Dairy processors look to China

Carol Ryan Dumas/Capital Press Bags of whey product come off the line at Davisco FoodsÕ Jerome Cheese plant in Jerome, Idaho.

Some companies push to capitalize on emerging economy

By CAROL RYAN DUMAS

Capital Press

China's growing appetite for dairy foods, combined with the melamine scandal in 2008, has strengthened the country's position as the international dairy price mover.

"China's been the primary driver of the global market for at least the last five years," said Jay Waldvogel, Dairy Farmers of America's senior vice president of strategy and international development.

While exports to China are not a big part of DFA's business, the company recognizes China's growing market, he said.

China's population of about 1.34 billion people and its growing middle class are attracting higher-quality dairy imports. But the infant formula scandal has also had a big impact, both on imports and China's domestic industry, which was booming prior to 2008.

When Chinese consumers shunned domestic products following the melamine scandal, which sickened more than 6,200 children and killed four, farmers there slaughtered their herds.

U.S. Dairy Export Council statistics show China's dairy imports rose to nearly 650,000 tons in 2009, compared with about 330,000 tons in 2007. The council expects the pace of purchases in 2009 to continue through 2010.

The sheer size of China's economy, which is now the second largest in the world, is still growing.

"The top 25 percent have wealth similar to the U.S.," he said.

That growing economy and growing appetite for high-value dairy products, is "going to have a huge impact on us, if we do it right," he said. "We have to be prepared to be there all the time and make the products they want."

Being a consistent supplier and providing the desired product are currently hindered by government support programs. When prices hit a targeted low, processors sell to the government, and they produce the products that get government support.

"We're not prepared to stay in the game," he said.

China's market for whey products for animal feed opened up about 10 years ago and is a major market for U.S. whey, said Dave Curta, international sales manager for Davisco Foods. The growing markets for dairy in China are for specialty proteins for infant formula and health foods.

China's growing appetite for such things as milk, flavored drinks, cheese and yogurt could bode well for U.S. producers and processors.

"They need imported product, and the U.S., by far, is in the best position to supply them," he said.

Curta said, there is also the risk that China will block imports as it has in the past.

"If they want, they can stop (imports) for weeks, even months," he said.

Davisco, which annually exports more than 50,000 tons of whey product and lactose to China, wants to ride out those storms.

"We're optimistic it will get worked out, and it does," he said.

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