NEWS RELEASE
For Immediate Release

Contact:     Susan Ruland
(202)737-4332

IDFA Testifies Before International Trade Commission on Barriers to Growth of U.S. Dairy Exports

(Washington, D.C. - May 30, 2001) Janet Nuzum, vice president and general counsel for the International Dairy Foods Association (IDFA), testified before the International Trade Commission (ITC) last week in the commission's hearing on "Tariff and Non-tariff Barriers to Trade in Processed Foods and Beverages." In her testimony last Tuesday, Nuzum expressed support for the ITC's investigation of the barriers to international trade in processed foods, and stated IDFA's commitment to push for trade negotiations that would increase U.S. dairy export opportunities.

"As you know, U.S. exports of processed foods are increasing, and dairy foods are contributing to this increase. Yet many barriers, both tariff and non-tariff, hinder our opportunities," Nuzum said. "As the United States negotiates trade agreements at the multilateral, regional, and bilateral levels, it is critical that these agreements include meaningful commitments to eliminate, or at least substantially reduce, these barriers to market access. To negotiate smart agreements, we need to have good information. That is why your investigation is so important."

Nuzum, who served as an ITC commissioner from 1991-97, made three major points: 1) International trade is important to the U.S. dairy foods industry for the industry's continued growth; 2) Significant obstacles exist in key markets of opportunity; and 3) The dairy industry is more engaged than in the past in attempting to address these obstacles.

On the first point, Nuzum noted that while the U.S. market is a sizeable one, 96% of the world's consumers are outside our borders.

"The U.S. dairy industry realizes that, as large as the U.S. market might be, our opportunities for growth really lie abroad," she said. Moreover, the U.S. market is a largely mature market, where consumption of many dairy products is slowing or stable. At the same time, the U.S. dairy industry is a relatively low-cost dairy producer.

"With elimination of trade-distorting subsidies and other barriers to trade, more U.S. dairy products would be very competitive in international markets," she added.

"Between now and 2020, dairy product markets in developing countries alone are estimated to increase by a level more than triple the size of the current U.S. market. Exports to these markets represent a promising opportunity for growth in sales of U.S. manufactured products. A serious commitment by the U.S. government, with support from U.S. industry, is necessary to achieve enforceable trade agreements that eliminate tariff and non-tariff barriers to trade, including export subsidies, other trade-distorting subsidies, discriminatory or arbitrary technical standards and regulations, and other obstacles to free and open markets," she said.

Nuzum noted that while the European Union (EU) has the largest share of world dairy trade, much of this share is the direct result of its extensive domestic and export subsidies for the dairy sector. This has made it very difficult for the U.S. dairy industry to make inroads into international markets. These trade-distorting subsidies in the EU, as well as Canada, confer substantial unfair advantages to their dairy production and exports, depressing world market prices and robbing market share in world dairy trade away from less subsidized competitors.

"Complete elimination of export subsidies is the first priority of the U.S. dairy industry in WTO (World Trade Organization) agricultural trade negotiations," Nuzum said.

Tariff barriers and an assortment of other regulatory barriers impede U.S. dairy exports in many markets, she noted, including unreasonable packaging and labeling requirements, pre- and post-shipment testing and inspections, mandatory recipe and manufacturing information, shipments held at port of entry for lab testing or other sanitary examinations, unreasonably short shelf-life provisions, pre-import registration and licensing requirements, and limitations on international approved colors and food additives.

Nuzum expressed IDFA's commitment to pushing for meaningful negotiations, and for enforcement of existing trade agreements. She also expressed IDFA's support of the role of the WTO.

"We believe that multilateral negotiations in the WTO provide the best and most important opportunity to strengthen international trade rules to remove artificial advantages or protections and truly open markets for U.S. dairy products and dairy-containing foods," she said.

And while regional and bilateral free trade agreements are positive supplemental steps, they are not enough: "Until distortions from European dairy subsidies are removed from the international marketplace, competition from subsidized dairy products will continue to disadvantage U.S. dairy foods exporters. The most effective means of eliminating the trade distortions of EU subsidies is through WTO reforms."

IDFA is promoting ambitious negotiating objectives for the WTO agriculture talks, as well as the launch of a wider round of WTO negotiations that would enable a package of agricultural and non-agricultural reforms to provide the necessary balance.

Because the process of launching a global round is slow, however, and bilateral and regional accords can provide welcome momentum, "we also support the negotiation of a Free Trade Area of the Americas, as long as it includes, not excludes, commitments from Canada to open its long-protected dairy markets," Nuzum said.

Nuzum added that as U.S. dairy processors compete with foreign products both at home and abroad, they also confront the fact that protectionism at home hurts competitiveness abroad. She focused here on the U.S. sugar program.

"[Dairy] processors and manufacturers are significantly disadvantaged by the U.S. sugar program, which artificially restricts foreign supply and increases the cost of sugar in the U.S. market to two to three times the world market price. These higher costs... make it more difficult for U.S. dairy foods companies to be competitive with foreign manufacturers of milk, yogurt and ice cream who do not face such a restrictive sugar policy in their countries of manufacture."

Background

Nuzum provided some valuable background on the U.S. dairy industry and world dairy trade:

More than 95% of U.S. milk production stays in the domestic market. The 5% that is exported accounts for only 4% of the volume of all the dairy products traded internationally.

Nevertheless, U.S. dairy exports have been increasing in recent years. For each of the past two years, U.S. dairy exports exceeded $1 billion.

On a volume basis, U.S. dairy exports slightly exceed imports, while dairy imports exceed exports on a value basis. This is because exports tend to be dominated by lower-valued products such as milk powder and commodity cheese, while imports are dominated by higher valued specialty cheeses.

The largest share of world dairy trade is held by the European Union (EU), which produces about 26% of the world cows' milk and has 34% of world trade in dairy products. The next largest share of world trade is held by New Zealand, which accounts for only 2% of milk production but 30% of world trade. Another significant international competitor is Australia, also with 2% of world milk production but 15% of world dairy trade.

North America is the largest market for U.S. dairy exports. Mexico is currently the largest export market for the United States, accounting for more than 60% of total U.S. dairy exports in 2000. Canada is the second biggest export market for U.S. dairy exports, accounting for almost 15% of all U.S. dairy exports in 2000. Hong Kong, Taiwan and Japan are small but expanding markets for U.S. dairy food exports.

U.S. cheese exports have been growing steadily throughout the last decade, growing to almost 104 million pounds in 2000 -- 22% more than the prior year. Mexico, Canada and Japan account for the lion's share of those (2000) exports, but South Korea, some EU countries, Saudi Arabia and Peru are becoming important customers as well.

Whey and whey proteins have become important new sources of value-added exports for our members in recent years. About 434 million pounds of U.S. whey and whey proteins were shipped to the world last year, a 45% increase over 1999.

U.S. exports of ice cream and yogurt have also increased steadily over the last several years. Japan is the number one destination of U.S. ice cream exports, which have seen growth into the other Asian markets of Hong Kong, South Korea, Taiwan and Singapore in 2000, while U.S. yogurt goes mainly to Canada, Australia and Mexico.

IDFA is the Washington, DC-based organization representing the nation's dairy processing and manufacturing industries, and their suppliers. IDFA is composed of three constituent organizations: Milk Industry Foundation (MIF), National Cheese Institute (NCI) and International Ice Cream Association (IICA). Its 600-plus members range from large multinational corporations to single-plant operations, and represent more than 85% of the total volume of milk, cultured products, cheese, and ice cream and frozen desserts produced and marketed in the United States, an estimated $70-billion industry.