Dick Groves
Editor, Cheese Reporter

2018 Editorials

2018: The Year of the Trade Wars
December 28, 2018

What A Concept: An On-Time Farm Bill
December 21, 2018

US Could Do Worse Than Follow EU Dairy Trends
December 14, 2018

WTO Is Worst System Ever, Except For All The Others
December 7, 2018

Lower Retail Prices Could Help Boost Dairy Sales
November 30, 2018

The Thanksgiving of the Future
November 23, 2018

CCC Donations Make a Comeback in USDA Dairy Data
November 16, 2018

25 Years of BST/BGH
November 9, 2018

The Midterm Election
November 2, 2018

Things We'll Miss About the California State Milk Order
October 26, 2018

Packaging Industry Keeps Growing Thanks In Part To Dairy
October 19, 2018

Per Capita Cheese Consumption: 40 Pounds Is Within Read
October 12, 2018

New NAFTA Looks Pretty Good For US Dairy
October 5, 2018

Imitation is the Sincerest Form of Flattery, But
September 21, 2018

New California Federal Order Starts To Get Real
September 14, 2018

Dismal Performance Continues for Fluid Milk
September 7, 2018

It's Time to Terminate The War on Salt
August 31, 2018

Searching for Solutions
August 17, 2018

Agencies Should Agree on Terminology For Dairy Alternatives
August 31, 2018

USDA Assistance To Farmers Will Be Woefully Inadequate
August 3, 2018

A Decade of Global Dairy Trade Auctions
July 27, 2018

Dairy Fats Have A Healthy Future
July 20, 2018

Eating More Milk and Drinking Less
July 13, 2018

Something's Not Healthy In FDA's Nutrition Innovation Strategy
July 6, 2018

An Interesting, But Flawed, Food Safety Consolidation Proposal
June 29, 2018

25 Years of Dairy Futures Success
June 22, 2018

Vegan 'Butter' And Other Strange Foods With Lots Of Potential
June 15, 2018

EU vs New Zealand, Australia on GIs Should Be Interesting
June 8, 2018

Does More Dairy Trade Really Mean Less Price Volatility?
June 1, 2018

Midwest Cheese Manufacturing Makes A Nice Comeback
May 25, 2018

Drop In Class I Use Points To Need For Federal Order Reforms
May 18, 2018

Will California Ever Get Back to A 20% Production Share?
May 11, 2018

The Dairy Industry's Plant-Based and Animal-Free Threats
May 3, 2018

Cheese Industry Attracting Some Impressive Technology
April 27, 2018

Some Good, Lots of Bad in Food Lableing Bills
April 20, 2018

Extending Multiple Component Pricing Makes Sense, And Cents
April 13, 2018

The Significance of A California Federal Order
April 6, 2018

Front-Of-Package Labeling Isn’t The Answer To Anything
March 30, 2018

US Dairy Exports and Global Export Prices
March 23, 2018

The Dairy Industry's New Cash Market
March 16, 2018

Disappearance Statistics Illustrate Importance of Exports
March 9, 2018

US Dairy Industry Can Expect More Milk, More Opportunities
March 2, 2018

Disappearance Statistics Illustrate Importance of Exports
February 23, 2018

California Federal Order Proceeding Continues to Drag On
February 16, 2018

Storm Clouds on the US Dairy Export Horizon
February 9, 2018

Federal Orders Have Many Problems, Including Their Existence
February 2, 2018

Innovate, Innovate, Innovate
January 26, 2018

Memo To Trump, Congress: Ditch The Dietary Guidelines
January 19, 2018

The Illogical World of Retail Milk Prices
January 12, 2018

Dairy Industry Isn't Very predictable, But in 2018...
January 5, 2018

 

 

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Protected GI Status For Havarti Defies Logic

Almost six years ago, the European Commission published Denmark’s application for protected geographical indication (GI) status for Havarti cheese, and the idea was roundly criticized by, among others, the Consortium for Common Food Names and this newspaper (in an editorial with the following headline: “Move To Protect Havarti Shows Lunacy Of EU’s GI Scheme”).

So, as with so many things that seem to defy logic these days, the European Commission last week decided to give the go-ahead to a GI for Havarti. CCFN again blasted the decision, with Jaime Castaneda, CCFN’s executive director, calling the EU’s move “an egregious overstep that attempts to shut the door on competition from the many producers of havarti around the world, including within the EU itself.”

Denmark’s request for GI status for Havarti appears to have drawn more opposition than support. As noted in the European Commission’s decision, Germany, Spain, the US Dairy Export Council, National Milk Producers Federation, International Dairy Foods Association, Office of the US Trade Representative, New Zealand Ministry of Foreign Affairs and Trade, Dairy Companies Association of New Zealand, and Dairy Australia, supported by the Australian government, opposed the registration.
Notices of opposition were also received from dairy groups in Costa Rica and Guatemala.

The European Commission disputed pretty much all of the points raised by opponents of the GI registration for Havarti. While Spain, Germany, Poland, Finland and Estonia were also producing limited quantities of Havarti at the time Denmark applied for GI status, quantities are “very limited” if compared with the overall production in Denmark, the Commission stated.

It appears, the Commission continued, that the third country opponents in this opposition procedure have not placed a cheese named “Havarti” on the EU market. Therefore, the existence of a product bearing the name “Havarti” and produced in these third countries is not affected by the registration of “Havarti” as a protected GI in the EU.

That should come as a relief to Denmark’s own Arla Foods, which is one of roughly a dozen companies that produce Havarti in Wisconsin (but won’t be able to export Havarti to the EU, at least under that name).

One of the more interesting arguments against a GI for Havarti stems from the fact that Havarti has a Codex standard. This is interesting for at least a couple of reasons.

First, having a specific Codex standard, as well as the inclusion of “Havarti” in Annex B to the Stresa Convention, “does not imply that the said name has become generic,” the European Commission observed.

Not everyone agrees with that, including at least one EU dairy organization. In an interesting bit of timing, Eucolait (the European Association of Dairy Trade) just last month stated its objection to the planned registration of the name “Emmentaler” (Emmental) as a protected designation of origin under the future trade agreement between the European Free Trade Association (comprised of Switzerland, Norway, Iceland and Liechtenstein) and Mercosur (comprised of Argentina, Brazil, Uruguay and Paraguay).

The name Emmental “is considered as generic worldwide,” Eucolait stated.
It is one of the cheese types for which a Codex standard has been adopted. The existence of a Codex standard “implies that the cheese can be manufactured anywhere in the world as long as the composition and other requirements laid down in the standard are complied with. By no means is production restricted to a certain geographical area.” Havarti’s Codex standard requires only that the country of origin be declared.

Second, this isn’t the first time, and unfortunately probably won’t be the last time, that the EU has decided to protect a cheese despite a fair amount of opposition from within the EU itself (not to mention from outside the EU).

One example that comes to mind is Feta. It was 14 years ago that the European Court of Justice upheld the name “Feta” as a protected designation of origin for Greece.

In order to be registered as a PDO, a traditional name such as “feta,” which is not the name of a region, place or country, must refer to a food from a defined geographical environment with specific natural and human factors which is capable of conferring on that product its specific characteristics, the Court of Justice explained. In the European
Commission’s view, the name “feta” has not become the common name for a food and therefore has not become generic.

The Court of Justice found that Denmark and Germany, which, supported by France and the United Kingdom, had applied for annulment of the registration of “feta” as a PDO for Greece, have not shown that the Commission’s assessment is incorrect.

Meanwhile, two years ago, the European Commission granted GI status to Danbo, another Danish cheese that has a Codex standard. When granting GI status to Danbo, the Commission said having a specific Codex standard, as well as the inclusion of Danbo in Annex B to the Stresa Convention, “does not imply that the said name has become ipso facto generic.”

When it comes to protecting certain cheese names, it appears that the EU doesn’t care who it offends. That includes Codex, other countries and, in some cases, even some of its own member countries.

US Cheese Comes Of Age

More than 43 years ago, in May of 1976, an event that came to be known as the “Judgment of Paris” took place, and it forever changed the world of wine (or at least California wine). Last Friday in Bergamo, Italy, an event took place that could forever change the world of US-made cheese.

By way of brief background, the “Judgment of Paris” was a blind taste test of California and French wines. Back in 1976, according to various sources, the wine business was basically French wine and everything else.

And “everything else” wasn’t exactly considered a compliment.

A British wine seller and educator, Steven Spurrier, organized that 1976 competition, which included 10 white wines, including six California chardonnays and four French white burgundies, and 10 red wines, including six California cabernets and four French reds from Bordeaux.

The judges were all from France. And the two winners were both from California: a white Chateau Montelena Chardonnay and a red Stag’s Leap Cabernet Sauvignon. The results surprised or even shocked a lot of observers. And a lot of people considered that result to be a major turning point for the California wine industry.

Last Friday, in Bergamo, Italy, Rogue River Blue, made by Rogue Creamery in Central Point, OR, was named World Champion Cheese at the World Cheese Awards, rising to the top among a record-breaking 3,804 entries from 42 different countries. This was the first time in the contest’s 32-year history that a US cheese captured the World Champion Cheese Trophy.

It’s difficult if not impossible to understate the significance of this achievement for the US cheese industry. Obviously, the World Cheese Awards is a far different competition than the “Judgment of Paris” was.

But there’s at least one similarity: US-made cheeses have long been considered “inferior” among some folks, including some people in the industry as well as numerous consumers, who simply believe that the best cheese in the world comes from countries that have some of the oldest and most well-established cheesemaking traditions.

And some of those countries, and some of their best-known cheeses, went head-to-head with Rogue River Blue in Bergamo, Italy, last week.

Indeed, the contest’s top 16 cheeses included one Parmigiano Reggiano entry from Italy (Rogue River Blue and Nazionale del Parmigiano Reggiano Latteria Sociale Santo Stefano were actually tied at the end of the final judging stage; the chairman of the judging panel, Nigel Barden, cast the deciding vote for Rogue River Blue). Parmigiano Reggiano, sometimes referred to as the “King of Cheeses,” has been made in Italy for over 900 years.

That wasn’t the only legendary cheese that was among the top 16 cheeses in the World Cheese Awards. There was Pitchfork Cheddar (as well as Gorwydd Caerphilly) from Trethowan’s Dairy in the United Kingdom; Cheddar dates back to around the 12th century, or several hundred years before there was a United States of America.

Another legendary cheese that was among the top 16: Epiosses PDO from France’s Laiteries H. Triballat. The origins of Epiosses date back to the 16th century. And there were two Swiss Gruyere cheeses among the top 16; Gruyere dates back to the 12th century, at least according to some sources.

As far as Rogue Creamery and Rogue River Blue are concerned, Rogue Creamery dates back to the 1930s, and started making Blue cheese in the 1950s.

While this victory for a US cheese company can be viewed as historically significant, it’s worth remembering that US-made cheeses prior to Bergamo have made far greater advances on the world stage than California wines had prior to the “Judgement of Paris.”

As David Gremmels, president of Rogue Creamery, pointed out, its been nearly 16 years since Rogue River Blue was recognized with a Gold medal at the World Cheese Awards in 2003.

More recently, US companies have had some pretty impressive showings in international cheese competitions. In 2018, seven US cheese companies were among the top 78 Super Gold medal winners in the World Cheese Awards. In 2017, eight cheeses from seven US companies were among the top 66 Super Gold medal winners.

And in 2016, a US-made cheese took top honors in the biennial World Championship Cheese Contest for the first time since 1988.

All of this is certainly not to suggest that the European cheese industry is about to be obliterated by the US. Indeed, the EU has some remarkable advantages over the US, including the aforementioned history of some of its award-winning cheeses.

There is also the advantage of name recognition. There is nothing in the US, name-wise, that compares to Parmiggiano Reggiano, Roquefort, or Comte, to name just three European cheeses that have been around for years.

The best the US can do is take these European cheeses, including their traditions and their technologies, and attempt to replicate them as much as possible, while making products that are acceptable and even sought after by consumers in the US and, increasingly, around the world.

And there are more and more indications that US cheese makers are doing a pretty good job of accomplishing that.

The US will never beat Europe when it comes to traditions, but in 2019 in Bergamo, Italy, 260 judges from 35 countries decided that US-made cheese is second to none.


PCRM’s Ludicrous Breast Cancer Warning Label Request

In honor of Breast Cancer Awareness Month, the Physicians Committee for Responsible Medicine (PCRM) is petitioning the federal government to require a warning label on cheese. Perhaps in the interest of common sense and decency, the federal government should require a warning label on PCRM.

What PCRM is specifically asking for is that the US Food and Drug Administration require cheese makers to display the following warning on their products: “Dairy cheese contains reproductive hormones that may increase breast cancer mortality risk.”

Let’s take a look at this request from a couple of different perspectives. First is PCRM’s petition, which totals all of four pages, one of which is for “Certification” and is signed by Neal D. Barnard, M.D., PCRM’s president, and another of which is references (all 10 of them).

The “Statement of Grounds” in PCRM’s petition includes a total of seven paragraphs, the first of which is an overview of breast cancer. In 2016, the latest year for which incidence data are available, 245,299 new cases of female breast cancer were reported, and 41,487 women died of breast cancer in the US, the petition noted.

The next four paragraphs are devoted to spelling out why cheese should be labeled with a warning about breast cancer. One paragraph focuses on a study in which researchers examined the dietary intakes of 1,941 women diagnosed with breast cancer and compared them with the diets of women without breast cancer.

Another paragraph notes that Australian researchers who measured hormone levels in 766 postmenopausal women found that those who consumed the most dairy products had 15 percent more estradiol in their bloodstreams, compared with women consuming little or no dairy products. No mention of cheese is made in this paragraph.

Next, the petition cites a study of women previously diagnosed with breast cancer, noting that consumption of high-fat dairy products, including cheese, is associated with increased mortality risk. This study included 1,893 women.

And the next paragraph discusses new data from the Women’s Health Initiative that show that a lower-fat, higher-carbohydrate diet emphasizing fruits, vegetables, and grains resulted in long-term health benefits. This paragraph makes no mention of cheese, or any other dairy product, for that matter.

The next paragraph started out as follows: “It should be noted that limited evidence suggests that dairy intake in general (that is, not specifically high-fat dairy products) is associated with a lower risk of breast cancer.”
That sentence references a 2018 update report from the World Cancer Research Fund/American Institute for Cancer Research.

That WCRF/AICR report also includes the following sentence regarding breast cancer (premenopause): “Dairy products are a major source of dietary calcium but are also rich in vitamin D and conjugated linoleic acids, which may have a protective effect on breast cancer development.”

The WCRF and AICR also released a study last year on diet, nutrition, physical activity and breast cancer. That report noted that there is limited evidence that consuming dairy products might decrease the risk of premenopausal breast cancer, and there is also limited evidence that consuming diets high in calcium might decrease the risk of premenopausal breast cancer, and might also decrease the risk of postmenopausal breast cancer.

With all of this in mind, it’s pretty safe to conclude that FDA will in all likelihood never require any sort of breast cancer warning label on cheese, or any other dairy product, for that matter, for the simple reason that evidence to support such a warning label is lacking, to put it mildly.

That does raise an interesting question: what sort of an organization would even bother to make such a ludicrous request? PCRM describes itself (at least at the bottom of its news release on the breast cancer warning label for cheese) as “a nonprofit organization that promotes preventive medicine, conducts clinical research, and encourages higher standards for ethics and effectiveness in education and research.”

On its website, PCRM notes that it is “dedicated to saving and improving human and animal lives through plant-based diets and ethical and effective scientific research.” And on the cover of its 2018 annual report, there’s a picture of a bunch of people, most of them wearing lab coats, holding a sign that says, “Go Vegan!”

Another interesting point about PCRM is that it isn’t really a doctors’ group. Yes, the breast cancer news release has a headline that reads: “Doctors Petition FDA to Require Breast Cancer Warning Label on Cheese,” and the lead sentence in that release mentions that PCRM is a nonprofit “with more than 12,000 doctor members.” And some of the “news” outlets that picked up the story referred to an organization of doctors petitioning FDA to put warning labels on cheese.

But PCRM isn’t exactly an organization of doctors, according to none other than PCRM, which states that it “combines the clout and expertise of more than 12,000 physicians with the dedicated actions of more than 175,000 members across the United States and around the world.” In other words, physicians make up less than 7 percent of PCRM’s membership.

PCRM’s petition generated a fair amount of publicity, and maybe a little money, but that’s about it.
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Main Impact Of US-EU Aircraft Dispute: More Uncertainty

Once upon a time, the United States filed a complaint against the European Union’s alleged illegal subsidies to Airbus large civil aircraft.

The US actually requested consultations with the governments of Germany, France, the United Kingdom, and Spain, and with the EU, 15 years ago this month, on Oct. 6, 2004. Those consultations didn’t resolve the dispute, so the US requested a WTO Dispute Settlement Body to establish a panel on EU members affecting trade in large civil aircraft on May 31, 2005.

So what does this have to do with the dairy industry? Well, for roughly the first 14 years and seven months of this aircraft dispute, the answer was: absolutely nothing. This was, in fact, a dispute over large civil aircraft.

That changed last April, when the Office of the US Trade Representative began its process under Section 301 of the Trade Act of 1974 to identify EU products to which additional duties may be applied until the EU removes its subsidies to Airbus. Both that preliminary list of EU products to be covered by additional duties, as well as a supplemental list released in early July, included numerous cheeses and other dairy products.

And, as reported on our front page last week, the US will soon begin imposing tariffs of 25 percent on a number of agricultural imports from the EU, including a wide variety of cheeses imported into the US from the EU, as well as some other EU dairy products, including butter and butter substitutes.

According to Mary Ledman, global dairy strategist at Rabobank, in total about 107,000 metric tons (236 million pounds) of EU dairy products fall into the 65 HTS codes that will be subjected to an additional 25 percent tariff starting one week from today.

What this really means for global trade in general and dairy trade specifically is more uncertainty. That is, more uncertainty piled on top of all the other uncertainty we’ve seen over the past couple of years.

This uncertainty takes at least a couple of forms. First, there’s been some uncertainty hanging over EU-US dairy trade for six months now, ever since the USTR released its preliminary list of EU products to be covered by additional duties.

Since that list included some dairy-related tariff lines, for a variety of EU cheeses as well as butter, this Airbus dispute has created at least some uncertainty for everybody from EU dairy farmers and dairy processors to US dairy importers, retailers and consumers, as well as US dairy farmers and dairy processors.

Now that we know when the 25 percent tariffs will be applied, and to which imports they will be applied, there should be a little less uncertainty hanging over everybody, right? Well, not really.

That’s because the USTR has the authority to apply a 100 percent tariff on affected products, but at this time the tariff increases will be limited to 25 percent on dairy and other agricultural products. But — and here’s where some of the continuing uncertainty comes in — the US has the authority to increase the tariffs at any time, or change the products affected.

Unfortunately, aircraft disputes that could affect the dairy industry aren’t just limited to the Airbus dispute. There’s also a dispute over US subsidies to Boeing. As EU Trade Commissioner Cecilia Malmstrom noted last week, in the “parallel” Boeing case, the EU will in the not-too-distant future be granted rights to impose countermeasures against the US as a result of its continued failure to comply with WTO rules.

Last April, all of nine days after the USTR released a preliminary list of EU products to be covered by additional duties in the Airbus dispute, the European Commission launched a public consultation on a preliminary list of products from the US on which the EU may take countermeasures in the context of the ongoing Boeing dispute.

And guess what? There are some dairy products on that preliminary list, although there are only three tariff codes for cheese on that list and US cheese exports to the EU for all cheese HTS codes totaled just under 3 million pounds in 2018. Also on the list are concentrated milk proteins with a protein content of more than 85 percent by weight; US exports of these milk proteins to the EU last year topped 26.1 million pounds.

So there’s some additional uncertainty hanging over the global dairy market, as the EU prepares to slap tariffs on products from the US, and those products might or might not include dairy.

The ongoing theme here is, of course, ongoing uncertainty. And what does that mean for the global economy?

According to the latest “Interim Economic Outlook” from the Organization for Economic Cooperation and Development, which was released on Sept. 19, the global economy “has become increasingly fragile and uncertain, with growth slowing and downside risks continuing to mount.”

Further, escalating trade conflicts “are taking an increasing toll on confidence and investment, adding to policy uncertainty, aggravating risks in financial markets and endangering already weak growth prospects worldwide,” the OECD added. And in the latest quarterly Outlook for US Agricultural Trade from USDA, the headline in the “Economic Outlook” section was as follows: “Economic growth slows while uncertainty increases.”

From tariffs being imposed on US dairy exports by China to tariffs being imposed on EU dairy exports by the US, the only certainty in the global dairy trade environment is uncertainty.

Sky’s The Limit For Per Capita Cheese Consumption In US

USDA’s Economic Research Service on Monday released detailed per capita cheese consumption statistics for 2018, and these statistics certainly paint a pretty rosy picture of per capita consumption growth in recent years. And these and some other statistics point to some pretty nice potential for further growth in the years ahead.

As reported on our front page this week, per capita cheese consumption last year was a record 38.15 pounds, up almost a full pound from 2017’s record and up almost four and a half pounds just from 2013.

That’s a pretty impressive increase in a very short time period. To put it in a bit of historical perspective, from 2000 to 2012, per capita cheese consumption grew by about 3.7 pounds, or about three-quarters of a pound less than the gain from 2013 through 2018.

While those gains are certainly nice, a closer look at the statistics shows that per capita consumption increases last year weren’t achieved by all the categories broken out by ERS, nor did all categories set new records last year.

Perhaps most noteworthy is the fact that per capita consumption of Italian cheeses other than Mozzarella actually declined slightly last year, to 3.49 pounds, from 3.51 pounds in 2017. This category includes Parmesan, Provolone, Ricotta, Romano, Asiago and other Italian cheeses.

Over the past couple of decades, per capita consumption of other Italian cheeses has generally trended upward, having been just 2.14 pounds back in 1995. Indeed, after reaching a record 3.16 pounds in 2011, per capita consumption of other Italian cheeses declined for three straight years, then rebounded by almost half a pound in just three years to reach a record high in 2017.

Given the wide variety of high-quality products available in a dizzying array of packaging formats these days, it would seem that per capita consumption of other Italian cheeses will resume its upward trend sooner rather than later.

Meanwhile, per capita Swiss cheese consumption (this category includes imported Emmenthaler and Gruyere) last year, at 1.08 pounds, was at its highest level since 2012 (1.09 pounds), but well below where it was back in 2007 (1.24 pounds). Like the other Italian cheese category, per capita consumption of Swiss cheese has had its ups and downs over the years, but could experience nice growth just be getting back to where it was a little over a decade ago.

Two other categories broken out by ERS were unchanged last year, Cream and Neufchatel, and “other.” Both categories are below their record highs of 2.61 pounds for Cream/Neufchatel and 1.59 pounds for “other,” so it would seem at least possible that we could see growth in both of these categories in the near future.

Finally, we can’t help both note that per capita consumption of Hispanic cheese set yet another new record last year, at 0.88 pound. Per capita consumption of Hispanic cheese has more than tripled since 1996, when it was just 0.25 pounds, and has increased every year this century, with the exceptions of 2008, when consumption was unchanged from 2007 at 0.61 pound, and in 2012, when consumption of 0.67 pound was down from 0.69 pound in 2011.

Growth in per capita consumption of Hispanic cheese has actually been more consistent over the past 20 years than has growth even in per capita Mozzarella consumption (which declined by more than half a pound from 2007 to 2008, and also fell in 2009, 2012 and 2017). And so we expect overall future consumption growth to be driven in part by continued growth in Hispanic cheese consumption.

The other statistics that point to further growth in US per capita cheese consumption in the future come from the International Dairy Federation’s World Dairy Situation 2019, which was released last week at the IDF World Dairy Summit in Istanbul, Turkey.

That report (available for purchase at www.idf-fil.org) includes, among many other things, an eye-opening table showing per capita cheese consumption for roughly four dozen countries, ranging from European Union member countries to China and South Korea.

What the table shows is that, while US per capita cheese consumption is pretty impressive compared to some well-known dairy countries — such as New Zealand, at 22.2 pounds; Australia, at 30.8 pounds; and Canada, at 31.9 pounds — it still has a heck of a long way to go to catch a few of the leading countries.

Leading the pack in the IDF report’s table is Denmark, with per capita cheese consumption last year of an astounding 63.6 pounds, or more than 25 pounds per year higher than the US. In other words, Danes consume more than a pound of cheese per week or, looked at another way, Danes consume more than half a pound more cheese each week than Americans do. That’s pretty impressive.

But Denmark isn’t the only country in which per capita cheese consumption tops one pound per week. Other countries in the IDF table that top that consumption level include Germany, France, Netherlands, Finland, Estonia, Cyprus, Luxembourg and Iceland.

So what does this tell us about growing per capita cheese consumption?
For one thing, it would seem to indicate that having a long history of cheese traditions helps; cheeses such as France’s Comte have been around for several hundred years longer than the US has.

It also indicates that patience is a virtue; back in 2001, of the countries noted above, only France had per capita cheese consumption above one pound per week. The US won’t get there in 2019, but maybe will someday.

Some USDA Cheese Purchases Could Use A Price ‘Trigger’ & Jerry Dryer

The USDA last Friday announced purchase contract awards for about 4.1 million pounds of Cheddar cheese for delivery between Nov. 1, 2019, and Feb. 29, 2020. We’re not so sure that this cheese purchase is such a good idea.

This particular Cheddar cheese is being purchased under an invitation for bids under the authority of Section 32 of the Act of August 24, 1935, with the purpose to encourage the continued domestic consumption of these products by diverting them from the normal channels of trade and commerce.

USDA had initially announced a Cheddar cheese purchase program under the authority of Section 32 back in May of 2018. That week, the CME cash market price for 40-pound Cheddar blocks averaged just under $1.6300 per pound.

USDA issued its latest invitation for bids under the authority of Section 32 back on Sept. 10. That just happened to be one day after the CME cash market block price reached $2.00 per pound for the first time since November of 2014.

With this bit of brief background in mind, we can’t help but wonder if these cheese purchases, at a time when the market appears to already be relatively tight (as indicated by prices above $2.00 per pound), are a good idea.

Keep in mind that USDA has been buying cheese, and in some cases other dairy products, under several different programs and authorities in recent months. For example, back on August 8th, USDA took the somewhat unusual step of announcing plans to purchase Mozzarella, process and natural American Cheddar cheese for the National School Lunch Program and other federal food nutrition assistance programs.

What was somewhat unusual about this announcement is that USDA makes these purchases every year, so our guess is that all or most of the companies that participate in bidding for these contracts are aware that USDA would be issuing solicitations for bids sometime after Labor Day.
It’s been that way for a number of years, so we’re not sure why USDA issued a “Notice to the Trade” to highlight these solicitations this year.

Meanwhile, USDA is buying dairy products under its ongoing trade mitigation programs. Specifically, USDA’s Ag Marketing Service is planning to purchase an estimated $68 million in milk and other dairy products under the Food Purchase and Distribution Program.

Under the 2019 Food Purchase and Distribution Program (USDA also purchased dairy products last year), it has purchased some String cheese along with some fluid milk. The agency has spent less than $12 million on these purchases, meaning it’s got a lot of money left to buy a lot of dairy products over the next several months (with deliveries stretching well into 2020).

With the CME block price remaining above $2.00 a pound through early this week, it’s worth wondering whether USDA would be better off halting the Section 32 and possible the trade mitigation purchases for the time being.

That would provide a couple of advantages to both USDA and the dairy industry. First, USDA would get “more bang for the buck”; that is, the agency would be able to procure more cheese for the same amount of money if blocks were at, say, $1.60 per pound rather than above $2.00 per pound.

And second, assuming USDA’s goal is to boost producer milk prices, it would seem that buying when cheese prices are low makes more sense than when prices are high. Keep in mind that, as noted earlier, the block market recently moved above $2.00 a pound for the first time in almost five years. Does USDA really want to add more fuel to this inflationary fire?

Maybe what’s needed is some sort of “trigger” mechanism, which would prevent USDA from buying, or trying to buy, cheese when the block price reaches $2.00 per pound, and maybe also requires USDA to make some Section 32 cheese purchases when the block market is under $1.50 or maybe under $1.60 per pound for an extended period of time.

Buying cheese under current circumstances just doesn’t make all that much sense.

Jerry Dryer

It’s with a great deal of sadness that we report this week the passing of Jerry Dryer, a longtime dairy industry editor, publisher, consultant, speaker and leader.

One of the lesser-known aspects of Jerry’s lengthy dairy industry career was his time here at the Cheese Reporter. That’s probably due in part because it happened more than 40 years ago, and also due in part to the fact that his tenure here didn’t last all that long.

Specifically, Jerry was named editor of the Cheese Reporter effective Jan. 1, 1978, and served in that position for about 10 months.

But Jerry’s legacy continues to live on here at the Cheese Reporter, all these years later, for one simple reason: during his tenure as editor, he hired me as his part-time assistant. I interviewed with Jerry on Jan. 22, 1978, was hired on the spot, and started work the next day. I worked for
Jerry two days a week while attending the University of Wisconsin-Madison as an agricultural journalism major, and full-time during the summer of 1978.

But I learned a heck of a lot from Jerry during the nine-plus months I worked for him. Part of that came from his deep knowledge of the dairy industry, but more of that actually came from his unending passion and commitment to the dairy industry.

Jerry’s contributions to the industry, to this newspaper and to me personally will never be forgotten.

 

Despite Declines, Still Some Positives For Fluid Milk Sales

USDA’s Economic Research Service released 2018 fluid milk sales statistics at the end of August and, as reported on our front page two weeks ago, those statistics show that fluid (beverage) milk sales continue to decline. But despite those ongoing sales declines, all is not lost for fluid milk.

To briefly review the ERS figures, fluid milk sales last year totaled 47.672 billion pounds, down 978 million pounds, or 2 percent, from 2017. That was the lowest level for fluid milk sales since 1961 when, for what it’s worth, the US population stood at about 184 million. That’s about 145 million fewer potential milk drinkers than the US has today.

That’s not even necessarily the worst news in the ERS fluid milk sales figures. Arguably the worst news is what’s happened just since 2010, when fluid milk sales last topped 55 billion pounds: fluid milk sales have dropped every year, and by more than a billion pounds a year three times (in 2013, 2014 and 2017).

Statistics released separately by ERS earlier this month (and also reported in our Sept. 6th issue) show that per capita fluid milk consumption last year, at 146 pounds, was down 101 pounds from 1975, and has dropped by 32 pounds just since 2010.

With these dismal statistics for background, what lies ahead for fluid milk sales and consumption? It’s difficult if not impossible to expect sales and consumption to continue declining in the future, for at least a couple of reasons.

The first reason is just simple math, or maybe simple trend analysis. As noted earlier, fluid milk sales have declined every year since 2010, and there just doesn’t appear to be any reason to expect that trend to reverse any time soon.

Indeed, according to USDA’s Agricultural Marketing Service, fluid milk sales through the first seven months of 2019 were down 1.8 percent from the first seven months of 2018.

A second reason to be pessimistic about future fluid milk sales is because recent sales declines have occurred at a time when fluid milk products are downright cheap. Specifically, back in 2010, the last year in which fluid milk sales topped 55 billion pounds, retail whole milk prices in the US averaged around $3.27 per gallon, according to the US Bureau of Labor Statistics.

Last year, when fluid milk sales were down almost 6.4 billion pounds from 2010, retail whole milk prices in the US averaged just under $2.90 per gallon, BLS figures show. Indeed, retail whole milk prices also averaged under that 2010 average in both 2016 ($3.19 per gallon) and in 2017 ($3.22 per gallon), and sales still declined significantly in both years.

Today, retail whole milk prices are on the rebound. In both July and August, they averaged above $3.00 per pound, the first time that’s happened since 2017. And with CME block Cheddar prices now above $2.00 per pound for the first time since late 2014, it’s worth remembering that, back in 2014, average retail whole milk prices never fell below $3.50 per gallon, and got as high as $3.86 per gallon late that year.

What these prices suggest, cynically, is that the only way to boost fluid milk sales would be to give milk away. But those giveaways wouldn’t actually be sales.

And what this adds up to is further declines in fluid milk sales in the future. How much lower they go is anybody’s guess; the only certainty appears to be: lower than they are now.

Despite that pessimistic outlook, there are at least a few reasons to be somewhat optimistic about fluid milk sales in the future. For one thing, whole milk sales have posted some nice increases in recent years; specifically, whole milk sales have increased every year since 2013, when they bottomed out at 13.914 billion pounds.

Granted, whole milk sales are less than half what they were 40 years ago, but it would seem to bode well for sales when the best-tasting product in the category has increased in sales for five straight years (and sales through the first seven months of 2019 were up 1.2 percent from a year earlier).

As more research finds that milkfat not only isn’t harmful but is actually healthful, it seems likely that more and more consumers will return to whole milk.

Also, ERS statistics show that the number of fluid milk plants increased last year, to their highest level in more than a decade. Meanwhile, average product volume per plant declined again.

What this appears to indicate is that there are more smaller, local or regional fluid milk plants popping up around the US, tapping into consumers’ desire for more local foods and beverages.

It’s also worth noting that there’s been a fair amount of innovation taking place in the fluid milk category in recent years, with fairlife and A2 milk being perhaps the most visible and successful examples. But these products are far from alone, which should help bring some consumers back to milk, or introduce new consumers to milk, perhaps for the first time.

Keep in mind that, for all its recent struggles, fluid milk remains a huge business. And it remains hugely important in the dairy industry; in 2017, fluid milk accounted for 23.1 percent of skim-solids utilization and 11.8 percent of milkfat utilization.

Finally, when pondering the fluid milk sales situation, we can’t help but recall the old saying, “imitation is the sincerest form of flattery.” Yes, fluid milk has faced its share of problems in recent years, in part because it has attracted more than its share of imitators. But that’s also a positive for milk: competitors ranging from oat to pea “milk” see lots of potential in the category. So do we.

 

The Cheese Makers Who Saved The Cheese Reporter

This week’s issue includes the sad news of the passing of August Albert “Butch” Suemnicht of Reedsburg, WI, a longtime leader in the Wisconsin cheese industry.

In addition to serving as president of both the Wisconsin Cheese Makers Association and the old Wisconsin Cheese Foundation, Suemnicht is believed to have been the last of a group of cheese makers that at one time owned the Cheese Reporter.

What follows is a brief glance back at that period in this publication’s history.

Some 57 years ago, at the beginning of 1962, the Cheese Reporter was owned by Fred Beisser, who had served as editor of the publication since 1943 and purchased the paper in 1957. Beisser served as the paper’s publisher and editor until he passed away on Mar. 12, 1962.

After Beisser passed away, the duties of editing and publishing the Cheese Reporter fell entirely on his widow, Edith. After a couple of months, she offered to sell the paper.

Then, “after careful consideration,” the board of directors of the Wisconsin Cheese Makers Association determined that the continued publication of “The Reporter” was necessary for the good of the cheese industry, and decided to buy it, according to the “Association Notes” column that appeared in the May 25, 1962 issue of the paper and was written by Joseph J. Balcer, the WCMA’s executive director and legal counsel at that time.

But rather than risk the WCMA’s “limited funds” in this venture, without first submitting the question to the entire membership, the WCMA board, together with other interested cheese makers, “decided to ‘pass the hat’ so to speak, and pledged their own funds to raise the necessary purchase price,” Balcer wrote in that column.

One week later, a “Statement of Policy” on the front page of the paper announced that the publishing, editing and managing responsibilities had passed to the new owners: Cheese Reporter Publishing Company, Inc.

“The new owners are cheesemakers,” the Statement of Policy continued.
“The Cheese Reporter is established as a profit making corporation, but its first objective will be to continue to serve, and to expand its services if need be, so that all the individuals and businesses which are the cheese industry can grow and prosper, and provide the people of the whole world the most nutritious and taste-satisfying food we call cheese.”

So, what does this history have to do with the late Butch Suemnicht? Well, Suemnicht is believed to have been the last living former cheese maker-owner of this newspaper.

Records of that era are a bit hard to come by; more precisely, it’s been impossible to dig up exactly who the cheese makers were who purchased the Cheese Reporter back in 1962 and formed the Cheese Reporter Publishing Co. Inc.

For example, a front-page story in the May 25, 1962 issue of the paper started out as follows: “Announcement was made this week by Mrs. Fred Beisser that ‘The Cheese Reporter’ has been purchased by a group of Wisconsin cheesemakers. The new management will be known as ‘The Cheese Reporter Publishing Co.’, a corporation formed especially to purchase the paper.”

The story adds that the paper’s editorial and business offices will be located in Madison, according to WCMA executive secretary Balcer. Prior to Fred Beisser’s death, the paper had been published out of Sheboygan Falls, WI (for more details, please check out last week’s column). But there’s no mention of the cheese makers who were the paper’s new owners.

A couple of months later, in the July 20, 1962 issue of the Cheese Reporter, to be exact, the appointment of Harry Palmiter as managing editor of the paper was announced by the board of directors of the Cheese Reporter Publishing Co. Inc. Again, there’s no mention of who those board members were.

Palmiter purchased the Cheese Reporter Publishing Co. Inc., a couple of years later. The story announcing the sale mentions that the paper had been purchased in 1962 by a group of Wisconsin cheese makers following the death of Fred Beisser, but once again makes no mention of who those cheese makers were.

About the only source of information we’ve been able to come across as far as who the cheese makers are that formerly owned the Cheese Reporter Publishing Co. Inc. is the “Annual Report of Domestic Corporation” filed with Robert C. Zimmerman, secretary of state of Wisconsin, in early 1964.

That document lists Horace P. (H.P.) Mulloy as president of the company, with Lloyd Dickrell as vice president and Elmer Beery as secretary and treasurer. In addition to Mulloy, Dickrell and Beery, the report lists two directors: A. J. Thiel, of Menasha, WI; and August Suemnicht of Reedsburg, WI.

With that (albeit somewhat limited) information, we are reasonably confident in concluding that August A. “Butch” Suemnicht was the last living cheese maker who, for a couple of years in the 1960s, was the owner of this newspaper (or, more precisely, the owner of Cheese Reporter Publishing Co. Inc.).

Perhaps even more important, he was among those cheese makers who, back in the weeks following the death of Fred Beisser, believed that continuing the Cheese Reporter was necessary for the good of the cheese industry. And for that, we are forever grateful, and forever indebted, to Butch Suemnicht and the other cheese makers who, 57 years ago, saved the Cheese Reporter.

90 Years Of The Cheese Reporter

This year marks a noteworthy anniversary for this newspaper: the Cheese Reporter is now 90 years old.

This raises an interesting question: on our front page, we proudly proclaim that we’ve been “Serving the World’s Dairy Industry Weekly Since 1876.” So how can it be that the Cheese Reporter is “only” 90 years old? What follows is a brief explanation of that seeming contradiction.

This newspaper was in fact started in 1876, but not as the Cheese Reporter. The publication started in 1876 as a dairy-related section of The Sheboygan County News ( for non-Wisconsinites, Sheboygan county is located between Milwaukee and Green Bay, WI). The dairy news in the early issues of that publication mostly concerned local dairy trading, notes from dairy meetings, advice to dairymen about new products, and cheesemaking methods.

A standard weekly column began appearing in The Sheboygan County News in 1882, called “Dairy Notes.” Some 20 years later, the name of the paper was changed to The Sheboygan County News and Dairy Market Reporter. The “Dairy Notes” column continued to run on the inside of the paper.

New owners took over the newspaper at the beginning of 1925, and about six months later, the Dairy Market Reporter became a separate publication (and referred to itself as “The Cheesemaker’s Paper”). The July 11, 1925 issue was the first separate edition, and consisted of four full-sized newspaper pages of dairy news. Three years later, a format change was introduced, when the page size was reduced to its current tabloid newspaper size.

Finally, the publication’s name was changed to Cheese Reporter with the issue published on Saturday, Mar. 2, 2029 (the paper was published on Saturdays at that time; the publication day was changed to Friday, the same as it is today, in 1938).

Here’s how the newspaper announced the name change:

“Hereafter this publication will be known as the CHEESE REPORTER. This change has been contemplated by the publishers for sometime, and is in line with their desire to give the cheese industry a journal devoted exclusively to the cheese end of the dairy industry.

“We regret the passing of the name ‘Dairy Market Reporter’, which is known throughout the state and the nation, but feel we can best serve the cheese industry by the adoption of the title CHEESE REPORTER.

“The Cheese Reporter is one of the oldest dairy publications in the United States. It had its inception in the 70’s when the first cheese call board in the country was established at Sheboygan Falls.”

In a separate editorial comment, it was noted that “The Dairy Market Reporter witnessed the growth of the cheese industry in Wisconsin from nothing to one of the state’s most important industries.”

So, what was the cheese industry like back in 1929? Well, on the old Wisconsin Cheese Exchange in Plymouth, WI (which later moved to Green Bay and eventually became the National Cheese Exchange), 180 Twins were offered for sale and all sold at 20.75 cents per pound.

Meanwhile, on the Farmer’s Call Board, also in Plymouth, 515 boxes of cheese were offered for sale and all sold as follows: 375 cases Longhorns at 21.5 cents and 150 Square Prints at 21.75 cents.

According to a “Review of the Wisconsin Cheese Market” by the Cheese Reporter special reviewer, the cheese market “has shown considerable more activity in the past week and in general a firmer and healthier tone has been evidenced.” There has been “a particular shortage on Longhorns, and they still are in very strong demand, and command a premium above other styles. The supply of Young Americas and Square Prints is also light and these styles are moving readily into consuming channels. Twins and Cheddars are in demand by grinders and there is no surplus of these styles of cheese. The only styles in which there is still a distinct surplus is colored Daisies.”

In Madison (where the Cheese Reporter would relocate, from Sheboygan Falls, in 1962), cheese grading “is practically assured by legislation enactment,” according to a front-page story in that Mar. 2, 1929 issue. “It is understood conferences between cheese men, the department of markets, and members of the legislature have reached a successful conclusion and that a substitute bill will be presented that will provide for a single grade for cheese and that all cheese reaching that grade shall be passed. Cheese not up to that grade is to be classed as ungraded.”

The Tillamook County Creamery Association, located in Tillamook county, Oregon, and composed of twenty-three model cheese factories, has issued annual reports of its factories for 1928, according to another front-page story. The South Prairie factory reports an average test of milk for 1928 of 4.32 and a yield of 11.20. This factory received 4,968,752 pounds of milk during the year.

In Monroe, WI, the average December price for milk paid by the new Monroe Cooperative Company, Kraft-Phenix building, Eugene Wirz, maker, was $2.22 for 3.5 milk, first payment of the new factory having just been announced.

And another story announced that the 1929 convention of the Wisconsin Cheese Makers’ Association would be held Dec. 4-6 “in the auditorium at Milwaukee.”

That issue of the new Cheese Reporter also included two separate ads for a new book, “Cheese,” on the science and practice of cheesemaking, by Van Slyke and Price. The 400-page book was available for $3.00 postpaid.

That was $1.00 more than a one-year subscription to this newspaper.

Will Consumers Buy Blended Beverages?

As we reported last week, Dairy Farmers of America introduced, under its Live Real Farms™ brand, Dairy Plus Milk Blends that combine milk with almonds or oats.

One of our initial thoughts about these new beverages is that they sound kind of like “filled milk” products. By way of background, Congress way back in 1923 passed a law called the Filled Milk Act, which defined “filled milk” as any milk to which has been added, or which has been blended or compounded with, any fat or oil other than milkfat.

Also, federal orders were amended in the late 1960s to provide a definition of filled milk, but when federal orders were reformed a couple of decades ago, any reference to “filled milk” was removed from all orders.

But that’s all ancient history, and it’s not what DFA’s new beverage blends are.

It should also be noted that, for at least the past couple of decades, the fluid milk business has come under a fair amount of (deserved) criticism for a lack of innovation. Combining dairy milk with almonds or oats would certainly qualify as innovative.

Those points aside, the future of these new blended beverage products will ultimately be decided by consumers, not regulators. And it will be mighty interesting to see how consumers respond to these beverages.

From a consumer perspective, it would appear that there are both positives and negatives with these blended beverages, when compared to either regular milk or to plant-based alternatives.

Let’s start with some of the positives. Dairy Plus Milk Blends are lactose-free, which is one of the major selling points of plant-based milk alternatives. Indeed, lactose-free is even a selling point for some actual non-blended dairy beverages, such as fairlife.

Also, depending on what it’s being compared with, the Dairy Plus Milk Blends offer some nutritional advantages. For example, the Dairy Plus Oat-Original contains five grams of protein per eight-ounce serving, while Silk Almond contains just one gram of protein per serving, as does Almond Breeze.

But regular cow’s milk contains eight grams of protein per serving, so while the Dairy Plus blends offer an improvement in protein content over some well-known plant-based milk alternatives, they come up short when compared to good old conventional milk.

Also, a one-cup serving of Dairy Plus Almond-Original has 70 calories, compared to 110 calories for lowfat cow’s milk.

One other advantage these new Dairy Plus blends offer is that they’re new. In the supermarket dairy case, there’s not a whole lot of milk innovation, aside from the aforementioned fairlife, and A2 milk. Oh, and all the plant-based “milks,” very few of which were around a decade ago.

The new Dairy Plus blends are certainly bringing some new innovation to a milk category that desperately needs it.

There are also several negatives with these new beverage blends. For starters, they’re not vegan, nor are they dairy-free (obviously). And when checking some plant-based products for lactose-free claims, we couldn’t help but notice that there are actually more dairy-free claims than lactose-free claims. So these new blends won’t appeal to either vegans or to consumers who are just trying to avoid dairy.

These new blends also have a fairly lengthy ingredient list. The Dairy Plus Almond-Original, for example, contains lowfat milk, water and almonds, and less than 2 percent of several other ingredients, including gellan gum and hydrolyzed sunflower lecithin.

These blends do have shorter ingredient lists than do many plant-based dairy alternative beverages, but certainly not as short as regular milk.
The Dairy Plus Milk Blends are also somewhat of a mixed bag on the nutrition front.

Among other things, the Dairy Plus Almond-Original provides 10 percent of the Daily Value for calcium, compared to 30 percent for regular lowfat milk. And the Dairy Plus Almond-Original also provides a smaller percentage of the Daily Value for potassium and vitamin D, to mention a couple of nutrients.

Finally, these new Dairy Plus Milk Blends are pretty pricey. According to a DFA news release, the blends are available at supermarkets in Minnesota at a cost of $3.99 to $4.69 for a half gallon.

Meanwhile, as we reported last week, the average retail price for a gallon of whole milk in July was $3.03, according to the US Bureau of Labor Statistics. Also, for what it’s worth, the average retail price for a half-gallon of organic whole milk in early July was $4.04, according to the monthly survey conducted by federal milk marketing order market administrators.

All of these pluses and minuses add up to a fairly large question mark regarding the potential for these new Dairy Plus blends. And that’s not even considering the number one reason why consumers purchase specific foods and beverages: taste.

This will be a pretty complicated decision for at least some consumers.
After they add up all the pluses and minuses of the Dairy Plus Milk Blends, and decide to give it a try, it will have to taste good or they won’t buy it again. Five flavors are available, although two of those are unflavored and a third is unsweetened vanilla, so consumers might have to try a couple of varieties before deciding to become regular buyers. Or not.

More innovation has come to the fluid milk category; whether it’s positive innovation for the category remains to be seen.

Time Has Come For National Food Date Labeling Law

Legislation introduced in both the House and Senate late last month (and covered in a story that appeared on page 11 of our Aug. 2nd issue) would establish requirements for quality and discard dates for food and beverage products. This common-sense legislation deserves serious consideration by Congress, and also by the food and dairy industry.

The legislation would give food labelers two options for date labeling: a “discard date,” which would require the use of the phrase “USE By”; or a “quality date,” which would require the use of the phrase “BEST If Used By.”

There are at least three compelling reasons why this legislation makes sense. First, it would create uniformity for companies that choose to use some sort of date label on their products. Currently, food labelers use a number of date-related phrases, including the two phrases above as well as such murky phrases as “Sell by” “Fresh by” and “Enjoy by.”

The former is intended to be useful for the retailer but isn’t very useful for the consumer, since it’s neither an indicator of quality nor safety; and the latter is also neither an indicator of quality nor safety (is a product with the “Enjoy by” phrase supposed to be enjoyable up to that date and then still safe but no longer enjoyable after that date?).

And then there are some foods that have a date on them but either don’t clarify what that date means or put the clarification somewhere else on the label. For example, we found a product that includes a clear date label near one end of the package, but the statement “For best when used by information, please see date printed on package” appears elsewhere, and in a different typeface and color.

What these different date labels and definitions mean is consumer confusion about quality and safety, various studies have found. Limiting the date-related phrases to just “BEST If Used By” and “USE By” would at least be a positive step toward reducing consumer confusion.

Second, these quality and safety food date labels are strictly optional for food companies. This is spelled out several times in the legislation. For example, the short summary of the bill states that the measure would establish requirements for quality and discard dates that are, at the option of food labelers, included in food packaging...(emphasis added).

Later, the legislation says the terms “discard date” and “quality date” mean a date voluntarily printed on food packaging (emphasis added).

If that’s not clear enough, the legislation’s sections on both quality dates and discard dates note that the decisions on whether to use either of these dates on food packaging “shall be at the discretion of the food labeler,” which is defined in the legislation as the producer, manufacturer, distributor, or retailer that places a date label on a food package.

Keeping these food date phrases voluntarily rather than mandatory is definitely a positive.

Third, this legislation appears to make it easier to reduce food waste. It does so by reducing consumer confusion, so that food that might be perfectly edible ends up being consumed rather than ending up in a landfill.

It seems like any time there’s some initiative regarding food waste, the same or similar statistics are cited: In the US, food waste is estimated at between 30 and 40 percent of the food supply. This estimate, based on estimates from USDA’s Economic Research Service of 31 percent food loss at the retail and consumer levels, corresponded to approximately 133 billion pounds and $161 billion worth of food in 2010.

This amount of waste has far-reaching impacts on society, USDA has pointed out: wholesome food that could have helped feed families in need is sent to landfills and land, water, labor, energy and other inputs are used in producing, processing, transporting, preparing, storing, and disposing of discarded food.

Related to this point, wasted food that ends up in landfills is also a significant source of greenhouse gas emissions, according to some sources. This is because decomposing food creates methane, a greenhouse gas which, in 2017, accounted for about 10.2 percent of all US greenhouse gas emissions from human activities, according to the US Environmental Protection Agency.

Finally, there are a couple of other interesting points that make this legislation worth passing. First, it’s at least somewhat bipartisan, which isn’t all that common in Congress these days.

By “somewhat bipartisan,” we’re referring to the fact that, in the House, the Food Date Labeling Act was introduced by a Democrat (US Rep. Chellie Pingree of Maine) and a Republican (US Rep. Dan Newhouse of Washington state).

There’s no such bipartisanship with the Senate bill, which was introduced by a Democrat (Richard Blumenthal of Connecticut). That probably dooms the legislation’s chances in that chamber (which is controlled by Republicans). Still, bipartisan legislation in either chamber of Congress is noteworthy.

Second, the legislation has garnered the support of an interesting array of outside entities, including representatives of food banks such as Feeding America; consumer organizations such as the National Consumers League; environmental groups such as the Natural Resources Defense Council and World Wildlife Fund; and food companies such as Unilever and Kellogg.

A national food dating law is an idea whose time has come.


Trade Wars Just Keep Getting Uglier

It’s now been about a year and a half since President Trump decided to impose tariffs on steel and aluminum imports, launching what at least some would consider the first salvo in a trade war that seems to be getting worse by the week.

No matter when or why the current trade wars got their start — Trump’s decision to impose steel and aluminum tariffs, or actions by China and other US trading partners — there doesn’t appear to be any end in sight for the ongoing trade wars. And that’s definitely bad news for the US dairy industry.

A couple of recent happenings suggest that things will actually get worse before they get better. The first of these involves China.
Late last week, Trump announced plans for 10 percent tariffs on $300 billion of Chinese goods, effective Sept. 1. That would extend tariffs to almost all US imports from China.

Since that announcement, China has announced a couple of counter-moves. First, it let its currency drop to an 11-year low, and second, it decided to halt purchases of all US farm products.

The original tariffs on some imports from China were imposed a little over a year ago, and were followed by retaliatory tariffs imposed by China on a variety of US dairy, agricultural and other exports. So it’s worth looking at what’s happened since then.

In the first half of 2018 (before retaliatory tariffs were imposed by China), US dairy exports to China were valued at $303.7 million, up 10 percent from the first half of 2017. In the second half of 2018, US dairy exports to China were valued at $195.4 million, down 35 percent from the second half of 2017.

And in the first half of this year, US dairy exports to China were valued at $194.9 million, down 36 percent from the first half of last year.

Looking at some specific dairy product export volumes, during the first half of 2018, US exports of dried whey to China were actually down 3 percent from a year earlier, but exports of whey protein concentrate were up 30 percent and exports of cheese were up 33 percent.

But during the first half of this year, exports of dried whey to China were down 60 percent, WPC exports were down 64 percent, and cheese exports were down 46 percent from a year earlier.

These export numbers illustrate a couple of points. First, China’s retaliatory tariffs are clearly having a negative impact on US dairy exports.

And second, China remains a significant market for US dairy exports. Indeed, during the first half of this year, China ranked third, in value terms, as a market for US dairy exports, trailing only Mexico and Canada.

But now China plans to stop buying US agricultural products completely. Yes, China’s purchases of US dairy exports are down from last year, and down significantly, but during the first half of 2019, China still imported about 42 million pounds of US dried whey, 32 million pounds of WPC and almost 10 million pounds of cheese.

So imagine those exports all dropping to zero by, say, the fourth quarter of 2019. That’s potentially very problematic for the US dairy industry, and indeed for all of US agriculture.

In another front in the ongoing trade wars, the Office of the US Trade Representative held a public hearing Monday regarding proposed tariffs the US plans to impose on imports of cheese, dairy and other products from the European Union in an ongoing dispute involving Airbus.

It may be recalled that, back in April, the US began the process of identifying products of the EU to which additional duties may be applied until the EU removes its subsidies to Airbus. Specifically, the USTR proposed imposing additional ad valorem duties of up to 100 percent on a variety of cheese, dairy and other imports from the EU.

Then at the beginning of July, the USTR issued for public comment a supplemental list of products imported from the EU that could potentially be subject to additional duties until the EU removes its subsidies to Airbus.

In total, USTR’s proposed action would cover cheeses under 59 different tariff subheadings, according to the Cheese Importers Association of America. A number of other dairy products imported from the EU are also covered by the proposed action, including butter, yogurt, and butter substitutes.

How controversial are these proposed tariffs on products imported from the EU? Pretty controversial, as indicated by the fact that the USTR has, as of the middle of this week, received more than 800 comments from the cheese, food and other industries, as well as some consumers.

Indeed, more than 100 of these comments specifically mentioned cheese.
These comments were submitted by cheese importers, specialty food distributors and retailers, and EU cheese exporters, among others.

This is a particularly troubling front in the ongoing trade wars. This particular dispute involves aircraft, but the USTR is proposing to broaden the dispute to involve a lengthy list of products, including cheese. And the lengthy list of potential casualties keeps growing.

President Trump famously (or perhaps infamously) tweeted last year that “trade wars are good, and easy to win.” But in the case of many sectors of the US economy (not to mention consumers), trade wars tend not to be good, and they are extremely difficult if not impossible to “win.”

About the only thing trade wars really are is ugly, and getting uglier by the week.


California Will Skew 2019 Federal Order Statistics

Federal milk marketing orders are a veritable treasure-trove of statistics, but there’s something about 2019 that will skew, at least to some extent, this year’s federal order statistics. That something is the new California federal order.

Let’s start with the “big picture.” In their original 2015 petition asking the US Department of Agriculture to call a hearing to promulgate a federal order for the state of California, three dairy cooperatives — California Dairies, Inc., Dairy Farmers of America and Land O’Lakes — noted that, if California’s milk producers adopt a federal order, that order would be the largest federal order pool, with a monthly average volume of well over 3.4 billion pounds, eclipsing the Upper Midwest order’s average 2014 monthly pool volume of 2.7 billion pounds.

Well, that hasn’t happened, and in fact it hasn’t even come to close to happening. Just in the months of April, May and June, the Upper Midwest order’s pool volume was larger by 830.8 million pounds, 663.1 million pounds and 875.1 million pounds, respectively. In April, the California order actually ranked third in pool volume, trailing not only the Upper Midwest order but also the Northeast order.

There are at least two caveats to keep in mind when looking at these numbers. First, under the co-ops’ proposal, voluntary depooling of any class of milk was not going to be permitted. But under USDA’s final decision, the California order contains performance-based pooling standards conceptually similar to the 10 other federal orders, but tailored for the California market.

So, as we’ve reported for eight months now, a considerable volume of milk is being depooled in California every month. Just in June, for example, California’s milk production totaled 3.344 billion pounds, while the volume of milk pooled on the California order totaled 2.373 billion pounds.

Second, the co-ops submitted their petition in early 2015 and cited the Upper Midwest’s 2014 average monthly pool volume of 2.7 billion pounds. But so far this year, excluding February because it has only 28 days, more than 3 billion pounds of milk has been pooled every month on the Upper Midwest order, including over 3.2 billion pounds in March, May and June.

Meanwhile, California’s milk production had reached a record high of 42.34 billion pounds in 2014, but by last year production had declined to about 40.4 billion pounds.

The co-ops didn’t necessarily foresee this growth in Upper Midwest pool volumes, or the decline in California’s milk production, when they projected back in early 2015 that the California order would be the largest federal order pool.

The new California federal order is also going to end up skewing federal order milk utilization statistics this year. By way of quick review, in 2017, the last full year of the old California State Order, California’s utilization was as follows: Class I, 12.8 percent; Class 2, 5.5 percent; Class 3, 3 percent; Class 4a, 32.5 percent; and Class 4b, 46.2 percent.

Also in 2017, the last full year in which the federal order system didn’t include the California federal order at all (it was in effect for the final two months of 2018), federal order utilization was as follows: Class I, 30 percent; Class II, 13.4 percent; Class III, 41.3 percent; and Class IV, 15.3 percent.

California’s impact on milk utilization would be expected to be most noticeable in Class III and Class IV, but the impact to date hasn’t been as great as might have been expected. That’s due to the large volumes of milk that are being depooled every month.

For this analysis, we’ll focus on the four most recent months for which federal order statistics are available, in part because, during the first three months the California was in effect, USDA allowed more pooling flexibility for California handlers. And February, as noted earlier, had only 28 days.

So in the March-June period, the volume of milk pooled in Class III on the California order topped 1.4 billion pounds once (March), fell just short of 1.4 billion pounds once (1.38 billion pounds in June), and was way below 1 billion pounds twice (610.6 million pounds in April and 794.9 million pounds in May).

During that four-month period, the Class III utilization percentage for all federal orders combined was above 50 percent in March and June, but under 45 percent in April and May.

Also during the March-June period, the volume of milk pooled in Class IV on the California order topped 1 billion pounds twice (in April and May) and fell below half a billion pounds twice, including a low of 276 million pounds in March.

During that four-month period, the Class IV utilization percentage for all federal orders combined was above 20 percent in April and May and below 20 percent in March and June, including a low of 12.7 percent in March.

Finally, the monthly volume of milk used in Class I in California over the March-June period fell into a fairly narrow range of 386 million pounds in June to 470.3 million pounds in June. And the Class I utilization percentage for all orders also fell into a fairly narrow range between 29.2 percent in January and 22.4 percent in June.

Comparing year-to-year federal order statistics isn’t always simple. In 2018, for example, large volumes of Class III milk were depooled from the Upper Midwest order in March, April and May, dropping the Class III utilization percentage for all orders below 40 percent.

This year, it will mainly be the California order that’s responsible for skewing federal order statistics.


We’re Just Starting To Learn About Health Benefits Of Dairy

These days, it’s not all that difficult to find folks who are skeptical about how important dairy products are from a nutritional standpoint. What’s interesting is that, as the skeptics seem to be getting louder and garnering more attention, the research is solidifying the importance of milk and dairy products in a nutritious diet.

We were reminded of this point by the review, recently published in Advances in Nutrition and covered in a story appearing in our July 12th issue (page 21) that concluded, among other things, that adequate consumption of milk and dairy products at different life stages can help prevent and/or control various chronic diseases.

The study reviewed worldwide scientific literature on the role of dairy products in health and in the prevention of chronic diseases, including cardiovascular disease, metabolic syndrome, and type 2 diabetes. It also examined the effects of dairy products on growth, bone mineral density, generation of muscle mass, and during pregnancy or breastfeeding.

Keep in mind that this review was published during a period when, as reported on our front page last week, sales of plant-based foods are continuing to post impressive gains. New data from the Plant Based Foods Association and the Good Food Institute shows that retail sales of plant-based foods reached $4.5 billion over a recent 12-month period, up 11 percent from a year earlier, and that sales increases for several plant-based dairy alternatives greatly exceeded that growth rate.

The review published in Advances in Nutrition noted that, currently, there is growing skepticism about the health benefits of dairy products, which translates into an increased intake of plant-based drinks derived from soy, almonds, oats, rice and other plants. But generally, these plant-based drinks “are of low nutritional density, contain proteins of relatively lower biological value, and have a low micronutrient content and large amounts of added sugars.”

Dairy products, meanwhile, contain multiple nutrients and contribute significantly to meet the nutritional requirements for protein, calcium, magnesium, phosphorus, potassium, zinc, selenium, vitamin A, riboflavin, vitamin B-12, and pantothenic acid, the review pointed out.
Many of the beneficial effects of milk and dairy products are “likely due to interactions between the nutrients and not only to the action of each of these nutrients separately,” the review noted.

At least twice in the review, there is a reference to the need for further research on the role of dairy products in health. One of those suggests that further research is “urgently needed” to compare the impact of lowfat with regular- and high-fat dairy on cardiovascular-related clinical outcomes.

Coincidentally, on the same day that Advances in Nutrition review was released, experts in The BMJ called into question the advice to reduce intake of total saturated fat and replace it with unsaturated fat to curb levels of chronic disease and prevent deaths. This analysis was also covered in a story in our July 12th issue (page 8).

Draft World Health Organization guidance, published for consultation in May 2018, recommended reducing intake of saturated fatty acids, which are found in foods such as hard cheese and butter, and replacing it with polyunsaturated and monounsaturated fatty acids to reduce rates of chronic disease and related deaths.

The WHO draft guidance relies “heavily” on a meta-analysis of 84 randomized controlled trials that tested the effect of modifying saturated fat intake on serum lipid and lipoprotein concentrations. But this approach, which focuses on total saturated fatty acids, ignores food sources, and uses surrogate endpoints, is problematic for several reasons, the analysis in The BMJ stated. Among other things, not all saturated fatty acids are equal, and cannot be viewed as one homogeneous group with regard to effects of diet on disease risk.

The analysis also pointed out that, historically, the focus on reducing saturated fat led to the proliferation of industrially produced food products low in fat, saturated fat, and cholesterol and to the dissemination of products based on technologies to replace saturated fat. One example is the production of margarine and spreads based on partial hydrogenation of vegetable oils, which increased the content of trans fatty acids from zero to up to 40 percent of total fat.

And the widespread consumption of industrially produced trans fat is considered to have been responsible for 6 percent to 19 percent of all coronary heart disease events in the US in 2006, the analysis noted.
Recommendations to reduce intake of total saturated fat without considering specific fatty acids and food sources are not based on evidence and will distract from other, more effective, food-based recommendations.

Taking these two studies/analyses together, we can conclude at least three things. First, dairy products contribute importantly to meet nutritional requirements for a wide variety of vitamins and minerals, but it may very well be that many of the beneficial effects of dairy products are due to the interactions between those vitamins and minerals.

Second, the major perceived nutritional shortcoming of dairy products has long been saturated fat, but saturated fatty acids contained in dairy and other food products can’t be viewed as one homogeneous group with regard to effects of diet on disease risk.

And third, we’re only beginning to learn about all the health benefits of dairy products.

Is Perfect Day A Threat To Plant-Based Dairy Alternatives?

The dairy industry officially entered some sort of new era last week with Perfect Day’s introduction of “ice cream” made with the company’s “non-animal whey protein.” How this new era plays out for the dairy industry will be mighty interesting to watch.

As reported on our front page last week, Perfect Day launched a limited edition frozen dairy dessert, which is made with the company’s flora-based, animal-free dairy protein. The ingredient statement specifically includes “non-animal whey protein” as one of the main ingredients (after water, sugar, coconut oil and sunflower oil in the Vanilla Salted Fudge and Vanilla Blackberry Toffee varieties).

Perfect Day’s animal-free whey protein raises a number of questions, particularly as far as consumer acceptance is concerned, and it also raises a question about how much the company’s products will impact the dairy industry in the future. Our guess is quite a bit, but that remains to be seen.

But there’s another potential impact of Perfect Day’s animal-free dairy products that might, in some ways, actually help the dairy industry. And that potential impact has to do with plant-based dairy alternatives.

There would appear to be several reasons why Perfect Day’s products could impact the plant-based food business more than they impact the traditional dairy business in the years ahead. Two of those have to do with consumer benefits.

Specifically, Perfect Day’s products are touted as being lactose-free, and also touted as vegan. A quick check of the websites of several plant-based dairy alternative manufacturers found that these two product attributes are among several benefits regularly promoted for these products.

In other words, consumers will be able to partake of Perfect Day’s flora-based, animal-free dairy protein rather than plant-based non-dairy protein. That leads to another potential advantage of Perfect Day’s products: nutritional superiority.

As we’ve mentioned before in this space, one of the big shortcomings of plant-based dairy alternatives is in the area of nutrition in general and protein content specifically. For example, Anita’s Coconut Milk Yogurt Alternative contains “a nominal amount of protein,” according to the company’s website. “In contrast, high protein yogurts are made with animal products or additives.”

Now, thanks to Perfect Day, high protein yogurts don’t necessarily have to be made with animal products; they can be made with “animal-free” dairy proteins.

Further, Perfect Day claims that its proteins are identical to the proteins found in cow’s milk, so if and when Perfect Day (or a company using its proteins) introduces beverage “milk,” that product will have as much protein as conventional cow’s milk (eight grams per eight-ounce serving). By contrast, many plant-based “milks” contain one gram or less of protein per serving.

Sustainability is a major selling point for many if not most plant-based dairy alternatives. For example, Daiya says it is “dedicated to producing food responsibly, from the way it’s grown and resourced to our dedication to reducing our carbon footprint.”

But the company’s Medium Cheddar Style Farmhouse Block contains, in addition to filtered water, the following ingredients: tapioca starch, coconut oil, vegan natural flavors, pea protein isolate, non-GMO expeller pressed: canola and/or safflower oil, chicory root extract, sea salt, xanthan gum, lactic acid (vegan), tricalcium phosphate, pea starch, potato protein, vegan enzyme, cane sugar, annatto, and coconut cream.

Meanwhile, Perfect Day explains that there are three “simple steps” to creating its animal-free dairy proteins: milk’s essential genes are added to microflora; the dairy flora uses fermentation to convert plant sugar into milk proteins that are nutritionally identical to those that come from cows; and those proteins are used in foods ranging from ice cream to yogurt.

It seems like Perfect Day has a better “sustainability” story to tell about its fermentation process than does a company that sources the ingredients for its plant-based foods from around the globe. But the sustainability of Perfect Day’s animal-free dairy proteins versus plant-based dairy alternatives will be up to consumers to decide.

Finally, it’s worth remembering that, when it comes to buying food, the number one factor cited by consumers is taste. And this may ultimately be where Perfect Day really shines compared to plant-based dairy alternatives.

As reported on our front page this week, sales of plant-based dairy alternatives continue to increase. But despite claims by many plant-based dairy alternative manufacturers that their products taste great, well, we remain skeptical.

Compared to traditional dairy products, most if not all plant-based products come up short in the taste department, to put it diplomatically. That’s not all that surprising, given the lengthy list of ingredients that go into making many of these products.

But Perfect Day’s animal-free dairy proteins are different, according to the company, which states that its proteins are identical to the proteins found in cow’s milk, imparting to food products the nutrition, texture, and “delicious taste” of conventional dairy.

Obviously, Perfect Day’s animal-free proteins will provide significant competition for dairy proteins in the future. But given the supposed benefits being touted by many marketers of plant-based dairy alternatives, Perfect Day’s animal-free proteins may ultimately pose a bigger threat to the plant-based alternative industry.

Producing More Fat Makes Sense, And Cents, For Farmers

Over the past couple of decades, the price of butterfat, as far as a dairy producer’s milk check is concerned, has had its ups and downs, to put it mildly. But lately, trying to push butterfat production higher, and promoting butter sales, makes a lot of sense, and cents, for dairy producers.

We make that point for several reasons. First, USDA’s most recent report to Congress on the dairy promotion program (which was released earlier this year but unfortunately covers 2016 program activities) found that the producer profit benefit-cost ratio (BCR) for butter, at 22.74, is far higher than for fluid milk (4.11), cheese (4.81), and dairy exports (8.10).

As calculated for USDA’s report, the producer profit BCR is the additional industry profits (additional cash receipts net of additional production costs and promotion assessments) earned by producers as a consequence of the promotion expenditures divided by the historical level of promotion expenditures made to generate those additional profits.

So it would appear that producers would profit if promotional spending for butter were to increase, although, as USDA’s report points out, as spending increases, each additional dollar spent has a declining effect, meaning that the BCR declines as spending increases.

Second, National Milk Producers Federation reported two years ago that the contribution of milkfat to farm milk prices has risen from 38 percent for a number of years to over 50 percent since mid-2015.

Looked at in a different way, for a number of years, protein was the most valuable component in producer milk prices (at least for those federal orders that have multiple component pricing), until just a few years ago.
Just to mention one example of this: on the Upper Midwest order, protein was the most valuable component from 2002 through 2014, but butterfat has been the most valuable component since then.

With butter prices projected to remain above $2.00 per pound for the foreseeable future (through at least next year, according to USDA’s forecasts), it seems safe to conclude that butterfat will remain the most valuable component in milk for some time.

Third, it would appear that dairy producers are more than capable of boosting the milkfat output of their cows, and have not yet reached “peak milkfat” as far as milkfat percentage is concerned.

There are a couple of ways of looking at this. First, going back almost three decades, over the 1990-2010 period the average milkfat content of US producer milk fell into a narrow range of 3.65 to 3.69 percent.

Notably, over that same period, the CME cash market Grade AA butter price averaged under $1.00 a pound for several years (including just under 71 cents per pound in 1994), and never averaged higher than $1.82 per pound (the closest was in 2004, when the Grade AA butter price averaged $1.8166 a pound). So there wasn’t a great financial incentive for producers to try to boost milkfat content.

But 2010 was the last year in which the milkfat content of the US milk supply averaged under 3.70 percent. It reached 3.76 percent in 2013, fell below that mark for a couple of years, then hit 3.79 percent in 2016, 3.84 percent in 2017 and 3.89 percent in 2018. Meanwhile, CME butter prices have averaged above $2.00 per pound every year since 2014.

But it would appear that there’s still room for the average milkfat content of producer milk to move higher in the future. In the European Union, for example, the butterfat content of milk has averaged around 4 percent annually for roughly the past decade. Granted, overall production per cow in the EU is considerably lower than in the US (around 15,700 pounds in the EU last year compared to over 23,000 pounds in the US), but perhaps economically EU producers are better off producing less milk overall but more butterfat (on a percentage basis).

Fourth, dairy farmers get more “bang for the buck” from butter sales than from the sale of any other major dairy product. That is, USDA’s Economic Research Service calculates price spreads from farm to consumer, and the farm value share for butter has topped 60 percent twice over the last five years. The only other dairy product that comes close is whole milk, which has topped 50 percent over the last two years. By contrast, the farm share for Cheddar cheese was 28 percent in 2018.

Fifth, the US has in recent years become a net exporter of dairy products, but a net importer of butter. Last year, for example, the US imported almost 79 million pounds of butter and exported about 58 million pounds of butter. Just last week, we reported that, in May, US butter production fell 4.2 percent from May 2018, US butter exports declined 33 percent, and butter imports were up 87 percent. The US needs more milkfat.

Finally, we’re optimistic that, from a nutritional perspective, the news is going to remain positive for saturated fat in general and milkfat specifically, thanks in part to producer-funded research. As we report this week, a group of experts in The BMJ is calling into question the advice to reduce intake of total saturated fat, as set out in draft World Health Organization guidance. Those guidelines should consider different types of fatty acids and, more importantly, the diversity of foods containing saturated fatty acids that might be harmful, neutral, or even beneficial to health, the experts said.

Butterfat’s best days lie ahead, which means producing more butterfat makes sense, and cents, for dairy producers.

 

Ag, Dairy Trade Will Never Be Free, Fair Or Cheap

For all the talk over the years about the need to make agricultural trade fairer and freer, it’s worth noting that ag trade here in 2019 isn’t anything close to fair or free, nor is it inexpensive.

We were reminded of this point by the World Trade Organization’s 21st Monitoring Report on G20 trade measures, which was released, and covered on our front page, last week.

Just from a general trade perspective, the report found that, from October 2018 through May 2019, G20 economies implemented 20 new trade-restrictive measures, including tariff increases, import bans and new customs procedures for exports. The report found that trade coverage of $335.9 billion during that period is the second highest figure on record, after the $480.9 billion reported in the previous period.

Specifically for agriculture, the report noted that, during the November 2018 and February 2019 meetings of the WTO Committee on Agriculture, 27 out of the 44 implementation-related issues raised concerned policies implemented by G20 members. A chart included in the WTO report shows an increasing trend since 2011 in the average number of questions raised per Committee on Agriculture meeting concerning policies maintained by G20 economies.

Last year, the report continued, an average of around 30 implementation-related questions were addressed to G20 members per meeting, and the first CoA meeting this year saw a similar number of questions addressed to G20 members on some 28 issues.

Looking over a summary of the CoA meeting held back in February, there were a total of 31 implementation-related issues raised. These related to, among other things, the European Union’s intervention policy for dairy, New Zealand’s support to dairy processing facilities, Russia’s increased support to its dairy sector, the 2018 US farm bill, US trade promotion payments, Canada’s new milk ingredient class, the EU’s Common Agricultural Policy (CAP) reform, India’s skim milk powder export subsidies, and proposed domestic US support measures.

Countries raising these issues included, among others, the US, New Zealand, Australia, the EU, Canada, Japan, India, Ukraine, Russia and Thailand.

From these lists, we can reach several conclusions. For one thing, there are a lot of countries voicing concerns about the domestic ag policies of a lot of other countries. And some of these issues have been raised several times; as the WTO report pointed out, Canada’s new milk ingredient class has been raised in a total of 12 meetings.

Also, some of the same countries that are voicing concerns about the policies of other countries are also the target of concerns being voiced by others. For example, of the 31 implementation-related issues raised at the February CoA meeting, five concerned the US. Meanwhile, the US itself raised a total of eight concerns.

And it appears that India’s ag policies are drawing more ire than any other country. At the February CoA meeting, concerns were raised over seven of India’s policies — such as its skim milk powder export subsidies and its sugar policies — by a variety of countries.

As noted earlier, concerns were raised over five US issues, and it would appear that these concerns represent the beginning of concerns, rather than the end. For example, concerns over the 2018 US farm bill were raised by the EU, Australia and India.

Among other issues, both Australia and the EU have concerns over the new Dairy Margin Coverage program included in the farm bill. The EU specifically asked if the US could indicate the expected increase of the budgetary outlay for this program in the coming years and whether it is expected to influence the level of production in the US.

Well, the final Dairy Margin Coverage program rule released a couple of weeks ago answered at least that first question: for the life of the five-year DMC program, net expenditures through 2023 are projected to average $1.2 billion annually.

Related to that, Australia wanted to know how the support to agriculture authorized in the farm bill adheres to WTO limits for domestic support in agriculture (US domestic support is capped at $19 billion). Perhaps Australia has taken note of the analysis, included in the final rule implementing the 2014 farm bill’s Margin Protection Program for Dairy, that MPP-Dairy payments could average $100 million per year. So outlays under the new DMC program could be a lot larger, to put it mildly.
Australia also raised concerns over farm bill funding for various US export promotion programs, and differences in that funding and funding under USDA’s trade mitigation efforts.

Taking a step back and looking at the “big picture” here, it seems pretty clear that government support of agriculture is on the increase, much to the chagrin of some of the same countries that are increasing their support of agriculture. And as trade becomes more volatile (due to tariffs and retaliatory tariffs, among other things), government support of agriculture grows ever larger.

The US is of course a nice illustration of this point. The US implements tariffs against various countries, some of those countries retaliate with tariffs against the US, and the US responds, in part, by spending billions of dollars aiding farmers hurt by tariffs.

It seems like the more folks talk about free trade and fair trade, the less free and fair trade becomes. And along with that, trade-related government policies become more and more expensive.

Some Implications Of Wisconsin Dairy Task Force’s Final Report

The Wisconsin Dairy Task Force 2.0 wrapped up its work last Friday, voting unanimously to adopt its final report, which includes 51 recommendations approved by the 31 voting members (for more details, please see the story beginning on our front page this week).

So what are the takeaways from the task force’s final report? For one thing, this might have been a Wisconsin task force, but many of its recommendations have national implications and/or applications.

We make that observation for two reasons. First, the task force’s recommendations have different levels of where or how they would be implemented, and several have a national implementation level.

For example, one recommendation is to reduce the number of federal order milk classes from the current four to two. This would obviously require a federal order hearing, or perhaps federal legislation along the lines of what Congress required for federal order reforms in the 1996 farm bill. And it would certainly have national implications, given that federal orders accounted for 65 percent of all milk sold in the US last year (and that was with the new California federal order in effect for just the last two months of the year).

Another recommendation is encouraging the US Food and Drug Administration to update and modernize its standards of identity for dairy products. FDA has stated its intention to do just that, at least in the case of yogurt or, more generally, to look at establishing a set of general principles for food standards.

Second, while many of these recommendations are intended to be implemented in Wisconsin, they could also be implemented elsewhere.

This point is very obvious for one specific recommendation, which is to become one of the three new dairy product and business innovation centers.

It may be recalled that the 2018 farm bill contained language and authorization to establish not less than three dairy product and business innovation initiatives.

The task force wants the state of Wisconsin to prepare and submit a proposal to become one of the regionally located dairy product and business innovation centers, which would still leave two other centers to be located elsewhere around the US (if in fact Wisconsin’s effort is successful).

It’s also worth noting the task force’s emphasis on innovation. Indeed, one of the task force subcommittee working groups was “Research and Innovation.” Two of this subcommittee’s recommendations received a “very high” priority ranking by the task force: one was the aforementioned dairy product and business innovation centers; the other was reestablishing the University of Wisconsin as the Dairy Innovation Hub.

It’s difficult if not impossible to imagine a growing and prosperous US dairy industry that isn’t focused on innovation, which is why the task force’s focus on innovation also has national implications.

While the task force’s report is clearly focused on the future, we couldn’t help but look back, for comparison purposes, at the previous Wisconsin Dairy Task Force, known formally as the Wisconsin Dairy Task Force 1995, which was established in 1985 and submitted its final report in 1987.

It would be impossible to list all the similarities and differences between that 1987 report and the new report, but we’ll mention a few of them. Perhaps the biggest difference is the environment in which each task force was established.

Back in the 1980s, Wisconsin still led the US in milk production (California first topped Wisconsin in 1993 and has ranked first ever since), but as that 1987 report pointed out, major regional shifts in milk production had already taken place during the 1972-86 period, and some studies had concluded that further regional shifts would occur within the next decade.

It was this challenge that prompted the appointment of the Wisconsin Dairy Task Force 1995.

Wisconsin’s milk production reached a record high of 25 billion pounds in 1988, the year after the original task force completed its work. That record stood until 2009, and new milk production records have been set every year since then.

Today, according to the new task force report, Wisconsin “is one of the major milk surplus states of the US,” and, more broadly, the Upper Midwest “has a large and growing surplus.”

The very first recommendation in that original task force was as follows: “Anticipated growth in cheese sales in general and for non-American varieties in particular offers an excellent growth opportunity for Wisconsin’s dairy industry. Wisconsin should strongly emphasize and commit resources to producing and marketing cheese and expanding cheese varieties.”

Seven years after that report was released, the Wisconsin Specialty Cheese Institute was formed. And between 1993 and 2018, Wisconsin’s specialty cheese production grew from 83 million pounds to 802.7 million pounds.

Notably, in the new task force report, the “highest priority for research and innovation within the Wisconsin dairy industry is specialty cheese and other value-added dairy products.”

Finally, the first task force report concluded that it would be “difficult to increase commercial exports since US support prices of cheese, butter and nonfat dry milk are at least two-to-three times higher than subsidized world market prices.” Today, there are no US support prices, the US exports over 600 million pounds of cheese every year, and two of the new task force’s six “very high” priorities specifically mention exports.

 

Government Involvement In Dairy Ebbs, Flows, And Never Ends

Once upon a time, Congress passed a farm bill that terminated three dairy programs that had been around for a number of years. Then, just in the past year, the US Department of Agriculture has implemented three different programs that, at least to some extent, bring those repealed dairy programs back to life.

The farm bill to which we refer is the 2014 farm bill, which was debated by Congress for a couple of years before finally being approved by both the Senate and House and signed into law by then-President Obama in the first few weeks of 2014.

The dairy title of that 2014 farm bill contained three sections. The first section established the Margin Protection Program for Dairy, and the third section established a new Dairy Product Donation Program.
Part II of the 2014 farm bill was actually titled: “Repeal or Reauthorization of Other Dairy-Related Provisions.”

What that part of the farm bill did included the following: it repealed the Dairy Product Price Support Program, which had been in operation since 1949; it repealed the Dairy Export Incentive Program, which was originally established under the 1985 farm bill; and it temporarily continued and then repealed the Milk Income Loss Contract program, which dated back more than a decade, in various forms.

Oh, and the 2014 farm bill also repealed the Federal Milk Marketing Order Review Commission, which had been created under the 2008 farm bill but was subject to the availability of appropriations (money) to be carried out and thus never got off the ground (a separate Dairy Industry Advisory Committee was established by USDA in 2009 under the rules of the Federal Advisory Committee Act).

That’s a lot of repealed dairy programs for a single farm bill, and at least a couple of those repealed programs had been around for decades. To put this in a bit of historical context, the 2018 farm bill repealed the Dairy Product Donation Program, which was established under the 2014 farm bill but never became operational, while also creating a new Milk Donation Program.

And the 2008 farm bill didn’t repeal any dairy programs.

What the dairy industry is now learning (or relearning) is that it doesn’t take a new farm bill to create new dairy programs. And in fact, some relatively new USDA programs look quite a bit like some programs that were repealed by the aforementioned 2014 farm bill.

What we’re referring to here is the trade mitigation measures that were initially launched by USDA last year, and will be repeated this year, to help dairy and other farmers in response to trade damage from retaliation and trade disruption by US trading partners.

One aspect of trade mitigation is the Market Facilitation Program, under which USDA will provide $14.5 billion in direct payments to producers. Dairy producers will receive a per hundredweight payment based on production history.

The old MILC program also provided direct payments to dairy producers on eligible milk marketings. While there are major differences between the MILC program and the relatively new MFP, it’s also pretty easy to see a similarity: direct payments to producers are direct payments to producers.

Then there’s the $1.4 billion Food Purchase and Distribution Program, under which USDA’s Agricultural Marketing Service will purchase surplus commodities affected by trade retaliation, such as milk, for distribution by USDA’s Food and Nutrition Service to food banks, schools, and other outlets serving low-income individuals.

This program, of course, is reminiscent of the older Dairy Product Price Support Program, under which USDA’s Commodity Credit Corporation purchased surplus cheese, butter and nonfat dry milk and then, well, at least from time to time USDA then had to figure out what to do with all of its surplus dairy commodities.

There is at least one huge difference, however, between the old dairy price support program and the relatively new Food Purchase and Distribution Program (beyond the fact that the old program was authorized and reauthorized by Congress and the new program was developed by USDA).

That is, as noted earlier, USDA is planning to spend $1.4 billion to purchase dairy and other commodities under this new program. Under the dairy price support program, the CCC spent more than that to purchase surplus dairy products for at least six consecutive marketing years (fiscal years), including a high of $2.6 billion in the 1982-83 marketing year.

Those huge purchases of surplus dairy products back in the 1980s also led to the passage of the Temporary Emergency Food Assistance Act, which required USDA to donate CCC-owned commodities to eligible recipient agencies (this is the infamous cheese giveaway program).

Today, TEFAP (the “T” now stands for “The”; it no longer stands for “Temporary”) distributes about half a billion dollars annually of USDA foods to food banks across the US.

Finally, USDA will issue $100 million through the Agricultural Trade Promotion Program to help develop new export markets on behalf of producers. This isn’t exactly the DEIP, or even close, but it’s still USDA spending money to boost ag exports.

All of this reminds us of the old French proverb: The more things change, the more they stay the same. Or, to paraphrase another old saying, old dairy programs never die, they just fade away temporarily and come back in another form
.

Changing Standards Of Identity Like Watching A Glacier Move

In today’s world, things seem to change faster than ever. And then there are federal standards of identity for dairy and other food products.

Federal standards of identity have a very long history in the US food industry. The authority to establish food standards of identity was originally set forth in the Federal Food, Drug, and Cosmetic Act of 1938.

Today, there are hundreds of these standards of identity. According to the International Dairy Foods Association, some 37 percent of the current standards are for dairy products.

In recent years, there have been very few changes to the standards of identity, both for dairy products and for foods in general. And a couple of long-term efforts show just how long, complex and difficult making these changes can be.

Of a general nature, it was way back at the end of 1995 when the US Food and Drug Administration published an advance notice of proposed rulemaking announcing that it intended to review its regulations pertaining to identity, quality, and fill of container for standardized foods and its common or usual name regulations for nonstandardized foods.

This was part of President Clinton’s “Regulatory Reinvention Initiative” that, among other things, directed federal agencies and departments to continue to work toward making government more effective. That process continues.

FDA received 95 letters, each containing one or more comments, from industry, consumers and consumer groups in response to its ANPRM. Most comments strongly supported the concept of food standards, while a few requested that the standards be eliminated. However, very few comments supported the existing food standards as currently (in the mid-1990s) written.

Almost 10 years after FDA published that ANPRM (a similar ANPRM was published by USDA’s Food Safety and Inspection Service), FDA and FSIS published a proposed rule that would have established a set of general principles for food standards.

That 2005 proposal was never finalized. So it was with considerable interest that we reported, in our Oct. 19, 2018 issue, that FDA was planning to reopen the comment period on that 2005 food standards proposal. Reopening the comment period on that proposal was part of the US Department of Health and Human Services’ semiannual regulatory agenda, which is an inventory of rulemaking actions under development through HHS.

Last October, HHS indicated that it would be reopening the comment period on that 2005 proposed rule this month.

Well, FDA published its latest semi-annual regulatory agenda a couple of weeks ago, and according to that agenda, FDA won’t be reopening the comment period on that proposal until September of this year.

And then, just last week, Frank Yiannas, FDA’s deputy commissioner for food policy and response, told state agriculture commissioners, secretaries, and directors in a letter that FDA is planning a public meeting to discuss approaches to modernizing standards of identity for this fall.

So this proceeding that started way back in 1995 is basically no further along then it was in 2005, when the proposed rule was published. The process of reforming standards of identity doesn’t get much slower than that.

But the process of amending the federal standards of identity for yogurt comes pretty darn frustratingly close.

It was back in February of 2000 that the National Yogurt Association submitted a petition requesting that FDA revoke the standards of identity for lowfat yogurt and nonfat yogurt, amend the current standard of identity for yogurt, and amend the standard of identity for cultured milk.

Three years after receiving that petition, FDA published an advance notice of proposed rulemaking on the NYA’s petition and asked for public input on NYA’s request. And six years after it published that ANPRM (and almost nine years after receiving the NYA’s petition), FDA published a proposed rule to revoke its regulations on the standards of identity for lowfat yogurt and nonfat yogurt and amend the standard of identity for yogurt in numerous respects.

Like its general food standards proposal, FDA has never finalized its proposal to amend the standard of identity for yogurt.

But also like its general food standards proposal, the yogurt standards proposal has been cropping up in the HHS semi-annual regulatory agenda. Not only that, but FDA officials are actually mentioning the yogurt standard.

Specifically, Dr. Ned Sharpless, FDA’s acting commissioner, stated that the agency “is planning to issue a final rule to amend the standard of identity for yogurt and revoking the standards of identity for low fat yogurt and nonfat yogurt.” And Yiannas, the agency’s deputy commissioner, noted in his letter to state agriculture agency leaders that FDA is “continuing our work to modernize certain standards, such as the standard of identity for yogurt.”

So if FDA sticks to the timelines in its semi-annual regulatory agenda, the agency will finalize a rule later this year that has been under consideration for more than a decade now (that’s just the length of time since it published a proposed rule). And it will reopen the comment period on a proposed rule that was initially published almost 15 years ago.

FDA isn’t exactly moving at the pace of today’s food industry, but it appears that we’ll soon see at least some progress on standards

 

 

Plant-Based Foods And Other IDDBA Observations

Several trends were noticeable and noteworthy when walking the aisles at this week’s impressive IDDBA show in Orlando, FL. What follows is a brief review of a few things that caught our eye.

First, and perhaps foremost, was plant-based foods. While there didn’t appear to be more of these companies than there were at last year’s IDDBA show in New Orleans, there was a difference this year: there was a giant overhead sign that read, “Organic, Natural Plant Based Section.”

If you want to know if a product category has gained traction in an industry, well, it’s a pretty good indicator when that category has its own section (or shared section) at the IDDBA show. And plant-based foods weren’t just confined to this section; they were scattered around the show floor.

It should be noted that this isn’t just an issue impacting the dairy industry; there were also at least a few companies displaying plant-based “meat” products, which have gained more notoriety than plant-based dairy alternatives in the marketplace thanks to such products as the Impossible Burger and Beyond Meat garnering headlines, celebrity endorsements and lots of investor funding, among other things.

Suffice it to say that’s there’s more than a little interest among dairy and deli buyers in all things plant-based, and that reflects large and growing interest in these products by consumers.

But hanging over all (or most) of these products is the labeling issue. The companies making and marketing plant-based dairy and meat alternatives are using a wide variety of approaches to labeling their products, some of which could end up violating Food and Drug Administration regulations, if FDA ever ends up deciding to become more active in enforcing its regulations.

On a somewhat related subject, it was kind of amazing to see all the different claims that were being made by both dairy and non-dairy exhibitors at the show, claims that ranged from GMO-free and all natural to gluten-free and grass-fed.

And then there is Certified Vegan, which is administered by vegan.org. Created in 1995, Vegan.org’s efforts over the past 24 years have included certifying thousands of vegan products with its logo through its Vegan Certification Campaign. This wasn’t really a significant effort for the dairy industry over most of the past quarter-century, but it’s going to be an effort, and a logo, worth paying more attention to in the future.

In the area of new products at the IDDBA show, well, there were a heck of a lot of them, to put it mildly. This became obvious just by the sheer size of the new products section at the show.

At least a couple of things stood out about all the new products being introduced at the show. First, as noted above, just the number of new products being introduced was very impressive.

Second, and perhaps more important, was the number of people visiting the new products section and spending a fair amount of time there (it was difficult if not impossible to spend a short amount of time there, due to the size of the section). In the ultra-competitive and fast-changing food business, everybody seems to be looking for those new products that will give them an edge over their competitors.

Speaking of new products, what types of new products were being launched at the show? At least a couple of things stood out.

One was convenience — a recurring theme in the cheese and dairy business for many, many years now. It’s just amazing to see how many new products aren’t blocks or wedges of cheese, but rather cheese in a wide variety of different forms that make it ridiculously easy for consumers to use cheese for everything from snacking to sandwiches.

Today’s consumers don’t really need to worry about such old-world “technology” as cheese knives, graters, shredders, slicers or other size reduction equipment; cheese, in its incredible array of varieties, is available in shreds, slices, bite-sized pieces, snack-sized pieces, and pretty much every other package size imaginable. It’s never been easier to enjoy cheese.

The other thing that stood out with new products is flavors. If you had attended the IDDBA show maybe 35 years ago (when IDDBA was the International Cheese & Deli Association), flavors might have included some smoked cheeses, garlic and herb, and maybe dill Havarti (made only in Denmark at that time). And there were flavor differences in Cheddar, ranging from mold to medium to sharp and extra sharp.

Today, well, today the flavor variety is almost endless. Just the pepper category has gotten extremely complex in recent years, having grown from just jalapenos to habaneros, hatch, chipotle, ghost, and more.

Finally, we noticed one other “big” idea at the IDDBA show: a 661-pound mortadella being exhibited and sampled by Veroni, an Italian salumi producer. It was, to put it mildly, an attention-grabbing mortadella, being 6.4 feet long and 18 inches in diameter.

Looking back at the ICDA show 35 years ago (to verify what the IDDBA was known by at that time), we couldn’t help but notice that one of the Sunday show workshops then featured Howard Gotelli of State Sales Associates demonstrating proper ways to cut a mammoth (Cheddar).

Maybe next year’s IDDBA show, slated for May 31-June 2 in Indianapolis, IN, will feature something even more impressive, and a whole lot cheesier, than a 661-pound mortadella.

 

Dairy Products Remain A Bargain, But For How Much Longer?

By at least some measures, thanks to stable or lower retail prices, dairy products in recent years have been quite a bargain for consumers. But there’s some evidence that, in the coming months, retail dairy product prices will be coming under some new inflationary pressure.

As a starting point to illustrate what a bargain dairy products are, as reported by the US Bureau of Labor Statistics, the Consumer Price Index for dairy and related products has been under 200 (1982-84=100) for all but two months since the beginning of 2016 (those months were January of 2016 and February of 2017).

To put that in perspective, the dairy CPI rose above 220 back in February 2014 and, through the end of 2015, only fell below that level once (to 219.7, in June of 2015). The dairy CPI reached a record high of 228.8 in October of 2014; that’s more than 10 points higher than it was in April of 2019 (217.5).

Also to put that in perspective, as of April 2019, the CPI for food at home was 241.9, while the CPIs for other food categories were as follows: cereals and bakery products, 276.6; meats, poultry, fish, and eggs, 249.2; and fruits and vegetables, 303.5.

So as measured by recent history, and as compared to other major food categories, dairy products here in 2019 are a pretty good bargain for consumers.

This point can be further illustrated by looking at average retail dairy product prices, as reported by the BLS. In April, the average retail price for a gallon of whole milk was just $2.98. That marked the 16th straight month in which the average retail whole milk price was under $3.00 per gallon.

By contrast, average retail whole milk prices were above $3.00 per gallon every month starting in October of 2009 and continuing through December of 2017. Just during 2014, retail whole milk prices averaged above $3.50 per gallon every month, and above $3.80 a gallon in November and December of that year.

Retail Cheddar cheese prices are a bit more problematic, from a bargain standpoint. In April, the retail price for Cheddar averaged $5.29 per pound; that marked the 16th straight month in which the average retail Cheddar price averaged above $5.00 per pound.

By comparison, retail Cheddar prices averaged under $5.00 a pound for a 10-month period starting in November of 2016 and running through August of 2017.

What’s kind of frustrating about this is that, during at least some of those months when retail Cheddar prices averaged under $5.00 per pound, CME cash market prices for Cheddar blocks were averaging above $1.60 per pound, including averages of almost $1.88 a pound in November 2016 and over $1.73 a pound in December 2016.

Meanwhile, CME Cheddar block prices averaged under $1.60 a pound every month from October 2018 through March 2019, but retail Cheddar prices averaged above $5.10 a pound every month, including $5.37 a pound in January and $5.29 a pound in April.

So while average retail Cheddar prices are below where they were for most months between May 2011 (when they reached $5.44 a pound that month, and only fell as low as $5.38 a pound for four months through February 2015), it would seem that retail Cheddar prices aren’t as low as CME prices would indicate they could be. But they’re still lower than they were a few years ago.

With that bit of background in mind, it’s noteworthy that USDA’s Economic Research Service is forecasting that the CPI for dairy and related products will increase by 2.0 to 3.0 percent this year.

How significant would that be? For starters, figures published by ERS show that annual percent changes in the dairy CPI over the past four years have been as follows: 2015, minus 1.3 percent; 2016, minus 2.3 percent; 2017, plus 0.1 percent; and 2018, minus 0.5 percent.

How significant is three declines in the average annual dairy CPI over a four-year period? That’s hard to tell, because it hasn’t happened before, according to ERS statistics dating back to 1974.

Since 1974, declines in the average annual dairy CPI have occurred as follows: 1991, minus 1.1 percent; 2003, minus 0.1 percent; 2006, minus 0.5 percent; and 2009, minus 6.4 percent.

In other words, over the 2015-2018 period, there was just one less decline in the average annual dairy CPI as there was during the 1974-2014 period. So the past four years have been unique from a retail dairy product price standpoint.

And that trend has continued thus far in 2019. Through April, the dairy CPI was still under 218, continuing a trend of sub-200 dairy CPIs that really started in February of 2016. And from April 2018 to April 2019, the dairy CPI was up only 0.3 percent.

But there are at least a few indications that dairy markets are tightening up and prices could rise significantly later this year. Milk production is increasing at an extremely low rate, and cow numbers are down from both a year earlier and from a month earlier.

On the price side, the April CME block price average of $1.6619 was the highest since October of 2017, and the Class III price in April, at $15.96 per hundredweight, was the second-highest Class III price since the beginning of 2018, trailing only the $16.09 price of last September.

In other words, there are some indications that at least a limited amount of inflation is about to return to dairy product prices, and in turn retail dairy product prices. Dairy products being less of a consumer bargain will be a significant change from recent history

 

Finally, Some Good News On The US Dairy Trade Front

Last Friday’s announcement by the US government of an agreement with Mexico and Canada to remove the Section 232 tariffs for steel and aluminum imports from those countries, and for the removal of all retaliatory tariffs imposed on US goods by those countries, is arguably the best US dairy trade news to come along in at least a couple of years.

Still, there have been so many negative dairy trade developments over the past two and a half years that it’s difficult to get overly excited by this announcement.

The importance of the lifting of these retaliatory tariffs can be seen in the very positive reactions of several US dairy organizations, including the International Dairy Foods Association, National Milk Producers Federation and US Dairy Export Council.

It’s worth keeping in mind that Mexico was applying retaliatory tariffs to just one US dairy product: cheese. But Mexico is a mighty important market for US cheese; in 2017, the last full year without retaliatory tariffs on US cheese, US cheese exports to Mexico totaled 212.1 million pounds, or about 28 percent of total US cheese exports that year.

Yes, US cheese exports to Mexico did actually increase in 2018, to 213.2 million pounds. But while exports in the first half of the year were up 1.8 percent on a volume basis, exports during the second half of the year were down 1.1 percent from a year earlier. That trend continued during 2019’s first quarter, with cheese exports to Mexico down 10 percent, or about 5.6 million pounds, from a year earlier.

The importance of these Mexican retaliatory tariffs can be illustrated by the fact that the tariffs were showing up in dairy outlook reports as a potential obstacle facing the US dairy industry in 2019. Just to cite one example: in its Dairy Quarterly Q1 2019 report released a couple of months ago, Rabobank said the US “may not realize the full upside” occurring in the international dairy market for months to come, due to, among other things, the fact that US cheese exports to Mexico “continue to face higher tariffs.”

So the good news here is that these tariffs have now been lifted. The bad news is, well, maybe the best way to illustrate the bad news is to take a look at some of the responses to last Friday’s announcement of the lifting of Mexican and Canadian retaliatory tariffs.

For example, in his statement applauding the lifting of the retaliatory tariffs, Michael Dykes, IDFA’s president and CEO, said it is now “essential that Congress turn its attention to swift ratification of the US-Mexico-Canada Agreement.” That comment was echoed by Jim Mulhern, NMPF’s president and CEO, and Tom Vilsack, USDEC’s president and CEO.

Dykes, Mulhern and Vilsack all also mentioned China, another leading destination for US dairy exports and another country that last year imposed retaliatory tariffs on US dairy exports.

China applied its retaliatory tariffs more broadly to US dairy products, and that shows in US dairy export statistics. While US cheese exports to Mexico were down somewhat in the first quarter of this year (compared to the first quarter of last year), the total value of US dairy exports to Mexico was actually up 9 percent, due in part to a 25-percent increase in the value of US nonfat dry milk exports to that country.

But US dairy exports to China during the first quarter of 2019 fell 30 percent from a year earlier on a value basis, and exports of several dairy commodities to China declined significantly during the January-March period on a volume basis, including cheese (down 41 percent), dried whey (down 38 percent), and whey protein concentrate (down an eye-opening 75 percent).

Unfortunately, while the US, Canada and Mexico have resolved their dispute over steel and aluminum, the US-China trade dispute (which originally related to technology transfer, intellectual property, and innovation) continues to worsen.

Just in the last couple of weeks, the US increased duties from 10 to 25 percent on $200 billion of Chinese imports and began the process of raising tariffs on essentially all remaining imports from China; and China announced that it will raise the rate of additional tariffs imposed on some imported US products starting on June 1, 2019.

IDFA’s Dykes also mentioned US trade talks with Japan. Those talks represent sort of a good news-bad news scenario.

The good news is, the US and Japan decided last September to begin negotiations for a US-Japan trade agreement. US Trade Representative Robert Lighthizer met with Japan’s Economic Revitalization Minister Toshimitsu Motegi last month to continue negotiations on the agreement, and they agreed that the two countries will meet again in the near future to continue these talks.

The bad news is actually two-fold. First, the US did have a trade agreement with Japan and almost a dozen other countries, but the US withdrew from the Trans-Pacific Partnership agreement in early 2017 and lost any potential dairy export gains that would have resulted from that agreement.

Second, while the US and Japan are in the early stages of trade talks, key US dairy trade competitors already have trade agreements with Japan. New Zealand and Australia, along with Japan, are part of the Comprehensive and Progressive Trans-Pacific Partnership, while the European Union’s trade agreement with Japan entered into force earlier this year.

In short, US dairy exporters have received some positive news, but could use a lot more
.

 

Predicting Prices Is As Easy As Predicting The Weather

These days in the highly volatile dairy business, it seems that if you really want to predict where prices will head, you might want to first consult a meteorologist. Seldom if ever has weather played a more important role in the price outlook for the dairy industry, both in the US and also globally.

That point was once again driven home by Jon Davis, chief meteorologist at Riskpulse, at last week’s ADPI/ABI annual joint conference in Chicago. Davis has been a popular speaker at the ADPI/ABI meeting for several years now, in part because his presentation tends to serve more or less as a dairy outlook presentation (although he probably didn’t mention the word “dairy” more than once or twice in his 15-minute presentation).

Davis focused not only on the US but also on the global weather situation, which is noteworthy considering how important the world market has become for the US dairy industry in recent years. And so the dairy outlook includes not only what’s happening in the US but also what’s happening in the European Union, New Zealand and Australia, among other countries, since they are the US dairy industry’s chief competitors in the global marketplace.

So in the US, it’s been, well, it’s been an interesting several months, Davis explained. This past winter (which may or may not be over) was severe across much of the West North Central region, with snowfall totals that were way above normal and temperatures that fluctuated wildly, from bitter cold to well above normal, just in short periods of time.

Meanwhile, in New Zealand, really good weather helped boost that country’s milk production late last year. Fonterra reported that its milk collection across New Zealand for the seven months to Dec. 31, 2018, was up 4 percent from a year earlier, and its December milk collection was up 5 percent from December 2017. “The mix of fine weather and rain in December saw soil moisture and pasture levels recover across most of the country,” Fonterra reported in its January Global Dairy Update. “Overall good animal health and favorable weather resulted in milk volumes ahead of last season, which was a three-year low where weather conditions and other factors had an adverse impact.”

Fast-forward a few months, and Fonterra reported that its milk collection in March was down 9 percent from March 2019. “Above-average temperatures and insufficient rainfall across many regions continued to adversely affect milk production in March,” Fonterra reported in its April Global Dairy Update.

In its most recent Dairy Quarterly report, released a few weeks ago, Rabobank noted that a “challenging milk production environment is set to continue” across the first half of 2019, and that lingering weather impacts on feed quality and quantity will continue to play out for the EU, Australia, and now New Zealand for the closing months of the 2018/19 season.

In the US, record wetness in the US is hampering fieldwork preparation and planting of summer crops, Davis noted last week. Reflecting that observation, in its weekly Crop Progress report released Monday, USDA’s National Ag Statistics Service reported that Wisconsin, Michigan and Minnesota (which rank second, sixth and eighth in milk production, respectively), had 3.0, 1.5 and 3.3 days suitable for fieldwork for the week ending May 12, which was actually an improvement from 2.6, 1.0 and 2.1 days, respectively, for the week ending May 5.

To put that in a little regional perspective, the states of California, Washington and Arizona all had 7.0 days suitable for fieldwork for the week ending May 12.

That NASS report also noted that, for the week ending May 12, Wisconsin, Michigan and Minnesota had 14, 5 and 21 percent of their corn planted, respectively, compared to the 2014-2018 averages of 46, 34 and 65 percent, respectively.

The 18 states that planted 92 percent of the 2018 corn acreage had planted 30 percent of their corn by the week ending May 12, compared to 59 percent a year earlier and 66 percent on average over the 2014-2018 period. In other words, thanks to wet, cold spring weather, planting is way behind schedule, including in some of the key milk-producing states.

“What that means for the remainder of the growing season is simply the fact that any additional stress is compounded when you have one of these bad starts” in the middle part of the country, Davis said. Over the next six months, one of the things to watch will be the wetness continuing in the US due to the lingering El Nino event.

The continuation of that wet pattern will lead to major flooding, lost acres, acreage switchover, and poor development for this year’s crops, Davis explained. In other words, the growing season will include “additional stress,” which he said will be compounded due to the bad start to the growing season in some key regions.

What all this adds up to is a very interesting growing season. Well, that’s pretty much the case every year, but based on the fact that the growing season is starting out more slowly than normal, this could be a more interesting growing season than usual.

It’s also worth remembering that, before the growing season even got underway in most of the US, milk production was down 0.4 percent in March and was up only 0.2 percent in the first quarter of this year. And milk cow numbers are down from a year earlier.

So this interesting growing season will in all likelihood translate into a very interesting year for dairy product and milk prices.

 

Not The Best Of Times For US Dairy Exporters, But...

After listening to a panel on global trade, as well as speakers during several other sessions, at this week’s annual joint conference of the American Dairy Products Institute and American Butter Institute in Chicago, we concluded that these are not exactly the best of times for US dairy exporters.

The timing of this week’s ADPI/ABI conference was pretty good, from a trade perspective. On Sunday, May 5, President Trump had tweeted that he planned to raise tariffs on $200 billion of Chinese imports from 10 to 25 percent; that increase became effective today.

The administration had imposed tariffs on Chinese imports last year, and the retaliatory tariffs imposed by China definitely had a negative impact on US whey, cheese and other dairy exports to that country.

The ADPI/ABI panel was moderated by Tom Suber, of Suber Global LLC. Suber, of course, headed up the US Dairy Export Council from the time it was established in 1995 until he retired at the end of 2016.

Based on recent happenings, Suber’s time as USDEC’s president could almost be considered the “glory years” for US dairy exports. After all, the value of US dairy exports grew from $778 million in 1995 to a record $7.1 billion in 2014 before falling to around $4.7 billion in 2016.

Certainly the US dairy export picture hasn’t lost all its luster over the last two years. Dairy exports last year were valued at $5.5 billion, the third-highest total ever (trailing only 2014 and 2013), and US dairy exports reached a record-high volume in 2018, according to USDEC.
And US dairy exports have continued to reach impressive levels despite facing some significant barriers around the globe.

Still, the end of Suber’s tenure at USDEC coincided closely with the inauguration of Donald Trump as President and a new era of dairy trade, and challenges that make both the present and future of US dairy exports a bit murkier, to put it mildly.

Trump didn’t take long to shake up the dairy trade environment, withdrawing the United States from the Trans-Pacific Partnership agreement during his first week in office. According to a report released three years ago by the US International Trade Commission, if TPP had been implemented, US dairy exports to TPP member countries, mainly Canada and Japan, would have increased $2.0 billion relative to the baseline.

So therein lies one problem facing US dairy exporters: lack of new trade agreements. As Andrei Mikhalevsky, president and CEO of California Dairies, Inc., noted during the ADPI/ABI panel discussion on dairy trade (and also noted in his testimony at last week’s House subcommittee hearing on the dairy economy, as reported on our front page last week), the US hasn’t completed and passed a new trade deal in well over a decade.

Unfortunately, the US and almost a dozen other countries did complete the TPP, but then the US withdrew from it. The other countries are currently in the process of implementing the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and countries (and key US competitors) such as New Zealand and Australia are beginning to enjoy increased access to such important markets as Japan and Mexico.

Yes, the US is currently negotiating a trade agreement with Japan; talks got underway late last year. But at this point it doesn’t appear likely that any type of agreement is imminent.

Meanwhile, the US, Mexico and Canada have reached agreement on a new United States-Mexico-Canada Agreement, but in the case of Mexico the agreement basically maintains the status quo, which is duty-free US access to Mexico’s dairy market. The agreement does make some positive changes regarding US dairy trade with Canada, but a recent CoBank report noted that US dairy product access to Canada will increase only modestly under the agreement.

Also with the USMCA, there’s the problem of congressional approval. Just this week, as reported on our front page, more than five dozen dairy, food and farm groups urged every member of Congress to ratify the agreement, but given the political dysfunction in Washington these days, passage of the USMCA is iffy.

Meanwhile, another major problem that has emerged since Trump took office remains: retaliatory tariffs. Talks between the US and China on a trade agreement have hit a roadblock, and today the Trump administration followed through on its threat to hike tariffs on some $200 billion of Chinese imports. Meanwhile, China continues to impose tariffs on US dairy and other imports. And Mexico’s retaliatory tariffs on US cheese will remain in place with or without the USMCA.

Despite these obstacles, all was not bleak for the ADPI/ABI trade panelists. As Sue Taylor of Leprino Foods pointed out, US cheese exports to Mexico and China during the first two months of 2019 were down from a year earlier (by 7 percent and 44 percent, respectively, according to USDA figures), but cheese exports to other countries were higher, including an impressive 51-percent gain to South Korea. And, as reported on our front page, March cheese exports set a single-month record.


The dairy export business is fraught with challenges, some put in place by US trading partners and others self-imposed. But success is possible, as impressive gains in US cheese exports to some countries illustrate. The export business would just be a little less challenging if the Trump administration was more helpful.

Another Reminder That Federal Order Reforms Are Overdue

Last month, a request to reduce shipping requirements and increase diversion limits in the Upper Midwest federal milk marketing order was approved by Vic Halverson, the order’s market administrator. The request, as well as comments received on the request, provide some of the latest evidence that another round of federal order reforms is long overdue.

It’s actually been about 23 years since the last round of federal order reforms started. Under the 1996 farm bill, which was signed into law by then-President Bill Clinton in early April of that year, USDA was required to, among other things, reduce the number of federal orders to no more than 14 and no less than 10 (USDA ultimately settled on 11 federal orders) and to look into different ways to set classified prices.

The current federal order system, which includes class prices established by product price formulas, went into effect on Jan. 1, 2000. So by the end of this year the dairy industry will have had 20 years of experience with the current system. That alone should warrant a new look at federal orders.

But there are at least a couple of other (and probably several more) compelling reasons why federal orders need significant reforms, one of which was spelled out by Dean Foods Company in its letter opposing the shipping percentage and diversion limit changes on the Upper Midwest order.

Dean Foods is, of course, a Class I milk bottler. In its letter opposing the Upper Midwest order changes, the company noted that the request will “once again increase the reserve supply of milk” in the Upper Midwest order “at a time when the amount of milk needed for Class I purposes is declining.” From a uniform pricing perspective, a federal order “cannot be effective” with only a 6 percent supply plant shipping percentage (that’s the requested shipping percentage that went into effect this week).

The amount of Class I pounds pooled both nationally and on the Upper Midwest order has “declined dramatically” over the past decade, Dean Foods pointed out. Annual Class I receipts on the Upper Midwest order declined by 32.4 percent between 2009 and 2018, while the total amount of non-Class I pounds pooled and the estimated pounds of milk electing not to pool on the order have increased by 26.4 percent.

Given these trends, “it is hard to view the request” to lower shipping percentages and raise diversion limits as “anything but a short-term band-aid solution to a long-term issue” in the federal order system, Dean Foods noted.

Two years ago, in response to a similar request to reduce shipping percentages, Dean Foods had commented that, by “not addressing the root cause of this issue which is the decline in fluid milk consumption, we will continue to face this exact issue in the years ahead.” Two years later, here we are again, addressing the same issue.

This issue is not confined just to the Upper Midwest order. In what now seems to be an annual undertaking, Queensboro Farm Products, an operator of a supply plant under the Northeast federal order, has requested that the order’s shipping percentages be reduced from 20 percent to 10 percent for the months of September, October and November. One of the reasons cited in Queensboro’s request is declining Class I utilization.

That trend continues here in 2019. The addition of the new California federal order late last year can complicate an analysis of Class I utilization, for two reasons: first, California’s Class I utilization during the last few years of its old state order was under 15 percent; and second, more than 1 billion pounds of milk is being depooled from the California order every month, which has pushed the Class I utilization up above 20 percent.

Still, as AMS reported recently, Class I utilization in March decreased from last year in nine of the 11 federal orders, including by 15.5 percent on the Upper Midwest order (to 7 percent), and by 7.8 percent on the Northeast order (to 31 percent).

So at some point, the dairy industry is going to have to take a close look at the current federal order system in the context of declining Class I use. There are few guarantees in today’s dairy business, but continuing declines in Class I use seems to be one of them.

Meanwhile, make allowances in federal order product price formulas haven’t been adjusted for a while (the current make allowances have been in effect since late 2008), while manufacturing costs for cheese and other dairy product manufacturers continue to increase.

Just to cite one example: the current make allowance for cheese is 20.03 cents per pound. The most recent California Department of Food and Agriculture study of processing costs (covering 2016) found an average manufacturing cost for Cheddar cheese of 24.54 cents. The CDFA is no longer conducting processing cost studies, but it seems like the current make allowance for cheese (as well as make allowances for butter and nonfat dry milk) will remain woefully inadequate in the future.

Granted, increasing make allowances now might be a tough sell for dairy producers (because higher make allowances mean lower minimum federal order milk prices), but maybe it’s time to rethink the whole idea of using product price formulas in federal orders.

It’s been almost 20 years since the last round of federal order reforms went into effect. Myriad changes since then, as well as experience with the current federal order system, means another round of order reforms is overdue.


2027 Could Be A Year Of Major Milestones For Cheese Industry

There has been no shortage of milestones in the cheese industry over the years. Some of these involve production, such as reaching 10 billion pounds (in 2009), some involve consumption, such as per capita consumption reaching 30 pounds annually (in 2001), and others involve trade, such as exports first topping half a billion pounds (in 2012).

With this in mind, it was interesting to look over the US Baseline Outlook, which was released earlier this month by the Food and Agricultural Policy Research Institute and the University of Missouri Agricultural Markets and Policy team (for more details, please see the story that appeared on page 3 of our April 12th issue).

There’s quite a bit of good news in this report, including the projections that cheese production will continue to grow, cheese consumption will continue to grow, and cheese exports will continue to grow.
And, interestingly, the US will reach two cheese milestones in 2027: per capita cheese consumption will top 40 pounds for the first time, and cheese exports are projected to reach 1.0 billion pounds for the first time.

Before taking a closer look at these two cheese industry milestones, it’s worth remembering what the baseline represents. These baseline projections for agricultural and biofuel markets were prepared using market information available in February 2019. The baseline incorporates 2018 farm bill provisions and assumes a continuation of trade policies in place in February 2019, including the tariffs on US farm products that were imposed by China, Mexico and other countries last year.

So therein lie at least two cautionary notes about the baseline. First, Congress passed a farm bill late last year that expires in 2023 (at least some parts of it). That means at least one and possibly two more farm bills will be passed before the end of the period covered in the FAPRI-MU baseline (it ends with 2028).

Second, tariffs imposed last year by several US trading partners have generally been viewed as short-term retaliatory measures. These tariffs are also being imposed in response to tariffs imposed by the Trump administration. Even if President Trump is re-elected next year, his second and final term will only last until Jan. 20, 2025.

So the final three years covered by the baseline will feature somebody else in the White House. And while trade policies won’t change overnight, no matter how much longer Donald Trump is President or who succeeds him, it’s worth remembering that Trump, in his first week in office, did withdraw the US from the Trans-Pacific Partnership, indicating that major trade decisions can be implemented pretty quickly.

Those points aside, how significant is the milestone of per capita cheese consumption reaching 40 pounds in 2027? Well, as noted earlier, per capita cheese consumption first reached 30 pounds annually back in 2001, so reaching 40 pounds 26 years later means per capita cheese consumption is still growing, albeit more slowly than in the past.

Per capita cheese consumption first topped 20 pounds back in 1983, meaning it took 18 years for per capita consumption to rise 10 pounds (to 30 pounds). And prior to that, per capita cheese consumption first topped 10 pounds back in the late 1960s, meaning it took maybe 15 or so years to rise 10 pounds (to 20 pounds).

Despite the fact that per capita cheese consumption growth is slowing, it’s worth noting that recent trends have been pretty encouraging. Per capita consumption hardly budged for several years a decade or so ago, rising only from 32.43 pounds in 2006 to 32.48 pounds in 2009, but has been increasing rather impressively in more recent years, climbing from 33.24 pounds in 2011 to 37.23 pounds in 2017.

Without that “lull” a decade or so ago, per capita cheese consumption would in all likelihood reach 40 pounds a few years earlier. And it still might, given that 40 pounds would require a gain of less than three pounds over a 10-year period.

As far as cheese exports are concerned, the milestones have been coming pretty regularly since the turn of the century. It was in 2000 that cheese exports first topped 100 million pounds. In 2012, they topped half a billion pounds for the first time.

Cheese exports then reached a record 810 million pounds in 2014, but haven’t reached that level since. What these trends mean is that, first of all, cheese exports are considerably more volatile than per capita cheese consumption is; and second, reaching 1 billion pounds of cheese exports will be a major milestone, whether it’s reached in 2027 or sooner (later is also possible, but we’re optimistic it will happen sooner).

No matter when the US reaches 1 billion pounds of cheese exports, it will be compared to 1999, which was the last time the US exported less than 100 million pounds of cheese.

Rising per capita cheese consumption, coupled with growing cheese exports, implies that US cheese production will continue to grow (assuming cheese imports remain relatively steady, which seems like a pretty safe assumption, since US cheese imports reached a record high of 475 million pounds back in 2002). And in fact the FAPRI-MU baseline has cheese production approaching 15 billion pounds by 2028.

The cheese industry will be reaching some important milestones in the years ahead, but perhaps more important than statistical milestones is simply the fact that the industry will continue to grow.

 

 

No End In Sight For Trade Wars Impacting Dairy

Look up in the sky: It’s a bird. It’s a plane. Actually, it’s the latest source of fuel for the fire that is US trade policy these days.

Yes, as US trade wars, and their ongoing negative dairy impacts, continue, the US is threatening to slap tariffs on cheese, butter and yogurt imports from the European Union. This threat stems from a case that’s completely unrelated to dairy; it actually concerns Airbus aircraft. But US-EU dairy trade could become a casualty of this battle.

There are at least two fascinating and frustrating aspects to this latest trade feud, beyond just the fact that dairy products might become involved in a spat about something unrelated to dairy.

The first is just how long this trade dispute has been going on. According to a notice from the Office of the US Trade Representative, it was back on Oct. 6, 2004, that the US requested World Trade Organization dispute settlement consultations with the European Communities (now the EU) and certain EU member countries (France, Germany, Spain and the United Kingdom) concerning certain subsidies granted by the EU and certain member countries to the EU large civil aircraft domestic industry, on the basis that the subsidies appeared to be inconsistent with the EU’s obligations under the General Agreement on Tariffs and Trade (GATT) 1994 and the Agreement on Subsidies and Countervailing Measures (SCM Agreement).

In May of 2005, the US requested the establishment of a WTO dispute settlement panel in this case. Some six years later, the USTR noted, a WTO panel report, as amended by an Appellate Body report, confirmed that the EU and certain member country subsidies on the manufacture of large civil aircraft breached the EU’s obligations under the SCM Agreement.

Long story short (and this is a mighty long story), this case continues to drag on. The bottom line is that the USTR is proposing determinations that the EU and certain member countries have denied US rights under the WTO Agreement and have failed to implement WTO Dispute Settlement Body recommendations; and is proposing to take action in the form of additional duties on products of the EU, including cheese and other dairy products.

So this case dates back a decade and a half, at least as far as the US requesting WTO dispute settlement consultations with the EU is concerned. Undoubtedly it dates back even further.

And it isn’t going to end anytime soon. There’s a public hearing slated for May 15, and a comment deadline of May 28. Also, USTR anticipates that the WTO arbitrator will issue its report regarding the level of countermeasures in the summer of 2019. Potentially impacted by this dispute are not only US dairy imports from the EU, but also US imports of everything from olive oil and herrings to wine and kitchen knives.

The other fascinating and frustrating aspect of this spat is that it’s actually very much a two-way dispute. Interestingly, just a couple of weeks before the US launched its investigation to enforce US rights in the WTO dispute over EU subsidies on large civil aircraft, the EU itself was welcoming a ruling by a WTO Appellate Body in a Boeing dispute.

According to a Mar. 28 press release from the European Commission, the WTO Appellate Body ruling concluded definitively that the US has continued to subsidize Boeing illegally despite previous rulings condemning this behavior. This has caused “significant harm” to Boeing’s European competitor, Airbus.

Hmmm, where have we heard that name, Airbus, before? Ah, yes, in the US dispute against the EU.

Interestingly, this case has a timeline that’s pretty similar to the US case against the EU and Airbus. It was in June of 2005 that the EU requested consultations with the US concerning prohibited and actionable subsidies provided to US producers of large civil aircraft, according to the WTO. The EU then requested a panel in January of 2006.

The European Commission’s Mar. 28 press release provides some insight into how long this dispute has actually been going on. Between 1989 and 2006, Boeing benefited from NASA, US Defense Department and Washington state/Kansas subsidies totaling over $5 billion.

In other words, the origins of this dispute date back 30 years. And the battle continues, seemingly without end.

One additional aspect of this ongoing trade dispute is worth noting. That is, the US is now looking at slapping tariffs (or, as the USTR puts it, ad valorem duties) of up to 100 percent on certain products of the EU.

Meanwhile, the EU said the recent WTO Appellate Body decision marks the final step in compliance proceedings launched in 2012 in this “long running dispute.” Initially, the EU said it expected the US to “promptly comply” with this final ruling, but this week it threatened tariffs on many US products, including cheese.

Meanwhile, the European Council has adopted negotiating directives for trade talks with the US. The Council’s decision noted that past efforts with the US have demonstrated “difficulties” in negotiating mutually acceptable commitments in areas identified as priorities by the EU, so the EU will pursue a “more limited agreement,” excluding agricultural products.

And so it continues. The US and pretty much everybody else in the world supports something resembling “free and fair” trade, whatever that is, but history teaches us that trade wars have been going on forever, will never end, and will from time to time (such as now) threaten chaos in global dairy trade.

 

 

Farmers, Processors, Importers Deserve Better From USDA

The US Department of Agriculture has released its annual report to Congress on the program activities of the Dairy Promotion and Research Program and the Fluid Milk Processor Promotion Program. The report includes summaries of the activities for the dairy and fluid milk programs, including an accounting of funds collected and spent, USDA activities, and an independent analysis of the effectiveness of the programs.

That’s all well and good, except for one thing: the report covers 2016 program activities. And it’s not that this report has been hiding somewhere; it’s dated February 2019. In other words, it’s more or less “hot off the press,” except for the fact that it covers activities that occurred more than two years ago.

As noted in the report itself, the enabling legislation of the dairy producer, dairy importer, and fluid milk processor promotion program requires USDA to submit an annual report to the House and Senate Agriculture Committees. “Annual” report would appear to suggest that these reports should be compiled and submitted to Congress every year.


In the early years of the National Dairy Promotion and Research Program, this wasn’t a problem. For example, USDA’s report to Congress covering the National Dairy Board’s year beginning May 1, 1987, and ending April 30, 1988, was dated July 1, 1988. Less than a decade later, when the report included both the National Dairy Promotion and Research Program and the National Fluid Milk Processor Promotion Program, USDA’s report to Congress covering program activities during calendar year 1994 was dated July 1, 1995.

But lately, these annual reports have been, well, they’ve been less than annual. Back in the fall of 2017, USDA released not just one, not just two, but a total of three of these annual reports. Technically, USDA only released two of these reports, one of which covered both the 2013 and 2014 program activities and the other of which covered 2015 program activities. Both of these reports were dated September 2017, so they were both a tad late, to put it mildly.

So what’s the problem with these reports being so tardy? There are at least a couple of problems with these delayed reports.

First, the late release of the reports would appear to violate the very laws that created the dairy and fluid milk promotion programs. We know this report is required, because, as noted earlier, USDA is required to submit a report to Congress every year; it says so right in each and every one of these reports.

Just for the heck of it, we decided to check the enabling legislation for the National Dairy Promotion and Research Program (specifically, the Dairy Production Stabilization Act of 1983). The legislation does in fact require the secretary of agriculture to submit to the House and Senate Agriculture Committees four different reports, three of which don’t deal with the dairy promotion program and the fourth of which is as follows:

Not later than July 1, 1985, and July 1 of each year after the date of enactment of this title, an annual report describing activities conducted under the dairy products promotion and research order issued under this subchapter, and accounting for the receipt and disbursement of all funds received by the National Dairy Promotion and Research Board under such order including an independent analysis of the effectiveness of the program.

So it’s pretty clear that USDA is supposed to submit a report to Congress every year on the dairy promotion programs, and it’s supposed to do so by July 1 of each year. And based on the dates of the reports covering 2013, 2014, 2015 and 2016 program activities, and the fact that the report covering 2017 activities hasn’t yet been released, it’s pretty clear that USDA isn’t doing what it’s supposed to do as far as submitting these reports is concerned.

The other problem with these reports being so tardy is that at least some of the information in them is pretty dated. For example, the recently released report covering 2016 program activities includes financial statements for 2015 and 2016; the “Report of Independent Auditors” is dated May 10, 2017.

Then there’s the evaluation of the effectiveness of promotion activities by the National Dairy Promotion and Research Program and the National Fluid Milk Processor Promotion Program. This evaluation covers the time period of 1995 to 2016.

So, for example, the report looks specifically at the impacts of the dairy import assessment, focusing on cheese, given that cheese accounts for about one-third of total imported dairy products and for which there are adequate data to support a “thorough quantitative analysis.”

The analytical results indicate that the average annual level of cheese imports was higher by roughly 1.4 million pounds due to the expenditure of promotion funds collected from importers, and that the annual unit value of cheese imports amounted to roughly $3.16 per pound on average over the period 2012 to 2016 due to promotion using import assessments.

USDA statistics do show that US cheese imports rose from 339 million pounds in 2012 to 452 million pounds in 2016. But then they declined to 401 million pounds in 2017 and then to 388 million pounds in 2018. How would this evaluation be different if it used current statistics?

Dairy farmers, milk processors and importers deserve more timely reports on the promotion programs they fund.

Is Milk Production About To Disappear In Some States?

There’s an old saying about US milk production that’s been around seemingly forever. Here’s how USDA’s Economic Research Service puts it: “Milk is produced in all 50 States...”

And it’s been that way since, well, since 1959, when Alaska and Hawaii became the 49th and 50th states, respectively. Prior to that, milk was produced in all 48 states.

But today, there are a few states where there’s not a whole lot of milk being produced anymore. And we can’t help but wonder if, sometime in the next decade or so, it can no longer be observed that milk is produced in every state.

The two most recent “Milk Production” reports from USDA’s National Ag Statistics Service prompted us to wonder about the future of milk production in some states. The January report, released back on Mar. 12th (the report was delayed due to the partial government shutdown) showed that US milk production in 2018 had reached a record high of 217.575 billion pounds, but actually declined in 34 of the 50 states.

Then the February “Milk Production” report, released last week, showed that February milk production in the 23 reporting states had increased 0.6 percent from February 2018, but milk production for the entire US was up only 0.2 percent from February 2018.

In other words, milk production in the 27 states not included in the 23 reporting states actually declined in February, by 5.7 percent, in fact. So the 23 reporting states accounted for 94.3 percent of US milk production in February, up from 92.4 percent of US milk production in February 2009.

It’s also notable that the 27 “non-reporting” states had a total of 636,000 milk cows in February (the 23 reporting states had 8.7 million milk cows), down from 770,000 milk cows 10 years ago (the 23 reporting states had 8.3 million milk cows 10 years ago).

So from these statistics it’s pretty easy to conclude that milk production is slowly but surely declining in a majority of states. And production is getting close to extinct in a few of them.

There are at least three ways of looking at this. First, NASS every year publishes a list of “Licensed Dairy Herds” for each state and the US as a whole; this list appears in the January “Milk Production” report.

Excluding Alaska and Hawaii (which have their own unique issues to deal with when it comes to milk production and dairy processing), there were two states in 2018 that were down to just 10 licensed dairy herds: Rhode Island and Wyoming.

To put that in some historical context, back in 2008, there were 20 licensed dairy herds in Rhode Island and 25 licensed dairy herds in Wyoming.

There are six additional states that, as of 2018, had 50 or fewer licensed dairy herds. Those states included Alabama, 30 licensed dairy herds, down from 65 a decade ago; Arkansas, 50 licensed dairy herds, down from 150 a decade ago; Delaware, 25 licensed dairy herds, down from 55 a decade ago; New Jersey, 50 licensed dairy herds, down from 130 a decade ago; Nevada, 20 licensed dairy herds, down from 25 a decade ago; and South Carolina, 50 licensed dairy herds, down from 80 a decade ago.

Second, NASS also publishes annual milk production statistics, so we can see how production is trending in these states that have the fewest licensed dairy herds in the US. So, in 2018, Rhode Island’s milk production was down 10 percent from 2017, and was down 41 percent from 2008; while Wyoming’s milk production was actually up 2.9 percent from 2017 and up almost 5 percent from 2008.

In addition to Wyoming, one other state with 50 or fewer licensed dairy herds in 2018 has seen its milk production increase: Nevada, where 2018 milk production was up 3.5 percent from 2017 and up 31 percent from 2008.

Meanwhile, Alabama’s 2018 milk production fell 18.9 percent from 2017 and was down 60 percent from 2008; Arkansas’ 2018 milk production fell 7.5 percent from 2017 and was down 62 percent from 2008; Delaware’s 2018 milk production was down 1.4 percent from 2017 and was down 17 percent from 2008; New Jersey’s milk production was down 7.6 percent from 2017 and was down 33 percent from 2008; and South Carolina’s 2018 milk production was down 2.4 percent from 2017 and was down 24 percent from 2008.

Finally, milk cow numbers can help shed some light on milk production trends at the state level. Nevada provides a nice example here; the state has five fewer licensed dairy herds than in 2008, but 5,000 more milk cows than a decade ago. And so it’s milk production is actually growing, despite the decline in licensed dairy herds.

But Rhode Island had only about 700 milk cows last year, down 400 head from 2008 and down 1,100 head from 2000. And just to cite a couple more examples: Delaware had 4,800 milk cows last year, down 200 head from 2017 and down 1,700 head from 2008; and Alabama had 5,000 milk cows last year, down 1,000 head from 2017 and down 7,000 head from 2008.

These statistics paint a fairly bleak picture of the future of milk production in a few states. Just looking at the numbers and the trends, it would appear that milk production won’t be produced in every state by, say, the year 2030.

But that’s probably over-simplifying things, at least a little. Among other things, are any of these licensed dairy herds also licensed dairy processors, thus capturing more value for their milk?

Milk will continue to be produced in all 50 states for at least a few more years, but nothing is guaranteed in the long run.

Why Dairy Product Stocks Have To Be So Large

In recent years, warehouse stocks of American-type cheese, other cheese and total natural cheese have risen to levels that have prompted some general-interest media outlets to report that America’s stockpile of cheese has reached record highs. Publications ranging from The Washington Post to The Guardian (based in London) have covered this record cheese stockpile, often reported as a cheese “surplus,” over the past year.

One issue worth noting when it comes to any discussion of cheese stocks is that the nature of these stocks has changed dramatically over the past 30 to 40 years. Back in the 1980s, USDA’s Commodity Credit Corporation was buying hundreds of million of pounds of surplus cheese, as well as surplus butter and nonfat dry milk, under the dairy price support program.

So, for example, at the end of 1983, CCC stocks of American cheese totaled 793 million pounds, while cheese production that year totaled 4.8 billion pounds (the CCC bought 833 million pounds of cheese that year).
And the latest “Cold Storage” report from USDA’s National Ag Statistics Service notes that the record high for American cheese stocks at the end of January, just under 1.1 billion pounds, was set in 1984, when the majority of those stocks were government-owned and did indeed represent “surplus” product.

Yes, there is certainly a lot of cheese being stored in commercial warehouses around the US these days. As of Jan. 31, natural cheese stocks totaled 1.36 billion pounds, a record high for that date.

But it’s worth remembering that cheese stocks represent only part of the supply-demand equation. What’s happening on the demand side is equally if not more important. And in that context, the record level of cheese stocks makes more sense.

Back in 2011, the April edition of the Market Administrator’s Bulletin for the Northeast federal milk marketing order included an article entitled “A Closer Look at Cheese Stocks.” That article pointed out that total cheese stocks had exceeded 1 billion pounds in March 2010 and had remained above that mark through March 2011.

“Though current total cheese stocks over a billion pounds sounds like a very big number historically, it has to be viewed in context with current historically strong cheese production and commercial disappearance numbers,” the article explained. And that point is worth keeping in mind when pondering the enormity of today’s cheese stocks.

Back in 2010, the year before that article appeared, US cheese production totaled 10.4 billion pounds, or about 870 million pounds per month. For the previous two decades, that article pointed out, the cheese industry had held the equivalent of a month’s production in stock.

But by January 2011, the percent of stocks over production, 118.7 percent, was as big as it had been since 1987 (when the CCC held a fair amount of cheese), the article noted.

What about January 2019? Cheese production totaled 1.1 billion pounds and cheese stocks totaled 1.36 billion pounds, so stocks were 123.6 percent of production. That’s up a fair amount from 2011.

But what about commercial disappearance? Back in 2011, domestic commercial disappearance of cheese totaled about 10.4 billion pounds, or around 866 million pounds per month. So the industry was holding more than a month’s equivalent of domestic disappearance in cold storage.

In 2018, as we report on page 15 of this week’s issue, domestic commercial disappearance of cheese totaled about 12.4 billion pounds, or just over 1 billion pounds per month. So again, the industry was holding more than a month’s equivalent of domestic disappearance in cold storage.

But there are also commercial exports to consider. Back in 2010, the US exported 115 million pounds of American cheese and 267 million pounds of other-than-American cheese, or around 382 million pounds total.
As that 2011 article pointed out, US cheese exports had grown to about 5 percent of total production in 2011, up from about 1.5 percent five years earlier.

In 2018, US cheese exports totaled 768 million pounds, roughly twice the 2010 level. US cheese exports last year included 165 million pounds of American cheese and 603 million pounds of other-than-American cheese.

As that 2011 article explained, as the export market “has become a more consistent and significant demand point for US cheese, inventory requirements to supply such a market may impact, to some degree, the level of stocks the industry may hold.”

Adding up domestic disappearance plus exports, we come up with total commercial disappearance in 2018 of about 13.2 billion pounds, or an average of 1.1 billion pounds per month. Interestingly, as noted earlier, that’s exactly how much cheese the US produced in January.

Finally, it’s worth noting that more and more cheese is being aged before it “disappears.” So, for example, stocks of other natural cheese (besides American and Swiss) totaled 525 million pounds at the end of January, up about 200 million pounds from Jan. 31, 2009.

But, just to cite one example, US Parmesan production grew by more than 200 million pounds from 2008 to 2017, and none of that Parm was sold fresh.

Thanks to strong production as well as domestic and foreign demand, high stock levels shouldn’t be any more concerning than low stock levels.


Gottlieb Will Leave Lots Of Unfinished Business At FDA

What happens when an activist head of a federal regulatory agency resigns without seeing a lot of his goals through to fruition? In the case of Scott Gottlieb, the soon-to-be former commissioner of the US Food and Drug Administration, the dairy industry will find out in the coming months and years.

As we reported last week (for details, please see the story on page 16 of last week’s issue), Gottlieb will be leaving his post next month, after serving as FDA commissioner for just under two years. But he’s been kind of a whirlwind of activity during that time.

Chief among Gottlieb’s food industry initiatives has been the multi-year Nutrition Innovation Strategy, which he announced a year ago this month. That initiative includes several key elements, including modernizing standards of identity, reducing sodium, modernizing claims, modernizing ingredient labels, and implementing the new Nutrition Facts label and menu labeling.

Only that final item is close to completion, and that’s not really because of Gottlieb’s efforts. FDA published the final Nutrition Facts rule in May of 2016, although the final compliance dates for that rule were extended by about one and a half years under Gottlieb’s leadership. The agency had published the final menu labeling rule in late 2014, and the compliance dates for that final rule were also extended, although the regulatory steps to extend those dates were undertaken before Gottlieb became FDA commissioner.

Labeling issues aside, the Nutrition Innovation Strategy includes several ambitious undertakings that have barely made it off the ground and now will likely be delayed, perhaps indefinitely.

Chief among these is in the area of standards of identity. From a dairy industry perspective, there are at least three different, but somewhat related, initiatives underway involving dairy product standards.

First, as part of its Nutrition Innovation Strategy, FDA held a public meeting last July and also accepted public comments on several questions related to that strategy, including the issue of modernizing the standards of identity to provide more flexibility for the development of healthier products.

The agency received over 1,000 comments in response to its request, including a number of comments that addressed various aspects of dairy product standards of identity.

Second, before that comment period closed, FDA opened another docket, seeking comments on the labeling of plant-based products with names that include dairy terms, such as “cheese,” “milk,” “butter” and “yogurt.” The agency received over 13,000 comments in response to that specific request.

Third, and perhaps most important (at least in the long run), FDA late last year included, among its regulatory priorities for fiscal year 2019, the reopening of the comment period on a proposed rule, issued jointly with USDA’s Food Safety and Inspection Service back in 2005, that proposed to establish general principles that would be the first step in modernizing and updating the framework for standards of identity.

FDA’s intention was to reopen the comment period on this standards proposal sometime during the first half of 2019. After the agency has reviewed comments it receives, as well as comments submitted when the 2005 proposal was published, FDA expects to be in a position to either publish a new proposed rule or to issue a final rule based on the full record.

Reducing sodium is another key element of FDA’s Nutrition Innovation Strategy. Back when Robert Califf was serving as FDA commissioner (during the final year of the Obama administration), FDA published draft guidance that provided voluntary sodium reduction targets for a variety of food products.

In the wake of last week’s report from the National Academies of Sciences, Engineering, and Medicine updating Dietary Reference Intakes for sodium and potassium , it would appear that FDA might be poised to move ahead on finalizing those sodium targets.

So what happens with all of these initiatives, now that Gottlieb is leaving the agency in less than a month? Obviously, that depends on who the next FDA commissioner is. Or maybe on who the next commissioners are.

Looking over the recent history of FDA commissioners, they seem to fall into three categories. Some, such as Margaret Hamburg, tend to serve for relatively long periods of time (she was FDA commissioner from May of 2009 through April of 2015). Others tend to serve for relatively short periods of time (the aforementioned Califf served for less than a year).
And then there are gaps, where there are acting commissioners (such as the roughly 10-month gap between Hamburg and Califf).

So imagine a scenario in which Gottlieb is succeeded first by an acting commissioner, then a new commissioner is appointed by President Trump, then Trump loses in the 2020 election and his FDA appointee is replaced in early 2021. Under that scenario, FDA’s Nutrition Innovation Strategy might not move much over the next couple of years.

Ongoing Trade Wars Are Hurting US Dairy Exports

Full-year US dairy trade statistics were released Wednesday by USDA’s Foreign Agricultural Service, and there’s both good news and bad news in the numbers.

The good news is that 2018 was a pretty darn good year for US dairy exports. As reported on our front page this week, overall dairy exports were valued at about $5.5 billion, up 2 percent from 2017 and the highest level since 2014, when dairy exports reached a record $7.1 billion in value.

Within some individual product categories, results were also pretty impressive in 2018. Cheese exports reached 766.8, up 2 percent from 2017 and the highest level since 2014, when they reached a record 810 million pounds.

Meanwhile, exports of nonfat dry milk/skim milk powder reached a record 1.57 billion pounds, shattering the previous record, set in 2017, by more than 200 million pounds. Exports of whey protein concentrate reached a record 334.3 million pounds, up 4 percent from 2017 and more than 100 million pounds higher than in 2015. And lactose exports topped 800 million pounds for the first time ever, reaching a record 864.7 million pounds.

The bad news is actually twofold. First, last year’s impressive dairy export performance was fueled more by what happened during the first half of the year than by what happened during the second half of the year.

And second, what happened during the second half of 2018 is probably a more accurate preview of 2019 than what happened during the first half of 2018.

FAS statistics help illustrate that first point. Overall, US dairy exports during the first half of 2018 were valued at $2.9 billion, up 6 percent from the first half of 2017, while exports during the second half of 2018 were valued at $2.6 billion, down 1 percent from 2017’s second half.

Granted, just looking at export values can be misleading, since global dairy product prices fluctuate from month to month, not to mention from the first half of a given year to the second half of a given year.

So, getting into some specific products that are affected by retaliatory tariffs, FAS statistics show that US cheese exports to Mexico during the January-June 2018 period were up 1.8 percent from the same period in 2017, on a volume basis, while cheese exports to Mexico during the July-December 2018 period were down 1.1 percent from a year earlier.

Mexico, by far the leading US cheese export market, was imposing retaliatory tariffs on imports of US cheese during roughly the last half of 2018.

Meanwhile, US dairy exports to China during the first half of 2018 were valued at $304.7 million, up 11 percent from the first half of 2017, but exports to China during the second half of the year were valued at $195.6 million, down 35 from 2017’s second half. China, the number three US dairy export market on a value basis (trailing only Mexico and Canada last year), was imposing retaliatory tariffs on most if not all US dairy product exports during roughly the last half of 2018.

Among a few specific products, on a volume basis, US exports of dried whey to China were down 3 percent during the first half of 2018, then dropped 30 percent during the second half; exports of whey protein concentrate were up 31 percent during the first half of 2018 but down 37 percent during the second half; and lactose exports were up 73 percent during the first half but up only 13 percent during the second half.

With these Chinese export figures in mind, it’s worth noting that overall US lactose exports during the first half of last year totaled 463.5 million pounds, up 21 percent, or about 81 million pounds, from the first half of 2017, but then totaled 401.2 million pounds during the second half of 2018, down 3 percent, or almost 13 million pounds, from 2017’s second half.

The good news is, as noted earlier, that lactose exports last year topped 800 million pounds for the first time ever. The bad news is that lactose exports were about 62 million pounds greater during the first half of 2018 than during the second half of 2018.

So what can the dairy industry expect on the export front here in 2019? Well, considering that Mexico’s retaliatory tariffs on cheese remain in place, and that China’s retaliatory tariffs on pretty much all US dairy exports remain in place, it would appear that 2019 will be more like the second half of last year than the first half of last year.

Certainly, there’s a lot more to the US dairy export picture than just cheese exports to Mexico and dairy exports to China. Indeed, dairy exports to Mexico last year reached $1.4 billion, up 6 percent from 2017 and their highest level since 2014, despite the impact of retaliatory tariffs on US cheese exports. Also on a value basis, US dairy exports grew last year to countries including South Korea, the Philippines, Indonesia, Vietnam and Malaysia, among others.

Still, the impacts of retaliatory tariffs by Mexico and China will continue to hamper export growth this year, which means that it’s imperative that the Trump administration end these trade wars as soon as possible. That isn’t necessarily going to be easy; after all, while we’re focusing on 2018 statistics here, it’s already March and those retaliatory tariffs are still in place. That’s another two months of tariffs that are clearly reducing dairy exports, with no end in sight.

Yes, there are reports of progress in ongoing negotiations with China. But at this point, progress doesn’t mean much; ending the trade wars is what’s really needed.

Coke, Pepsi, And The Future Of ‘Milk’

With the news last week that PepsiCo, Inc., is buying CytoSport and its Muscle Milk business from Hormel Foods Corporation, two of the world’s largest beverage businesses have now entered, or further expanded into, the dairy-based beverage business in the US. And at least in some ways, they appear to be pointing the way to future of “milk” as a beverage.

The Coca-Cola Company, of course, is a partner with Select Milk Producers in fairlife, LLC. The Coca-Cola Company is the distribution partner for the products that fairlife creates, markets and sells, including beverages under the fairlife and Core Power labels.

The Muscle Milk brand, meanwhile, includes products such as ready-to-drink smoothies and protein shakes. Some of these products are labeled “non-dairy,” but they do contain such ingredients as milk protein isolate, sodium caseinate, and calcium caseinate. The Muscle Milk brand also includes recently launched Yogurt Protein Shakes, which are made with not only Greek Style Low Fat Yogurt (made from skim milk, milk protein concentrate, cream, enzymes and cultures) as its second ingredient, but also includes whey protein concentrate as its third ingredient.

In other words, dairy or non-dairy, Muscle Milk is using a fair volume of dairy ingredients in its beverages (as well as in its protein powders and protein bars).

So what does the involvement of The Coca-Cola Company and PepsiCo tells us about the future of milk as a beverage? Quite simply, it tells us that the future is going to be different from the past.

Indeed, there are a number of differences between products such as fairlife, Core Power and Muscle Milk and traditional beverage milk.

For starters, they come in different packages than does traditional beverage milk (we’re talking about the packages that are sold out of the dairy case, not the relatively recent convenience-sized milk bottles).
fairlife Ultra-Filtered Milk, for example, comes in a 1.5-liter (52-ounce) bottle (as well as an 11.5-ounce single-serve bottle), whereas traditional milk comes in quarts (32 fluid ounces), half-gallons (64 fluid ounces) and gallons (128 fluid ounces).

Muscle Milk’s beverage products, meanwhile, also are available in unusual package sizes, such as 11-ounce cartons and 15.8-ounce bottles.

The fairlife 52-ounce containers are also more colorful than most traditional milks in the dairy case. For example, many milks distinguish their fat content with colored caps, such as a red cap for whole milk.
fairlife uses different colors for almost its entire bottle. So, for example, a 52-ounce bottle of fairlife whole milk is primarily red, while reduced fat milk is blue. Needless to say, these bottles tend to stand out in the dairy case.

The Muscle Milk beverage line is also less bland than traditional beverage milks. There’s simply no mistaking these products for traditional milk products sold in the dairy case in gallon or half-gallon plastic jugs.

Another significant difference between products such as fairlife and Core Power and traditional beverage milk is shelf life. According to fairlife’s website, fairlife is pasteurized at a higher temperature than ordinary milk, for a shorter time, giving it a “much longer” shelf life unopened (shelf life is the same as ordinary milk after opening). So consumers can stock up more on fairlife than on traditional milk, knowing that, as long as it’s unopened, it will last for a couple of months in the refrigerator.

As far as fairlife’s Core Power is concerned, the company said its ultrafiltration and aseptic packaging allow it to be shelf stable for up to nine months on Elite products and up to 12 months on 26-gram products.
And these products don’t have to be sold in the dairy case or any other refrigerated area.

That’s also the case with all of Muscle Milk’s products, including shakes and smoothies.

So are there any downsides to these products being marketed by The Coca-Cola Company and, in the near future, by PepsiCo? Cost is the most obvious thing that comes to mind.

There are two aspects to the cost issue. First, exact comparisons with traditional milk products are nearly impossible, for the aforementioned reason that fairlife, for example, comes in a 1.5-liter bottle, and is sold alongside half-gallon and gallon containers.

Second, and more important, fairlife is in fact more expensive than traditional milk. Indeed, a quick check of the dairy case in one local supermarket found that a 1.5-liter (52-ounce) bottle of fairlife whole milk is more expensive than a gallon (128-ounce) of whole milk. That’s pretty pricey.

That is, at least in part, because fairlife is a value-added product. Value is added to fairlife in several ways: it has a higher protein content (per serving) than regular milk, has a longer shelf life, and is lactose-free, among other things.

There hasn’t been a lot of value added to traditional milk for a number of years, and sales reflect that fact, having declined from 55 billion pounds in 2010 to under 49 billion pounds in 2017.

Obviously, these value-added milks aren’t for everyone because of their higher price. But they just as obviously have some merit, because, well, because they are being marketed by two of the savviest companies in the beverage business. And the dairy industry could do worse than having its beverage products, or milk components, marketed by The Coca-Cola Company and PepsiCo.

 

Let Them Eat Golana

This darn plant-based dairy alternative issue is so big (at least potentially), and so complex, that we just can’t quite let it go. So for the third week in a row, we’re going to address the issue, albeit from a couple of new angles.

The issue of how to label dairy imitators has been around for, well, for roughly as long as real dairy products have been around. Back in the late 1800s, for example, there were problems with “filled” cheese, which was described by one source as “a compound of skim milk and grease, such as old butter, oleomargarine, or lard, the favorite ingredient being at present stale butter...”

That quote, by the way, dates back to 1890. And related to the issue of filled cheese and filled milk, the Filled Cheese Act of 1896 was repealed by Congress in 1974, while the Filled Milk Act of 1923 was declared unconstitutional in 1972.

More recently, cheese analogs were generating quite a bit of controversy.
For example, a 1986 USDA report, Effects of Casein Imports, noted that the variety of products included in the cheese analog group “is increasing”; products at that time included cheese substitutes (made from casein, vegetable oil, and water), imitation cheese (which can be made from proteins other than casein, such as soy), and blended products (combining, for example, natural and imitation cheeses).

This controversy didn’t just focus on imports of casein and how those imports might or might not be interfering with the dairy price support program. It also focused on what these products should be called.

So in September of 1978, the US Food and Drug Administration published a proposed rule that would have established standards of identity for milk and cream substitutes and cheese substitutes.
More than three years earlier, FDA had received a petition from the National Cheese Institute, proposing the establishment of a standard of identity for cheese analogs under the name “Golana.” The NCI petition stated that the name “Golana” was selected because it was pleasant-sounding, easily pronounced, and not related to another food. “Golana” happens to be “analog” spelled backward.

NCI had rejected the word “cheese” as a root word on the grounds that such terms might be confused with names of natural cheeses. Further, NCI suggested that the word “analog” was more applicable than words such as “alternate,” “substitute” or “imitation” because analog connotes something having properties corresponding to something else, but different in origin.

Briefly, FDA’s 1978 proposed rule explains, the petition for the standard of identity for Golana defines a cheese analog as the food made in semblance of cheese or a cheese product in which safe and suitable nonmilk ingredients supplement or replace any or all nutritive milk components.

The proposed standard would also have established nutritional equivalency requirements for Golana and a system of nomenclature for Golana-type foods based on the degree of semblance to the cheese simulated, including its nutritional equivalency to that food.

So, for example, a Golana simulating Mozzarella that conformed to the organoleptic and physical properties, as well as to the established fat and moisture requirements for Mozzarella, and contained the required levels of protein and nutrients proposed in the standard of identity for Golana would have been named “Golana mozzarella cheese analog.”

FDA withdrew that proposed rule in 1983, for reasons that are too detailed to get into here. But in light of all the current controversy over what to call plant-based dairy alternatives, maybe it’s time to revisit “Golana,” or some other pleasant-sounding name.

Another issue related to these plant-based foods concerns something the Plant Based Foods Association mentioned in its recent comments to FDA. Companies selling dairy alternatives, the PBFA said, are using common English words that consumers understand, including cheese, milk, yogurt and butter.

To PBFA’s members, and to consumers, “these words represent functionality, form and taste, not necessarily the origin of the primary
ingredient” (emphasis added).

But there’s a huge difference between the primary ingredient in dairy products and the primary ingredient in dairy alternatives. In dairy products, the primary ingredient, of course, is milk.
In many if not most plant-based dairy alternatives, the primary ingredient is actually water. Yes, many of these products are named after a plant-based ingredient, such as almond milk.

But how many almonds are actually in almond milk? That’s not easy to tell. For example, Blue Diamond’s Almond Breeze Original Almondmilk lists “almondmilk (filtered water, almonds)” as its first ingredient. The product’s nutrition information also notes that there’s all of one gram of protein per one-cup serving, while one serving of Whole Natural Blue Diamond Almonds has six grams of protein per serving.

Other plant-based products don’t necessarily have a “primary ingredient.” Here are the ingredients in Follow Your Heart’s Smoked Gouda Style Slices: Filtered Water, Coconut Oil, Modified Food Starch, Potato Starch, Sea Salt, Natural Smoke Flavor (Plant Sources), Natural Flavor (Plant Sources), Olive Extract.

Plant-based foods imitating dairy products are crying out for more regulatory oversight.

Plant-Based ‘Dairy’ Products:
FDA Has To Do Something

The US Food and Drug Administration should have learned at least two things from all the comments it received in response to its request for information on the labeling of plant-based products with names that include the names of dairy foods.

First, the agency should have learned that there’s quite a bit of interest in this subject. As reported on our front page last week, FDA received over 13,000 comments in response to its request.

Granted, some of these appeared to be form letters. For example, some comments advocating for the status quo (allowing plant-based foods to continue using dairy terms) started off as follows: “The public is waking up to the horrors of animal agriculture.” But, form letters or not, 13,000 comments indicates that there’s quite a bit of interest in this topic.

Second, the agency should have learned that the status quo is simply not acceptable on the labeling of plant-based products with names that include the names of dairy foods.

That’s because, among other things, FDA currently defines milk as “the lacteal secretion...obtained by the complete milking of one or more healthy cows...” Here in the 21st century, milk is obtained by the complete milking of one or more healthy cows, goats, sheep, camels and other animals. If nothing else, FDA needs to broaden the scope of its definition of “milk” to include other animals.

Beyond that, there are at least a couple of issues FDA should deal with here. First, we found it interesting that the Plant Based Foods Association told FDA that companies selling dairy alternatives “are using easy to understand, clear, descriptive and truthful language” on their labels.

That doesn’t necessarily appear to be the case. For example, PBFA member Daiya Foods sells a number of dairy alternatives, including Daiya Medium Cheddar Style Farmhouse Block (which we mentioned in this space last week). Yes, the label does say “deliciously dairy-free,” right under “daiya,” but the words “MEDIUM CHEDDAR STYLE FARMHOUSE BLOCK are not only in all capital letters but are also in larger typeface than is the “deliciously dairy-free” line.

The label does note that the product is “Dairy & Soy Free,” but again, the typeface is smaller than the MEDIUM CHEDDAR STYLE FARMHOUSE BLOCK.

Another PBFA member company, Follow Your Heart, markets products such as Smoked Gouda Style Slices. On this label, there are a couple of problems (from a consumer and dairy industry, if not regulatory, perspective).

First, the words “Smoked Gouda” and “Slices” are in much larger typeface than the word “Style,” so a consumer just glancing at the product will easily see “Smoked Gouda Slices” but might not see the word “Style.”

And second, the label does say “Dairy Free Cheese Alternative,” but those words appear near the bottom of the label and, again, are in smaller typeface than “Smoked Gouda Slices.”

So if FDA decides to continue allowing companies to use dairy terms to describe non-dairy alternatives, at least it should require labeling that is clear and not misleading. One possible solution would be to require the dairy term, such as Gouda or Cheddar, to be smaller than the qualifying phrase “Dairy Free” or “Dairy Alternative,” or maybe “Non-Dairy.”

FDA might even want to go as far as to define, or ban, the term “style.” We mention this because, under the geographical indication provisions of the Comprehensive Economic and Trade Agreement (CETA) between Canada and the European Union, limited GI rights are being provided to the EU on Asiago, Feta, Fontina, Gorgonzola and Munster.

Under those limited rights, current users of those names in Canada can continue to use those names, but future users will be able to use the names only when accompanied by expressions such as “style,” “type” or “kind.”

Granted, this is for an agreement between the EU and Canada, but if a company decides to start producing Asiago in Canada next year, it will have to use a term such as “style,” which is the same term numerous companies are using to describe plant-based cheese alternatives. These are obviously very different products.

The second issue FDA should deal with when it comes to plant-based dairy alternatives has to do with consumer confusion. Actually, that issue is pretty closely related to the first issue, and it’s really what this controversy is all about.

Surveys conducted by and for various dairy organizations have found, among other things, that buyers of plant-based alternatives believe those products are equal to or even superior to conventional dairy products when it comes to such things as protein, vitamin and mineral content, which is not true.

Several comments also pointed out that most conventional dairy products are governed by standards of identity, while plant-based dairy alternatives are not. So maybe FDA can address this disparity when it reopens the comment period on a 2005 proposed rule that would establish a set of general principles for food standards.

Adherence to these principles, FDA explained in that proposed rule, “will result in standards that will better promote honesty and fair dealing in the interest of consumers,” among other things.

That’s really what this whole issue really boils down to: honesty and fair dealing. And so maybe FDA should deal with this issue of plant-based dairy alternative labeling when it revives its food standards proposal.

 

Plant-Based Foods Get Some Nice Endorsements, But...

The dairy business is tough enough these days without its main competitor, plant-based foods, getting ringing endorsements from entities that are at least somewhat respected. But that’s just what’s happened over the past several weeks.

Back on Jan. 14, the EAT-Lancet Commission released a report that promotes diets consisting of a variety of plant-based foods, with low amounts of animal-based foods including dairy (for more details, please see Transformation Of Global Food System, Including Less Dairy, Seen As Urgent,on page 18 of our Jan. 18th issue by scanning the QR Code above).

Then last week, Health Canada released the new Canada’s Food Guide, which includes advice for Canadians on “healthy food choices and healthy eating habits,” but doesn’t specifically endorse dairy products. Instead, consumers are advised to eat plenty of vegetables and fruits; eat protein foods (which includes lower fat dairy products such as milk, yogurt, and lower sodium cheeses); choose whole grain foods; and make water “your drink of choice” (for more details, please see ‘Healthy’ Food Choices In Canada’s Updated Food Guide Omit Dairy Foods, on page 9 of our Jan. 25th issue).

Taken together, these two reports certainly aren’t very positive for dairy, from a nutritional perspective. Canada’s updated Food Guide is especially troubling, given that country’s strong dairy industry, and the government’s role in preserving that industry through various policies.

To further illustrate how ridiculous this new Canadian Food Guide is, this week, Agriculture and Agri-Food Canada announced an investment of up to $2.7 million to support Dairy Farmers of Canada’s efforts to enhance public trust in dairy production. The news release announcing this investment notes that Canada’s dairy sector has a longstanding reputation for producing “high-quality, safe, and nutritious milk and dairy products for Canadians,” and Lawrence MacAulay, Canada’s agriculture minister, stated that building consumer confidence and trust “helps ensure the growth and sustainability of Canada’s dairy sector.”

So one Canadian agency downplays the importance of dairy products in the diet, while another announces an investment aimed at helping to ensure the growth and sustainability of Canada’s dairy sector. Seems a bit inconsistent.

There are at least two really frustrating aspects to these two reports, from a dairy perspective. First, both reports are critical of saturated fats, which seems to ignore a whole lot of recent research that has found, at a minimum, that saturated fats aren’t harmful to health and, possibly, have certain health benefits.

Indeed, it was a case of either bad timing or good timing to hear investigative science journalist Nina Teicholz, author of The Big Fat
Surprise, talk last Monday at Dairy Forum 2019 about how the past 60-plus years of lowfat nutrition advocacy has amounted to an uncontrolled experiment on the entire population, with disastrous consequences for health; and then see Health Canada release its new Food Guide, touting only lowfat dairy products, the very next day.

Actually, the number of studies finding health benefits from full-fat dairy products has risen impressively in recent years. These studies are finding that dairy fats may have beneficial impacts on cardiovascular disease, stroke and type 2 diabetes, among other positives. But you’d never know it from Health Canada’s recommendations.

Another frustrating aspect of these two reports is that they seem to endorse plant-based diets and plant-based foods for the simple reason that they come from plants, not because they are necessarily more nutritious or nutrient-dense than traditional dairy products.

This point was solidified by a new survey, conducted by Ravel and commissioned by Wisconsin Cheese Makers Association, Dairy Farmers of Wisconsin and Edge Dairy Farmer Cooperative, which found that consumers are confused about whether plant-based imitation dairy products are in fact dairy foods and whether they carry the same nutritional value (for more details, please see the story on our front page last week by scanning the QR Code).

One amazing finding from this survey is that about one-third of consumers think that plant-based foods that mimic cheese contain protein, and 21 percent think that it is of a higher quality than dairy even through the imitations have little or no protein while real dairy cheese has seven grams of protein.

In fact, two of the three plant-based foods that mimic cheese that were included in the survey — Daiya Mozzarella Style Shreds and Follow Your Heart Mozzarella Style Slices — contain exactly zero grams of protein. And Daiya Medium Cheddar Style Farmhouse Block (so much for the term “farmhouse” having any actual meaning) has one gram of protein.

So if consumers think switching from real dairy cheese to plant-based “cheese” doesn’t alter their intake of protein or other nutrients, they will be in for a big, nasty surprise.

The EAT-Lancet report is critical of highly processed foods, which is kind of laughable considering how “highly processed” many plant-based “dairy” products are. For example, the aforementioned Daiya Medium Cheddar Style Farmhouse Block is made from, among other things, tapioca starch, coconut oil, vegan natural flavors, pea protein isolate, chicory root extract, xanthan gum, tricalcium phosphate, pea starch and potato protein.

Plant-based diets are gaining credibility in some quarters, but from a nutritional perspective, they remain woefully inadequate compared to traditional dairy foods.

 

Enough Is Enough; Time To End The Government Shutdown

The partial shutdown of the US government entered its second month this week (it started back on Dec. 22, 2018), and as this idiotic political battle continues its destructive path, it’s time to declare that enough is enough, Washington. End this shutdown, once and for all, and get on with the business of governing.

We make this recommendation after listening to Dr. Stephen M. Ostroff, former deputy commissioner of the US Food and Drug Administration, at this week’s Dairy Forum 2019 in Orlando, FL.

There were at least two interesting aspects to Ostroff’s presentation before even getting into the details of why it’s vitally important to end this shutdown quickly. First, Ostroff had more time than expected to speak Monday because the speaker who was scheduled to appear ahead of him, Greg Ibach, under secretary, marketing and regulatory programs, USDA, couldn’t attend due to the shutdown.

And second, Ostroff has a unique perspective on the shutdown, having served as deputy commissioner for foods and veterinary medicine until retiring just a couple of weeks ago. In other words, Ostroff was working for FDA when the shutdown started, knows a lot about the shutdown’s impact because of that, and was only able to appear at the Dairy Forum because he’s now retired from FDA.

From Ostroff’s perspective, there are plenty of negative consequences stemming from the shutdown, some short-term and some long-term. In the area of short-term impacts, Ostroff mentioned several FDA functions that aren’t currently happening, including low-risk inspections, guidance and regulatory work, food additive/GRAS (generally recognized as safe) reviews, nutrition-related work, labeling and standards work, and communication and consumer information.

Let’s look at just one of those areas: standards work. FDA’s Nutrition Innovation Strategy, announced last March by FDA Commissioner Scott Gottlieb, includes modernizing standards of identity as one of its five key elements. This could include specific standards-related “modernization,” such as finalizing a proposed rule, published 10 years ago this month, that would revise the standards of identity for yogurt.

It will also include reopening the comment period for a proposal, released by FDA in 2005, that would establish a set of general principles for standards of identity.

As long as the shutdown continues, FDA’s work on dairy and food standards will go absolutely nowhere.

Ostroff also mentioned some long-term ramifications of the shutdown, including such things as consumer confidence and employee morale. In that latter category, he noted that, thanks to the shutdown (which isn’t the first and probably won’t be the last, and is also now the longest ever), there will be a loss of talented and skilled personnel at FDA and also more challenges in recruiting and retaining needed talents.

Every week the shutdown drags on, the consequences are worse, Ostroff said. So just from the perspective of the dairy industry needing a fully functioning FDA, it’s time to end this shutdown.

Meanwhile, over at USDA, the dairy industry has now gone more than a month since the last key dairy report was released. The monthly “Milk Production” was supposed to be released Wednesday, giving the dairy industry an idea of how milk cow numbers, milk per cow and overall milk production fared in December.

One day before that, the monthly “Cold Storage” report was supposed to be released, giving the dairy industry some hard figures on cheese and butter inventories at the end of December.

And a couple of weeks ago, the monthly “Dairy Products” report was supposed to have been released, giving the industry important data on November cheese, butter, whey products, dry milk products, and other dairy products output.

But USDA’s National Ag Statistics Service hasn’t been open since the shutdown started, so none of these reports have been released as scheduled. The NASS website includes the following “slogan”: “Providing
Timely, Accurate and Useful Statistics in Service to US Agriculture.”
Indeed it does, except when it’s not operating. Eventually, the dairy industry will once again have access to accurate and useful statistics, but initially they won’t be as timely, thanks to the shutdown.

In recent years, the US dairy industry has become more and more reliant on the export market, while also importing around $3 billion in dairy products every years. Back in November, the US exported, well, we don’t know, because those numbers aren’t available due to the shutdown.

Looking ahead, USDA has a lot of work to do in implementing the 2018 farm bill. That piece of legislation ran a total of 807 pages, but the hard work really doesn’t begin until USDA starts writing the rules for implementation.

For example, the farm bill (which was signed into law by President Trump just a couple of days before the shutdown started) establishes a new Milk Donation Program, and gives USDA 180 days to establish the program. At this point, about 35 of those days are behind us, and our guess is that work on this new program is going nowhere fast, thanks to the shutdown.

So enough is enough. It’s time for Congress and the President to start acting like grown-ups, and get the federal government up and running again. As Stephen Ostroff said, every week the shutdown continues, the worse the consequences are.

A Fond Farewell To NCI, MIF, IICA And NYA

In the dairy industry, as well as pretty much every other industry, trade associations come and trade associations go. This is a particularly notable “trade associations go” period for the dairy industry; at the beginning of 2019, the industry bid a fond farewell to four trade associations that had capably served the industry for many, many years.

As we reported two weeks ago, the International Dairy Foods Association has consolidated the governance structure of its constituent organizations — the National Cheese Institute, Milk Industry Foundation and International Ice Cream Association — under one central organization, IDFA. As of Jan. 1, 2019, those three longtime dairy organizations no longer exist.

And as we reported last week, the National Yogurt Association board of directors voted last month to dissolve and transition its assets over to IDFA. So the NYA also no longer exists.

Each of these four trade associations has had a rich and colorful history of serving the dairy industry. The oldest of the four organizations was the International Ice Cream Association, which was founded in 1900 and was known for many years as the International Association of Ice Cream Manufacturers.

Next came the Milk Industry Foundation, founded in 1908. The National Cheese Institute was founded in 1927, and finally the National Yogurt Association came along in 1986.

NCI, MIF and IICA have been constituent organizations of IDFA since 1990. Prior to that MIF and IICA were co-managed and had been based in Washington, DC, for many years.

The National Cheese Institute was a relative newcomer to Washington when it joined MIF and IICA in IDFA. NCI was actually founded in Plymouth, WI, back when that city was first becoming known as the Cheese Capital of the World.

At that time, Plymouth was home to a number of cheese companies (although some of the companies now most associated with Plymouth, including Sargento, Sartori, Masters Gallery and Great Lakes Cheese, didn’t exist back then), and was also home to the Wisconsin Cheese Makers Association (which moved to Madison in 1962) as well as the old Wisconsin Cheese Exchange (which moved to Green Bay in 1956, later changed its name to the National Cheese Exchange, and closed its doors in 1997).

NCI later moved to Chicago, and for many years was co-managed with the American Butter Institute. In a nice illustration of how dairy trade associations have come and gone over the years, NCI and ABI used to have their annual meetings in April in the same location and in the same week as the American Dry Milk Institute and Whey Products Institute; ADMI and WPI merged in 1986 to form the American Dairy Products Institute (another now-defunct group, the Evaporated Milk Association, merged into ADPI in 1997).

NCI moved to Washington in the late 1980s (shortly after the NYA was formed), and then joined MIF and IICA in forming IDFA in 1990. Meanwhile, the NYA was managed for a number of years by the American Frozen Food Institute.

With IDFA hosting its annual Dairy Forum starting on Sunday, Jan. 20th, it’s worth noting that the Dairy Forum hasn’t always been hosted by IDFA. The annual gathering, which was known as the “US Dairy Policy Forum” when it was first held back in 1985, was originally sponsored by MIF and IICA (which was then still known as IAICM). They continued to sponsor the Dairy Forum up until 1990.

Obviously there is a lot of history involved in the four organizations that no longer exist. And that raises the question: Is this really a good idea, to consolidate NCI, MIF, and IICA under one central organization, IDFA, and also to bring in another organization’s assets and operations, NYA?

Yes, this would appear to be a very good idea, for at least two reasons. First, IDFA is now operating under one set of bylaws and financial reporting requirements, as well as one budget.

Prior to Jan. 1, 2019, NCI, MIF and IICA each operated on a separate budget, and IDFA also had its own budget. And IDFA, along with its three constituent organizations, all had their own boards of directors.

Logic would suggest that operating under one set of bylaws and financial reporting requirements, as well as just one budget, would simply be a more efficient way to operate a trade association.

The other way in which this change appears to be a very good idea is in the area of industry advocacy. As Michael Dykes, IDFA’s president and CEO, noted, under its new structure, IDFA “will be more nimble, inclusive and effective in representing the interests of all segments of the dairy processing industry.” This foundation will allow IDFA to “enhance our legislative, regulatory and communication efforts and increase the return on investment for our members.”

Basically, anything that can enhance the dairy processing industry’s legislative, regulatory and communication efforts in the future is a good thing.

The National Cheese Institute, Milk Industry Foundation, International Ice Cream Association and National Yogurt Association no longer exist, but they all left rich legacies spanning many, many years.

More importantly, they left in their place a stronger International Dairy Foods Association, which bodes well for the dairy industry in the years ahead.

USDA Should Buy Milk With Extended Shelf Life

Last August, the US Department of Agriculture announced plans to purchase fresh fluid milk in half-gallon containers for distribution to The Emergency Food Assistance Program.

This was described as the first time ever that USDA was going to buy fresh fluid milk for distribution under TEFAP. And so, understandably, the agency encountered a couple of problems.

First, USDA had a little trouble getting all the milk it was trying to buy, at least initially. Specifically, USDA’s Ag Marketing Service in late August issued three separate solicitations for a total of about 82.8 million pounds of fluid milk.

The agency ended up accepting bids for a total of about 62.9 million pounds of milk. And the three purchase awards specifically mentioned that no offers were received for about 8.1 million pounds, 3.5 million pounds and 8.3 million pounds of fluid milk under the three solicitations.

Then, in October, the agency announced plans to purchase fresh fluid milk, targeting certain orders for milk in half-gallons that were not fulfilled under contracts that had been awarded in late September. Before it issued solicitations for that milk, AMS sought comments from fluid milk industry suppliers regarding the earlier procurement of fluid milk.

Then, in late October, AMS issued a solicitation seeking a total of about 15.7 million pounds of fluid milk, for delivery between late 2018 and March 2019. The agency ended up accepting bids for a total of 13.4 million pounds of milk; no offers were received for about 2.2 million pounds of milk.

Beyond the problem of buying the quantities it is seeking to buy, USDA appears to be running into another problem with its fluid milk purchases: at least some food banks can’t handle all the milk they are receiving under this program.

Late last month, it was widely reported that food pantries in eastern Iowa and western Illinois were being flooded with milk donated by USDA.
Mike Miller, CEO of the River Bend Foodbank in Davenport, IA, told the Quad-City Times, also of Davenport, that the milk was “a huge help for hungry people in our community,” but that moving all that milk (about 80,000 half-gallons of milk will be distributed to food pantries across the Quad-City region through March) “has been challenging. Milk has a limited shelf life, so we have to move it quickly.”

Miller added that food banks lack adequate storage for the milk donations, and noted that some areas of the US have had to decline these milk donations “because it’s too much to handle and milk is not usually donated.”

Handling fluid milk should become easier for food banks as they become accustomed to receiving it. But it would seem that there are a couple of other solutions here.

First, USDA could switch from buying fluid milk to buying cheese for donation under TEFAP. The agency already buys a lot of cheese every year, primarily for use in the National School Lunch and School Breakfast programs. During fiscal year 2018, for example, USDA bought some 183 million pounds of Mozzarella, natural American and processed cheese.

So not only does industry have considerable experience in selling cheese to USDA, this cheese in turn has a longer shelf life, so food pantries won’t be fighting the calendar as much when they receive shipments.

The biggest problem with this solution is that milk is one of the most requested items among families and individuals served in Feeding America’s network.

Feeding America, if you’re not familiar with it, is the largest hunger-relief organization in the US. Through a network of 200 food banks and 60,000 food pantries and meal programs, the organization provides meals to more than 46 million people each year.

So what’s the solution to this dilemma of high demand for fluid milk but inadequate resources to handle fluid milk at the food-bank level? How about buying milk with extended shelf life?

This could take at least two different forms. First, USDA could buy fluid milk that requires refrigeration but has a shelf life of two or three months rather than two or so weeks. There are fluid milk companies around the US who produce ESL milk.

Second, USDA could buy UHT milk, which doesn’t require refrigeration and has a shelf life of several months. Actually, the agency already buys millions of pounds of UHT milk every year, so it’s already familiar with acquiring and distributing it.

These ideas might solve the problem of short shelf life for fluid milk, but they might present their own set of problems. For example, milk with an extended shelf life still has to be refrigerated, so it would still challenge food banks that have limited refrigerated space.

Also, milk with an extended shelf life might come with a higher price tag. But if food banks have more time to distribute these products, and consumers can store them for a longer period of time, there would probably be less milk being wasted, making the higher price worthwhile in the long run.

As far as UHT milk is concerned, it’s worth noting that USDA, in both its August and its October 2018 announcements, referred to a fresh fluid milk purchase program, so it would have to tweak its future announcements. And US consumers aren’t all that familiar with UHT milk, at least not yet.

USDA’s fluid milk purchase program is a good idea, and can be improved by offering milk with a longer shelf life.

 

A Busy Year Ahead For FDA, USDA, USTR

As we look ahead at some things the dairy industry can expect here in 2019, assuming Washington gets its act together one of these days and the government shutdown ends, it would appear that at least three federal agencies will be mighty busy over the next 12 months. Those agencies are the US Food and Drug Administration, US Department of Agriculture and the Office of the United States Trade Representative.

Let’s start with FDA. During his first two years as the agency’s head, FDA Commissioner Scott Gottlieb has established himself as what might be considered an “activist” commissioner. And this activism will undoubtedly be carried over into 2019.

Last March, Gottlieb unveiled FDA’s Nutrition Innovation Strategy, which includes several initiatives that will potentially impact the dairy industry this year and beyond. Among other things, FDA is seeking comments on the labeling of plant-based products with names that include the names of dairy products such as “milk” and “cheese.”

The deadline for submitting these comments is Jan. 28, 2019; the docket number is FDA-2018-N-3522. After that, well, it might take FDA the rest of 2019 to read through all the comments; as of Monday, Dec. 31, the agency had already received over 8,600 of them.

More broadly in the area of food standards, FDA is planning to reopen the comment period on a proposed rule, originally issued back in 2005, seeking to establish general principles to update the framework for federal standards of identity. This is certainly an important initiative for the dairy industry; after all, as the International Dairy Foods Association recently pointed out, 37 percent of all food standards of identity are for dairy products.

Also as part of its Nutrition Innovation Strategy, FDA is looking at modernizing its definition of “healthy.” More specifically, as Gottlieb explained recently, FDA is working on updating the definition of the “healthy” claim on food labels so it reflects current nutrition guidelines and to encourage its use.

We expect any updated definition of “healthy” to be unhealthy for most dairy products.

At least one more aspect of FDA’s Nutrition Innovation Strategy will bear watching this year: sodium reduction. When he announced the Nutrition Innovation Strategy last March, Gottlieb stated that there remains “no single more effective public health action related to nutrition than the reduction of sodium in the diet,” and said he was “committed to advancing” the agency’s short-term voluntary sodium targets. We’ll see how far this initiative gets in 2019, and beyond.

Meanwhile, USDA has a couple of significant undertakings this year, starting with implementation of the recently enacted 2018 farm bill. Here, the dairy industry can expect several actions from USDA in the coming months, at least if the 2014 farm bill is any guide.

For example, the 2014 farm bill, which was signed into law in February of that year, included two new programs: the Margin Protection Program for dairy farmers, and the Dairy Product Donation Program. A final rule implementing those two programs was issued in late August 2014.

The 2018 farm bill included some changes to the MPP, including a new name (the Dairy Margin Coverage program), so we expect USDA to publish a final rule implementing those changes sometime in the next few months. The new farm bill also extends the Dairy Forward Pricing Program (which expired on Sept. 30, 2018), and we expect USDA to publish a final rule extending that program in the near future (the 2014 final rule extending the Dairy Forward Pricing Program was released in March of that year).

The new farm bill also requires USDA to establish not less than three regionally located dairy product and business innovation initiatives, so it will be interesting to see how the agency approaches the implementation of this initiative in the coming year (or longer).

One other area that will keep USDA busy this year will be with its recently released GMO (bioengineered) food disclosure standard. The final rule has a compliance date of Jan. 1, 2020, for regulated entities other than small food manufacturers, and a voluntary compliance period that runs through the end of 2021. Suffice it to say USDA will have its hands full in 2019 answering questions about this rule.

Finally, the USTR looks like it will have a mighty busy 2019, for better or worse from a dairy industry perspective.

Needless to say, the USTR had a pretty noteworthy 2018, implementing tariffs on steel and aluminum imports from a number of countries, including several key US trading partners, while also concluding talks on a modernized North America Free Trade Agreement (renamed the United States-Mexico-Canada Agreement) and launching trade talks with Japan and the European Union, among others.

How all of this plays out in 2019 will be fascinating to watch. For example, Congress has to approve the new USMCA, and at this point it isn’t certain that the US-EU trade talks will even include agriculture. Meanwhile, tariffs and retaliatory tariffs imposed in 2018 remain in place as 2019 begins, so it will be interesting to see if those tariffs end up being terminated at some point, or survive through the entire year.

Just at FDA, USDA and USTR, 2019 should be a dairy interesting year.

2018: The Year Of The Trade Wars

Let’s face it: there are times when it’s pretty easy to come up with an overriding “theme” for a particular year in dairy. In 2014, for example, it would have been pretty difficult not to come up with a theme related to the record-high prices achieved that year — records that ranged from cheese and butter to Class III and mailbox prices.

This year also seems to be pretty easy to classify: 2018 has been the year of the trade wars. It’s just been awfully difficult to find a single overriding issue that’s had as much of an impact, or as much potential impact, as the ongoing trade wars being waged between the US and some of its closest trade partners, including Mexico and China, to name two countries that greatly impact US dairy exports.

At the start of 2018, it didn’t really seem that trade wars were going to be a dominant issue. Indeed, in our first issue of 2018, we noted that the US had “basically backpedaled” on trade agreements in 2017, withdrawing from the Trans-Pacific Partnership agreement and launching talks to modernize the North American Free Trade Agreement.

The trade wars didn’t actually amount to “front-page news” until our Mar. 9th issue, when we reported that President Trump was imposing tariffs on steel and aluminum imports from a variety of US trading partners, ranging from Canada and Mexico to China and Brazil.

That move was greeted with a fair amount of criticism from a variety of dairy, food and farm organizations, several of which predicted, correctly as it turned out, that the US tariffs would invite retaliatory tariffs from US trading partners.

By July, the economic impact of those retaliatory tariffs was becoming clearer to the US dairy industry. National Milk Producers Federation estimated that the tariffs would cost US dairy farmers $1.8 billion just through the remainder of 2018, based on the decline in milk futures prices since they were imposed. And keep in mind that the tariffs remain in effect as we head into 2019.

The good news in 2018 is that the US, Mexico and Canada did agree on a new NAFTA, dubbed the United States-Mexico-Canada Agreement, or USMCA. The bad news is that, thanks to ongoing tariffs being imposed on Mexico’s aluminum exports to the US, Mexico is continuing to impose tariffs on US cheese exports to that country, which happens to be the leading US market for such exports.

Or, as Michael Dykes, president and CEO of the International Dairy Foods Association, noted at a late-November Capitol Hill briefing on the USMCA and ongoing US tariffs on aluminum imports from Mexico, IDFA’s members “are very pleased that the USMCA negotiations are complete and Mexico remains a duty-free market but until the Section 232 tariffs are lifted, US dairy’s access to the Mexican market is at risk.”

Last week provided a nice illustration of the importance of the trade war issue to US agriculture. On Monday, Secretary of Agriculture Sonny Perdue announced a second round of trade mitigation payments to dairy and other farmers suffering from damage due to trade retaliation by foreign nations.

Three days later, President Trump signed the 2018 farm bill into law, a move that drew widespread praise from various ag and dairy organizations.

But while praising one or both of those announcements, there was a clear message from ag stakeholders: the ongoing trade wars must be ended.

For example, while he welcomed USDA’s announcement of a second round of trade mitigation payments to farmers, Jim Mulhern, NMPF’s president and CEO, noted that the tit-for-tat tariffs that prompted the payments “continue to inflict damage across the farm economy,” and urged the administration “to resolve tensions with key trading partners, including China and Mexico, as the best way to assist farmers going forward.”

And Jeff Lyon, general manager of FarmFirst Dairy Cooperative, asked that the administration “quickly resolve the trade conflict that exists between US trading partners, China and Mexico, and quickly lift the retaliatory tariffs currently in place as they continue to challenge dairy markets.”

Unfortunately, the trade wars will continue into the new year, and it might well be that the real impacts of the trade wars will be felt in 2019. Keep in mind that it wasn’t until almost the middle of 2018 when countries such as Mexico and China imposed their retaliatory tariffs on various US products, including cheese and whey.

It’s worth remembering that, for example, US dairy exports to China during the first half of 2018 were up 11 percent (on a value basis) compared to the first half of 2017, but by October, they were running 8 percent behind year-earlier levels (the first 10 months of each year).

How might US dairy exports to China fare if China’s retaliatory tariffs remain in place for all of 2019? Keep in mind that China is the number one export market for US dried whey and whey protein concentrate, among other products.

The year 2018 has been a monumental year for the dairy industry, partly because California joined the federal milk marketing order system — something that would have been unheard of a couple of decades ago. The year also saw completion of an on-time farm bill, something that, as noted in this space last week, doesn’t happen very often.

But when it comes to short- and long-term impacts, 2018 will likely long be remembered in the dairy industry as “the year of the trade wars.”

 

2017 Editorials


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