Current Event Analysis Paper
Current Event Analysis: How Chinese babies and Mid-East pizza tip US markets.
Omar
October 10th, 2014
Introduction
In a BBC News article, writer Debbie Siegelbaum shows how international marketing of a certain product affects its prices worldwide as well as in domestic markets. In this particular case she features dairy products and the increased export of American dairy. She goes in depth about the causes and effects of the increased dairy export from USA. While the article may alarm domestic buyers of dairy it also explains how USA has become the world provider for yet another commodity they have had in surplus for years. The article also talks about the new surplus created in the European markets due to Russian ban on European and …show more content…
American dairy in retaliation to the sanctions placed on them for the Ukraine incident [1].
Summary
The above mentioned article outlines how drought in New Zealand made the world turn to USA for their dairy imports. It also highlights the increased demand of dairy from Middle East due to the rise of the fast food culture in their countries and the Chinese import of American dairy due to their own market’s inability to supply quality products. The article progresses from acute shortage due to New Zealand’s drought and moves on to showcase the new supplier, i.e. USA. It continues on to explain how this external demand has caused the dairy surplus to dwindle and prices to spike in the domestic market. However, the author also conveys that there is hope for domestic USA market due to Russia’s sanction on European and American dairy and New Zealand’s slow but sure emergence from the shortage of dairy supply. It explains how European surplus can help mitigate the domestic prices in the U.S. in the middle of 2015 [1].
Analysis
One of the biggest factors influencing the dairy sector is the government regulation of dairy industry in the United States. In 1985 the U.S Farm Bill included a dairy buy-out program in order to stop farmers from producing dairy surplus [2]. Besides, the U.S government bills have always supported the dairy farmers by putting a minimum price on milk. They even promised the farmers to buy-out their unsold surplus at a minimum price to avoid domestic prices of dairy from dropping below a certain level. This filled up the government warehouses with over 1.7 billion pounds of dairy products [3]. Along with that, there is also the import restrictions on dairy in the United States [4]. These have always kept the dairy prices in the States high to the domestic consumer despite the surplus. With the increased demand of U.S. dairy products, import restrictions and minimum price promise to the dairy farmers, it will drive up the domestic prices even higher. This only hurts the American consumers.
This may sound very cyclic and rigorous but as Sallie James describes in her trade paper, increased domestic prices will mean that the U.S. government will be buying out the surplus from the farmers at a higher price thereby increasing the burden on the government’s revenue [5]. An increased pressure on the government revenue could ultimately increase taxes on dairy products, or maybe even on other commodities. And eventually, the increased taxes on dairy products will mean domestic prices of dairy to be even higher. This particular piece of information becomes important to note when you consider the move of America from cereal and orange juice to breakfast yogurt for the most important meal of the day [6]. This could mean costlier breakfast for Americans.
Another factor for increased overseas demand of U.S. dairy products is the Chinese obsession with yogurt [7]. They are not only importing dry milk powder but also other forms of American dairy to fulfill the needs of their growing population. And as the numbers suggest, China’s demand for imported dairy has increased by 20-30% [1]. Further, the Middle East is seeing rising fast food trend, pushing up the demand for U.S. dairy [1]. This means that other emerging markets for the fast food industry are following as well, as most of them are in developing countries with limited supply of milk and milk products [8]. The rising milk costs, have troubled some American companies like Dean Foods Co. and others that are bothered by the declining consumption of milk in the U.S. and the rising cost of ingredients. They cannot increase the prices of their products without further damaging milk consumption rate in the U.S. This is pressuring their profits in the domestic markets [9].
Implications
The ultimate rise in domestic dairy products in U.S.A will also drive the prices high in the international market. As suggested by Debbie in the article the international supply of dairy will recover due to multiple factors ranging from New Zealand’s recovery from drought to availability of European surplus [1]. Another indication is that innovation in dairy production will eventually make developing countries self-sufficient. When this happens, U.S. products will no longer be in as much demand as the other available options, most of them domestic to the importing nations. That will leave the prices of dairy in the United States, stagnated at high rates and coupled with the restrictions on dairy imports in the U.S.A. the domestic prices are not likely to come down any time soon.
Suggestions
I would recommended that the U.S. does its part in supplying international markets with surplus dairy. However, they must not do it at the cost of driving up domestic milk and cheese prices. The spike in domestic dairy prices will increase the price of consumer dairy products as well as fast food prices in the country. Also, increase in U.S. dairy prices could be unfavorable for export as America has only recently discovered the export potential of dairy products [10]. In another article from Huffington Post, Michael Zacka suggests that innovation is extremely important to retain domestic consumers in the event that foreign demand plateaus or even declines following recovery of other supplier and growth of Asian dairy production [11].
References
Siegelbaum, Debbie. "US Waits for Global Dairy Dance to Stop." BBC News. BBC, 11 Sept. 2014. Web. 14 Oct. 2014. http://www.bbc.com/news/world-us-canada-29133022Food Security Act of 1985. Pub. L. No. 99-198, 99 Stat. 1354. Dec. 23, 1985.
Vitez, Michael.
"Cutting Back On Milk Production Paid To Quit, Farmers Sell Their Dairy Herds." Philly.com. Philly.com, 13 Apr. 1986. Web. 14 Oct. 2014. http://articles.philly.com/1986-04-13/news/26076123_1_dairy-farmers-butter-and-powdered-milk-milk-productionErba, Eric M. and Novakovic, Andrew M., (1995), The Evolution of Milk Pricing and Government Intervention in Dairy Markets, No 186308, EB Series, Cornell University, Department of Applied Economics and Management, http://EconPapers.repec.org/RePEc:ags:cudaeb:186308James, Sallie. "Milking the Customers: The High Cost of U.S. Dairy Policies." Cato Institute. Cato Institute, 9 Nov. 2006. Web. 14 Oct. 2014. http://object.cato.org/sites/cato.org/files/pubs/pdf/tbp-024.pdfSiegelbaum, Debbie. "What Does America Have for Breakfast?" BBC News. BBC, 14 Aug. 2014. Web. 14 Oct. 2014. http://www.bbc.com/news/magazine-28761333Sudworth, John. BBC. 27 Aug. 2014. Online. Retrieved from http://www.bbc.com/news/business-28944258Schoen, John W. "New Global Middle Class Hungers for Good Ol ' US Fast Food." CNBC. CNBC LLC., 9 Aug. 2013. Web. 15 Oct. 2014. http://www.cnbc.com/id/100950287#.Gee, Kelsey. "Asian Demand for Milk Shakes Up Market." The Wall Street Journal. Dow Jones & Company, 9 Mar. 2014. Web. 15 Oct. 2014. http://online.wsj.com/news/articles/SB10001424052702304585004579417562716139506Geuss, John. "US Dairy Industry Has 'discovered the Power of Exports '"DairyReporter.com. William Reed Business Media, 8 May 2014. Web. 14 Oct. 2014. http://www.dairyreporter.com/Commodities/US-dairy-industry-has-discovered-the-power-of-exportsZacka, Michael. "As Global Demand for Dairy Products Soars, Domestic Innovation Is Key." The Huffington Post. TheHuffingtonPost.com, 4 June 2014. Web. 15 Oct. 2014.
http://www.huffingtonpost.com/michael-zacka/as-global-demand-for-dair_b_5444803.html
Omar
October 10th, 2014
Introduction
In a BBC News article, writer Debbie Siegelbaum shows how international marketing of a certain product affects its prices worldwide as well as in domestic markets. In this particular case she features dairy products and the increased export of American dairy. She goes in depth about the causes and effects of the increased dairy export from USA. While the article may alarm domestic buyers of dairy it also explains how USA has become the world provider for yet another commodity they have had in surplus for years. The article also talks about the new surplus created in the European markets due to Russian ban on European and …show more content…
American dairy in retaliation to the sanctions placed on them for the Ukraine incident [1].
Summary
The above mentioned article outlines how drought in New Zealand made the world turn to USA for their dairy imports. It also highlights the increased demand of dairy from Middle East due to the rise of the fast food culture in their countries and the Chinese import of American dairy due to their own market’s inability to supply quality products. The article progresses from acute shortage due to New Zealand’s drought and moves on to showcase the new supplier, i.e. USA. It continues on to explain how this external demand has caused the dairy surplus to dwindle and prices to spike in the domestic market. However, the author also conveys that there is hope for domestic USA market due to Russia’s sanction on European and American dairy and New Zealand’s slow but sure emergence from the shortage of dairy supply. It explains how European surplus can help mitigate the domestic prices in the U.S. in the middle of 2015 [1].
Analysis
One of the biggest factors influencing the dairy sector is the government regulation of dairy industry in the United States. In 1985 the U.S Farm Bill included a dairy buy-out program in order to stop farmers from producing dairy surplus [2]. Besides, the U.S government bills have always supported the dairy farmers by putting a minimum price on milk. They even promised the farmers to buy-out their unsold surplus at a minimum price to avoid domestic prices of dairy from dropping below a certain level. This filled up the government warehouses with over 1.7 billion pounds of dairy products [3]. Along with that, there is also the import restrictions on dairy in the United States [4]. These have always kept the dairy prices in the States high to the domestic consumer despite the surplus. With the increased demand of U.S. dairy products, import restrictions and minimum price promise to the dairy farmers, it will drive up the domestic prices even higher. This only hurts the American consumers.
This may sound very cyclic and rigorous but as Sallie James describes in her trade paper, increased domestic prices will mean that the U.S. government will be buying out the surplus from the farmers at a higher price thereby increasing the burden on the government’s revenue [5]. An increased pressure on the government revenue could ultimately increase taxes on dairy products, or maybe even on other commodities. And eventually, the increased taxes on dairy products will mean domestic prices of dairy to be even higher. This particular piece of information becomes important to note when you consider the move of America from cereal and orange juice to breakfast yogurt for the most important meal of the day [6]. This could mean costlier breakfast for Americans.
Another factor for increased overseas demand of U.S. dairy products is the Chinese obsession with yogurt [7]. They are not only importing dry milk powder but also other forms of American dairy to fulfill the needs of their growing population. And as the numbers suggest, China’s demand for imported dairy has increased by 20-30% [1]. Further, the Middle East is seeing rising fast food trend, pushing up the demand for U.S. dairy [1]. This means that other emerging markets for the fast food industry are following as well, as most of them are in developing countries with limited supply of milk and milk products [8]. The rising milk costs, have troubled some American companies like Dean Foods Co. and others that are bothered by the declining consumption of milk in the U.S. and the rising cost of ingredients. They cannot increase the prices of their products without further damaging milk consumption rate in the U.S. This is pressuring their profits in the domestic markets [9].
Implications
The ultimate rise in domestic dairy products in U.S.A will also drive the prices high in the international market. As suggested by Debbie in the article the international supply of dairy will recover due to multiple factors ranging from New Zealand’s recovery from drought to availability of European surplus [1]. Another indication is that innovation in dairy production will eventually make developing countries self-sufficient. When this happens, U.S. products will no longer be in as much demand as the other available options, most of them domestic to the importing nations. That will leave the prices of dairy in the United States, stagnated at high rates and coupled with the restrictions on dairy imports in the U.S.A. the domestic prices are not likely to come down any time soon.
Suggestions
I would recommended that the U.S. does its part in supplying international markets with surplus dairy. However, they must not do it at the cost of driving up domestic milk and cheese prices. The spike in domestic dairy prices will increase the price of consumer dairy products as well as fast food prices in the country. Also, increase in U.S. dairy prices could be unfavorable for export as America has only recently discovered the export potential of dairy products [10]. In another article from Huffington Post, Michael Zacka suggests that innovation is extremely important to retain domestic consumers in the event that foreign demand plateaus or even declines following recovery of other supplier and growth of Asian dairy production [11].
References
Siegelbaum, Debbie. "US Waits for Global Dairy Dance to Stop." BBC News. BBC, 11 Sept. 2014. Web. 14 Oct. 2014. http://www.bbc.com/news/world-us-canada-29133022Food Security Act of 1985. Pub. L. No. 99-198, 99 Stat. 1354. Dec. 23, 1985.
Vitez, Michael.
"Cutting Back On Milk Production Paid To Quit, Farmers Sell Their Dairy Herds." Philly.com. Philly.com, 13 Apr. 1986. Web. 14 Oct. 2014. http://articles.philly.com/1986-04-13/news/26076123_1_dairy-farmers-butter-and-powdered-milk-milk-productionErba, Eric M. and Novakovic, Andrew M., (1995), The Evolution of Milk Pricing and Government Intervention in Dairy Markets, No 186308, EB Series, Cornell University, Department of Applied Economics and Management, http://EconPapers.repec.org/RePEc:ags:cudaeb:186308James, Sallie. "Milking the Customers: The High Cost of U.S. Dairy Policies." Cato Institute. Cato Institute, 9 Nov. 2006. Web. 14 Oct. 2014. http://object.cato.org/sites/cato.org/files/pubs/pdf/tbp-024.pdfSiegelbaum, Debbie. "What Does America Have for Breakfast?" BBC News. BBC, 14 Aug. 2014. Web. 14 Oct. 2014. http://www.bbc.com/news/magazine-28761333Sudworth, John. BBC. 27 Aug. 2014. Online. Retrieved from http://www.bbc.com/news/business-28944258Schoen, John W. "New Global Middle Class Hungers for Good Ol ' US Fast Food." CNBC. CNBC LLC., 9 Aug. 2013. Web. 15 Oct. 2014. http://www.cnbc.com/id/100950287#.Gee, Kelsey. "Asian Demand for Milk Shakes Up Market." The Wall Street Journal. Dow Jones & Company, 9 Mar. 2014. Web. 15 Oct. 2014. http://online.wsj.com/news/articles/SB10001424052702304585004579417562716139506Geuss, John. "US Dairy Industry Has 'discovered the Power of Exports '"DairyReporter.com. William Reed Business Media, 8 May 2014. Web. 14 Oct. 2014. http://www.dairyreporter.com/Commodities/US-dairy-industry-has-discovered-the-power-of-exportsZacka, Michael. "As Global Demand for Dairy Products Soars, Domestic Innovation Is Key." The Huffington Post. TheHuffingtonPost.com, 4 June 2014. Web. 15 Oct. 2014.
http://www.huffingtonpost.com/michael-zacka/as-global-demand-for-dair_b_5444803.html