October 13, 2017

Competition from Europe Dampens U.S. Lactose Exports

 |  By: Fran Howard

Lactose prices are dropping quickly and U.S. exporters are starting to lose market share to Europe. While lactose plays only a minimal role in milk pricing, manufacturers who sell lactose increase their overall revenue as well as the overall value of milk.

According to the U.S. Dairy Export Council, lactose is produced by concentrating whey or permeate, a co-product of whey protein concentrate production. Since the 1990s, applications for lactose have increased dramatically. Lactose’s bland flavor allows it to be used as an ingredient in many food applications, including chocolate and other confectionary items, diet and sports nutrition products, and infant formulas. The pharmaceutical industry also uses lactose as a filler in pills.           

“Increased competition in the global lactose market has taken its toll on domestic prices,” says Mary Ledman, dairy economist with the Daily Dairy Report and president of Keough Ledman Associates Inc., Libertyville, Ill. According to this week’s USDA Dairy Market News, the U.S. lactose mostly price range, for the week ending October 6, was 22.5 to 33 cents. The low end of the range was more than 30% below the comparable week last year, when lactose prices ranged from 28.5 to 36.5 cents.

The European Union and the United States, the world’s largest cheese-producing regions, are also the two largest exporters of lactose. Three markets—China, New Zealand, and Japan—are the world’s largest importers of lactose, notes Ledman. Last year, China imported nearly 76,800 metric tons (MT) of lactose, compared to New Zealand’s 74,700 MT and Japan’s 73,850 MT, according to Global Trade Atlas data.

Of the three key lactose-importing countries, New Zealand imported the largest volume of lactose during the first eight months of this year at 62,730 MT. New Zealand’s lactose imports are nearly 10,000 MT more than both China’s and Japan’s.

“What’s interesting is that while New Zealand’s lactose imports through August were up 37% from the comparable period last year, the United States has not captured any increased volume despite being the largest lactose exporter to New Zealand,” Ledman says.

Last year, the United States accounted for 87% of New Zealand’s lactose imports, which were 65% higher than in 2015. Through August 2017, Ledman notes that the U.S. share of New Zealand’s imports has dropped to 59%.

“At the same time U.S. export share to New Zealand was declining, Germany recaptured the market share it lost in 2016,” Ledman says. “In 2015, Germany accounted for 31% of New Zealand’s lactose imports. Germany’s share then fell to less than 8% in 2016 before recovering to 28% through August 2017. In addition, Lithuania and the Netherlands have captured about 4% each of New Zealand’s lactose market this year.”        

Looking at August exports alone, Ledman notes that lactose exports plunged 11.9% from July levels to 21,445 MT, which is 11.5% below August 2016 levels, primarily due to the lower trade to Oceania. At the same time, U.S. exports of lactose to China of 4,152 MT improved 8.6% from July levels and 30% from August 2016 volumes.

“Despite August’s poor showing to Oceania, year-to-date U.S. lactose exports of 176,000 metric tons remain 3.2% above the prior year, adjusted for leap day,” notes Ledman. “And that bodes well for the U.S. dairy industry.”