• Comments aim to tweak, clarify RAPP guidelines

• Malaysia bans Israel-based shipping companies

• Prepping for 2024 WTO ministerial

• Building support for U.S. dairy priorities in House

• Chinese dairy imports fall for fourth straight month

• No Global Dairy eBrief next week

• Market Summary: GDT rises in final auction of 2023

• Japanese SMP tender announced for Jan. 18

• Bridge closures at U.S.-Mexico border 

• Panama and Suez Canal updates

• Nestlé to supplement Fonterra dairy farmers for sustainability actions

• Company news: Agropur, Mengniu, Yum China, FrieslandCampina 

 

USDEC urges expansion, flexibility in comments on USDA’s Regional Ag Promotion Program
USDEC submitted comments this week to USDA’s Commodity Credit Corporation (CCC) regarding the Regional Agricultural Promotion Program (RAPP) (see Global Dairy eBrief, 10/27/23 and 12/1/23). The comments commend the Biden Administration for launching RAPP and provide input on how the export program can be adjusted to help the U.S. dairy industry maximize its effectiveness.

The $1.3-billion program was established this fall to support eligible projects aimed at helping U.S. ag suppliers break into new markets and increase share in growth markets. The first tranche of RAPP funding is $300 million.

While recognizing that the rules for the first tranche of RAPP funding have already been established, the comments urge four beneficial changes as those rules are refined. They ask USDA to:

• Reconsider the tranche 1 restriction on using RAPP funds for efforts aimed at lowering tariffs.
• Make changes to future tranches to allow funds to be used on activities to expand sales to market that are currently omitted from the program, including China, Mexico and Canada.
• Allow participation during Tranche 1 by individuals from excluded markets (like Mexico, Canada and China) in regional events—provided that RAPP funds are not used to support their participation.
• Be flexible in implementing rules for Tranche 1 as well as future tranches as cooperators work to navigate the new process. USDEC will be sharing with FAS staff an extensive list of specific questions that have already arisen.

“As USDA evaluates what is compliant with RAPP regulations and how to craft activities focused on the identified markets, we urge USDA to work closely with cooperators to support strong functioning of this important new program,” the comments conclude.

USDEC is currently developing RAPP funding requests across the organization that are robust, timely and address areas earmarked by USDA. The closing date for submitting applications is Feb. 2, 2024.

Israel-based shipping companies prohibited from docking at Malaysian ports
The Malaysian government announced a ban of all Israel-affiliated shipping vessels effective immediately. Israel-based shipping company ZIM was specifically mentioned in their statement. Ships displaying the Israeli flag will not be allowed to dock and vessels currently enroute to Israel will be banned from loading at any Malaysian ports. This includes transshipments.

Please note that Malaysia and Indonesia share similar sentiments on the Israel-Hamas conflict and it is expected that Indonesia may adopt the same position. Exporters should work with their importers closely to prevent customs issues.

USDEC is closely monitoring this issue, and we will provide further information and updates once they are obtained. In the meantime, if you have any questions, please contact Aimee Pinkerton at apinkerton@usdec.org.

USDEC meets with USTR in advance of WTO ministerial
On Monday, USDEC’s Tony Rice attended a U.S. Agricultural Coalition for WTO Reform meeting with USTR Chief Agriculture Negotiator Doug McKalip to discuss a coalition letter sent to USTR and USDA in November (see Global Dairy eBrief, 11/10/23) and to hear about the administration’s plans leading up to the WTO Ministerial Conference (MC13) in Abu Dhabi in February. The letter, which USDEC and NMPF helped shape, asked the U.S. government to pursue achievable, short-term WTO goals while laying the groundwork for a more ambitious, long-term effort to reform agricultural trading systems.

At this week’s meeting, the coalition reiterated the need for U.S. leadership in the WTO negotiations, particularly as members deliberate WTO dispute settlement reform and issues related to food security and sustainability. The coalition also highlighted the need for the U.S. government to object to any proposals that would weaken WTO disciplines and distort trade, such as easing rules on public stockholding, special safeguard mechanisms, and fixed external reference prices.

Morris builds support for U.S. dairy trade priorities with House representatives
USDEC’s Shawna Morris attended a meeting earlier this month hosted by the New Democrat Coalition (New Dems) and Chamber of Commerce to discuss key trade priorities and ongoing engagement with USTR. As a member of the Chamber of Commerce’s International Policy Committee, USDEC joined about a dozen organizations to meet with the Chair of the New Dems Trade Task Force, Rep. Lizzie Fletcher (D-TX), and Vice Chairs, Reps. Don Beyer (D-VA) and Jimmy Panetta (D-CA). The New Dems are a key ally in Congress on U.S. dairy trade priorities.

The New Democrats Trade Task Force sent a letter to President Biden in November laying out its priorities for a proactive trade agenda, which includes the pursuit of new trade agreements and reduction of tariff and non-tariff barriers that specifically hurt agriculture exports.

Representing U.S. dairy, Morris stressed the urgency of addressing the competitive gap that the American dairy industry is facing in key markets and relayed the need to leverage existing tools effectively to deal with the increase in non-tariff barriers.

Chinese dairy imports fall for fourth straight month
Record November cheese and lactose imports and a rebound in lower protein whey purchasing failed to offset another month of slow milk powder and butter demand in China. Year-over-year (YOY) Chinese dairy imports (major products, not including fluid) fell 2% in November, marking the fourth straight monthly shortfall.

While overall import volume increased seasonally from October, it was the smallest November since 2018. Increased domestic Chinese dairy production (official Chinese government data shows a 7.2% YOY rise in domestic milk output through the first three quarters of the year), ample inventories and slower-than-expected demand growth continue to depress import volumes.

WMP remains the biggest reason for the decline, with YOY November volume dropping 36% (-12,373 MT) and China’s main WMP supplier, New Zealand, taking the biggest hit.

SMP imports, which posted monthly gains in seven of 11 months this year, fell 6.6% (-1,668 MT). Furthermore, Chinese purchases of U.S. SMP in November slipped 66% (-1,591 MT) as the country turned to New Zealand and Belarus (an atypical SMP supplier to China). Chinese SMP imports from Belarus soared 82% (+3,083 MT).

On the plus side
However, the news wasn’t all bad. China set records in cheese and lactose imports—the two product categories that have seen the most consistent gains this year—and lower protein whey (0404.10) rebounded after four consecutive monthly declines.

YOY Chinese cheese imports grew 66% (+6,563 MT). New Zealand and, to a lesser extent, the United States were the main beneficiaries. Chinese cheese imports from New Zealand grew 88% (+4,355 MT) while imports from the U.S. more than tripled (+1,290 MT) off a lower 2022 volume.

Year to date (YTD), Chinese cheese imports were up 22% (+29,015 MT) and have a chance to surpass the annual record of 176,152 MT established in 2021.

Lactose imports rose 68% (+6,815 MT) and were up 40% YTD (+47,494 MT).

YOY lower protein whey imports increased for the first time since June. Volume gained 4% (+2,264 MT). But as in SMP, we saw a potentially concerning shift in supply source. While the U.S. remains the largest whey supplier to China with a 43% market share in November, smaller and non-traditional suppliers like Belarus, Poland and Turkey saw the biggest monthly gains (collectively +6,606 MT) while YOY U.S. volume slipped 3% (-770 MT).

In addition, WPC80+ dropped 29% (-1,010 MT) in November after four straight YOY gains.

Looking ahead, there are few signs of a major Chinese dairy import demand rebound. November New Zealand export data released this week shows increased dairy shipments to China vs. 2022—a gain of 10% (+8,851 MT). But apart from 2022, it was the smallest November volume since 2017.

Editor’s Note: No Global Dairy eBrief next week
Due to the holidays, there will be no Global Dairy eBrief next week. The next issue will run Jan. 5, 2024. If there are important developments next week, we will inform members via email. Happy Holidays!

GDT finishes the year on an up note
The Global Dairy Trade (GDT) Price Index rose 2.3% at the Dec. 19 auction—the final event of the year. That’s the second increase in a row and the sixth out of the last eight auctions, extending a solid pricing rebound that began in September.

Despite the bull run, price declines leading into September had brought many products to multi-year lows, and despite the increases, they remain a good buy compared to much of 2021 and 2022, supporting demand.

Product by product, the increases largely aligned with NZX SGX futures activity heading into the event, except for SMP, which fell 1.3% to US$2,620/MT and has declined in two of the last three auctions.

WMP gained 2.9% to US$3,207/MT, its highest price since May. WMP prices are up 26% since bottoming out at the Aug. 15 auction. This week’s increase marked the seventh rise in the past eight events.

Cheddar recorded its second major upswing in a row since prices hit a three-year low on Nov. 21 (when they plummeted 10%). The average winning price rose 6.9% this week to US$4,265/MT, the highest since July 2023.

The biggest rise came in butter, which jumped nearly 10% to US$5,458/MT, the highest price in more than a year. The increase was aided by Fonterra Co-operative Group’s 10% reduction in forecast GDT butter volume over the next 12 months. Butter volume at this week’s auction was nearly half that of the previous auction and down more than 50% from the same event the previous year.

Besides SMP, the only other decline came in mozzarella (-1.1% to US$3,690/MT), which debuted on the GDT platform at the previous auction on Dec. 5.

Overall GDT demand appears relatively healthy, with no major signs of significant weakening in the near future. North Asia reclaimed the top spot as the No. 1 buyer, while the Middle East continues to post strong demand for milk powders and cheese. The Middle East increased SMP, WMP and cheddar purchasing compared to the previous auction and the same auction the previous year.

ALIC schedules January SMP tender
Japan’s Agriculture and Livestock Industries Corp. (ALIC) announced an SBS tender for 164 MT of SMP on Jan. 18, 2024. The tender is for fiscal 2023. Tender plans after January will be announced by the Ministry of Agriculture, Forestry and Fisheries after reviewing the market demands and supply situation. For more information, contact USDEC’s Japan office at usdecjapan@marketmakers.co.jp or (011) 81-3-3221-6410.

 

U.S.-Mexico bridge closures at border delay rail transit
U.S. boarder officials closed rail bridges at El Paso and Eagle Pass, Texas, last Sunday, citing an increase in immigrants entering the U.S. illegally via freight train. The move has caused major snarls in Union Pacific and BNSF Railway traffic, with thousands of railcars stalled at the border (just days after the closure) and cascading impact throughout the country. BNSF was staging trains as far away as Minnesota to lessen the border backup.

Nearly 50 U.S. agricultural associations, including USDEC and NMPF, cosigned a letter from the Ag Transportation Working Group to Department of Homeland Security Secretary Alejandro Mayorkas asking for an immediate reopening of the border crossings. The letter emphasizes the negative supply chain effects of the closures as well as the threat to Mexico’s food security.

Union Pacific and BNSF also urged an immediate reopening of both bridges. Both companies cited their security measures for illegal riders and claimed that most migrants who board trains get off prior to the bridges to cross the border on foot.

About 90% of U.S. dairy exports traverse the U.S.-Mexico border by truck, but USDEC is talking with members, Mexican buyers, freight forwarders and officials in both governments to determine the full impact of the bridge closures on U.S. dairy shipments. Some U.S. dairy shipments are likely impacted by the situation. (USDEC staff; Reuters, 12/17/23; Railway Age, 12/18/23)

Efforts under way to stave off shipping disruptions in Panama and Suez canals
As historic drought continues to impede shipping traffic through the Panama Canal, officials have taken action to ease fears of a congestion crisis early next year. After initially announcing it would cut the number of daily transits allowed through the waterway from an already reduced 24 to 18 by February, the Panama Canal Authority (PCA) said it will continue to allow 24 transit slots per day next year. To enable more daily transits, the PCA will re-use water between lock chambers and allow some ships to transit two at a time in the same chamber.

The Panama Canal is not the only sea lane facing challenges. Other efforts to curb shipping disruptions are under way in the Red Sea, after several shipping lines and oil producers began diverting their tankers from traveling through the Suez Canal due to a series of missile and drone attacks on cargo ships by the Houthis, a Yemeni rebel group. The attacks have prompted U.S. officials to establish a multi-national naval task force to provide security to ships passing through the canal. The endeavor, called Operation Prosperity Guardian, will include the U.K., Bahrain, France, Norway and other countries.

Notwithstanding joint security action, the situation has already begun to impact some dairy suppliers. Danone said most of its shipments had been diverted, increasing transit times. Should the situation continue beyond two to three months, the group said it would activate mitigation plans, including using alternate routes via sea or road wherever possible. (The Loadstar, 12/18/23; Reuters 12/19/23, 12/18/23; Wall Street Journal, 12/18/23)

 

Nestlé to support Fonterra farmers’ sustainability actions with extra payment
As part of their year-old partnership to help reduce on-farm emissions, Nestlé and New Zealand-based dairy cooperative Fonterra announced that the Swiss food giant will fund additional payments to Fonterra farmers that meet certain sustainability requirements. Under the new agreement, Nestlé will pay farmers for achieving one of three levels of Fonterra’s The Co-operative Difference framework in the 2023/24 season. The framework lays out key farming and business practices related to quality, safety and sustainability, and rewards farmers that meet criteria across five focus areas: environment, animals, people and community, milk, and co-op and prosperity.

Depending on the number of farmers achieving these levels, Fonterra estimates the additional payment will be about 1-2 New Zealand cents per KgMS. Nestlé New Zealand CEO Jennifer Chappell noted farmers’ importance to the company’s success: “Nestlé has sourced dairy from New Zealand for well over a hundred years and we will continue supporting farmers, alongside our partners, to develop new economic opportunities and reduce their greenhouse gas emissions,” she said. (Company reports)

Mergers, acquisitions and joint ventures
Kent Precision Foods Group, a division of Iowa-based Kent Corp., acquired Australia’s Frosty Boy Global, a maker of powder-based products, including desserts, beverages, savory ingredients, bakery products and wellness items. The purchase significantly expands Kent’s global footprint. (Company reports)

Company news briefs
Agropur named Maxime Devourdy president of Ingredients and Corporate Strategy. Devourdy most recently served Agropur as vice president, Corporate Development and Sustainable Growth Strategy. He replaces Dan LaMarche who is retiring after more than three decades with the company. … China’s Mengniu Dairy reportedly signed a strategic cooperation contract with restaurant group Yum China. The two companies plan to work together on resource sharing, new product innovation, supply chain, and environmental, social and corporate governance (ESG) considerations. From its five business units—ambient products, chilled products, fresh milk, desserts and Western cuisine—Mengniu plans to provide dairy solutions to Yum. … Separately, Yum celebrated the opening of its 10,000^th KFC unit in China. The company added more than 1,150 in the first three quarters of 2023. … Dutch dairy co-op FrieslandCampina is cutting more than 1,800 jobs over the next two years as part of its “Expedition 2030” effort to slash by €400 million-€500 million per year by 2026 onward. The job cuts will come from “almost all parts of the organization.” (USDEC China office; Company reports; Dairy Processing, 12/15/23)

• In radio interview, USDEC chair Alex Peterson talks about sustainability
• USDEC honors NMPF President and CEO Jim Mulhern  
• Castaneda and Morris meet with UK government and food industry officials  
• Peterson and Nyman elected USDEC chair and vice chair, respectively
• Video shows how Idaho dairy farm is working to reduce methane emissions