• USMCA Dispute Settlement Panel

• AgTC annual meeting date set

• Market Summary: China April imports
• New Market Talk video! ASF and Chinese whey demand

• NZ milk production jumps

• COVID update

• Friesland sells, Saputo buys

 

Dispute settlement panel for Canadian TRQs sends positive signals on dairy, enforcement
The USTR’s decision this week to advance a dispute settlement panel related to Canada’s dairy tariff rate quota (TRQ) regime was a major breakthrough for the U.S. dairy industry.

First and foremost, the request rightly recognizes Canada’s TRQ system as undermining “the ability of American dairy exporters to sell a wide range of products to Canadian consumers,” USTR Katherine Tai said in a statement on the move. The panel, should the U.S. prevail, “will ensure our dairy industry and its workers can seize new opportunities under the USMCA to market and sell U.S. products to Canadian consumers,” she added.

More broadly, the fact that dairy is the subject of the first USMCA challenge is significant. The request for the dispute settlement panel highlights that U.S. dairy exports remain a priority area for USTR and demonstrates that the United States will not hesitate to use enforcement procedures when it is clear that a country is violating its agricultural trade commitments.

“We have had long-standing and well-founded concerns that Canada undermines its trade agreements when it comes to dairy,” said USDEC President and CEO Krysta Harden in a joint USDEC/NMPF news release sent on Wednesday. “Our trading partners need to know that failure to meet their agricultural trade commitments with the United States will result in robust action to defend U.S. rights—today’s action demonstrates just that.”

USDEC plays key role
The dispute settlement panel is the culmination of many hours and days of work by USDEC and NMPF staff, as well as USDEC members who signed onto letters and reached out to Congress on the topic over the past year.

As Harden points out, USDEC’s concerns over Canada fulfilling the terms of USMCA date back to before the deal was even signed, prompted by Canada’s long history of circumventing dairy trade obligations. In the run-up to USMCA and since its entry into force, USDEC and NMPF:

• Provided extensive support to U.S. government negotiators during USMCA talks to obtain the additional dairy market access that the agreement provides, and secure other measures such as the elimination of Canada’s class 6 and 7 pricing schemes. The groups also worked with members to ensure the profile of dairy issues remained high over the course of negotiations.
• Advocated directly for USMCA and organized wider dairy sector support for passage, helping generate multiple members of Congress to reference the agreement’s dairy provisions as a key piece of why they supported USMCA.
• Held numerous meetings with USTR and USDA regarding market access and Canada’s pricing scheme.
• Played a critical role in providing continual confidential technical input to U.S. negotiators evaluating Canada’s compliance with USMCA commitments, including a specific review of the Canadian TRQ system and an explanation of the negative impacts resulting from it.
• Conducted extensive outreach urging policymakers to support strong enforcement action and worked in close coordination with members and congressional offices to create a broad base of bipartisan support aimed at lifting public awareness of Canada’s failures with previous and current administrations. Among the fruits of those labors were two bipartisan congressional letters from the House and the Senate; Senators and Representatives pressing USTR Tai on the issue during her confirmation process and in trade policy review hearings; a May 21 bipartisan message led by Reps. Ron Kind (D-Wis.) and Tom Reed (R-N.Y.) from the House Ways and Means and Agriculture Committees to USTR urging further enforcement action; a similar May 21 letter from Rep. Elise Stefanik (R-N.Y.).
• Researched Canada’s implementation of USMCA commitments to inform next steps by the U.S. regarding compliance and enforcement.
• Secured time with USTR’s General Counsel to speak at USDEC’s Trade Policy Committee to reinforce directly with her the importance of action.
• Coordinated a May 3 meeting between Ambassador Tai and NMPF Chairman Randy Mooney and President and CEO Jim Mulhern at which the TRQ issue was raised.
• Led a dairy industry letter signed by 68 dairy cooperatives, processors, state associations and dairy trade associations, pushing USTR to take action on the issue.

Next steps
The next step is the selection of members to serve on a dispute settlement panel, which will take about a month. A report should be ready later this year.

Should the U.S. prevail, Canada would be forced to bring its practices into compliance. If Canada still refuses, the U.S. would be granted the right to impose tariffs. The U.S. Commerce Department’s International Trade Commission has already done an initial analysis on the cost of the TRQs to the U.S. dairy industry, but the USTR did not disclose those figures.

Canadian Trade Minister Mary Ng said she was “disappointed” with the USTR’s request. The Canadian government as well as the dairy industry said they were confident that the country’s policies were in full compliance with its obligations.

USDEC’s work does not stop with the decision to advance the issue to dispute settlement.

“It is just one piece of the multiple actions the U.S. dairy industry needs from the administration to keep doors open for U.S. dairy products and carve out new opportunities,” said USDEC Executive Vice President for Policy and Strategy Jaime Castaneda. “We are continuing to drive home to USTR the importance of expanding market opportunities and retaining access to existing markets.” (USDEC staff; USTR; Bloomberg, 5/25/21; Wall Street Journal, 5/25/21)

Mark your calendars! In-person AgTC meeting slated for Oct. 5-8
The Agriculture Transportation Coalition (AgTC) scheduled its 33^rd Annual Meeting for Oct. 5-8 in Tacoma, Wash. Barring unexpected COVID developments, the meeting will be the first in-person gathering in more than a year. Speakers from carriers, shippers, terminal operators, trucking companies and the government will provide the latest insights on ag shipping concerns, from port congestion to container shortages to rates and more. For more information or to register, click here.

Chinese dairy imports post another strong month in April
China’s total dairy imports jumped again in April, with demand showing few signs of slowing. Multiple product categories—including SMP, cheese, butter and AMF—posted April records as the nation’s counter-cyclical buying trend continued.

Chinese SMP imports (from all suppliers) grew 43% to 35,736 MT in April, compared to the previous year. For the first four months of the year, China’s SMP imports were 154,656 MT, also a record.

Australia (+5,670 MT), the United States (+4,594 MT) and Belarus (+2,737 MT) made significant inroads as the top two SMP suppliers to China saw their monthly market share fall 33 points during the month. EU SMP exports to China plunged 34% vs. April 2020 and New Zealand shipments dipped 2%. 

Cheese, whey, butterfat
Chinese cheese imports grew 68% to 15,340 MT vs. the previous April and were up 51% in the first four months, well above record pace. Australia (+1,722 MT) and the EU (+2,696 MT) recorded triple-digit gains.

Whey imports grew 63% to 69,677 MT in April compared to the previous year, with the U.S. (+6,024 MT) and EU (+6,683 MT) leading the gainers. Year-to-date Chinese whey imports were up 58%. Don’t miss USDEC’s latest Market Talk video (Episode 14), to hear analysis on Chinese whey imports and African Swine Fever.

China’s butterfat exports soared in April, rising 87% to 15,227 MT. It was the strongest month for butterfat this year, putting January-April volume up 12%.

Download USDEC pricing app
Price trends are always at your fingertips. All you need to do is download the USDEC Commodity Prices Finder app, a mobile resource for tracking a variety of USDA dairy commodity prices. It is available at the Apple Store for iOS devices and Google Play for Android.

Video: Market Talk explores ASF impact on whey demand in China
China’s efforts to rebuild its pig herd after African Swine Fever (ASF) have been driving global whey trade and prices for more than a year. But given China’s tight control over agricultural data, it’s difficult to pinpoint how successful those efforts have been.

In the latest edition of USDEC’s Market Talk (Episode 14), American Farm Bureau Federation Economist Michael Nepveux and USDEC Market Analyst Stephen Cain explore the roots of ASF in China, the shifting structure of the industry, why we’ve seen such a surge in whey demand and what we can expect moving forward. Spoiler alert: While China has done a remarkable job of rebuilding its herd in such a short period of time, the country has a long way to go.

NZ milk posts another big gain in April
Fonterra Co-operative Group announced an initial opening farmgate milk price range of NZ$7.25-$8.75/kgMS for the 2021/22 year. The midpoint of $8.00/kgMS is the highest on record to start the season. The co-op cited strong demand and “muted” growth in global supply in announcing the numbers.

“Muted” might sound like a surprising adjective coming days after the latest milk production numbers from New Zealand and the United States. The United States announced a 3.3% increase in April output and New Zealand announced an 11.7% increase. But in the U.S., base-excess programs in April 2020 limited production the previous year, inflating this year’s gain.

New Zealand’s percentage gain was also unusually high but for a different reason. The North Island in 2020 was coming off a drought with farmers drying off cows early. This year, given favorable North Island pasture growth into April and that Fonterra is projecting its highest payout (a midpoint of NZ$7.65/kgMS for 2020/21) since the 2013/14 season, farmers were keeping herds in milk for as long as possible.

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.

 

Vaccine progress slow in key target markets
Dairy export markets continue to scramble for vaccine supplies, with the reach of vaccination campaigns varying widely across markets. Less than 2% of the populations of Thailand, the Philippines, Vietnam, Taiwan and Algeria have been fully vaccinated. Japan, Malaysia, Indonesia, Peru and South Korea are all between 2% and 5%. Five to 10% of the people in Colombia and Mexico have gotten the jab. At the high end of U.S. dairy export markets Singapore, Qatar, Chile and the United Arab Emirates are all at 25% or more.

Resurgent case numbers continue to challenge regions that had seemingly gotten the virus under control, like Southeast Asia and Taiwan. Taiwan reported more cases in the week ending May 21 than it did in the entire year of 2020. In Vietnam, the latest outbreak is more complex that previous ones, with infections scattered across dozens of cities and provinces and in locations from hospitals to industrial zones.

In other COVID news from USDEC’s overseas offices:

Japan

• Japan extended its state of emergency to an additional three prefectures. The measures now cover about 70% of the nation’s population. The state of emergency was slated to end May 31 but is now expected to continue to June 20. The government insists the Olympics will still begin in July.

Mexico

• Cheese demand continues to recover. Mexican imports of U.S. cheese have risen for three straight months through April, according to Mexican Customs data, from 3,694 MT in January to 9,699 MT in April. U.S. share of the Mexican import market increased from 70% to 77% over the same period.
  
  
• All students in Mexico City will start returning to classrooms on June 7, a move that should energize demand for single-serve UHT and flavored milk and drinkable yogurt.

Middle East/North Africa

• Middle East foodservice operators are increasingly seeking low-budget options in buying cheese and dairy ingredients to compensate for reduced business.
  
  
• Tourist numbers in Egypt have been increasing steadily since January, rising to about half a million people per month. Saudi Arabia and Abu Dhabi both plan on reopening to travelers in the coming weeks. Abu Dhabi is lifting quarantine rules for tourists on July 1.
  
  
• Egypt has begun manufacturing the Chinese Sinovac vaccine. It is opening 400 vaccination centers across the country and expects to deliver 40 million doses by the end of the year—an effort that should boost vaccination rates domestically and regionally.

South America

• At midweek, Colombia recorded the highest number of infections in a single day since the start of the pandemic. The health system is struggling to keep pace. Despite what has been a sustained uptick in COVID cases since mid-March, the government is planning for a full economic reopening in the second half of the year and is targeting having 70% of the population fully vaccinated by year-end (that percentage stands at about 6% currently).
  

Southeast Asia

• Singapore is NOT on lockdown, but the country has limited the size of gatherings again and implemented movement controls. It is requiring employees who can work from home to do so. Food and beverage businesses are bracing for more disruption with dine-in eating barred from May 16 through June 13.
  
  
• Singapore and Hong Kong postponed the date of their travel bubble. It was supposed to go into effect May 26. They did not announce a new date.
  
  
• Malaysia implemented work-at-home restrictions and shortened hours for restaurants, malls and other shops effective May 25. Government and business groups are debating a full lockdown. (USDEC overseas offices in China, Japan, Mexico, Middle East/North Africa, South America, South Korea, Southeast Asia and Vietnam)

FrieslandCampina sells Russian, feed operations
Dutch dairy giant FrieslandCampina sold its Russian subsidiary Campina LLC to German dairy processor Ehrmann and its Nutrifeed animal nutrition business to Dutch feed manufacturer Denkavit. Under the terms of the feed deal, FrieslandCampina will supply Denkavit with dairy inputs.

The Ehrmann deal includes the Campina manufacturing plant in Stupino, Moscow Oblast, as well as yogurt brands Fruttis and Nezhny. Ehrmann already operates a yogurt plant near Moscow.

FrieslandCampina’s previously announced its intention to review its position in various markets and refocus on the best growth opportunities. (Company reports; Food Ingredients 1^st, 5/25/21)

Saputo buys ingredient plant, cheese alternative maker
Canada’s Saputo purchased Wisconsin Specialty Protein’s Reedsburg, Wis., manufacturing plant. The plant, which makes value-added ingredients including organic lactose, goat whey and other dairy powders, will enable Saputo to broaden and increase the value of its ingredients portfolio for the United States and internationally, the company said.

Saputo also purchased UK-based Bute Island Foods, a producer of cheese alternatives for retail and foodservice markets. “Our commitment remains to expand our footprint in the dairy alternatives space to meet the changing demands of our customers and consumers,” said Lino A. Saputo, chair and CEO. (Company reports)

Baladna eyes export markets
Qatar’s vertically integrated dairy firm Baladna is building a new processing facility to manufacture evaporated milk, sterilized cream and other long shelf-life products. The facility, set for completion in spring 2022, is part of a broader plan to expand export markets in Africa and Southeast Asia. In addition, the company is exploring transferring the milk production and processing strategy it followed in Qatar to other nations, starting with Malaysia. It began farm and plant site surveys in Malaysia this month. (USDEC Southeast Asia office; FoodNavigator-Asia.com, 5/19/21)

China’s Youran Dairy looks to grow milk output, plans IPO
China Youran Dairy Group is planning an initial public offering aimed at raising $800 million. Youran purchased Fonterra Co-operative Group’s dairy farm hubs in China’s Hebei and Shanxi provinces last year. It says it will use the cash raised to expand its breeding herd and ramp up feed and raw milk production.

Chinese milk production grew 7.5% in 2020, according to the country’s National Bureau of Statistics. But Chinese cows produce about 80% as much milk as cattle in other countries with modern dairy industries, notes USDA’s latest Dairy And Products Semi-annual on China. That is due to genetics, feeding and disease issues.

Chinese dairy processor Yili Industrial Group holds a 40% stake in Youran. (USDA; Reuters, 5/18/21)

Mergers, acquisitions and joint ventures
Japan’s Morinaga Milk Industry acquired Vietnamese beverage and yogurt maker Elovi Vietnam JSC. The deal is part of Morinaga’s plan to increase its global presence. (Company reports)

Company news briefs
Saudi Arabian dairy processor SADAFCO expects to start trial production at its new ice cream plant by July . . . Contract foodservice company Compass Group said that it intends to convert 40% of its portfolio to plant-based meals. (USDEC Middle East/North Africa office; Company reports)

• USDEC praises USTR decision pursue dispute settlement proceeding on Canada
• New website highlights U.S. Center for Dairy Excellence in Singapore
• U.S. dairy ingredients highlighted to Brazilian food and beverage companies (retweet)