UHT Milk Offers Solid Opportunity

November 4, 2013 — August was another strong month for U.S. dairy exports. We were up 45% from a year ago by value and about 26% from a year ago by volume, according to Alan Levitt with USDECthe U.S Dairy Export Council (USDEC). He estimates exports were equivalent to about 17.5% of U.S. milk production in August.

Once again we were led by strong gains in milk powder, cheese, lactose, whey and butterfat. But what are some of the smaller, untapped categories that offer potential for the future?

“We’re really excited about the opportunity for exports of ultra high temperature (UHT) milk,” Levitt said. UHT milk refers to milk heat-treated and packaged to provide a 9-12-month shelf life without refrigeration.

USDEC, primarily funded by the dairy checkoff, just completed a research study on the market for UHT milk in China and they were encouraged by the prospects. China is actually the No. 1 fluid milk importer in the world. Consumption of UHT milk went from just 18 million lbs. in 2010 to a forecast 331 million lbs. this year, according to the USDEC report. Demand scenarios suggest China’s appetite for imported UHT milk could grow fourfold to more than 1.3 billion lbs. by 2020.

“This isn’t a fad,” Levitt said. “It aligns with long-term structural shifts in the Chinese diet and dairy manufacturing, marketing and sales trends.” He reported that Chinese families have great purchasing power, there are more people living in the cities, the retail sector is modernizing and consumers want to consume more and better food. Also, because of past safety issues with domestic product, China really values imported milk and are willing to pay more for it.

The U.S. is not a big player in this market, yet. Currently, Germany, New Zealand, Australia and France are the top UHT milk suppliers to China (about 91%). The U.S. is about 3%. But Levitt says, “Chinese buyers are telling us they’re interested in U.S. UHT milk to meet their growing demand.”

Becoming a bigger player and earning the business will require investment. EU suppliers are already well positioned and New Zealand and Australia processors are currently investing in new capacity to supply this market. Although the United States makes some UHT milk, Levitt reported that processors are not geared to exports.

For example, U.S. suppliers need to develop products that better match Chinese expectations. U.S. UHT milk is primarily consumed in half-pint and pint boxes and bottles, but the Chinese UHT market is dominated by 1-liter boxes.

They also have to know China’s Regulations on sterilized milk, their labeling regulations and their certification requirements. “That takes some commitment,” he said.

Also, despite their willingness to pay more for foreign labels, Chinese consumers are cost-conscious. Competitors currently undercut U.S. prices, in part due to shipping costs. Building capacity dedicated to exports that is closer to shipping points will help U.S. suppliers offer more competitive pricing.

“I will say, however, that the potential payback is greater than simply Chinese UHT milk,” Levitt said. USDEC sees opportunity in other Asian markets, including the Philippines, and for additional products such as UHT cream and lactic acid beverages.

Expanding into global in-demand product categories lifts the entire dairy trade endeavor, according to Levitt. It makes the United States a better, more trusted, more desirable global supplier—a one-stop shop for dairy needs.

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