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Transcript: Hopeful is the Word for USDEC Members


by Mark O'Keefe      
President and CEO Tom Vilsack says more people, partnerships and promotion will help increase exports to the industry’s “Next 5%” goal.

U.S. Dairy Export Council President and CEO Tom Vilsack woke up in his room at Chicago's Swissôtel with a confident, dynamic and forward-looking word on his mind: Optimism. As he considered the domestic and global challenges facing the U.S. dairy industry, Vilsack altered his word choice.

"I thought, `Well, maybe that is a little too much. Maybe I need to be just hopeful,' " Vilsack told USDEC members in his opening address at the March 27 Board of Directors and Membership Meeting at Swissôtel in Chicago.

After a year at the helm of USDEC, traveling the world as an ambassador for U.S. dairy, what is the former U.S. Agriculture Secretary hopeful about?

In his address (transcript below), Vilsack gives several reasons, including:

  • The U.S. dairy industry’s track record of producing safe, secure and sustainable dairy products and ingredients the world can trust. "This issue of sustainability is a growing issue and a growing market issue, and it's one that I think we have a great story to tell," he said. "We need to tell it again and again and again."
  • Powerful economic and demographic trends increasing the middle class in countries around the world, leading to increasing demand for high-protein dairy products.
  • USDEC's "Next 5%" initiative, which includes hiring nine on-the-ground professionals to expand business opportunities in key global export markets, beginning with the Middle East and North Africa.
  • USDEC's new partnership with a leading Chinese food science university.
  • USDEC seminars and webinars at culinary institutes in Japan, Korea and other countries introducing young chefs to high-quality U.S. dairy products and ingredients.

VIDEO

USDEC's MISSION: HELP YOU HIT HOME RUNS

Click arrow on left to watch clip of USDEC President and CEO Tom Vilsack explain USDEC's role.


After a 6 percent increase in export volume in 2017, U.S. dairy export volume is just under 15 percent of the total U.S. milk supply. "The Next 5%" initiative aims to increase that number to 20 percent over the next five years.

"Our team is working hard and we understand our role," Vilsack told members. "We are excited about the future. We are encouraged by what we are seeing."

Editor's Note: The transcript below has been edited, with headlines added to break up the text and enable scanning.

The address was a private and candid speech to USDEC members only. We ask that members not share this transcript or any information in it outside your member companies. A username and password is needed to read the transcript on usdec.org. We ask that you keep your login private and secure to protect you and our industry.

I realize this is an interesting time for the industry. As I've traveled around the country talking to producers and processors and members, I realize that there is a bit of anxiety about the future; that we're in a very competitive circumstance and environment. But as we look at this competitive nature of the world that we live in, I want to make sure that everyone understands the significance of the people in this room and the importance of the people in this room because I think it's important for us to continue to send the message that the food and agriculture industry is a significant player in the American economy and deserves a lot of attention. It deserves to be a priority industry in the halls of government.

Why do I say that? It's because the food and agriculture industry employs 43 million people, according to a Dunham Associates study that was recently published. Forty-three million people represents 28 percent of the entire workforce of the United States of America. The work that you all do and that you are part of as the food and agriculture industry represents 20 percent of our entire U.S. economy-the largest economy in the world.

Dairy is a significant economic force

I think it's important for us to continue to remind our friends of the significance of the industry and the role that dairy plays in that industry. A recent (International Dairy Foods Association) study suggested that the dairy industry is alone responsible for nearly three million jobs and has an impact on the economy that exceeds $650 billion, and exports obviously play an incredibly important role in helping to build that industry to the significant industry that it is.

I realize that we face a lot of challenges. I realize that it would be easy for us to be concerned and nervous about the future. We have aggressive and well-led competition around the world who have, over the course of many, many years and decades, been engaged and involved in export business, and so they have established trusted relationships at a variety of our markets. I realize that we are dealing with an oversupplied market.

EU trip and geographical indications

It's one of the reasons why (USDEC senior vice president Jaime Castaneda) and I traveled to Brussels to have a conversation with (EU Agriculture) Commissioner Hogan to find out what the plan was for the EU to deal with the oversupply that they've accumulated. What they indicated to us was a recognition that this was unlike 2009 when they had a surplus and were able to sell it at a profit. They now recognize finally that they're not likely to be able to do that. So, it is his plan based on what he indicated to us of the intent not to increase the surplus but over the next three to five years to reduce it in a way that does the least amount of harm to the overall industry.

Removing trade barriers

We urged caution about when and how to dispose of that surplus to make sure that we maintain an opportunity for market. We also understand that we face a continued effort by our Canadian friends with a Class 7, and that's one of the reasons why we have been very aggressive in our conversations with our own government about the necessity of Class 7 being eliminated during the NAFTA renegotiation.

I think we're finally beginning to penetrate with a message that this is not only unfair to our producers and processors, but it is also unfair to the Canadian consumer. The reality is they pay a lot more for their dairy products than we pay here in the U.S. because of the system that they have in Canada.

This has begun to be recognized. A recent editorial in the Globe and Mail, which is one of the largest newspapers in Canada, indicated that perhaps it is unfair to consumers; that it is important for the Canadian government not to use this system as a barrier to a renegotiated NAFTA agreement. Our hope is that with our continued advocacy and continually pointing out the unfairness of this system that we see fundamental change in it

We know that you're confronted with trade barriers in various markets, not the least of which in the cheese area is the issue of GIs (or geographical indications), as the Europeans are aggressive in this effort. It's one of the reasons why we traveled to Mexico several times in 2017 to make sure that we conveyed to our Mexican counterparts the importance of holding the line on GIs in their discussions with the EU. The reality is that it's not just about our industry. It's also about their industry. We've developed that trusting relationship in Mexico. We've developed the understanding that we're working collaboratively together to increase consumption, and because of that trusting relationship we needed to make sure they understood and that they conveyed to their government the importance of holding the line.

Keep an eye on Brexit

We did the same thing with a trip to the UK recently. With the Brexit discussions, we recognize there is the possibly at some point that the UK might be in a position to negotiate with the U.S. on a free trade agreement. The reality is that there's a great deal of confusion in the UK currently about Brexit; there's not a consensus within the existing government about how, in fact, to proceed. There are serious issues, not the least of which is the Irish border issue which is going to make it extremely difficult when they finalize negotiations with the EU about how this exit's going to work.

Our hope is, notwithstanding the difficulties, that there is a pathway for the UK to have the flexibility to be able to negotiate a free trade agreement with the U.S., and if it does our hope is that they are not constrained by their discussions and negotiations with the EU in terms of what they can do on the issue of GIs; what they can do on the issue of GMOs and other issues which have been so difficult for us in that EU market.

Also working with South America and Mexico

Jaime recently took a trip to South America where he has been working hard to establish a relationship with a number of South American and Latin American countries so that we're in a position, not just on this issue of GIs but on issues in international organizations and forums, to be able to have more than one vote in places like the WHO and OIE and Codex. We're working on developing alliances, developing memorandums of understanding with a number a nations so that we're in a position to be able to go into these international organizations, into these discussions with the force of multiple nations being on the same page as the United States. We know that there's uncertainty about trade negotiations and the trade environment. It's why we've been incredibly aggressive in making sure that our government understands what our position is on NAFTA renegotiation. I think it's very clear and very well-understood now. We want to preserve what's working in Mexico; we want to change what isn't working in Canada.

The NAFTA renegotiation is at a stage where those issues haven't been specifically discussed in detail. They're still dealing with the more global issues of origin, of dispute resolution, things that are more global in nature. Until those items are finalized, it's not likely that our issues will be specifically discussed, but I think it's very clear our government knows precisely the position that we're taking and they want them to take in these discussions.

Despite challenges, lots of reasons for optimism

There are a lot of reasons for angst, but in my notes here today I have the word "optimistic." I woke up this morning and I thought, "Well, maybe that's a little too much. Maybe I need to be just hopeful." So I'm going to be hopeful about the future. Why am I hopeful? I'm hopeful because I know the world needs some more product. The reality is that the global economy has improved. There are increasing and rising middle classes all over the world. There is increased urbanization, which has led for a demand for more protein and more product. There are higher birth rates in a number of developing countries, not the least of which is China. There's an increased focus on health and wellness in the more developed countries, all of which plays to the strength of dairy and plays to the strength of the U.S. dairy industry.

That's one of the reasons why I think the forecast that has been made to see an increase in demand of about 1.5 million metric tons by 2022 seems realistic, and that demand is somewhat pretty much divided half for cheese and whey and half for protein powders, protein concentrates and powders, with a small increase in butter and butterfat.

Our Next 5% goals are based on that calculation and the belief that we can control and that we can obtain a portion of that growth market. The goal is for us to look at 450,000 metric tons on the ingredients side... and about 200,000 metric tons in cheese and whey, playing again to the strengths of our producers: pizza cheese, Cheddar, cream cheese and processed cheese.

Sustainability message needs to be emphasized

Our approach, I think, is a good one. We have a solid message that whenever we travel, whenever we support your efforts at selling product, our message is fairly clear. We have a stable and safe supply of product. Here's what we haven't been saying enough of and that we are asking all of you to help us reinforce and amplify this message: not only is it stable, not only is it safe, but it is also sustainably produced. This issue of sustainability is a growing issue and a growing market issue, and it's one that I think we have a great story to tell. We need to tell it again and again and again.

We have the only ISO-certified sustainability program in our FARM program. Our Innovation Center, with (Dairy Management Inc. President Barb O'Brien's and CEO Tom Gallagher's) leadership, has created this opportunity for us to be able to go out and say, whether it's animal welfare or whether it's greenhouse gas emission reduction or whether it's sustainable farming practices, that the U.S. dairy producer is producing a product that meets international standards. And that, I think, is an important message opportunity for us that we shouldn't lose and that we should in fact emphasize.

We also are able to say that our producers have become and our processing has become so incredibly efficient that we use a lot less water, a lot less land, a lot less greenhouse gas emissions to be able to produce more and more product. These are messaging opportunities for us that we shouldn't miss out on. As you travel, as you market your various products, make sure that it's not just "stable and safe," it's also "sustainably produced."

Our approach is a market approach. We understand that we need to be focused on the demand. We need to be focused on the customer, and we need to be focused on what they need at the local level. We are listening and learning.

USDEC's mission: Help members hit home runs

As I travel around, sometimes I wonder if there's some confusion about USDEC does and what it doesn't do, and I think it's important for people to understand that we recognize that we don't sell product; you all do.... We work in a pre-competitive, focused way, but we do have a role to play. I was thinking about it this morning and it occurred to me that it's similar to my conversation that I had with Warren Buffet a few years ago. When I met Mr. Buffet, he asked me if I knew who the bat boy was for the 1927 Yankees. It was the first thing he asked me. I guess it was a test. I failed; I didn't know who it was. I was curious. I said, "Why is it that you're interested in knowing that?" He said, "Well, you know, I've been thinking about this. Back in 1927, they had Gehrig, they had Ruth, they had these great home run hitters, and the bat boy was absolutely instrumental to their success because he was the guy who handed the bat to the guy who hit the home run." He said, "That's kind of what I do." He said, "I hand the bat to people who hit home runs."

Interestingly enough, that bat boy was actually pretty significant because in 1927 he was traded to the Yankees. The Yankees traded for that bat boy because he had a history of whatever team he was on would win the World Series that year. So, you all should look at USDEC as sort of the bat boy, and we hand you the bat, and we expect obviously to create a circumstance in which you have the best chance of hitting a home run.

We assess the market, create awareness

We don't sell product. We work in a pre-competitive way.

Here's what we do. We assess the market. That's why it's important for us to make sure you know about the ongoing information that's provided in the cheese and ingredient dashboard. We expanded last year the cheese dashboard to include the ingredient dash board. Now, there are tens of thousands of data points for you all to use in assessing the market.

We recently came out with a report on global cheese snacking that talked about the trends that we're seeing in that important area. We assess the market. We create awareness. We are very present in trade shows around the world. We just recently had a successful Gulfood Show (in the Middle East) where we saw twice the number of presenters from U.S. Dairy as we had in the previous years. There are two shows in May-one in Japan, the IFIA show in Japan where we will be aggressively present (and) a hotel food show in Vietnam where we will be aggressively promoting U.S. Dairy.

We create awareness. We increase knowledge. We have a series of seminars and webinars, and we're focusing these seminars and webinars on culinary institutes. We're looking at the young chefs, the people coming up who are going to be making decisions about what to use and how to prepare food in restaurants around the world... We want them to know about the quality, the capacity, the functionality, the flexibility of the products that we have, and we want them to be able to be thinking about that first and foremost when they're developing new recipes. So, we have a series of seminars and webinars where we go in and call our institutes in Japan and Korea and other locations where we have these relationships and build awareness.

We pique interest. We have reverse trade shows. We bring people from other countries to the United States. This spring, we're going to bring some folks from China so they have a better understanding of how we produce cheese in this country. We cultivate and design formulations. We do research.

New partnership will create opportunities in China

I'm traveling to China with (USDEC Chief Operating Officer Matt McKnight) on Wednesday, following this meeting. We're going to go to a university where we're going to sign a memorandum of understanding to establish a U.S. dairy innovation center in China. The purpose of this is to place us in a position where we can have a place where research can be done, where we can make presentations, where we can have young people who are in the food science world better understand what we know and what do in the U.S. dairy industry and that we can learn more specifically what the desires, hopes, and aspirations are of the Chinese consumers, the Chinese food industry, the Chinese food service industry. We are doing the same thing in Singapore to be able to have an opportunity to showcase U.S. Dairy by evaluating design formulations.

VIDEO

Click arrow on left to watch clip and learn more about the partnership between USDEC and Jiangnan University.

Crisis preparedness vitally important

Once we see you make a deal for product, we're obviously in the business of servicing you with the export guide, technical assistance, and most importantly recently a lot of discussion about crisis management. I think it's important for people to understand it is very, very important that we understand precisely how to respond in a crisis, that we train to do so. In every government position I've had, we've had a number of table-top exercises in terms of trying to figure out what happens when the worst happens and how do you react to it because in this day and age if you don't react quickly enough, you can suffer. Just look at Facebook. (Facebook founder Mark) Zuckerberg was gone for several days, didn't respond to the growing concerns about Facebook, and the value of that company came down substantially. Now, they are trying to play catch up. Good luck in this 24/7 social media world that we live in.

It's important for us to be able to help you understand precisely what happens when there is a crisis in the industry or when, God forbid, there's a crisis-specific issue with something that you all have provided. So, we're going to continue to work on ensuring that you're well prepared in a crisis.

Making our voice heard

Part of our job obviously is to be heavily engaged in trade policy, and we've referred to a couple of the issues that we've been working on. But you need to know that we're also working to have better relations in countries with governments so that we're in a position to be able to have our voice, our concerns heard.

For example, recently we entered into an arrangement... with folks who have good connections, good understanding, good relationships with officials in China, working on a specific project on the GI issue as China does its evaluation of GIs. We want to make sure that we are getting our message conveyed specifically to the right people. We need to know who the right people are. When I went to China a month or so ago, we met with folks in the commerce ministry to be able to explain to them the importance of this issue as it relates, again, not just to our producers and our processors but also Chinese consumers and the Chinese industry.

More partnerships, promotion and people

All of this is going on at a time when we're instituting The Next 5% plan. The focus of The Next 5% plan has been very specific. We believe we need greater presence in these markets that you all are currently trying to sell product in. We need to do all the things that I've just outlined more forcefully in markets across the world. To do that, you need more presence. To do that, you need more people, you need more partnerships, and you need more promotion. We have begun hiring people at a fairly aggressive rate. We have added business development folks and key account managers in the Chinese market, in Japan, and in the Middle East and North Africa. These folks are working for us full-time. They are coming out of the industries that we have to address, that we have to connect to, that we have to create relationships in to be able to get the word out.

An important lesson in marketing

Recently, when we traveled to Gulfood, we had a chance to visit with our two new hires, and we took a trip to one of the grocery stores in Dubai. It was an interesting experience for me because I didn't anticipate the incredible display of cheese that they had at this grocery store, but it was disturbing to me because every country's cheese that was being sold in that grocery store you could tell what country it was from, except for one. You could tell the Irish cheese was from Ireland because there were shamrocks all over the package. You could tell what was from The Netherlands and Holland because there was a little Dutch girl on the package. Then, there was this sort of bland display of cheese, and I said to myself, "I wonder where this is from?" If you can read Arabic and really small print, you can find out that it was from the U.S.

So, what we are going to have to do is to learn more about marketing and be able to sell the U.S. brand in some of these markets more effectively. Our hope is that folks that we're hiring understand that, are able to work with suppliers to make sure that happens and then work with folks behind the counter at those grocery stores to create innovative and creative ways to display and encourage consumers to purchase.

We then went to a bakery. I assumed the bakery was going to be a place where I would see a lot of sugary treats. What I saw were a lot of treats made from cheese, so I learned a lot about that market just by those two visits because the people who hired were connected to those folks. We're going to continue to hire more people. We have an application scientist that we've hired, a specialist that we've hired in Southeast Asia, and we're going to continue to promote additional people who will help us better understand markets and better develop the relationships that will enable you all to sell more product.

We're also working with Costco, for example, to try to get them to encourage opportunities for us to go in-store in Japan, in Korea, in Taiwan to basically promote more opportunities for us to market and showcase U.S. Dairy, and we're doing more promotions.

In Mexico, for example, we had promotions in 160 stores. Last year, we promoted 165 different types of products. We had over 250,000 promotion days in those stores in an effort to try and get Mexican consumers to better understand to taste or try U.S. product, and we're going to continue to do a lot more of those types of promotions in markets across the world.

One of the reasons I'm optimistic is that we've seen a little uptick in exports. Our November numbers were the second best November ever. Our December numbers were the best December ever. Our January numbers were the second best numbers ever, so our hope is that with more presence, with more people, with more partnerships, with more promotion, we would have more sales-and with more sales, obviously, there'll be less angst.

Excited about the future

Our team is working hard, and we understand our role, and we're excited about the future. We're encouraged by what we're seeing, by the people that we're attracting to the U.S. dairy industry. We have a good reputation around the world that you all have helped to build. That reputation is enabling us to attract better and better people. We are demanding more from those entities that we've contracted with in the past. We have accountability measures. We have monthly reports now that require them to tell us how many visits they've made, how many people they've talked to, how many new contacts that they've made. All of this is designed to promote more sales to reach the goal of 450,000 metric tons of ingredients and 200,000 metric tons of cheese in addition to what we have sold in the past.

I'm excited about the future, and our team is going to continue to work hard. One last comment I would make is that I think it's important for us to be active in all of these markets. I understand that there are some markets that are more attractive today than others. Certainly, there's a lot of interest in Asia, and there should be. There's a lot of reason to be in Southeast Asia. There's a lot of reason to focus on China. There's a lot of reason to maintain our market opportunities in Japan and Korea. I think it is important for us to recognize that we're in this obviously for the long haul, and if you're in it for the long haul, you have to recognize where new growth opportunities will exist five years from now, 10 years from now, 15 years from now.

Don't overlook Middle East and North Africa

I realize it's hard to be concerned about that far in the future when there are so many challenges today, but our competitors are certainly seeing forward, are looking forward, are thinking forward. You're seeing more involvement in the Middle East and North Africa. Why? Because that's a place that likes cheese. Why do I know that? Because they consume 10 times as much cheese as currently being consumed in Southeast Asia even though it has half the population. It consumes as much cheese as Japan even though it has the same population, twice as much cheese rather even though it has the same population.

It is the gateway to a continent that over the next 10-15 years will see phenomenal population growth. In fact, one-half of all the increase in world population is going to occur in that continent. That's one of the reasons why some of our competitors are beginning to establish presence in the Middle East and North Africa. It's one of the reasons why as part of our foundation studies we included that. We're looking at whether or not there needs to be some specific location in Asia or the Middle East and North Africa, whether this is a good idea now for us to have an even larger presence in one of these markets, so we've contracted with folks to study this issue. Our expectation is we'll have some results on that sometime this summer.

Is it a good idea to even think about a large-scale presence? If so, does it make sense to have it in the Middle East and North Africa? Does it make sense to have it in Singapore? Does it make sense to have it in Hong Kong? Where does it make the most sense? We will report back to you when we get the findings from that specific report.

Wise investment will lead to increased activity

All of that activity (hiring additional people, more partnerships, more promotion, the foundation study) has been a result of the incredible confidence that the state and regional folks have placed in USDEC by encouraging and increasing our capacity with the nearly $4 million from the state and regionals and DMI that have allowed us to get to this point. We think we're investing these resources wisely, and we think that they will result in increased activity.

Mark O'Keefe is vice president of editorial services at the U.S. Dairy Export Council. 

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The U.S. Dairy Export Council fosters collaborative industry partnerships with processors, trading companies and others to enhance global demand for U.S. dairy products and ingredients. USDEC is primarily supported by Dairy Management Inc. through the dairy farmer checkoff. The password-protected article above is intended for USDEC member organizations only and should not be shared with anyone outside your organization.