Mexico became the U.S.’s first $1 billion dairy export market when it passed that milestone in 2011. Last year, without a lot of fanfare, we achieved our second $1 billion market: Southeast Asia.
The muted response might stem from the fact that when we talk about Southeast Asia, we are talking about a bloc of countries — primarily Indonesia, Malaysia, Philippines, Singapore, Thailand and Vietnam — rather than a single nation. But, that does not make the achievement any less noteworthy, particularly when you break down the trajectory of U.S. growth there, the shape of current U.S. business and the potential for further expansion.
Those six countries, with a combined population of about 566 million people, purchased nearly $1.3 billion in U.S. dairy goods last year, a gain of 39 percent over 2012 and more than 14 times the value shipped merely a decade earlier. U.S. share of Southeast Asian dairy imports rose from 6 percent in 2003 to nearly 25 percent last year.
Four of the countries rank as top 10 U.S. dairy destinations by value individually: the Philippines at No. 4, Indonesia No. 5, Vietnam No. 8 and Malaysia No. 9. Southeast Asia is our biggest buyer of skim milk powder (SMP), purchasing 433 million pounds in 2013, 35 percent of all U.S. SMP exports. It is our No. 1 market for lactose and No. 2 for whey protein, accounting for more than one-fifth of all U.S. shipments of each.
The dairy demand growth scenario is textbook: economic expansion, population gains, infrastructure upgrades, urbanization, and retail and foodservice modernization combined to drive a shift to higher protein diets, including milk products. Domestic milk production and dairy processing capacity fall far short of needs.
The other reason Southeast Asia gets scant attention is that these are primarily ingredient markets. The region is home to multi-billion-dollar industries in recombined milk products, infant formula/growing-up milks, baked goods and confectionery products — significant users of milk powder, whey, lactose and milk protein concentrate. Dairy ingredients to serve these and other industries comprised nearly 93 percent of U.S. dairy exports to Southeast Asia in 2013.
There is more-than-sufficient evidence to suggest further growth awaits.
• U.S. suppliers are pursuing the business more aggressively than ever—making the effort needed to be a regional player, including getting their products Halal certified (a prerequisite in most of Southeast Asia) and tightening ingredient specifications to meet the stringent needs of Southeast Asian food and beverage manufacturers.
• The Organization for Economic Cooperation and Development projects strong 5.4 percent annual economic growth in the region through 2018. Despite recent social unrest in Thailand, regional politics are generally stable, laying a strong economic foundation.
• Domestic and foreign food and beverage firms (dairy ingredient buyers) continue to invest in capacity, oftentimes building hubs in one Southeast Asian nation to serve the broader geography.
* A U.S. free trade agreement with Singapore, helped lift U.S. dairy exports to the nation more than ten-fold since it went into effect in 2004. Now, the United States is getting closer to finalizing free trade deals with Malaysia and Vietnam through the Trans-Pacific Partnership.
• We have just begun to tap cheese potential. Foodservice development varies by country but on the whole is fledgling, particularly in Vietnam, which just opened its first McDonald’s this year. In addition, Indonesia and Vietnam are budding producers of processed cheese, requiring rising imports of natural cheese ingredients.
The signs are positive and this year certainly started off on the right foot. First quarter U.S. dairy export value to Southeast Asia rose 50 percent to $363 million compared to the first quarter of 2013. The race is on to $2 billion.
Source: Agriview