Lala completed a $14-million upgrade to the San Ramon, Costa Rica, dairy facility it purchased from Florida Bebidas in 2016. The facility will initially process fluid milk for Walmart stores in the region, eventually expanding to other products including butter . . . Domino’s Pizza said it expects to add 9,700 new stores by 2025, more than two-thirds them in international markets. It projects sales will more than double to $25 billion over the same period . . . FrieslandCampina opened a 333,000-sq.-ft. distribution center in Meppel, Netherlands, for storage and transfer of dairy products meant for export markets. The facility holds 43,000 pallets and replaces four existing FrieslandCampina distribution centers . . . Laticínios Porto Alegre is spending $8 million to build a UHT milk processing facility in Rio Novo do Sul, Brazil . . . Malaysia’s Dutch Lady Milk Industries is planning a push into the hotel, restaurant and catering market. (USDEC Mexico office; USDEC Southeast Asia office; Company reports; Milkpoint, 1/18/19; Nation’s Restaurant News, 1/17/19)