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Emerging Issues in Global Animal Product Trade

Dairy: Constraints on a $5 Billion Business

Economic Research ServiceFarm Foundation, NFP

Washington, DCSeptember 27, 2012

Topics For Today

• What is U.S. DairyExport Council?

• Recent Trade Trends• Key Trade Issues• Q & A

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3

Program Focus

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• Trade Policy‒ Get us into a market

• Market Access and Regulatory Affairs‒ Help us stay in the market

• Marketing Intelligence and Promotional Assistance‒ Give U.S. suppliers the tools to meet

and compete for customer needs

Substantial & Growing Trade Balance

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3.7%4.5% 4.4%

5.0% 5.2% 5.5% 5.1%5.7%

7.6%8.3%

9.3%9.8%

11.0%

9.3%

12.7% 13.3% 13.5%

2.7% 2.9%3.6% 3.9% 4.0% 4.2% 4.2% 4.4% 4.5% 4.6% 4.4% 4.5% 4.0%

3.4% 2.9% 2.9% 3.1%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012thruJuly

Tota

l Milk

Sol

ids,

% o

f U.S

. Pro

duct

ion

U.S. DAIRY TRADE BALANCE, 1996-2012

Exports

Imports

Dry Ingredients Heavily Trade Dependent

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Product 2012(thru July)

2011 2010 2005

Butterfat 6.2% 7.6% 7.9% 1.4%

NDM/SMP 44% 49% 47% 41%

Dry sweet whey 48% 55% 55% 40%

Lactose 66% 69% 67% 57%

Cheese 5.7% 4.7% 3.7% 1.4%

545864 850

1,266

1,837

3,761

2,157

3,567

4,761

436 201 178 24557 70 167 194 90

0500

100015002000250030003500400045005000

1995 2000 2002 2004 2006 2008 2009 2010 2011

Exports Compete At Market RatesU.S. Dairy Exports 1995-2011: Commercial vs. Assisted

$MIL

Source: USDEC - USDA56% 81% 83% 84% 97% 98% 93% 95% 98%

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Diverse, Growing Base of Markets for U.S. Dairy Products

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Dairy Deals: USDEC Perspective on FTAs

• Strong U.S. efforts to open markets critical to continued growth and success of U.S. dairy

• Competitors eating our lunch at FTA game‒ NZ, EU, Australia negotiating worldwide

• Recent FTAs, TPP good start‒ But much more needed!

FTAs Key to Competitiveness

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• Recent FTAs‒ Korea, Colombia, Panama‒ Trans-Pacific Partnership

(TPP)• Next candidates?

Focus FTAs

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• Forecasted annual benefits from recently approved FTAs once commitments phased in‒ Korea: $380M‒ Colombia: $25M‒ Panama: $25M

• Korea: ability to capitalize FTA a long game‒ Long-term investment; opportunities now greater

• Slow U.S. ratification handed EU first-mover advantage

• Colombia and Panama‒ U.S. to gain first-entry advantage but delay has

narrowed window with EU FTA

Recent FTAs

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• Broad opportunity for useful new trade commitments in fast-growing region

• Hope to support final TPP agreement‒ USDEC extremely active in building elements needed

to secure that outcome

USDEC Supports TPP Negotiations

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• NZ global market share and market power attained through anti-competitive benefits granted by the state‒ Under these conditions, expansion of U.S.-NZ

dairy trade in TPP unwarranted• NZ monopsony supplier a decade-old outgrowth

of NZ’s dairy State Trading Enterprise‒ Significant legacy advantages ‒ Controls ~90% of NZ milk and 1/3+ global dairy trade‒ Accounts for 25% of total NZ exports

U.S. Bilaterals: New Zealand

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• Canada: Largest TPP dairy export opportunity‒ Dairy & Poultry sectors excluded from

U.S.-Canada portion in NAFTA‒ Currently: $450M in U.S. dairy sales

despite 200%-300% tariffs• Much of it under Import for Re-export Program

• Japan: Tremendous potential but participation still uncertain‒ Currently: $277M in U.S. dairy sales

despite exorbitant SMP, butter rates‒ Primary question: Is Japan ready?

U.S. Bilaterals: Canada, Japan

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• Vietnam ($187M) and Malaysia ($137M)‒ Sizable current markets‒ U.S. is Vietnam’s largest dairy supplier‒ Tariffs moderate (Vietnam)

to low (Malaysia)‒ Yet TPP would level entry fees with

Oceania• Mexico

‒ USDEC supports Mexico’s participation‒ However, economic reality is addition to TPP will

erode U.S. preference into Mexican dairy market

U.S. Bilaterals: Vietnam, Malaysia, Others

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• SPS Issues: Regulations relating to human, plant, animal life and health‒ Frequent and challenging barriers‒ Ongoing top priority for USDEC and FAEA

• Shared U.S. ag sector priority‒ USDEC helping lead effort to boost

requirements for science, transparencyand predictability

• Enforceability critical to success‒ Much is lost without ability to oblige commitment‒ Why should ag/SPS be different?

Regulatory Coherence/SPS Chapter

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• U.S. suppliers falling behind‒ Issue gravest in largest, price-

sensitive markets• China, China, China• Southeast Asia• Middle East

‒ TPP good opportunity but can’t be all we’ve got in the fire

• EU-U.S. FTA?‒ Details critical given EU track

record on barriers

The Next Frontier

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Thank You!Tom Subertsuber@usdec.orgShawna Morrissmorris@usdec.org