Since its creation five years ago this spring, Cooperatives Working Together has always been a two-sided coin: on the one side, it reduces current (and future) milk supplies by retiring cows, while on the other side, it increases demand for U.S. dairy products by assisting in exporting them overseas.
Both programs complement each other, and give CWT the flexibility to take actions both in the short- and long-terms that strengthen and stabilize farm-level milk prices. But while the herd retirement element of CWT tends to get the lion’s share of attention within the dairy industry, we’ve actually made some recent enhancements to our export assistance program that have the potential to more dramatically reshape the export activities of the entire U.S. dairy industry.
Last year, the committee that oversees CWT’s operations decided to invest $30 million of CWT’s 2008 operating budget on a the Export Assistance Program Strategic Business Plan. The goal is to develop long-term export markets for U.S. cheese, butterfat and whole milk powder, in key markets in Asia, the Middle East and Mexico.
While we’ve certainly assisted in exporting a significant quantity of such products to these regions in the past several years using the financial resources of Cooperatives Working Together, the strategic business plan is a more methodical approach to help CWT member cooperatives grow long-term business relationships with key customers in key markets.
Initially, CWT’s export assistance program simply bridged the gap between the domestic price of U.S. dairy products, and the F.O.B. price needed to sell these products to customers overseas. It’s been a successful format to date – exporting nearly 100 million pounds of cheese, butter, anhydrous milk fat and whole milk powder to 56 countries since 2004 – but the CWT Committee agreed that a more disciplined approach was needed. That’s what we’ll have going forward with the new strategic business plan.
Based on an analysis of mid- and long-term potential sales, our new export plan has identified the specific target markets of Japan, South Korea, China, Algeria, Egypt and Saudi Arabia for both commodity and value-added cheese, and Mexico, Russia, Egypt and China for butterfat products and whole milk powder. We also have established target volumes in the range of 16,000 metric tons of cheese, and 24,000 tons of butterfat and WMP, for those markets this year.
Our plan does allow for continued spot sales to these and other destinations this year, but the ultimate goal is sustainable business interactions in these target markets beyond 2008 without export assistance from CWT. The other area where we will improve our focus through this plan is by expanding the working relationship between CWT and the U.S. Dairy Export Council. CWT will be relying on the marketing assistance – including consultations about marketing plans, product promotions, technical advice, and in-country intelligence and support – that USDEC is uniquely able to provide. We’ve relied on such help to a certain degree in the past, but the strategic business plan will really leverage USDEC’s expertise at a time when exports of U.S. dairy foods have expanded dramatically.
As last year’s analysis by Dr. Scott Brown of the University of Missouri showed, the positive impact of the four herd retirements CWT has carried out are cumulative, but to be as effective as possible, they must be executed on a fairly regular basis because their impact diminishes over time. Our expectation is that CWT’s Export Assistance strategic business plan will be just as effective in helping to maintain strong producer milk prices as retiring cows.
The author is Chief Operating Officer of Cooperatives Working Together in Arlington, Virginia.
