Mexico Becomes First Billion-Dollar U.S. Dairy Export Market

Shipments increased 41% over 2010 levels.

Published on: Mar 7, 2012

Mexico became the first billion-dollar U.S. dairy export market in 2011, the culmination of more than 15 years of broad-based market development efforts. Shipments topped $1.17 billion last year, up 41% from 2010 levels, according to trade data from the U.S. Department of Agriculture's Foreign Agricultural Service. Mexico is the largest overseas market for U.S. milk powder, cheese and ice cream, providing a vital outlet for more than 3% of the U.S. milk supply.

"It was apparent early on that Mexico would be our most important export market," says Les Hardesty, a dairy producer from Greeley, Colo., chairman of the U.S. Dairy Export Council (USDEC) and a board member of Dairy Management Inc., which is the primary funder of USDEC. "But we needed to invest in a series of programs that, over time, would enable U.S. suppliers to fully capitalize on the opportunity. USDEC's integrated activities in marketing, technical assistance and trade policy advocacy have helped to ensure dairymen have markets for growing U.S. production."

In the mid-1990s, U.S. dairy exports to Mexico were valued at about $150 million per year, and U.S. share of dairy imports was about 20%. Most of those sales were subsidized by the U.S. government. Now U.S. suppliers sell that much every six weeks, and U.S. import share tops 60%. And of course, all of today's transactions are commercial sales.

Building awareness

The transformation into becoming the leading supplier to Mexico began with the initial implementation of the North American Free Trade Agreement (NAFTA) in 1994. This trade deal eliminated import tariffs and quotas on U.S. dairy products over a 15-year period, giving U.S. suppliers a significant advantage over competitors from Europe and Oceania.

USDEC opened an office in Mexico City and conducted market research, trade servicing and outreach to U.S. suppliers designed to build distribution. Trade missions brought U.S. suppliers to the market and brought Mexican end-users to U.S. plants. But initial research determined that U.S. cheese didn't have a positive impression. It was considered bland and artificial, and had no linkage to quality or craftsmanship. Therefore, USDEC's first priority was to strengthen the U.S. image.

To address this constraint, USDEC's Mexico office launched the Mexico Cheese Roadshow, a retail sampling program that introduced high-quality U.S. cheese and recipes to Mexican consumers, and also encouraged supermarkets to put a U.S. cheese section in the dairy case. In 2000, this program was expanded under the banner of "Quesoluciones" (translated as Cheese Solutions).

At the same time, the Export Council intensified its activities in the foodservice sector, partnering with Domino's Pizza to place the USDEC logo on pizza boxes to signify a shift to U.S. cheese. USDEC also worked with other foodservice chains, such as Chili's and VIPs, on menu development, promotion and point-of-sale materials.

Meanwhile, the Export Council's technical seminars and educational materials helped buyers understand how to use U.S. dairy ingredients. USDEC experts conducted whey application seminars around the country, encouraging the use of whey protein concentrate and whey protein isolate in bakery, beverage and other food processes. A promotion with GNC stimulated usage of high-value whey protein in the nutritional segment. And back home, USDEC commissioned research on dairy blends to learn about market potential, and sponsored university research on skim milk powder that enabled U.S. suppliers to produce for the needs of the market.

These ingredient activities were capped in May 2004, when USDEC coordinated the International Symposium on Recombined Milk and Milk Products in Cancun, the first time the event had been held in the Western Hemisphere. This global event elevated the status of the U.S. industry and increased U.S. industry initiative to tap into the growing recombined products market.

Full NAFTA implementation

In the middle part of the decade, with full implementation of NAFTA provisions looming, USDEC activities focused on working with the local industry to grow the total dairy category in Mexico. The Mexico office developed Lactiva 3!, modeled after National Dairy Council's "3-A-Day" program, to increase consumption through greater awareness of the nutritional benefits of dairy. A milk-jug-shaped mascot, Lactito, patrolled supermarkets offering samples of U.S. milk.

USDEC also was proactive on the political front, working with government officials and Mexican dairy industry leaders to assuage local concern about the final tariffs coming off U.S. milk powder exports. In 2007, USDEC and other U.S. industry officials signed a Memorandum of Understanding with ANGLAC, the primary Mexican producer group, which outlined avenues for cooperation to grow Mexican demand for dairy products.

During the global financial crisis of 2008, USDEC made a strategic decision to defend its primary markets, focusing on trade servicing activities that would enable U.S. suppliers to sustain their presence. Even though volumes to Mexico declined, staff maintained constant contact with key end-users and importers. They also conducted risk management seminars in Mexico to help the local trade understand U.S. pricing structure and how to manage price volatility.

As the market came back, U.S. staff embarked on a program to build gouda production capacity in the United States. About half the cheese consumed in Mexico is gouda, a variety the United States historically didn't make. USDEC worked with U.S. suppliers to help them produce gouda that would meet market needs. Now, gouda represents about 20% of U.S. cheese sales to the market.

Meanwhile, USDEC's trade policy team was a strong advocate for the United States allowing free movement of trucks in the United States, allowing government officials to drop retaliatory tariffs on U.S. cheeses.

Long-term commitment

"The United States has enjoyed several natural advantages in shipping to Mexico, including NAFTA tariff cuts, geographical proximity and a historic familiarity with U.S. brands and culture. But to fully capitalize on these advantages we had to prove our mettle as dependable partners in the market," says Tom Suber, president of USDEC.

"None of these market gains happened overnight," he emphasizes. "We had to lay the necessary groundwork and stay committed through changing conditions. And to their credit, U.S. dairy processors, manufacturers and producers have long appreciated the importance of the Mexican market. They have made investments on both sides of the border to better serve our number-one overseas customer."

Source: US Exports Council