October SMP exports highest of the year; cheese, lactose, WPI set October records
Strong NDM/SMP, cheese, lactose and WPI sales lifted aggregate U.S. dairy export volume of major products to 176,896 tons, the highest monthly total since May.

U.S. NDM/SMP grew 17% to 70,726 tons compared to October 2018, the most since April 2018. Cheese (28,417 tons, +6% vs. the previous year), WPI (3,758 tons, +14%) and lactose (32,496 tons, +12%) set October volume records.

However, despite broad-based strength in several categories, the aggregate volume gain over October 2018 was less than 1%. Continued weakness in dry whey and modified whey, which are still being significantly impacted by Chinese retaliatory tariffs and African Swine Fever, offset much of the growth. Increased purchasing as a result of China exempting permeate from retaliatory tariffs has yet to show up in the numbers.

Value jumps
On a value basis, U.S. dairy exports followed the 17% year-over-year increase in September with a 15% year-over-year gain in October. October U.S. dairy export value was $528 million, the second best October on record, topped only by 2013. Aggregate value year-to-date is $4.95 billion, a 5% increase over the previous year.

For a detailed analysis of the October and year-to-date numbers, including country and regional highlights, download the Latest Month Trade Data Summary at USDEC’s U.S Export Data page. While you’re there, explore the interactive charts that allow you to analyze performance product by product.

GDT prices stall
Global SMP markets have increased steadily since late August and now sit more than 50% above a year ago. Demand from China and Mexico remain strong, alongside good orders from the MENA region, while interest from Southeast Asia has tapered off. Lack of fresh supply and low inventory remain a driving force, but production in Europe and the United States has now passed its seasonal low and is on the upswing, which could give buyers more confidence as they contract for 2020.

Meanwhile, butterfat prices are weakening with the holiday buy-in complete, which is a bit of a drag on WMP values as well. EU butter prices have fallen 20% since January and remain near three-year lows, but it hasn’t been enough to spark demand.

GDT results mixed
The average winning price at this week’s Global Dairy Trade auction dropped for the first time in six events, settling 0.5% lower at US$3,467/ton. The index had risen 8% in the previous five events. The overall price was pulled down by a 5% drop in butterfat prices, with AMF falling below US$5,000/ton and butter falling below US$4,000/ton for the first time since last December.

Meanwhile, SMP continued its winning streak, rising for the seventh auction in a row. Trading settled at US$3,068/ton, up 1.9% and the highest price since August 2014. Cheddar continued to improve, tacking on 2.7% to US$3,797/ton, and WMP ticked 0.1% higher to US$3,331/ton.

China buying supported milk powder prices, as did bids from the MENA region. Once again, the auction saw less interest for milk powder from Southeast Asia.

China imports mixed, NZ exports higher
China imports were again mixed in October, with strong purchases of WMP (+38%), milk/cream (+32%) and cheese (+18%) offset by a slowdown in imports of SMP (-3%) and continued declines in whey products (-11%), butterfat (-10%), infant formula (-16%). But the real loser was lactose, with imports of just 5,007 tons, down 54% and the lowest figure since February 2015.

New Zealand exports of milk powder, cheese, butterfat and whey were up 15% in October, with a huge increase in sales to China (+58%). China accounted for 42% of New Zealand’s exports of major products during the month, compared with 30% last October and 24% in October 2017.

Australia milk production was down 5.5% in October, the 17th straight month of declines. Production in the calendar year is down 7.8%, and 2019 is on track to be 13% lower than four years ago.

EU milk production growth hits snag
Ireland milk production was down 3.6% in October, the second straight month of declines. In the first eight months of the year, Ireland production was up 9.1%, increasing volume more than all the other 27 countries in the EU combined. In addition, UK production was down 0.6% in October after rising 2.4% in the first nine months.

In contrast, production has started to grow again in the Netherlands. Dutch deliveries were up 1.8% in September-October, following a 2.1% drop in the January-August period. With the slowdown from Ireland and the UK, production in the EU is projected to be up just 0.6% in October.

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.

 

USDEC delivers wins for dairy at Codex nutrition meeting
Last week, USDEC delivered key wins for U.S. dairy exporters at the Codex Committee on Nutrition and Foods for Special Dietary Uses (CCNFSDU). The meeting, held in Dusseldorf, Germany, represented a decision point for Codex: blindly endorse unjustified policies supported by international organizations that would be harmful for dairy, or stand with science and make decisions based on evidence.

Nick Gardner spent months working with the U.S. Codex Office, FEPALE (through USDEC’s partnership with the organization) and the International Dairy Federation (IDF) to recruit allies and develop materials to inform them of the important role dairy plays in the diets of children.

Codex declines to define children’s dairy products as “breastmilk substitutes”
The first test of these efforts came during consideration of whether Codex would define formulated nutrition products for children one to three years that are not sole-source nutrition as “breastmilk substitutes.” If Codex defined these products in such a manner, it would have set a dangerous precedent, creating a situation wherein any dairy product fed to young children could also be a “breastmilk substitute” and subject to harsh restrictions recommended by the World Health Organization (WHO) as a means to protect breastfeeding.

Despite significant political pressure from WHO, the Committee ultimately stood with science and declined to define these products as breastmilk substitutes. This major victory protects dairy from unjustified restriction and recognizes the important role dairy plays as a complementary food to support childhood development.

The win was due in large part to opposition by Latin America and other allies that USDEC helped to develop through FEPALE, IDF and collaboration with the U.S. Codex Office. It reflects yet another example of successful implementation of USDEC’s enhanced Codex engagement that relies on strategic global partnerships, working closely to inform U.S. positions, and engaging on the ground during the meetings to manage unanticipated developments.

Recognizes dairy protein quality; concludes work on trans fat-free claims
Protein quality remains a hot topic in Codex and around the world. In recognition of the scientific evidence supporting the quality of dairy protein, the Committee adopted a reference to dairy protein in a guideline for products used to rehabilitate severely malnourished children. The guideline, which is approaching final adoption, now explicitly states that “high-quality protein” will be achieved in these products when 50% of their protein is derived from milk products.

This scientifically sound reference by Codex demonstrates the global consensus on dairy protein quality and reflects the role dairy plays in mitigating malnutrition. It also protects market opportunities for dairy ingredients in specially formulated Ready-to-Use Therapeutic Foods.

Additionally, the Committee discontinued work on trans fat-free claims that could have misrepresented the healthfulness of dairy compared to plant proteins, given the naturally occurring trans fat inherent in dairy. While Codex remains interested in reducing trans fat in the diet, the Committee agreed to refer the matter to the Codex Committee on Fats and Oils with a focus on “eliminating” the use of partially hydrogenated oils.

 

Phase 1 U.S.-Japan deal set for Jan. 1; USDEC calls for Phase 2
Japan’s Upper House passed legislation approving Phase 1 of the nation’s trade deal with the United States. USTR Robert Lighthizer commended Japan’s quick action and said in a statement that he expected President Trump to sign the implementing proclamation next week. Lighthizer said the United States is preparing for Phase 1 to go into effect on Jan. 1, 2020.

Comprehensive deal essential
USDEC applauded Japan’s action in a Dec. 4 press release and called on U.S. trade negotiators to swiftly complete a comprehensive Phase 2 agreement that builds on the strong foundation laid by Phase 1 and addresses key outstanding dairy issues. Those issues include protecting common cheese names and addressing remaining gaps and inequalities in market access enjoyed by U.S. dairy export competitors through the Japan-EU agreement and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

The release also noted the critical need for negotiators to consult with Congress “to ensure that the unique needs of various constituencies, including farmers and food manufacturers, are taken into account.”

The USTR statement noted that the two countries would enter into talks toward a broader agreement “early next year.” (USDEC staff; USTR’s office)

U.S. threatens France with new tariffs, including dairy
The Trump administration threatened to impose tariffs as high as 100% on a number of French exports, including certain dairy HS Codes, after a USTR Special 301 investigation determined France’s digital services tax unfairly discriminates against U.S. tech companies. France implemented the tax in July.

USTR issued a Federal Register notice on the proposed counter actions this week. It contains a list of products it is considering for tariffs, including WPC, butter, yogurt and a number of cheeses.

The agency will accept comments on the proposal until Jan. 6, 2020, and will conduct a hearing on the measures on Jan. 7. No timetable was given for implementing the tariffs.

USTR said it was considering similar Special 301 investigations into the digital services taxes of Austria, Italy and Turkey. (Politico, 12/2/19; Reuters, 12/2/19)

EU sues Denmark over feta and other developments in the fight for common cheese names
The European Commission is taking Denmark to the European Court of Justice claiming the country has “failed to prevent or stop” Danish companies from labeling cheese as feta and exporting it to countries outside the EU. The Commission said the activity “not only violates current EU law,” but also likely “frustrates” ongoing negotiations between the EU and third countries on trade deals that include protections for geographical indications (GIs).

Meanwhile, the Consortium for Common Food Names (CCFN) continues to resist EU attempts to use GIs to monopolize common food names. Recently, CCFN (which was founded and is staffed by USDEC) gained a victory in Europe when the European Intellectual Property Office (EUIPO) denied a request to trademark the terms “emmental” or “emmentaler,” a position aligning with objections CCFN filed to the application.

For a detailed summary of all the latest developments on GIs and common cheese names, see the fourth quarter CCFN Alert newsletter. (USDEC staff; Politico, 11/27/19)

 

USDEC updates ingredients database
The latest version of the USDEC Global Ingredient Database is now available for members. The ingredient database is a unique analytical tool providing individual ingredient-level consumption, production, import and export volumes for 38 countries on historic and forecast bases. It enables greater granularity, depth and transparency than traditional HS Code-based trade data and fills the gaps where trade statistics are non-existent. Members can use this tool to help evaluate opportunities in ingredient export markets. If you have any questions or would like raw data pulled, please contact Katie Phelan at kphelan@usdec.org.

How is the protein ingredient landscape evolving?
USDEC’s latest research on developments in competitive protein ingredients provides the answer to that headline question and more.

The report, “2019 Competitive Proteins Landscape,” provides detailed snapshots of the dairy and plant protein media conversation, patent activity, and new product launches on global, domestic and key export market bases. Companies can use key learnings from the study to help inform in-market positioning.

Select findings include:

• Meat is a primary focus for alternative proteins. It is the food and beverage category with the greatest number of new product launches for plant proteins globally over the last five years.
• Artificial meat is the second largest topic of conversation in protein ingredient news coverage. The first topic is health in the United States, while trade wars is the first topic in export markets.
• Food and beverage categories where dairy has a natural fit are a substantially smaller focus for alternative proteins over the last five years. These include baby and toddler foods, dairy, and desserts and ice cream.

The 57-page report, “2019 Competitive Proteins Landscape,” lays out these findings and more in an easy-to-read format loaded with charts and graphs.

2019 FIRC workshop series concludes with permeate in savory snacks
Twenty-two senior technical and R&D personnel from Southeast Asian savory snack and seasoning companies and two representatives from Singapore’s Health Promotion Board attended the final ingredient workshop of 2019 conducted through the partnership between USDEC and Singapore Polytechnic’s Food Innovation & Resource Centre (FIRC).

Like other FIRC workshops, the event sought to educate and inspire potential end-users with knowledge and innovation ideas focused on U.S. dairy ingredients.

Permeate meets Southeast Asian needs
Martin Teo, technical director, food applications, at USDEC’s Southeast Asia office, led much of the program. Teo showed attendees how U.S. permeate could satisfy consumer demands for better-for-you (i.e., reduced-sodium) savory snacks while simultaneously providing the complex and intense flavors preferred in the region. Teo further explained how U.S. permeate could fulfill those demands while also being considered a natural, “clean label” ingredient—in some cases, even replacing non-clean-label ingredients like maltodextrin and non-dairy cream.

Teo also shared the findings of sensory evaluations performed at FIRC that showed a clear preference for savory snacks formulated with permeate. Then he conducted an in-person sensory panel with attendees that yielded the same results. The exercise both attested to U.S. permeate’s functional qualities and engendered trust in USDEC and the U.S. industry.

Hands-on experience
To back up the instruction, attendees sampled an array of savory snacks prepared by Teo and FIRC food technologists featuring regional flavors like curry, adobo, five spice and soya sauce. And they worked with U.S. permeate themselves during a hands-on session in FIRC’s Cook Studio.

Three participating USDEC members also participated in the workshop, introducing their companies, contributing to the discussion of U.S. permeate in savory snacks and generally building relationships with potential customers.

Next year
USDEC and FIRC will kick off a new series of workshops for the Southeast Asia market starting in March 2020. The first will focus again on savory snacks but specifically for the Vietnamese market. Watch Global Dairy eBrief in the coming weeks for more information on the workshops and check back often with the Marketing Events section at usdec.org.

 

Fonterra lifts farmgate price estimate
New Zealand’s Fonterra Co-operative Group increased its forecast farmgate milk price for 2019/20 to NZ$7.00-7.60/kg MS (from the earlier forecast of NZ$6.55-$7.55/kg MS). The new payout midpoint of NS$7.30/kg MS would be the co-op’s fourth highest milk price on record.

Fonterra Chairman John Monaghan said the higher price reflected “a global dairy market that is tipped slightly in favor of demand.”

Business review paying off
Fonterra said it is making good progress with its new business strategy aimed at reversing two straight years of losses. It reported improvements across an array of indicators, including reduced operating expenditures, increased earnings and improved cash flow.

Chinese foodservice sales showed particularly vibrant growth, building on a strong finish to the 2018/19 year. First quarter 2019/20 foodservice sales to China rose 43%, as the co-op entered 24 additional Chinese cities (bringing the total number of Chinese cities in which it sells to 327). (Company reports)

Mengniu buys another Australian dairy brand
Fresh off its acquisition of Bellamy’s Organic (see Global Dairy eBrief, 11/22/19), China’s Mengniu Dairy agreed to pay A$600 million (about US$410 million) for Australia’s Lion Dairy & Drinks. Lion owner, Japan’s Kirin Holdings, has been trying sell the milk and plant-based beverage maker for more than a year.

Lion operates 11 manufacturing plants in Australia, marketing a number of dairy brands including Dairy Farmers, Pura and Big M. Lion said the deal will help drive Mengniu’s growth in Australia and boost Lion’s ambitions in China and Southeast Asia. Australian regulators need to approve the deal before it’s finalized. (USDEC Southeast Asia office; Sydney Morning Herald, 11/25/19; news.com.au, 11/26/19)

Indonesian processed cheesemaker plans expansion
Indonesian processed cheesemaker Mulia Boga Raya is spending $4 million to expand its Bekasi manufacturing plant. The plant’s current capacity is 29,500 tons per year. Mulia Boya Roga says it owns 20% of Indonesia’s processed cheese market with its Prochiz brand. It currently imports raw materials from New Zealand. (USDEC Southeast Asia office)

Mergers, acquisitions and joint ventures
China’s Gansu Huaan Biotechnology met with three Uruguayan dairy processors and the nation’s National Milk Institute of Milk on an exploratory mission to evaluate potential partnerships to manufacture casein in Uruguay. Representatives from the Chinese dairy sector have demonstrated strong interest in Uruguayan investment this year with multiple missions to the nation . . . Canada’s Gay Lea Foods Co-operative acquired Ontario-based specialty cheesemaker Thornloe Cheese from fellow co-op EastGen. (USDEC South America office; Northern Ontario Business, 12/2/19)

Company news briefs
Glanbia Ireland and Dutch cheese and dairy manufacturer Royal A-ware got the green light to build a €140-million (about US$155-million) cheese plant in Belview, County Kilkenny (see Global Dairy eBrief, 1/25/19). The plant, slated for completion in 2022, will produce edam, gouda and other varieties, handling about 500,000 metric tons of raw milk per year . . . APS BioGroup, a unit of Colorado-based biotech company PanTheryx, signed a three-year, multimillion deal to supply the bovine colostrum ingredient Colos IgG 24h to Vietnamese dairy company VitaDairy. VitaDairy plans to use the colostrum ingredient in its ColosBaby line of infant formula, growing-up milks and formulas for pregnant mothers . . . Ireland’s Dairygold Food Ingredients launched a new brand identity for its B2B dairy and nutritional ingredients portfolio. The new brand is called Glenor (Irish for “Golden Valleys”) and is being rolled out across all product lines. (Company reports; Kilkenny Now, 11/23/19)