Leaders of a voluntary, private program funded by dairy cooperative and individual farmers that paid producers to exit the industry and helped to support exports have decided to focus solely on export efforts beginning in 2011. This is a major shift for an industry where only ten years ago exports accounted for just over 1 percent of production and one where the 2009 collapse in export prices put milk producers in a severe financial loss position.

Cooperatives Working Together (CWT) was formed in 2003 and is managed by the National Milk Producers Federation (NMPF) to balance supply with demand at the farm level. Cooperatives and individual farmers contributed $0.10 per hundred-weight of milk produced to hold ten rounds of bidding to have entire herds of cows exit the industry, but the program had reached a point of diminishing returns. Beginning in 2011 participants will pay $0.02 per hundredweight of milk produced into the CWT program to continue funding for export assistance programs. If 75 percent of producers and cooperatives participate in the program for 2011 and 2012, funding should provide about $40 million in 2011 to continue the program.

International trade is not new to the U.S. dairy industry, but the focus had been more on imports than exports. From 1970-94 dairy product imports averaged 2.4 billion pounds per year on a milk equivalent, milk fat basis. Imports increased to an average of 3.7 billion pounds in 1995-99 and to a 5.1 billion pounds average in 2000-04, before falling back to a 4.4 billion pounds annual average in 2005-09. USDA forecasts imports at 4.1 billion pounds in 2010 and 4.0 billion pounds in 2011 because U.S. dairy product prices are competitive with international product prices.

Dairy product exports on a milk equivalent, milk fat basis averaged only 0.8 million pounds during 1970-79. That increases to 3.1 billion pounds for 1980-89 and peaked at a 5.2 billion pounds yearly average in 1990-94. Exports decline to an average of 2.1 billion pounds for 1995-2004. For 2005-09 they averaged 3.7 billion pounds, including a record of 7.3 billion pounds for 2008, before the collapse of the export market in the slow economy of 2009 pushed exports down to 2.7 billion pounds. USDA forecasts exports at 6.6 billion pounds for 2010 and 5.4 billion pounds in 2011.

U.S. dairy leaders are well aware of the challenges in export markets. Jerry Kozak, CEO of NMPF, and Chairman Randy Mooney speaking at the NMPF annual meeting in late October laid out some of the current trade policy challenges. The EU has made a sudden shift in somatic cell count compliance levels for U.S. exports requiring milk supplies at the farm level be no higher than 400,000. Earlier this year, the Chinese government questioned U.S. dairy exports meeting Chinese health criteria, even though there have been no problems with U.S. milk products. As has occurred with meat exports, Russia has arbitrarily cut off imports of some dairy products from specific suppliers, including the U.S. U.S. dairy products are also caught up in Mexican tariffs imposed due the failure of the U.S. to allow Mexican trucks to operate in the country as required by NAFTA. They also voiced concerns about dairy product trade with New Zealand as part of the on-going negotiations for the Trans-Pacific Partnership Free Trade Agreement involving nine countries at present and perhaps several more in the near future.

In calendar year 2009 the U.S. dairy industry had $2.3 billion of exports to 153 different countries. Sometime in the previous four years another 34 countries had purchased some product from the U.S. To no great surprise, the number one market was Mexico at $635 million, a country with tariff issues because of the truck dispute, followed by Canada at $376 million. China was number three at $137 million. That is why Chinese concerns about health criteria for U.S. products have gotten the attention of the dairy industry. Japan was number four at $131 million, followed by four other Asian countries, the Philippines at $77 million, South Korea at $76 million, Indonesia at $65 million and Vietnam at $57 million. The largest EU country was the Netherlands at $17 million. Russian purchases were $11 million.

If 2010 exports reach 6.6 billion pounds milk equivalent, milk fat basis that would be 3.4 percent of the projected farm marketings of 191.8 billion pounds. If exports are measured on a milk equivalent, skim solids basis, USDA projects exports at 29.3 billion pounds, 15.3 percent of farm marketings. These are significant numbers for U.S. milk production, but not high compared to some other U.S. commodities. Beef exports are 8.8 percent of U.S. production, young chicken meat 18.0 percent and pork 20.2 percent of production. It is similar to corn at 15.8 percent, but low compared to other crops like whole soybeans at 44.6 percent, and over 50 percent including soybean oil and meal, 49.1 percent for rice, 56.2 percent for wheat and 82.1 percent for cotton.

Scott Brown of the University of Missouri estimates that for every one dollar spent assisting CWT cooperatives in export sales, U.S. dairy farmers received $15.53 in additional revenue, increasing returns in 2010 $0.18 cents per hundredweight. According to NMPF CEO Kozak, in 2010 the program assisted members to export the milk equivalent of more than one billion pounds of butter, butterfat, and cheese. Peter Vitaliano, NMPF’s Vice President of Economic Policy & Market Research, reported that domestic demand grew by 1% and total world imports grew by 7% in 2009, but the volume of U.S. dairy exports dropped primarily due to the inability to compete on price to maintain sales. He said exports represent a commercial market contributing twice as much market growth for U.S. milk as domestic sales.

U.S. milk producers have reached a similar conclusion as other commodity producers, 95 percent of the world’s consumers live outside the U.S. and with rising incomes that market has been growing faster than the U.S. market and will continue to do so. Despite the volatility of international markets and the ongoing dairy trade policy challenges, U.S. producers are correct to make a long-term commitment to those markets. With increased productivity at the farm level, the only alternative is to cut back the U.S. cow herd year after year.