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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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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