Despite being one of the top milk-producing countries and home to an extensive milk processing sector, the U.S. historically has not played a major role in international dairy trade as the U.S. dairy industry focused primarily on domestic markets. In the early 2000s, however, the situation began to change, and adjusted for inflation, U.S. dairy product exports grew from just under $1.6 billion in 2004 to almost $6.8 billion in 2014 (Table 1), more than a four-fold increase, a new report from the U.S. Department of Agriculture’s Economic Research Service explains. The U.S. has now become the world’s third-largest dairy product exporter, behind New Zealand and the European Union.
According to the report, this export status -- a significant change for an industry previously focused primarily on domestic rather than international demand -- was attributed to several reasons. Income growth in East Asia, Southeast Asia, Latin America and other regions led to an increase in dairy product consumption facilitated by rising imports. Free trade agreements (FTAs) also provided the U.S. with greater access to world markets, especially to Mexico through the North American Free Trade Agreement (NAFTA).
Additionally, China’s market-based reforms, including those related to its accession to the World Trade Organization in 2001, opened what is now one of the world’s largest markets for dairy product imports, the report noted.
The EU and the U.S. have also reduced domestic support and export subsidies for dairy products in recent years, bringing about greater openness of world markets, it added.
Since 2003, prices of U.S. domestic dairy products and export prices in Oceania and the EU have tended to converge and become more correlated, reflecting changes in government policies, USDA said. “The improved price competitiveness of U.S. dairy products, greater market access, reductions in U.S. and EU support measures and growing world demand have led to rapid growth in U.S. dairy product exports,” the report said.
As the U.S. became more of a global dairy market player, however, the U.S. dairy market faced greater variability in demand and prices. For example, as global conditions changed in 2015, the value of U.S. dairy exports fell to $4.9 billion, a 28% decrease from 2014. Proportionally, the drop in dairy exports in 2015 was greater than the 11% decrease in overall agricultural exports, which totaled $133 billion in 2015, the report noted.
Weaker or slower growth in global demand for dairy products, especially from China, Russia's ban on dairy imports from several countries, a strong U.S. dollar and the discontinuation of milk supply quotas in the EU were several reasons why dairy exports fell substantially in 2015, USDA said.
“The United States, as both a top producer and exporter, has a pivotal role to play but will have to compete with other large dairy exporters such as New Zealand, the EU and Australia to increase export market share in the future,” the agency noted.
USDA said future growth in dairy trade is contingent on the ability of U.S. producers to remain cost competitive with foreign suppliers while increasing the milk supply and encouraging favorable government policies around the globe.
“Increasing market share in new and traditional markets may be challenged by growing milk supplies among other major dairy-exporting countries. In addition, demand growth is highly uncertain, as relatively weak global demand in 2015 has continued in 2016,” USDA said.