Leap Beyond Boundaries: Growth, Challenges and Global Perspectives | Dairy Herd

In the ever-evolving landscape of the dairy industry, the long-term viability of the milk supply is a crucial topic. With the rise of new dairy processors and market demands, industry experts and producers alike are keenly monitoring the capacity to meet future needs. Earlier this year, Michael Dykes, CEO of International Dairy Foods Association (IDFA) shared that our industry is indeed in a growth mindset akin to a fish jumping out of a bowl. This vivid imagery suggests that the industry is not merely maintaining its current status but is actively seeking ways to expand and adapt to new challenges and opportunities

Growth and Optimism on the Horizon

“Our farmers want to grow and so do our processors. If we aren’t growing, if we aren’t looking toward the future, we’re going to get surpassed by others,” Dykes says, adding that 60% of the processing executives have expressed optimism for 2024, and 73% plan to increase their investments over the next three to five years.

This positive outlook is echoed in our State of the Dairy Industry report, where more than two-thirds of dairy respondents reported five-year profitability, and more than half have a growth mindset with plans to grow in one way or another in the next five years. More than a third of the survey respondents said they plan to grow by increasing cow numbers or adding new sites, while others will invest in on-farm revenue streams or upgrade their facilities to increase cow comfort and production.

Mike Brown and chief economist with the IDFA, acknowledges the significant growth on the horizon, especially in cheese production. He believes that the market dynamics will be a critical indicator of the future.

“If markets stay strong, prices and farm margins will remain strong,” Brown shared at the Idaho Milk Processors Association Annual Conference in Sun Valley, Idaho in mid-August, underscoring that a pivotal factor in this equation is the availability of heifers.

The U.S. dairy industry finds itself in an intriguing situation concerning heifer supply, largely influenced by the trend of beef-on-dairy calves. This movement has transformed the previously surplus situation of dairy heifers, as the lucrative beef market has swayed producers' decisions to maintain a more conservative handle on heifer inventory.

“Producers have made very smart decisions,” Brown says, referencing the decision to breed low-end genetics to beef to generate an alternative profit source. The industry veteran points out that producers will continue to make the best economic choices that ultimately enhance their farm’s profitability.

As the dairy industry navigates these changes, the ability to adapt and strategically manage resources will be essential for sustaining the milk supply chain in the long run.

Adding a Global Perspective

Sara Dorland, managing partner at Ceres Dairy Risk Management, notes that dairy plants across the U.S. are diverse in terms of the products they produce, from cottage cheese to extended shelf-life goods to powder facilities. Dorland emphasizes the importance of extending our lens beyond national borders to understand the global landscape.

“When we look at Asia and Kenya, there's plants being added in mass throughout the world these days,” she shares. This global expansion is largely driven by consumer demand for dairy proteins, which are highly preferred in many global regions.

Dorland notes, “In particular, it's that the consumers really prefer our [U.S.] dairy proteins, and there's a great demand for it. We're all trying to satisfy that demand.” However, this global shift brings challenges. The industry must consider how these international developments will impact domestic operations and resource allocations.

Evaluate the Current Landscape Demand

William Loux, Senior Vice President of Global Economic Affairs with U.S. Dairy Export Council (USDEC) and National Milk Producers Federation (NMPF), says with all these plants coming online, we must take a step back and evaluate what the demand landscape is before making any assumptions about the future.

“I think we are seeing demand growth here in the U.S. start to come back, even as consumers are a little shaky,” he says, noting that even if we get back to the trend line that we were at before the inflation induced slowdown began, there is still going to be a lot of cheese and ingredients that will need to be moved overseas. “The international market it actually pretty soft.”

Southeast Asia

Although, USDEC recently reported a significant uptick in U.S. dairy exports to Southeast Asia, marking a promising turn for the industry. According to USDEC, dairy exports to the region surged by 25% in July, the largest single-month gain in over two years. This follows a similarly impressive 14% increase in June. While these consecutive months of growth are encouraging, they caution that it is too soon to declare a new upward trend for U.S. dairy exports to Southeast Asia, particularly given the current limitations in U.S. milk powder production.

The substantial growth in June and July shipments raises hope for a sustained recovery in U.S. dairy exports. Loux indicated that consumer demand in Southeast Asia appears to be on the rise. Aggregate consumer demand is growing as inflation cools and the region's economies rebound. These factors have created a more favorable market environment for dairy products.

“Even as the pie is slowly getting bigger, the competition is looking to claim a larger percentage of the pie. To keep this rather inelegant analogy going, our slice may get bigger as the pie gets bigger, but competition over the pie may limit how much it grows,” Loux explained.

Another interesting point that Loux highlights is the notable shift in the international trade for cheese. Prior to COVID-19, approximately one in ten shipments of ‘new’ cheese (cheese over the previous decade) were sent overseas. This scenario has dramatically changed, with one in four shipments of new cheese now destined for international markets.

No Cookie-Cutter Solution

This shift is noteworthy and underscores the importance of understanding diverse market dynamics. Loux emphasizes that no single market will spearhead the growth in dairy demand. Instead, a mix of various global markets will be required to absorb the influx of new U.S. cheese production.

In light of these developments, Loux raises an important question: "That's before we even get to these plants that are all coming online. I think the question is what do we do with it and where do we go?" His suggestion is clear — there will not be a one-size-fits-all solution. The growing cheese output will need to be distributed across a variety of markets.

The Impact of An Aging Population

The global dairy industry is experiencing a significant shift due to changing demographics around the world. According to Mary Ledman, a Global Dairy Strategist for Rabobank, one of the most impactful changes is the slowdown in birth rates in China. With fewer births, the industry has had to pivot away from producing a significant amount of infant formula.

On the flipside, Ledman notes an increase in population coming of nearly 705 million people globally, with half located in Africa. Additionally, India has now surpassed China in terms of population.

“India is by far the world's largest milk producer,” Ledman says. In India, which is largely vegetarian, dairy holds a central place in the diet, and the country strives to be self-sufficient in its dairy production. With 1.5 billion people currently residing in India, the population is projected to increase by another 120 million people. Although, according to Ledman the number of individuals under 20 years old is expected to decline by 3 million between 2020 and 2030. The well-respected economists share that this all spells less fast food, particularly cheeseburgers and pizza, that will be consumed in the future.

“We are aging,” Ledman says. “And one of the reasons why the world is growing in population is because we're living longer. So, the real challenge to the dairy industry is pivoting from infant nutrition to an aging population.”

As the global dairy industry confronts these challenges, industry leaders emphasize the need for strategic adaptation. Understanding and responding to shifts in consumer demand, leveraging diverse global markets, and adjusting to changing demographics will be critical for the sustained growth and stability of the dairy sector.

The metaphor of a fish jumping out of a bowl speaks to the dynamic and proactive mindset driving the dairy industry today. It's an industry that refuses to rest on its laurels, choosing instead to actively seek out new challenges and opportunities to successfully navigate the future, ensuring that the increased dairy production will find its way to markets around the world.