Global Dairy eBrief Exclusives

Three Ways U.S. Dairy Exporters Can Win the Long Game in China

by Tom Vilsack August 29, 2018

Even with Chinese tariffs hurting some USDEC members in the short term, much can be done to build long-term relationships, differentiate our products and emphasize sustainability.

No doubt you have been following the news that the United States and Mexico have agreed to key portions of a new trade agreement that could soon lift tariffs on U.S. cheese and other dairy products. While these developments about our No. 1 export market are encouraging, I found myself on the opposite side of the world Saturday speaking at the annual China Dairy Industry Association meeting, realizing there are no signs of a similar breakthrough that will end retaliatory tariffs on our U.S. products and ingredients.

The fact remains that we do not know how long the current trade tensions between our countries will last. What we do know is that by maintaining an open dialogue on issues that are of mutual interest to both of our industries we will all benefit when trading conditions do return to normal.

USDEC provided strong representation for our industry at the CDIA meeting, the country’s annual gathering of large and medium-sized dairy processing enterprises. Our team included Chang Su from our China office and two subject-matter experts from our headquarters in Arlington, Virginia. We gave four separate presentations focusing on the U.S. commitment to the market, our evolving cheese and dairy ingredient portfolio and how these fit with China's food and beverage needs.

USDEC President and CEO Tom Vilsack delivered an address to the China Dairy Industry Association on Saturday, emphasizing U.S. commitment.

This raises a practical question for USDEC members. With tariffs effectively shutting some of you out of the Chinese market for the short term, what are the winning issues and strategies to succeed long-term in China?

Based in part on my recent conversations and observations in China, I have three recommendations:

1. Build long-term relationships

The trade ties that have developed between the U.S. and Chinese dairy industries run deep and are highly beneficial to suppliers and customers on both sides of the Pacific Ocean. This was a golden opportunity to demonstrate our continued commitment to the Chinese dairy industry and to our Chinese customers.

In my Saturday address, I said the U.S. dairy industry welcomes the opportunity to present our insights into international dairy developments, to explain how the U.S. industry is improving our supply capabilities in a whole host of dairy ingredient products for the benefit of Chinese customers and to talk about cutting-edge technology adoptions that our industry has made to further improve the quality of milk powder products coming from the U.S.

Sharing our knowledge with our Chinese customers and potential customers increases trust. Ross Christieson, USDEC business unit director for North Asia, gave a presentation explaining how a strong program of innovation can help the Chinese processed cheese industry develop a strong customer base which will bring nutritional benefits to Chinese children for many years to come. Annie Bienvenue, USDEC vice president of technical services, gave a presentation in Xi'an sharing her considerable knowledge about test methods for enumeration of heat-resistant spores.

To win in China, relationships must be ongoing and long-term. In April, USDEC kicked off what we plan to be a long-term partnership with Jiangnan University that promotes dairy consumption and innovation. Individual suppliers are also creating partnerships.

VIDEO BELOW: USDEC seals long-term partnership with Jiangnan University.

To play video, click arrow, lower left.

For example, Nestlé made a public offer in a presentation to any dairy farmer in China to use the Dairy Farming Institute that Nestlé has built in China. Since opening in 2014, the Nestlé Institute has trained hundreds of farmers on best practices for dairy production in China, a fact not lost on Chinese media and government officials.

2. Differentiate with high-value products

For higher-value products that are not as easily replaced, some Chinese customers are willing to absorb the tariffs for the near future, hoping that this dispute gets resolved quickly. This illustrates why U.S. suppliers must continue to develop, innovate and differentiate with higher-value products.

USDEC’s “Next 5%” initiative encourages more higher-specification products to help increase the volume of U.S. dairy exports to 20 percent of U.S. milk solids production, while concurrently increasing value.

There was a heavy emphasis on infant formula by most of the 23 welcoming speakers at the conference. Several companies outlined new improvements to their formulas based on research showing benefits to infants born prematurely.

We saw opportunities for our suppliers to innovate and differentiate. For example, there is a growing market for active lifestyle products. That presents an opening to replace soybeans in some nutrient beverages and smaller nutrition bars.

3. Emphasize sustainability

Providing China’s growing population of 1.4 billion people with enough dairy products and ingredients in a sustainable way is a challenge our industry should transparently face. With our abundant supply of milk, U.S. dairy exporters are uniquely equipped to meet growing Chinese demand for a wide range of nutritious, high-quality dairy products that are safely and sustainably produced utilizing risk management tools that protect everyone.

This is a win-win partnership, built to last. Emphasizing sustainability is yet another way to differentiate us from our competitors.

Some of those competitors are telling their own sustainability story. A FrieslandCampina representative spent most of his CDIA presentation talking about the commitment of its producers to sustainable production. This includes free-grazing efforts (at least 127 days on grass for six hours a day), emission reduction efforts, animal welfare, traceability (within 4 hours being able to trace supply to producer), and general working conditions.

To counteract messages like this, we must communicate our sustainability story more convincingly. USDEC staff will double down to work with members to tell that story internationally.

Much in common, with strong commitment

The U.S. and Chinese dairy industries have much in common, including a long and cooperative relationship that has mutually benefited companies and communities on opposite sides of the world.

Secretary Vilsack, center, led a team to China to promote trade cooperation. He is flanked by U.S.-based USDEC staff members Jaime Castaneda, Annie Bienvenue and Ross Christieson, as well as China representatives Daniel Chan, Chang Su, Annie Ma, Missha Hu and Virginia Chang.

In my speech, I pointed out that the China Dairy Industry Association and the U.S. Dairy Export Council were formed the same year. Both of our organizations have been at the forefront of developing dairy industries in our respective countries. This will continue.

Our overarching message in China last week was that no matter what happens between governments, the U.S. dairy industry remains committed to this market for years to come.

Tom Vilsack is president and CEO of the U.S. Dairy Export Council and a former U.S. Agriculture Secretary. Global Dairy eBrief Exclusives are confidential, password-protected articles for USDEC members only.

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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.