Exports: After a record year, 2023 will bring positives and headwinds
2023 may not bring another record year, but the U.S. continues to assert itself as a growing player in international dairy trade.
U.S. dairy exports set new volume and value records again in 2022 despite rampant inflation and a host of other challenges to international trade. It was the third straight record year for volume and the second for value.
Export volume on a milk solids equivalent (MSE) basis increased 5% to 2.4 million metric tons (MT). Export volume in 2022 was equivalent to 18% of U.S. milk produced last year, also an all-time high.
Export value finished the year up 25% to $9.6 billion – the first time it has ever crossed the $9 billion mark.
Following up on the record-setting year of 2022, Progressive Dairy asked Krysta Harden, president and chief executive officer of the U.S. Dairy Export Council (USDEC), to preview what’s ahead in 2023.
Q: Looking into 2023, what international factors will have the biggest impact on U.S. dairy producers and the industry?
HARDEN: Rising milk production in [the] European Union, alongside weaker demand in the EU, is increasing competition overseas and putting pressure on global prices.
China, the largest dairy buyer in the world, is opening up again after lockdowns and other zero-tolerance COVID policies it imposed from the beginning of the pandemic until late last year. But demand was hit hard by the lockdowns, and we expect it will take more time to recover.
While inflation is receding on a global basis, many questions remain surrounding consumer purchasing power (and dairy demand) given a weak GDP forecast. In early January, the World Bank estimated that global GDP growth will rise 1.7% this year, a sharp decline from the 3% estimate for 2023 that the organization made in June. The bank cited monetary policy tightening around the world, worsening financial conditions and continued disruptions from the Russian war in Ukraine as major drags on growth.
Not all factors are negative. Long-term, we’re seeing rising incomes, populations and desire for dairy products boosting demand for U.S. dairy products, especially in cheese and dairy ingredients.
Q: Which countries or regions should the U.S. keep an eye on when it comes to short-term impacts on exports? What about long-term?
HARDEN: The U.S. should keep an eye on China in the short term. The aforementioned COVID-related lockdowns, travel restrictions and anemic economic growth (by Chinese standards), combined with strong domestic milk production and heavy inventories, significantly reduced dairy imports in 2022. Certainly, some of the magnitude of the decline stemmed from the sky-high spike in Chinese imports in 2021, as China shattered all dairy import records that year. This year, despite China removing its zero-tolerance COVID policy and economic growth expected to improve, we expect Chinese dairy imports will be closer to 2022 volumes than the record in 2021.
Long-term, the U.S. should keep an eye on Southeast Asia. It is a dairy-deficit market, with domestic milk production falling short of demand. The U.S. already has a strong foothold there – Southeast Asia is traditionally a No. 1 or No. 2 U.S. dairy export market on a volume and dollar-sales basis. Meanwhile, populations and GDP are forecast to rise significantly over the next decade, as will their appetite for dairy.
Q: Through the international prism, what provides the most optimism for the U.S. dairy industry in 2023?
HARDEN: 2022 proved that even when economic times are difficult, global consumers still considered dairy a household essential and continued to purchase. Additionally, in many markets – especially Latin America, Japan and Korea – cheese was considered a staple product. With more U.S. cheese capacity expected online in 2023 and forecast growth in cheese supply, expanding global consumption will be critical to maintain producer prices.
Q: What are the biggest concerns entering the new year?
HARDEN: Competition will be stronger in 2023 as EU milk production rises but its domestic demand falters, increasing the bloc’s exportable supply. Plus, New Zealand will need to reroute product due to the collapse in Chinese demand.
Q: Any other comments that reflect the 'state of dairy' from your perspective?
HARDEN: We are at a critical moment in history for U.S. dairy exports. Demand for cheese and dairy ingredients is growing, especially in high-population markets in Asia, where dairy is being incorporated into traditional diets. Longer-term, our primary competitors, New Zealand and the EU, will struggle to meet global demand growth with challenged supply outlooks and government policies limiting their capacity to grow.
The U.S., on the other hand, has the means and the desire to sustainably meet the world’s growing demand for dairy – if we continue to invest in exports with USDEC laying the groundwork and helping to open doors.
March 1, 2023