• China lockdowns to cascade through supply chain

• Truck blockade at Mexican border

• Harden addresses CheeseExpo

• USDEC spring meeting presentations now online

• Market Summary: new record for global food prices
• Japan lowers butter import expectations

• USDEC Data Hub: price escalation

• IPEF comments seek trade barrier relief

• Letter seeks continuation of Panama ag commitments

• Detention and demurrage comments to FMC

• Peru adopts new rules for milk powder use as ingredient

• Company news: Valley Queen, Ningxia Saishang, Lacka Foods

 

Impact of China lockdowns on supply chain still to come
Ongoing lockdowns in China have snarled manufacturing, port and trucking operations from Jilin to Guangzhou. While Shanghai began to slightly ease its restrictions this week, as many as 45 cities across the country have implemented full or partial lockdowns as part of China’s “zero-tolerance” COVID policy. Those cities represent more than a quarter of the population and 40% of China’s GDP.

Trucking operations are experiencing long delays while truckers navigate quarantine checkpoints and mandatory negative PCR testing within 48 hours of travel. Labor and equipment shortages abound. Moving cargo in and out of ports has become a challenge. This week, the Port of Shanghai reported zero availability of plugs for reefer containers due to extreme congestion and slow-moving containers.

Even factories that hoped to continue operating by housing workers on-site are having difficulties keeping business going because of stalled component deliveries due to closures, slowdowns and tighter trucking controls.

Ocean carriers are omitting calls at Chinese terminals and announcing more blank sailings.

Fallout to come
While the situation is giving West Coast U.S. ports a chance to catch up on vessel and container backlogs, it is setting the stage for a deluge of imports when China emerges from the current COVID wave.

The Loadstar noted this week that several shipping analysts liken the current situation to the original pandemic outbreak in Wuhan over two years ago that ignited today’s supply chain crisis. At that time, shutdowns halted Chinese manufacturing and export operations, obliging carriers to lay-up ships, which was followed by a rush of cargo when lockdown measures eased, which kicked off the massive supply chain congestion and soaring freight rates we are still coping with today.

Chinese response to the current COVID wave is expected to start rippling through the supply chain—as well as the global economy—in the coming weeks, with heightened container availability issues and a new flood of inbound traffic on the West Coast. (The Loadstar, 4/12/22, 4/11/22, 4/8/22; Reuters, 4/12/22; Bloomberg, 4/11/22; Wall Street Journal, 4/8/22)

Protests slow truck traffic at U.S.-Mexico border crossings
Protests by Mexican truck drivers have blockaded northbound traffic and slowed southbound movement at U.S.-Mexico border crossings at El Paso, Pharr and Laredo, Texas. The protests are in response to a new order by Texas Governor Greg Abbott requiring the Texas Department of Public Safety to conduct “enhanced safety inspections” to uncover smuggling of people or contraband from Mexico. Those measures were causing idled trucks and their drivers to sit in lines for up to 30 hours before being allowed to continue their routes.

Business groups on both sides of the border are calling for a halt to the governor’s order, citing the rarity of illegal border crossings via commercial truck traffic. U.S. and Mexican authorities have met to discuss the problem. USDEC is continuing to monitor the situation and will notify membership should conditions significantly worsen. (USDEC Mexico office; CNN, 4/12/22; Dallas News, 4/12/22; Reuters, 4/11/22)

Harden challenges dairy processors to embrace export opportunities
USDEC President and CEO Krysta Harden told attendees of CheeseExpo 2022 on Wednesday that the U.S. dairy industry must “step up” to take full advantage of market dynamics presenting opportunities for U.S. exporters.

“The global demand is there for high-value, top-quality reliable products,” said Harden at the three-day event in Milwaukee. “It’s up to us in the U.S. to step up to meet that level of demand … we need to be that reliable, predictable dairy provider.”

Co-sponsored by the Wisconsin Cheese Makers Association and the Center for Dairy Research, the annual event for the dairy processing industry attracted more than 3,800 registered attendees, an all-time high.

Harden addressed exports in a one-on-one Q&A with John Umhoefer, executive director of the Wisconsin Cheese Makers Association. She also moderated a panel discussion with executives from three USDEC member companies.

U.S. suppliers upbeat on the opportunity
The panelists were David Lenzmeier, Milk Specialties Global CEO; David Ahlem, Hilmar Cheese Co. president and CEO, and Marshall Reece, senior vice president of sales and marketing at Associated Milk Producers Inc.

They said that with global dairy demand rising and milk production in New Zealand and the EU plateauing, U.S. dairy is well-positioned to increase exports, despite the ongoing challenges of an export supply-chain crisis and the need for more U.S. free-trade agreements.

“I’m fired up. This is the place I want to be,” said Lenzmeier, although adding that U.S. suppliers “need to lay down lots of capital” to increase capacity.

Reece said that “based on inquiries we are getting on LinkedIn about product availability, there is a lot of concern about food security.” He added that “the growth is ours for the taking.”

Hilmar’s Ahlem expressed enthusiasm about the potential to develop more innovative dairy products and ingredients. “We’re still unlocking the health potential of dairy proteins to feed the world,” he said.

In the Q&A, Harden said that in addition to abundant milk supply, the U.S. offers the world an increasingly versatile variety of cheese and dairy ingredients.

“I’ll say it to competitors,” said Harden. “I’ll say it to customers. We’re in this for the long haul. But we have to invest. We have to be bold. We have to be ready to take advantage. I think we are.”

Additional sessions
In a Wednesday breakout session, USDEC staffers contributed additional perspectives. Highlights included:

• Economic Analyst Stephen Cain said global dairy markets in 2022 will be characterized by “constrained milk supply, high input costs and elevated prices.”
• Terri Rexroat, vice president of global ingredients marketing, explained how USDEC is stressing the U.S. sustainability story to global customers for U.S. dairy ingredients that are in everyday foods like bakery, confectionary, soups, sauces and more.
• Angélique Hollister, senior vice president of global cheese marketing, said increasing awareness about U.S. cheeses is a major emphasis because “we are the world’s largest cheese exporter and nobody knows it.”
• Shawna Morris, senior vice president of trade policy, outlined the many ways USDEC is working to tackle policy and regulatory issues to best position the U.S. dairy industry to compete around the world.

 

Videos of USDEC spring meeting now available at usdec.org
If you missed USDEC’s spring Board of Directors and Membership Meeting or attended the meeting but would really like to rewatch a specific presentation, you can do so in the Meetings & Webinars section at usdec.org. USDEC has posted videos of every presentation from the general session on March 29 for you to watch at your leisure. If you have any questions about the meeting or the presentations, please contact Luke Waring at lwaring@usdec.org. And mark your calendars now for the fall meeting: Oct. 10-11 at Chicago’s Swissôtel.

Visit to AR-Joy Farm

Last week, DMI Chair Marilyn Hershey hosted USDEC staff members for an informational tour of her Pennsylvania dairy farm in action. Bottom photo, left to right: Martha Scott Poindexter, COO; Jerry Brown, senior VP, communications; Marilyn Hershey; Janice Giddens, vice president, sustainable nutrition; Kristen Hagan, senior executive assistant; and Scott Lantz, market analyst.

Global food prices reach record high
After hitting a record high in February, the UN Food and Agriculture Organization’s Food Price Index stepped up again in March, setting a second consecutive record. Prices in all five product categories rose—dairy, meat, cereals, vegetable oil and sugar—as Russia’s war in Ukraine continued to generate concerns about global food shortages.

EU27+UK milk deliveries continue to lag
With 20 of 28 countries reporting, EU27+UK milk deliveries were essentially flat in February. No. 1 producer Germany has yet to report, but it hasn’t posted a year-over-year increase in monthly milk since May 2021 and has shown no signs of a turnaround.

Strong gains from the Baltic States and a 2% rise in Italian output helped offset declines from the UK and the Balkans. French milk deliveries slipped 0.1% in February; Irish output was up just under 1%.

Despite robust demand, a growing number of European farmers are citing rising input costs as the major deterrent to boosting output.

Ireland releases interim dairy recommendations
Ireland’s Food Vision Dairy Group (FVDG) released its interim report on how the Irish dairy sector can hit climate goals outlined in the nation’s Climate Action Plan. The report contains a list of 17 recommendations, including a 35% reduction in chemical nitrogen use and creation of a voluntary farmer retirement/exit scheme.

While details of the retirement scheme have yet to be worked out, FVDG Chair Gerry Boyle said that it would not be a typical retirement program. The scheme would require that land owned by retiring farmers could not be used for milk production in the future. Both measures, if adopted, would limit Irish milk production growth capacity.

Japan reduces butter import expectations
Japan’s Ministry of Agriculture, Forestry and Fisheries (MAFF) reduced planned butter purchasing for fiscal 2022 (April 1, 2022-March 31, 2023). The agency expects to import 7,600 MT, a 1,900-ton drop from fiscal 2021 volumes.

MAFF pointed to elevated butter stocks as the main reason for the reduction. Japanese butter inventories finished 2021 at 37,125 MT—10% higher than the previous year. Domestic dairy processors have been channeling more milk to butter and NFDM/SMP due to reduced demand for fluid milk and fresh dairy products since the start of the pandemic.

NFDM stocks also finished fiscal 2021 10% higher than the previous year, but MAFF had already cut back its NFDM purchasing to only 750 MT in fiscal 2020. It will remain at 750 for fiscal 2022.

USDEC Data Hub: price escalation
Most weeks, Global Dairy eBrief features a chart from the USDEC Data Hub. The Data Hub presents dairy production, pricing, and export and import data in interactive tables and graphs aimed at helping you investigate trends, plan export strategy and seize global opportunities.

This week’s charts highlight the run-up in commodity prices since the start of 2021. You can find the graphs at the Data Hub under the Dairy Prices tab.

We encourage you to visit the Data Hub and experiment with this and other charts, graphs and tables. If you have any questions regarding the information, please contact William Loux at wloux@usdec.org.

Dairy’s contribution to record high global food prices is clear: international dairy commodity prices have been on a pretty steady upward climb since last July/August.

 

Comments urge U.S. to address tariffs and nontariff barriers in IPEF
USDEC and NMPF submitted joint comments to the U.S. Trade Representative’s Office urging it to seek to eliminate tariffs and nontariff barriers as the administration pursues its plans for the Indo-Pacific Economic Framework (IPEF). The submission was in response to the USTR’s request for comments on the “Proposed Fair and Resilient Trade Pillar” of the IPEF.

The comments note that USDEC’s and NMPF’s strong preference is the pursuit of comprehensive trade agreements to establish lasting tariff and nontariff trade barrier reductions. While acknowledging that the IPEF will not be that kind of agreement, they make the case that it could still serve as a means to reduce or eliminate barriers to trade and suggest areas for potential progress, including:

• Eliminating or reducing tariff barriers by seeking Most Favored Nation tariff cuts from IPEF partners.
  
  
• Reducing and preventing nontariff barriers through commitments that resolve specific existing barriers and proactively guard against specific future ones.
  
  
• Addressing specific existing nontariff barriers, such as Indonesia’s slow and unpredictable plant registration process and India’s nonscientific health certificate requirements.
  
  
• Obtaining specific commitments to forestall future foreseeable trade barriers. These include ensuring common name protections, gaining recognition for U.S. sanitary and phytosanitary and regulatory requirements, and combating growing restrictions on formulated milk products.
  
  
• Fostering collaboration on international standards and sustainability. IPEF partners can create a bloc of member states demanding accountability to good governance, transparency and science-based rulemaking in international organizations. The IPEF could also serve as a platform to explore ways to create and advance a common vision on agricultural sustainability, sustainable food systems and food security.

Letter urges preservation of U.S. ag market access to Panama
USDEC and NMPF joined 15 other agricultural organizations in co-signing a letter to USTR Ambassador Katherine Tai and USDA Secretary Tom Vilsack urging their support in preserving the ag market access terms of the U.S.-Panama Trade Promotion Agreement. The letter is in response to a request from the Panamanian government in March to revise agricultural tariff phase-outs, tariff rate quotas and ag safeguards on a range of products, including dairy.

USDEC initiated the letter and worked with the Corn Refiners Association on securing support from additional organizations. It emphasizes that the U.S. and Panama negotiated the agricultural provisions of the agreement specifically to slowly transition and minimize potential negative impacts, and several of the TRQs even have another decade before they fully phase out. In addition, modifying an already-implemented trade deal would set an “alarming precedent,” the letter states.

“With the lack of any current new free trade agreement (FTA) negotiations taking place, uninterrupted implementation of the current market access opportunities secured through our existing FTAs is all the more vital for American farmers and food manufacturers,” it concludes.

Comments to FMC highlight recommendations for rulemaking on detention and demurrage
USDEC and NMPF submitted joint comments in response to a Federal Maritime Commission (FMC) Advance Notice of Proposed Rulemaking on Detention and Demurrage Billing Requirements. The comments outline a series of nine recommendations for rulemaking focused on upgrading carriers’ information requirements related to detention and demurrage—measures that would help correct the current information power imbalance that favors carriers.

Increasing transparency requirements and demanding that more information be provided in invoices is an important step to balancing the relationship between carrier and shipper and would be helpful in allowing shippers to better dispute charges they feel were not appropriately issued.

“Information availability between carriers and shippers, transparency and uniformity of invoicing are all important considerations for shippers that we hope the Commission will fully consider,” the comments conclude.

Peru adopting new standards for milk powder use
On April 7, Peru published new regulations on the use of milk powder in certain milk products. All fluid products previously using the word “milk” and using milk powder as an ingredient—including evaporated milk—must be now renamed under the new regulation. Details on the terminology that processors can use have yet to be determined.

Peru is implementing the standards under the guise of aligning with the U.S. Food and Drug Administration (FDA) 21 Code of Federal Regulations (CFR) 131.130 which defines evaporated milk as: “the liquid food obtained by the partial elimination of water only from the milk.” In reality, the new regulations are being implemented to undermine imports, not to support Peruvian consumers. Peru is a milk-deficit country, where U.S. milk powder plays an important role in providing affordable nutrition to a large segment of the population.

Peruvian manufacturers of evaporated milk have 180 days (until October 2022) to meet the requirements of the new decree. USDEC is engaging with U.S. government agencies, Peruvian industry and Peruvian officials to design a strategy to prevent or minimize the impact on U.S. milk ingredient exports to Peru.

Curiously, this new regulation will also suspend the microbiological specification requirements for raw milk intended for processing until Dec. 31, 2026. This decision could result in unintended consequences for consumers by lowering the quality and perhaps even the safety of milk produced in Peru while simultaneously making milk more expensive.

Valley Queen announces major cheese expansion
U.S. cheesemaker Valley Queen Cheese is spending $195 million to expand its Milbank, South Dakota, manufacturing plant. The project will increase annual output by 57,000 MT. Valley Queen expects to break ground next month, with the plant being fully operational by January 2025. Valley Queen expects the project will support significant growth in milk producers in the region, estimating farmers will add about 30,000 head over the next three years. (Company news)

Dairy development in Ningxia
China’s Ningxia Saishang Dairy is spending $63 million to build a new manufacturing plant in Shizuishan City in the Ningxia Autonomous Region in north-central China. Ningxia Saishang is a major supplier of cream and dairy ingredients to Starbucks and other Chinese coffee and tea shops. The company said the new plant would produce 100,000 MT of dairy products per year, but did not specify exactly which products it would make.

Separately, local farming company Ningxia State Farm signed a framework agreement with the local government to build a $361-million farm that would initially house 50,000 dairy cows. The group plans to triple cow numbers by 150,000 by 2025. (USDEC China office)

Mergers, acquisitions and joint ventures
UK cereal maker Weetabix Food Co., a subsidiary of Missouri-based Post Holdings, acquired Lacka Foods, owner of the Üfit high-protein drink brand. The deal is expected to create growth opportunities for Lacka in UK and international markets. (Company reports; FoodBev.com, 4/8/22)

Company news briefs
China’s Bright Dairy launched a new freeze-dried cheese product under the Keep Cheese! label. The line comes in two flavors: plain and blackcurrant. The company is marketing the product from a nutritional angle, citing that it contains 2.6 times the amount of calcium as in milk. … Britain’s First Milk and Ornua Foods UK renewed a long-term agreement under which First Milk will continue to supply Ornua’s cut-and-wrap facility in Leek with cheddar. Prior to a recent expansion at its Lake District Creamery plant in Aspatria, First Milk was reportedly supplying Ornua with up to 50,000 MT of cheese per year. (USDEC China office; Company reports)

 

• Krysta Harden pictured with executive director of Wisconsin Cheese Makers Assn.
• At CheeseExpo, Harden moderates panel on global dairy sales and sustainability
• Harden challenges U.S. dairy industry to seize opportunity of meeting global dairy demand
• U.S. dairy ingredient nutrition and SE Asia-friendly snacking innovation highlighted (retweet)