April 13, 2020

Understanding the Dairy Export Situation: A Chat with Tom Vilsack

 |  By: Anna-Lisa Laca

Late last week, “AgriTalk” Radio host Chip Flory and Anna-Lisa Laca, editor of Farm Journal’s MILK, spent some time with U.S. Dairy Export Council CEO Tom Vilsack to understand the current dairy export situation in the wake of the COVID-19 crisis. Here’s a transcript of that conversation. It has been edited lightly for understanding. 

Flory: How has COVID-19 changed dairy trade? 

Vilsack: I would describe this as a gut punch to American agriculture and to commodity prices generally. For dairy farmers, it has been a particularly difficult time because we've seen a more rapid decrease in pricing to dairy farmers. Class III milk has dropped by about 26% and Class IV milk by 36%. And this was at a time when we expected to have a good year. I think people were very optimistic about this year in terms of dairy prices, and certainly, after the last four or five years, a year of good prices was absolutely needed. 

The reality is when schools close, when food service shuts down, it impacts dairy directly and it doesn't just impact dairy here in the United States, it does the same thing around the world. We've seen food service and schools close. [There’s] economic uncertainty and tourism dropped to zero in key markets. So we're expecting and anticipating that we're going to see a drop in exports somewhere between maybe 1% to 4%, depending upon how long this lasts.

Flory: How has this changed the focus of the U.S. dairy Export Council? Have you changed the message or changed the areas in which you're focusing market development?

Vilsack: We haven't changed the message, [but] we've added one additional component to it, which is, in addition to our supply being safe and nutritious and sustainably produced, we want to make sure the world knows that we have supply. I think there's a tendency on the part of some folks to think that because restaurants are shut down or other businesses are shut down that the dairy industry has been shut down. Well, that's not the case. The cows don't know there's a virus, so the cows will continue to produce milk and dairy farmers are taking [it] to plants for processing and so we still have ample supplies, and we want the world to know that. 

We're focusing obviously on some key markets. Southeast Asia continues to be a key market. We actually saw in February, some increased activity in China, which was a positive. That's a part of the world that's getting through the virus a little bit more quickly. And so, we're looking for ways in which we can continue to promote dairy, using technology and being creative. But the message hasn't changed: We’ve got supply and we're happy to furnish it to anyone around the world.

Flory: Those February numbers, I was fairly encouraged by them. [They] show that what you're doing at USDEC is working.

Vilsack: It was the sixth consecutive month of growth. February was better than last year. I will tell you I was surprised by that. But the reality is we're going to expect to see some significant declines in March and April. One of the markets that I'm concerned about is Mexico. This is a market that not only is dealing with the virus but also has a devalued peso and has oil industry that's been devastated by dropping of oil prices. That is obviously an area of concern. We're keeping an eye on that trying to do everything we can with the Mexican dairy industry itself to increase consumption at least maintain that important market for us.

Laca: Secretary, I was curious about what the virus is going to do for implementation of USMCA and how, you know, our borders being limited with Canada and Mexico right now is impacting exports.

Vilsack: That's a really important question. And first and foremost, obviously, it's when will the USMCA formally become in effect? As you know, the United States is the last of the three countries to be able to certify to the other two partners that we are in compliance with the agreement in terms of rules and regulations put in place. I think the goal was to have this done by June 1. That's not going to happen. Now, the goal is July 1 and that may or may not happen, but we know it's going to go into effect and when it does, there's new opportunity for us in Canada. 

We're trying to make sure that people understand that when you basically shut the border down for people to crossing it, it doesn't necessarily mean that goods can't cross the border. We had a little hiccup in Mexico a week or so ago when the health department down there decided, because they had shortage of staff, that they weren't going to be able to process the paperwork for import certifications. We made sure that they basically created the opportunity in regional offices to get those import certificates done, so that we were able to move product across the border. I think the key here isn't so much confusion at the border, or maybe a delay at the border. The key here is maintaining the market, making sure that despite the fact that there's economic devastation in many of these countries, that there's still a need for food and the U.S. dairy industry wants to be part of how to solve that need.

Flory: The border in the end the issues of communicating out there, in when you're developing trusted trade relationships. How much of a challenge is it to, to even maintain those relationships around the world right now? 

Vilsack: It's hard because you obviously can't visit people personally. But we’ve asked our in-country teams to reach out to their customers to reassure them that we have supply and to reassure them that we're interested in continuing to do business. And then we're using technology. We're going to try to be creative about how we promote U.S. dairy. Instead of going to conferences, we're going to try to be virtually there. There's a lot of interesting things we can do. We've got a center of dairy excellence that was established in Singapore that's got the capacity to do a lot of interesting things in the kitchen, to be able to promote U.S. cheeses. We've got ways in which we can showcase our ingredient side of the house. All of this is challenging us to reimagine how we do business, how this supply chain and this world economic system is going to change because of the virus. We want to be one step ahead instead of one step behind. 

Laca: I was just curious Secretary Vilsack, with your history with USDA, what you think about the Milk Crisis Plan [proposed by NMPF and IDFA] and which components you think Secretary Perdue is most likely to implement or would have the easiest time implementing?

Vilsack: Well, listen, he's got a tough job, because every commodity can make a legitimate case. But I think dairy has a particularly valid case, given the fact that it had five tough years prior to this virus hitting. I think first and foremost, I think he's got to make a decision about the margin Coverage Program. [I] realize that people didn't sign up, but you know, this is a unique, difficult situation. Hopefully he gives some thought to reopening that program to provide support. Otherwise, we're going to lose a lot of dairy farmers. 

I would hope that the department would make a pretty quick decision to purchase dairy products, so that we can get them as quickly as possible into the food banks. And I think it's going to be important as well to have flexibility in how the school feeding and summer feeding programs are operated, so that we get food to the kids who otherwise would have been getting one or two meals at school who aren't getting them today. 

And then I think he may have to give some thought to, ‘What do we do to avoid dumping of milk that's taking place now?’ Is there a way in which we can incent perhaps a reduction in production so that we're not faced with a circumstance of having to waste this sustainably nutritious wonderful milk that our farmers are producing?

Flory: When you think of a recovery from the challenge that the country in the world faces right now, what do you see?

Vilsack: Chip, you're going to have to tell me, what you see. Are the public health efforts that we are undertaking? Will they be successful? And will the economic intervention that the government is injecting into the economy, will that be enough? If the answer to this question is, the public health will work, the injection will get to work very quickly, then I think we see a rapid recovery. 

If either one of those two isn't working the way it should, then I think we're going to see a much longer recovery. And if neither one's works particularly well, we're probably going to see sort of an up and down circumstance where we get a little progress and then we take another dip. 

I think all of us are praying for what they refer to as a V recovery, sharp decline, but a sharp acceleration. But it's going to require a lot of hard work. I will tell you that the fact that Congress passes these bills, that's the easy part. The more difficult part is implementing all of those programs in a way that gets the resource to the people that need it most and a lot of tough decisions that many of these Cabinet Secretaries have to make. 

Secretary Perdue in particular has some very tough decisions to make. And he's got to make them quickly. And he's got to make him without his staff being fully assembled at the USDA. He's got to make him with a staff that's probably understaffed at this point, because they have some positions haven’t been filled in many parts of the government. So not an easy situation right now, for sure. 

Having said that, you know, by golly, we're a tough lot here, especially those of us who live work and raise our families in rural places. We've been through tough times we understand how to get through tough times. We've got faith in ourselves and our family and our community, our country and our God and, and I think that faith is going to sustain us but it's not going to be easy, and I sincerely hope we do it in a way that preserves as much as we possibly can of U.S. agriculture. It would be ashamed if we lost more farmers because of this virus.