• August Chinese dairy exports

• USDEC Grand Prix cheese promotion kicks off in Japan

• Ag coalition presses USTR on WTO reform

• USDEC ingredient workshop in Bangkok

• Members invited to EU packaging summit

• Register now: USDEC Trade Policy and CMAP Committee Meetings

• Save the date: USDA 2024 Ag Outlook Forum

• USDEC releases new Market Snapshot on Mexico

• Market Summary: GDT posts strong gain

• Japan milk production decline

• Panama Canal update

• Danone creates new partnership program

• A2 Milk exits exclusive manufacturing deal with Synlait

• Company news: Aurivo, E-Piim, Yum

 

Chinese dairy imports fall in August
Year-over-year Chinese dairy imports (major products, not including fluid) declined 9% in August (-14,438 MT) after six straight months of gains. Prior to August, China was steadily eating into a 170,000 MT dairy import shortfall it posted in January. From February to July, Chinese dairy imports were up just over 100,000 MT.

But rising domestic inventories of milk powder and ongoing economic challenges in the Chinese pork sector slackened Chinese demand in the main import categories of WMP, SMP and lower protein whey (0404.10).

Year-over-year (YOY) WMP imports fell 3% (-925 MT) in August and, year to date, were down 38% (-218,247 MT).

SMP imports, which were up 55% YOY from February-July 2023, plummeted 36% in August (-11,899 MT). Year-to-date they’re still up 13% (+29,335 MT).

Rising domestic milk production channeled to milk powder and fluid milk has been a major factor in driving local supply and limiting milk powder and fluid milk imports this year. (China’s fluid milk imports are also down 22% year to date through August.)

But there are some indications that those import headwinds could be softening. Chinese farmers set milk production records in the first four months of the year. But elevated farm costs and declining farmgate milk prices (Chinese milk prices fell for nine straight months through July) halted the monthly record streak in May, and reports indicate both milk and dairy product production were down in July.

Production declines could help stimulate import demand over the near term, and China did have a very strong showing at this week’s Global Dairy Trade auction (see Market Summary below). At the same time, China is still dealing with major structural economic growth challenges and has a long way to go to eat through its milk powder inventories.

Whey (0404.10), another product that started the year strong, had its worst month of 2023 in August, a function of reduced demand from China’s struggling pig farming sector. Imports fell 21% (-13,113 MT) to 49,706 MT, marking the first time they dropped below 50,000 MT this year.

Growth in cheese and other categories
On the plus side, Chinese cheese imports set an August record at 17,595 MT, an 18% gain (+2,686 MT) over the previous year. That comes after a record 17,496 MT of cheese imported in July.

As noted in the Company News Briefs item below on Yum China Holdings, the country’s quick-service restaurant business so far appears to be weathering China’s current economic challenges. YOY Chinese cheese imports rose in seven of eight months in 2023 and were up 19% (+19,455 MT) year to date through August. Furthermore, they are trailing 2021 (a record year for Chinese cheese imports) by less than 5% and quickly closing that gap.

Lactose imports rose 30% (+3,867 MT) in August and were up 36% (+31,562 MT) for the year. Reports attribute the sharp rise to increased lactose demand by domestic Chinese infant formula processors. That would seem to align with the drastic shift in Chinese infant formula imports over the past few months. After a strong start to 2023, Chinese infant formula import volume fell 45% (-33,911 MT) from June through August (versus the same period the previous year).

Ending on a positive note, year-over-year Chinese WPC80+ imports jumped 60% in August. The gain lowered the year-to-date decline to only -4% (-914 MT).

Japan promotion touts U.S. cheese on gourmet burgers
USDEC launched its 3rd annual Jack Burger Fair promotion in Japan on Sept. 1. The activity is part of ongoing efforts to position U.S. cheese as the preferred topping for burgers and drive U.S. cheese import demand.

The campaign, which runs through Oct. 31, is titled “JB-1 Grand Prix”— a play on the Japanese Grand Prix F1 race taking place in Tokyo this weekend.

More than 50 gourmet burger restaurants in Tokyo, Kanagawa and Osaka are participating in the promotion. Each establishment is offering a new burger creation featuring U.S. Monterey Jack, Colby Jack and/or Pepper Jack—also known as the “Three Brothers of Jack.” Consumers are invited to visit the various establishments and vote for their favorite “Jack Burger” on Instagram, with a chance to win prizes.

A poster for USDEC’s gourmet cheeseburger promo in Japan.

“This promotion has been effective in establishing the ‘Jack Burger’ as an iconic product, compelling restaurant operators and ultimately consumers to associate U.S. cheese with gourmet hamburgers,” says Amy Foor, USDEC vice president, Global Foodservice Programs. “It has opened another segment within the foodservice sector where cheeses from the USA can play a starring role and spur increased demand.”

Following the previous Jack Burger Fairs, USDEC has seen an uptake of U.S. cheese usage by burger restaurants in Japan, including the upscale burger chain Kua’Aina. The chain launched its own spin-off of the Jack Burger Fair, promoting its new burger offerings featuring Cheeses from the USA, across all 34 of their locations nationwide in both 2022 and 2023.

U.S. ag coalition shares WTO reform priorities with USTR
The U.S. Agriculture Coalition for WTO Reform met virtually this week with Deputy USTR and Chief of Mission in Geneva Maria Pagan. USDEC Trade Policy Director Tony Rice led the call, which sought to highlight U.S. agricultural priorities—primarily revolving around dispute settlement reform and agricultural market access—in advance of the WTO’s 13th Ministerial Conference (MC13), which is slated for Feb. 26-29, 2024, in Abu Dhabi.

The coalition’s general priorities are consistent with messages outlined for last year’s MC12:

1) Support reforms to reestablish a functioning dispute settlement system.

2) Stop potential proposals that would weaken disciplines on public stockholding and safeguards.

3) Advance market access proposals to promote food security.

USDEC will continue working with allied groups and the U.S. government to coalesce support for U.S. agriculture positions as MC13 approaches.

USDEC members highlight U.S. dairy ingredient solutions at Bangkok workshop
This week in Bangkok, USDEC’s Dairy Innovation and Supply Workshop connected member companies with an audience of 119 Southeast Asian (primarily Thai) food and beverage industry professionals. The workshop, which follows a string of activities in Southeast Asia last week (see Global Dairy eBrief 9/15/23), helped elevate the awareness of the United States’ large and diverse portfolio of dairy ingredients and provided ideas for innovative new products using U.S. dairy that aligned with regional tastes.

Much of the one-day event focused on bringing together USDEC member companies with attendees. Representatives from seven companies—Agri-Mark, Agropur, Dairy Farmers of America, Glanbia, Hoogwegt, Milk Specialties Global and PanTheryx Aps La Belle) presented to the audience then joined two additional members (Mitsui & Co. and Pure Dairy) at a networking session with table-top displays.

“We had a lot of great questions after the presentations and during the networking session … and definitely got a lot of new leads,” said C.S. Wee, general manager for Asia Pacific Sales for PanTheryx.

Before the member-buyer engagement, the workshop featured opening remarks from Dali Ghazalay, regional director, USDEC Southeast Asia, and Kelly Stange, USDA’s Regional Agricultural Counselor for Thailand, Malaysia and Laos. Presentations by USDEC Southeast Asia’s Martin Teo, technical director, food applications, and Anoo Pothen, consumer insights director, focused on innovation opportunities and consumer insights, respectively. In addition, William Loux, USDEC vice president, Global Economic Affairs, gave a pre-recorded market outlook and Dennis Erpelding, senior advisor, PublicPolicyAsia Advisors, offered a talk on ASEAN Agricultural Market Dynamics.

The workshop was timed to directly precede Food Ingredients Asia (Fi Asia) Thailand, Sept. 20-22, in Bangkok. See next week’s Global Dairy eBrief for more on the show.

New Market Snapshot on Mexico now available
USDEC’s Strategic Insights Team released a new four-page Market Snapshot report on Mexico. Despite the U.S. dairy industry’s existing strong market position—a nearly 90% share of Mexican dairy imports—USDEC sees several opportunities to continue strengthening U.S. dairy’s presence in Mexico.

The snapshot highlights ingredient application opportunities in the functional and nutritional food space and foodservice prospects for U.S. cheese—and how U.S. suppliers can strengthen their position by building relationships to gain better understanding of customer needs. In addition, the Snapshot notes, U.S. suppliers can advance their cause by tapping into consumers’ growing preference for responsibly produced products.

The Mexico Market Snapshot is the latest in a series of research reports released this year by Strategic Insights. To browse all the titles, go to the Research Reports section of www.usdec.org.

Invitation to attend packaging summit in Paris; virtual option available
USDEC members and their importers are invited to attend a free symposium on the EU’s new Packaging and Packaging Waste Regulation (PPWR). “Optimizing Packaging Systems’ Safety for Reuse and Recycling in Compliance with the New Packaging and Packaging Waste Regulation” will take place Nov. 9-10, 2023, in Paris, France, but also offers a virtual option. It is free to attend.

The PPWR is the EU’s new packaging initiative, which is expected to include substantial new requirements once finalized and implemented, including the use of recyclable packaging, minimum content of post-consumer recycled content, and reusable transport packaging. Click here for USDEC’s summary of the proposal, which is currently undergoing debate in the European Parliament.

USDA has partnered with the Université of Paris-Saclay to offer this conference, which includes expert speakers from the European Commission’s Joint Research Centre, the U.S. Food and Drug Administration, and top academia from the United States and EU. Sessions will offer a deep dive into the PPWR's expected impact.

Visit the symposium website to register and for more information on the event. For additional questions, please contact Sandra Benson at sbenson@usdec.org.

Register now: USDEC Trade Policy and CMAP Committee Meetings
USDEC is holding the next Trade Policy and Cheese Marketing Advisory Panel (CMAP) Committee Meetings back-to-back on Dec. 5-6 at the Westin Arlington in Arlington, Virginia. The Trade Policy Committee will meet on the morning of Tuesday, Dec. 5, with the CMAP meeting the afternoon of the 5^th and all day on Wednesday, Dec. 6.

Members who are part of the Trade Policy Committee are welcome to attend the CMAP portion, and CMAP companies and organizations (except for internationally headquartered trading companies) are welcome to attend the Trade Policy portion.

Full agendas will be shared in the weeks ahead, but the Trade Policy meeting will include an update on in-process issues and USDEC workstreams, a member discussion on 2024 priorities and a guest speaker. The CMAP meeting will review the 2024 marketing plan, with updates from USDEC’s Economics, Market Access and Regulatory Affairs, and Strategy and Insights teams.

Interested members must register by Oct. 29. Click here to register for the meetings; You will be asked to specify which portions you will attend on the registration form.

USDEC has a special room rate at the Westin Arlington of $215/night. Reserve a room by clicking here. The reservation deadline for the special rate is Nov. 27. For questions, please contact Nuhami Alemu at nalemu@usdec.org.

Save the date: USDA Agricultural Outlook Forum
USDA will hold its 100th Annual Agricultural Outlook Forum on Feb. 15-16, 2024, at the Crystal City Gateway Marriott in Arlington, Virginia. The program will include remarks from the Secretary of Agriculture and other top USDA officials, along with 30 breakout sessions featuring more than 120 leading experts on a wide range of food and agriculture-related topics. The Forum attracts more than 1,800 people in person and nearly 5,000 virtual attendees from the U.S. and around the world. Registration is expected to open in late October.

GDT posts second straight gain
The Global Dairy Trade (GDT) Price Index jumped 4.6% at the Sept. 19 auction. It was the second strong price increase in a row, but unlike the Sept. 5 event, which was driven mainly by Southeast Asia, this week’s auction saw North Asia (China) dominating purchasing. This was, in fact, the most volume China has purchased at a GDT auction in years. China’s milk powder appetite was particularly surprising given its inflated WMP and SMP inventories.

The average winning SMP price grew 5.4% to US$2,400/MT, the first increase since May 2 (nine auctions ago). WMP rose 4.6% to US$2,799/MT and is up nearly 10% over the past two auctions.

Butter and AMF grew 3.8% (to US$4,723/MT) and 5.3% (to US$4,787/MT), respectively. Prior to the auction, Fonterra Co-operative Group lowered its 12-month forecast volumes for both, citing reduced North Island milk production (caused by elevated farm costs and poor weather). Fonterra lowered butter volume by 1,327 MT and AMF by 1,780 MT.

Milk powder and butterfat products all show forward-lifting GDT price curves.

Cheddar was the only major product to record a decline, as the average winning price fell 1.7% to US$4,044/MT. But even cheddar shows a forward-lifting price curve

Despite the positive results, questions remain as to how much demand the past two auctions can be attributed to buyers simply capitalizing on lower prices. While global milk supply growth is moderating, there has been little change in demand factors like inflation and economic expansion in key markets, most notably China. And China’s sizable WMP and SMP inventories are hard to overlook.

Japan milk production decline raises shortfall concerns
A prolonged and unprecedented heatwave in Japan in July and August has significantly inhibited Japan’s milk supply. Agricultural cooperatives on Hokkaido, the region responsible for more than half of Japan’s total milk output, report that production fell around 10% in August and expressed concern for cow health from the heat stress heading into the fall.

While production has improved in recent weeks, producers and processors are warning of a milk shortage. The decline in production came as students were returning to school (school milk is a major user of domestic production). Plus, Japan’s dairy farm sector is contracting due to the steep rise in input costs and older farmers retiring without successors. Food manufacturers have expressed concerns over butter shortages heading into the fall holidays.

Japanese butter stocks fell to 29,135 MT at the end of July and domestic users are reportedly opting for cheaper local product as opposed to imported butter. While still above pre-pandemic levels, it is the lowest stocks have been since 2019. (USDEC Japan office)

 

Panama Canal may be forced to tighten restrictions
As extreme drought continues to limit the number of vessels that can pass through the Panama Canal, the waterway’s administrator said low water levels may extend well into next year and that there is a possibility of further restrictions on the types and number of vessels passing through the canal.

Limits were placed on the number of vessels in July as water levels dropped in Gatún Lake, which supplies water to operate the locks. Panama Canal Administrator Ricaurte Vásquez said the canal should be able to operate within those restrictions for the rest of this year, but that he’ll consider reducing the number of vessels using the canal and forcing others to lighten their loads if the water challenge continues.

The El Niño weather pattern has been blamed for low water levels in the lakes that supply water to the canal. Contributing to the problem is the canal’s new locks system, which began operating in 2016 and requires more water to pass ships than the original locks. Officials in Panama are looking to build additional reservoirs to add new sources of water. (Reuters, 9/12/23; WSJ, 9/12/23; Agence France Presse, 9/16/23)

Danone announces new partnership program
French dairy giant Danone announced a new program created to identify and develop strategic partnerships to drive innovation, efficiencies and growth. The “Partner for Growth” program aims to leverage consumer trends and create growth opportunities in four strategic areas: emerging science and technology, precision capacity creation, cost-competitiveness, and sustainability.

The initiative is run through Danone Manifesto Ventures, the company’s corporate venture arm, and will target partnerships with organizations ranging from startups to major corporations and academic institutions. The first such alliances have already been formed and include a partnership with Arla Foods to supply specialty dairy ingredients, a relationship with Kansas-based McCarty Family Farms for pioneering regenerative agriculture practices, and a joint business development plan with Denmark-based bioscience company Chr. Hansen, which will work with Danone to innovate dairy and plant-based solutions designed to improve consumer health. (Company reports)

A2 looks to cancel supply agreement with Synlait
New Zealand’s A2 Milk Co. gave Synlait Milk written notice that it was canceling its exclusive infant formula supply agreement with the company, paving the way to move more production to A2’s own factory. Synlait has exclusive supply and manufacturing rights to A2 Milk’s Stage One, Two and Three infant milk formula products sold by A2 Milk in China, Australia and New Zealand. (Synlait makes other A2 products as well, though not exclusively.)

A2 claims Synlait failed to live up to on-time performance provisions in the contract, allowing A2 to produce the products elsewhere. The original exclusivity deal runs through September 2027. Synlait is expected to challenge the deal’s cancellation and said it expects to continue to make the products through the life of the original contract.

Despite moving to cancel the exclusivity provision, A2 said it expects Synlait to remain an important supplier to the company and that Synlait is contractually bound to provide a set volume of infant formula. (Stuff.co.nz, 9/18/23)

Mergers, acquisitions and joint ventures
A new joint-venture dairy plant in Paide, Estonia, has produced its first cheddar cheese. Cross-border Estonian-Latvian dairy co-op SCE E-Piim, Netherlands-based Royal A-Ware and Interfood Group built the facility. Royal A-ware is responsible for the sale of cheese from the factory, while Interfood will handle the sale of whey powder and butter. … Ireland’s Competition and Consumer Protection Commission (CCPC) completed its investigation of Aurivo Consumer Foods’ purchase of certain assets of Arrabawn Co-operative Society (see Global Dairy eBrief, 8/4/23) and cleared the acquisition, finding that it would not substantially lessen competition. (Company reports; CCPC)

Company news briefs
Danone is spending €50 million (about US$53 million) to expand production of medical nutrition products at its plant in Opole, Poland. Specialized nutrition, which includes medical nutrition, accounted for about 30% of Danone’s total revenues and grew 10% in 2022. … Yum China Holdings revised this year’s new store opening target from 1,100-1,300 to 1,600, citing more predictable market conditions in the wake of the removal of COVID restrictions and resilience in China’s fast-food sector. It currently has around 13,600 units in China and is aiming for 20,000 by 2026. … Chinese milk producer Adopt A Cow is building an $87-million manufacturing facility in Hebei Province. The plant, when complete, will produce 150,000 MT of fluid milk per year. (USDEC China office; Company reports; Bloomberg News, 9/14/23)

 

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