Globalization
Must Be Addressed,
But
Study Says Industry Isn’t Set Up to Accommodate Global Market
The U.S.
dairy industry is not set up to accommodate a global market and it must take
steps to address increasing globalization, speakers concluded at the joint
annual meeting of the National Dairy Promotion and Research Board (NDB), the
National Milk Producers Federation (NMPF) and the United Dairy Industry
Association (UDIA).
Speaking
before nearly 1,000 dairy producers, Clinton Anderson, partner at the global
business consulting firm Bain & Company, said a study conducted for the
Innovation Center for U.S. Dairy with assistance from Bain concluded that the
U.S. dairy industry can address globalization by increasing its competitiveness
both domestically and overseas and by seizing an estimated “latent demand
gap” that will create a global shortfall of approximately seven billion lbs.
of milk by 2013.
Recognizing
that globalization is playing a more significant role in the U.S. dairy
industry, the Innovation Center for U.S. Dairy, with staff assistance from Dairy
Management Inc. (DMI) and the U.S. Dairy Export Council (USDEC), prepared a
strategic analysis of the global dairy landscape. The objective of the study was
to provide the U.S. dairy industry an understanding of the impact of
globalization on internal and external markets, and to identify strategic
options to accommodate that impact.
Driven by
emerging markets, Anderson said the study concluded that worldwide demand for
dairy products will return to growing faster than available supply, and that
traditional sources of supply will not be able to fully satisfy growing
consumption. He went on to say that low-cost suppliers from South America and
Eastern Europe will eventually become more capable competitors for a larger
share of the global demand, leaving the United States with a finite window of
opportunity in which to create a defensible competitive position.
“China
and Southeast Asia will continue to be major net importers due to rising incomes
and an increasingly urban population, and Mexico, Algeria and Saudi Arabia are
also forecast for consumption to outpace production,” said Anderson. “On the
supply side, Oceania is currently a low-cost producer, but future growth will
see limits imposed by water and land scarcity to increase productivity beyond
current levels.”
The study
also said the impact of globalization is pervasive enough to affect all domestic
dairy companies, whether they choose to directly participate in international
dairy trade. “Clearly, as the dairy economy of the past two years
demonstrates, world economic factors will affect dairy price in the United
States. And, while not the market that will deliver the most robust growth over
the next 5 to 8 years, the U.S. internal market totals over 16% of world dairy
consumption, the largest single market outside the European Union. Consequently,
any successful long-term global strategy for U.S. suppliers must also focus
attention on its huge internal market for U.S. produced dairy products and
ingredients.”
The study
said that structural constraints get in the way of the United States
accommodating globalization. Some major challenges the report cited include
severe pricing volatility, market distorting pricing mechanisms and, generally
speaking, insufficient customer focus that leads to narrow product diversity and
inconsistent customer service.
In
response, the study authors laid out several possible strategic responses to the
current and projected environment. Responses ranged along a spectrum from an
industry (like Canada) that focuses exclusively on the domestic market to an
industry (like New Zealand) that focuses primarily on exports. Maintaining the
status quo was identified as an option as well, but the study said that inaction
will lead to a less competitive U.S. industry.
Recently
the Innovation Center Globalization Task Force adopted a “consistent
exporter” strategy to develop global opportunities for the U.S. milk supply,
including broad industry efforts to gear U.S. products and pricing policy to
simultaneously facilitate domestic and international growth. “Producers,
dairy cooperatives, manufacturers, processors and suppliers will begin to soon
determine how to work together pre-competitively to address globalization and
will identify priority programs of prospective work,” said Tom Suber,
president of the U.S. Dairy Export Council (USDEC), which assisted Bain on the
study.
“Over the
last few years, we’ve seen how big a factor the world market is to our
domestic market,” said Suber. “And in 2009, we saw a loss of our export
sales contribute to oversupply in the U.S. market. We’ve discovered that for
dairy, like the Thomas Friedman best-seller, “The World is Flat.”
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Innovation
Center for U.S. Dairy
provides a forum for the dairy industry to work pre-competitively to address
barriers to and opportunities for innovation and sales growth. The Innovation
Center aligns the collective resources of the industry to offer consumers
nutritious dairy products and ingredients, and promote the health of people,
communities, the planet and the industry. The Board of Directors for the
Innovation Center represents leaders of more than 30 key U.S. producer
organizations, dairy cooperatives, processors, manufacturers, and brands. The
Innovation Center is supported and staffed by Dairy Management Inc.™
For more information, contact innovationcenter@usdairy.com.
Bain & Company, a leading global business consulting firm, serves clients on issues of strategy, operations, technology, organization and mergers and acquisitions. The firm was founded in 1973 on the principle that Bain consultants must measure their success by their clients' financial results. Bain clients have outperformed the stock market 4 to 1. With 41 offices in 27 countries, Bain has worked with over 4,150 major multinational, private equity and other corporations across every economic sector. For more information visit: www.bain.com.