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Dykes Opens Dairy Forum with Blueprint for Building Demand, Opening Markets

Jan 23, 2018

By Michael Dykes, D.V.M., President and CEO, IDFA
Remarks as prepared for delivery at Dairy Forum, Jan. 22, 2018

Welcome to Dairy Forum 2018. I’m pleased to see so many of you in this spectacular venue in Palm Desert, California. It’s only fitting that we gather in the state that leads the country in milk production, dairy product manufacturing and dairy exports as we ponder the lofty goal of shaping the future of dairy. I’d also like to extend a virtual welcome to those of you watching through Broadcast Live from 37 countries around the world. I hope some of you will be able to join us in person in the years to come.

I attended my first Dairy Forum last year after being at the helm of IDFA for a little more than three months. At that time, I introduced myself and my plan of action for 2017. With 12 more months under my belt, I’m pleased to say I have many positive stories and successes to share, along with a more informed view of what the future of dairy could be. 

When I joined IDFA, my efforts focused initially on the IDFA team, because I believe the association’s success starts with us having the “A” team in place to deliver results for members and the industry. I’m pleased to say that today we have that team in place – you’ll see many familiar faces and a few new ones here today – and we expect to add more depth to our bench in the coming year.

I then made it a priority to visit and talk with as many IDFA members and dairy industry leaders as I could fit into my schedule. I’ve had conversations with executives from 58 member dairy companies and co-ops, suppliers and retailers, as well as dairy farmers, academics, dairy economists and leaders of the major U.S. dairy organizations. For a global perspective, IDFA senior staff members and I traveled last fall to Belfast for the World Dairy Summit to share our view of U.S. dairy’s opportunities and challenges and to hear from our international counterparts.

After all these meetings, I still firmly believe in the statement I made last year during Dairy Forum: We have an overwhelming majority of interests in common – at least 90 percent, which is an incredibly positive number. Focusing and working on these interests together, whenever possible, is still the most effective way to enhance growth and prosperity in the dairy industry.

In fact, our efforts this past year on the farm bill provide possibly the best example of the success that can come from shedding old assumptions and protective stances to make way for collaborative and effective solutions.  

We all know that, every five years, the debate over the next farm bill carries with it some contentious issues. How will Congress decide which programs to keep, which to let go and which new ones to add? Which commodity or sector will get funding and which will be left out?

One notable and welcome change for us this year is the lack of contention between the producer and processor segments of our dairy industry. I’m pleased to report that IDFA and National Milk worked side-by-side for several months last year to provide a united request to the House and Senate agriculture committees for improved policies in the 2018 farm bill.

In fact, members of Congress have called our collaborative efforts historic, refreshing and, best of all, exceedingly helpful to their farm bill efforts. Hopefully, our collaborative efforts will help to smooth passage of a farm bill that will improve the Margin Protection Program for dairy farmers and enhance risk management options for processors, while improving nutrition and building domestic demand through the Supplemental Nutrition Assistance Program, or SNAP.

Although the farm bill is a major policy undertaking, that’s just one of the many issues we’ve tackled by focusing on the big picture – that is, the growth and future of dairy.  

In the past year, we’ve witnessed a new willingness to allow more milk varieties in schools, permit ultrafiltered milk to be used in all standardized cheeses, give companies more time to implement changes to the Nutrition Facts label and align the Pasteurized Milk Ordinance for Grade “A” dairy products with regulatory requirements in the Food Safety Modernization Act. And those are only the highlights of the positive results we’ve gained for our members and the industry by working independently and alongside our colleagues at NMPF, the U.S. Dairy Export Council and a host of other organizations through targeted coalitions.

We’ve also made significant progress in protecting common food names for cheeses in global markets. After we submitted joint comments with NMPF and USDEC to the Office of the U.S. Trade Representative, USTR issued a report in April that outlined the administration’s commitment to curtailing the damaging abuses of geographical indications (GIs), particularly by the European Union.

We also wrote to President Trump, urging the United States to impress on Japan that its trade agreement with the EU must not include common food names in the list of GIs. In December, we welcomed the Japanese government's decision to allow the continued use of "parmesan," "romano" and other common food terms. 

In addition, IDFA led a successful effort to encourage the U.S. State Department to remain in the World Intellectual Property Organization (WIPO), the organization that protects and enforces American intellectual property rights abroad. For dairy, U.S. representation in WIPO plays a critical role in helping to prevent other countries from using GIs to restrict the use of common cheese names.

Thanks to our persistent, collaborative efforts on trade, the administration has reacted positively to our calls for crafting reliable and modern trade agreements, including the North American Free Trade Agreement. In fact, with NAFTA, U.S. negotiators have included in their talks just about everything we could have asked for.

Perhaps the most visible impact of our efforts came last spring when President Trump took a vocal stand in support of U.S. dairy. He unequivocally told Canada that our industry was being shortchanged and the Canadian approach would not stand. Since then, the administration has negotiated a hard line on dairy during the recent renegotiation rounds for NAFTA. U.S. officials have pledged to do the same when pursuing bilateral pacts.

We’ve met several times with Robert Lighthizer, the U.S. Trade Representative, to make sure he knows the value for U.S. dairy and the economy of bilateral agreements with Japan, Vietnam, Indonesia and Malaysia, to name a few. China is an important market, too. We can’t stand still, because the European Union and other global competitors are charging ahead, more than happy to take our place with these countries. And believe me, once these countries begin buying from our competitors, it will be very hard, if not impossible, to re-enter those markets.

We must continue to advocate for our industry and make sure our messages break through with clarity.

To emphasize the importance of dairy exports and the benefits of a healthy dairy industry to the U.S. economy, last year IDFA commissioned Dunham and Associates, an economic research firm, to quantify the economic impact of the dairy products industry. These numbers are garnering rave reviews and respect from everyone we share them with, including dairy farmers and dairy products executives, members of Congress and their legislative staffs, governors and state representatives, members of the media, federal regulators and even officials in the Trump Administration and the White House. With the administration so heavily focused on creating and keeping jobs in America, we needed to hammer home how much we contribute to those efforts.

What does our data show? That dairy foods companies employ nearly one million skilled individuals. We generate more than $39 billion in direct wages and have an overall economic impact of more than $200 billion. And those numbers couldn’t happen without the abundant milk supply provided by our dairy farmer partners throughout the country and the reliable and innovative suppliers who serve our industry so well.

IDFA branded this economic tool “Dairy Delivers,” because clearly the industry does just that with production, employment and sales numbers like these. We made the tool available to everyone in the industry and have received compliments and positive feedback from every corner. In fact, one of the first calls I received about the tool was from Paul Rovey, chairman of Dairy Management Inc., who wanted to say how useful the tool is for him and the industry. 

I invite each of you to check out the Dairy Delivers tool on our website, idfa.org, so you can see and share the economic impact in your states as well as in your congressional districts. Whether we view the national picture or a close-up look at local impact, it’s evident that dairy plays a vital role in the U.S. economy.

Knowing that these numbers provide a powerful punch to our efforts, we didn’t stop with dairy. In November, IDFA and 21 other food industry trade associations launched a new website called FeedingtheEconomy.com that’s also powered by data from Dunham and Associates. This data demonstrates that food and agriculture is the largest manufacturing sector in the nation, with a major impact on the health of the U.S. economy.

We’re sharing this powerhouse data with policymakers in Washington and statehouses across the country, and we know people are listening, especially within the administration. I believe our future successes – whether on domestic issues or global trade opportunities – will rely on how consistently we deliver the message about our economic impact and efforts to our communities, our customers, our consumers and our country’s leaders.

So, what does the future hold for dairy? And what can we, as industry leaders, do today to shape the future we want for tomorrow? I think it’s safe to say that what got us here today won’t get us there tomorrow.

When preparing my remarks for today, I reflected on all the conversations I’ve had in the past year and outlined the top opportunities for dairy in the years ahead. Then I asked several dairy leaders for their opinions to see how they squared with mine. It’s no surprise that their answers were mostly universal, which reinforces my belief that we share many common interests.

Although the list is a bit longer, we really only have time to discuss the top three: consumers, innovation and changing markets.  Let’s take a closer look at each one.  

Consumers and their perception of dairy topped the list of opportunities as well as challenges.

Since the 1970s, growing consumer sophistication has spawned increasingly complex motivations for consuming beverages, as this chart by the Beverage Marketing Corporation shows. And these expanding motivations have caused companies to offer a steadily expanding assortment of beverages and beverage categories. Where we had three basic categories – milk and juice, soft drinks, and coffee and alcohol – in the 1970s, today there are 15 separate categories of beverages.

BMC_Slide

More choice seems to be a clear demand – and our diverse industry is well positioned to meet it. As an industry, we need to do more listening, responding, educating, engaging, satisfying, understanding, persuading and serving consumers, because everything hinges on their perception and purchases. Serving consumers well means not only listening to their requests but understanding their behavior, buying patterns, conversation on social media and other venues to truly learn what they want.

We must also consider the messages we share. Consumers still care about how products taste or what they cost, but they are demanding more! They want to know the list of ingredients, and it better be a short one. They want products that are produced responsibly – that means with equal respect for the farm animals, the employees and the environment. They also want to connect with the values and beliefs of the brand they’re purchasing, and they want to be engaged, which takes us back to where we started – listening. 

It’s clear we can’t count on the Dietary Guidelines for Americans and the recommended three servings a day to deliver the message for us today, especially with millennials. They’re looking in new and different places for their information such as family and friends, not government authorities, to inform their buying habits. Maintaining consumer trust will be important in the years ahead – trust that the products are safe; trust that they’re being responsibly produced; and trust that company values reflect their own values.

So how can we let consumers know we hear them? One way is for the industry to participate in the amplification efforts of Undeniably Dairy, the multiyear awareness campaign by the Innovation Center. Another is to support the marketing efforts of MilkPEP. Its five-year partnership with the U.S. Olympic Team and ongoing BUILT WITH CHOCOLATE MILK campaign are helping to kick-start consumption by encouraging consumers to reconsider drinking milk for a healthy life.  

Enhanced communication certainly helps, but providing new and innovative products and packaging that meet them where they live is another strong answer.

And that leads perfectly to the second most important opportunity – innovation.

We need to stay on top of emerging trends and find ways we can gain a market advantage. We are in a new era where a gallon of milk is much more than a beverage. It represents a whole series of valuable ingredients and marketable fractions that will continue to emerge and lead to expanded market opportunities. We will need the manufacturing capabilities and global regulatory oversight to ensure consumer safety and confidence in these new product opportunities.

For the past few years, for example, IDFA worked with member companies and industry colleagues to develop and promote a new standard for dairy permeate powder that was adopted last summer by the Codex Alimentarius Commission. Codex standards are used by governments around the world as foundations for national legislation and regulation, so this adoption will help ensure greater global market access for U.S. exporters of this dairy ingredient. Ingredients travel well, so we’ll surely see more and more ingredients derived from milk enter the marketplace, either as standalone products or as ingredients in new products.

With our nation’s abundant supply of milk, we are well positioned to build on dairy’s rich nutritional profile and develop new products in a variety of portions and packages to meet changing family needs. I encourage you to challenge your product development teams to think about products as solutions for a healthy lifestyle and not just filling a nutritional need. Grab-and-go packaging, for example, is becoming essential as more meals are now eaten in the car than at the kitchen table.

Our product offerings are competing against an ever-expanding mix of new products in innovative packaging that are meeting these lifestyle changes and preferences and providing much more than daily nutrition.

For food and beverage products in general, protein continues to be in strong demand, especially with many people moving away from empty calories and the associated challenges of obesity. Milk is loaded with protein, so how can we create more value-added dairy products that deliver a fun and healthy protein punch?

And speaking of delivering, I’ve heard from retailers that new delivery systems, such as online ordering for quick pick-up at grocery stores, can be real timesavers for busy moms and dads. Amazon’s purchase of Whole Foods earlier this year is a harbinger of things to come, so we must continue to focus on meeting our customers where they live, especially along the last mile of the distribution chain.

We’ll hear more about the demands of today’s consumers and their shopping habits from Dan O’Connor, the retail strategy expert who will speak at lunch today.  

Also, we expect to see a slew of new packaging that will require different supplies and updated equipment that can handle faster filling and continuous manufacturing. Producers and processors, suppliers and retailers will need to work together to discover innovative solutions for the entire dairy value chain.

You never know where you’ll find the next new idea or market. And that brings us to the third biggest opportunity for dairy – our changing and growing global marketplace.

I’m sure we all agree that gaining market access is an important goal for this industry with our abundant supply of high-quality milk, excellent safety records and unmatched distribution channels. With U.S. farm milk production continuing to outpace domestic consumption, we’ll need exports to grow northward of 20 percent to take up that production volume. And it’s imperative for us to have a level playing field in those markets to take full advantage. 

I’ve heard from several exporters that foreign relations are challenging and complex but well worth the effort. Beyond our current trade partners, we should be looking to developing nations as well, possibly in the Middle East and Africa, because the demand for nutritional products, especially with protein, is great and offers new potential for growth. A proactive U.S. trade policy is essential to help lead us into the future.

Later today, a former trade ambassador for the United States will join ambassadors from New Zealand and the European Union to discuss current trade negotiations, recent changes in the U.S. trade agenda and the implications of changing trade alliances around the globe. Their insight is invaluable, and I advise you not to miss it.

I now spend most of my days thinking about these issues and opportunities, as well as the opportunities for partnerships and coalitions. I’m sure many of you do, too. That’s why it’s so important for us to gather here; Dairy Forum is a microcosm of the world we’re living in, and it helps to be able to approach these topics for reasoned discussions that allow us to respectfully agree or disagree in an effort to find that common ground.

Where do we intersect and where do we diverge? Let’s look at the results from our poll last night for insight. The larger words represent views held by a majority of respondents while the smaller ones capture less common ones.

 

We’ll ask this same question at the end of Dairy Forum to see whether three days of discussion, debate and networking will change our points of view or solidify our current thinking.

Another question to consider is this: Do we know who will take us into the future? If not the leaders in this room, do we all have sufficient succession planning in place so that the best and brightest of our next generation are ready to step in when we step down? At least that’s one area that we can control. We can’t predict the future, but we can prepare for it, as Jack Uldrich told us last night.  

So, in closing, I encourage each of you to think of your role in the future of dairy and consider how you and your company can join the wave of collaboration and innovation that’s rolling our way. If you can come away with at least one new idea or business opportunity, we’ll call this week a success!

Thank you and enjoy the Forum.

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