U.S. Dairy Export Value Soars Over 10-Year Period
A growing demand for dairy worldwide as well as changing policies of the United States and its trading partners have supported rapid growth in U.S. dairy exports since the early 2000s, according to a recently-published report from USDA’s Economic Research Service.
The report, “Growth of U.S. Dairy Exports,” notes that growth in the value of U.S. dairy product exports more than quadrupled from 2004 to 2014. The United States, which previously focused primarily on domestic demand, became the world’s third-largest dairy product exporter behind New Zealand and the European Union.
USDA notes that several factors contributed to the rapid increase in U.S. dairy exports. Income growth in East Asia, Southeast Asia, Latin America and other regions led to increased dairy consumption, facilitated by rising imports. Free trade agreements also provided the United States with greater access to world markets, especially to Mexico through the North American Free Trade Agreement. China’s market-based reforms have opened up what is now one of the world’s largest markets for dairy product imports, and both the European Union (EU) and United States have reduced domestic support and export subsidies for dairy products in recent years, further opening world markets.
Mexico consistently has been the leading export destination for the United States, the report says. The growth in value of U.S. dairy exports to Mexico was the greatest of any major export destination, increasing $787 million from 2004 to 2015. Canada was the second-leading destination for U.S. exports in 2015. Increases in dairy exports to China and South Korea each grew by about sixfold over this period, while dairy exports to Japan and the Philippines also increased significantly, USDA says.
While increasing demand from foreign countries has been important to the growth of U.S. dairy exports, USDA notes that structural changes in domestic supply conditions also have played an important role. From 2004 to 2015, U.S. milk production grew from 170.8 billion pounds to 208.6 billion pounds, driven by improved milk yields and larger, more efficient dairy farms.
Since 2003, prices of U.S. domestic dairy products and export prices in Oceania and the EU have tended to converge and become more correlated, reflecting changes in government policies, USDA says. The improved price competitiveness of U.S. dairy products, greater market access, reductions in U.S. and EU support measures, and growing world demand have led to rapid growth in U.S. dairy product exports.
However, the value of U.S. dairy exports fell in 2015 to $4.9 billion, a 28-percent decrease from 2014, as global conditions changed. Growth in global demand for dairy products, especially from China, had slowed. In August 2014, Russia imposed a ban on dairy imports from several countries, driving the EU to export to alternative markets in competition with the United States. In April 2015, the EU discontinued its milk supply quotas and EU dairy farmers increased their milk production, boosting exports and crowding out dairy product imports from the United States. The value of the U.S. dollar also was strong relative to other currencies, causing U.S. exports to be less attractive.
The United States produces and exports a large variety of dairy products, though four categories — cheese, skim milk powder, whey products and lactose — accounted for about 80 percent of the total value of dairy exports in 2015. In terms of value, cheese was the top U.S.-exported dairy product in 2015, growing from $248 million in 2004 (valued in 2015 dollars) to $1.388 billion in 2015.
USDA projects U.S. milk production to grow about 23 percent from 2015-2025. Continued expansion of U.S. milk production and strong international demand are expected to allow U.S. dairy products to remain price competitive on the global market, USDA predicts.
“Future growth in dairy trade is contingent on the ability of U.S. producers to remain cost competitive with foreign suppliers while increasing milk supply and encouraging favorable government policies around the globe,” the report says, adding that new trade agreements may play an important role in the future evolution of U.S. dairy trade.
In a May 2016 report, the U.S. International Trade Commission estimated that if the Trans Pacific Partnership (TPP) were to become effective in 2017, by 2032 the value of U.S. dairy product exports would be 18.0 percent greater than they would be if TPP were not enacted. However, U.S. President-elect Donald Trump has promised to pull out of the TPP when he takes office.
The USDA report also says U.S. dairy trade could increase under the Transatlantic Trade and Investment Partnership (TTIP) currently under negotiation between the United States and EU. In 2010, tariffs applied by the United States to EU dairy imports averaged 20.2 percent, while tariffs applied by the EU to U.S. dairy imports were much higher at 42.0 percent.
“While benefits for U.S. dairy exports would vary based on a final agreement, the TTIP would impact global trade by linking two of the world’s largest traders of dairy products,” USDA says.