2024 March Board Book

Source: Durovision. Data provided by California Milk Advisory Board.

CMAB’s challenge – reaching those hundreds of millions of Pacific Rim customers with higher-value dairy products – will require substantial investment and refocused marketing efforts. A further challenge: reducing the percentage of California’s dairy exports currently directed towards China and Taiwan. That strategy would be a preventative measure in case geopolitics turn nasty. To help bankroll the new processing plant construction, and conversion of existing plants to higher-value products output, CMAB will be pitching invest ments in the state’s dairy processing infrastructure to multi-national corporations … ideally as co-investors with dairy firms currently operating in the state. Related strategies include: • Soliciting resources of California’s state government for dairy export eco nomic development. •Identifying top dairy and food firms in major Pacific Rim countries. •Going face-to-face with key food firms in the Pacific Rim to demonstrate “Why California” can help meet need their nation’s future dairy needs. The numbers projecting Pacific Rim nation’s future dairy demand are jaw dropping. That potential demand growth is a literal dairy gold mine. But col lecting an honest portion of that Mother Lode requires a comprehensive, long-term strategy involving major shifts in dairy processing investments and capacity. CMAB’s leadership is completing the blueprints for boosting value-added dairy exports. What may become of those blueprints, when put before the leaders of California’s dairy processing businesses, will be a critical question for the sur vivability of California’s remaining dairy producers. The same-old, same-old simply won’t work in the future.

Unitec States under the United States/Mexico/Canada free-trade deal. However, ships delivering dairy cargoes to Mexico from New Zealand have little in the way of back-hauls at this time. Lacking much back-haul volume leaves Mexico a less than completely desirable export destination for New Zealand dairy interests. Credit Mexican dairy import buyers as being a savvy lot. Their decades as the United States’ (and California’s) major dairy export destination means their buyers are closely attuned to the ups and downs of U.S. dairy commodity prices and the interface of the two nations’ currency values. Yes, there are caveats … As noted, China and Taiwan are two major destinations for California’s dairy exports. Relations between those two nations is severely strained. China refused to acknowledge Taiwan as a separate nation. China raises havoc with nations or firms may even imply that Taiwan is a separate political entity. China’s threat to militarily annex Taiwan is very troubling. Recently, Chinese president Xi stated that a goal in 2024 is to restore Taiwan to its proper place. If China moves militarily against Taiwan, that will obviously disrupt global trade on a widescale basis. But for now, dairy exporters (and all other firms doing business with China and Taiwan) must proceed as if status quo will persist. Looking ahead, CMAB strategies project diversifying its dairy export port folio to other Asian nations – reducing its reliance on sales to China and Taiwan. Gov’t has muddied trade waters … U.S. dairy export opportunities are currently somewhat hobbled by a lack of trade agreements with Asian nations. Right or wrong, one of Donald Trump’s

first moves when he entered the White House was to pull the United States out of the Trans Pacific Free Trade deal. The Biden administration has achieved little expansion of free trade arrangements with Pacific Rim nations. Given current crises in Eastern Europe and the Middle East, resources at the State Department are stretched too thin to allow for the complexi ties of negotiating free trade deals, in the analysis of The Milkweed . CMAB sources credit the United States Dairy Export Council with solid efforts to try to promote constructive export policies with the Biden administration. A “Mother Lode” waiting to be better mined … Even if only directionally correct, the Combined Annual Growth Rates (CAGR) for dairy product consumption by Pacific Rim nations suggest that at some point, overall dairy demand will rocket past global milk production resources. That scenario incorpo rates anticipated dairy demand growth in the Pacific Rim as well as flat global milk pro duction for Oceania, Western Europe … and California. CMAB is staking out a futuristic, bold strategy: boosting exports of value-value dairy products, while acknowledging that fu ture Golden State milk production will basi cally remain flat. For CMAB’s strategy to succeed, fundamental shifts in dairy process ing capacity are needed … weaning firms away from overt emphasis on basic, bulk commodities (specifically, nonfat dry milk and Skim Milk Powder). In the analysis of The Milkweed , much of the current marketing mindset is a carry-over from prior USDA policies that supported producers’ milk prices by purchases of bulk commodities.

Value - Added Mexico Exports: California’s Opportunity

bounded nicely. That number gained 52% from 2019 to 2022 (up to $540.7 million). In terms of pure dollar-value sales, California has enjoyed its fair share of Mexico’s dramatic im port growth. 6) Stunningly, California’s share of high-value dairy exports to Mexico (other than nonfat dry milk) nose-dived during the Covid-19 Pandemic and has never fully recov ered. In 2019, higher-valued dairy exports totaled 70.7% of California’s dairy sales to Mexico down to $159 million in 2020. But for 2022, higher-value dairy exports to Mexico were only $199.6 million. One explanation for 2022’s challenges exporting higher-value dairy products to Mexico may have been that U.S. dairy products were extremely high-priced, relative to global markets. 2022’s record farm milk prices were driven by sky-high dairy commodity values. 7) California has lost a massive share of higher-value dairy exports to Mexico. Before Covid-19 emerged, Cal ifornia enjoyed 30% of Mexico’s higher-value dairy im ports. But in 2022, California garnered only 16.8% of Mexico’s $1.195 billion of higher-value dairy imports. California’s challenges to boost value-added exports to Mexico and other Pacific Rim countries are clear. That niche offers solid growth and better returns.

The table above details Mexico’s dairy import data

for 2018-2022. That data reflects:

1) The total U.S. dollar value of Mexico’s total interna tional dairy imports annually, and the dollar value of imports minus nonfat dry milk — the low-end product. 2) Dollar-value of California’s exports to Mexico – both total dairy exports and then exports exclusive of non fat dry milk. Several facts may be gleaned from Mexico’s dairy import data: 1) The Covid-19 Pandemic’s emergence in early 2020 severely disrupted all dairy imports to Mexico. 2) Mexico’s economy is now booming, reflected by a big rebound in total dairy imports — up 31% from 2021 to 2022. Taking a longer, pre-Covid 19 look, Mexico’s total dairy imports have climbed 55% from 2019 to 2022. 3) The percentage of higher-value dairy imports to Mexico have consistently ranged around 50% of total im ports since 2018. 4) Covid-19 slammed California’s dairy exports to Mexico hard. The total dollar value fell by 22.2% from 2019 to 2020. 5) California’s total dairy sales to Mexico have re

The Milkweed • January 2024 — 7