International Joint Ventures in Dairy Pick Up Steam
At Least 15 Percent Of US Milk Processing Capacity Is Partially Foreign-Owned
DENVER (February 20, 2018) — As the dairy industry evolves and modernizes, dairy companies across the U.S. are looking to capitalize on increasing milk production through international joint ventures with companies that have significant manufacturing, networking and marketing expertise, according to a new report from CoBank’s Knowledge Exchange Division.
While the U.S. has heavily invested in milk production, Europe and other regions that faced production constraints focused their effort and investment on technology for the processing sector. In 2017, many U.S. dairy companies and international partners collaborated to capitalize on each other’s strengths.
“The international dairy industry sees the U.S. milk supply as strong and reliable and they see opportunity in the U.S. consumer,” said Ben Laine, industry analyst with CoBank.
Many cooperatives lack the available capital to take on new and costly processing facilities -- a cheese manufacturing plant can cost between $300-500 million -- while many international processors see the possibility of diversifying their offerings both in the U.S. and globally.
“There are many benefits to this model as the partners in these joint ventures will share start-up costs and reduce the risks and costs along the supply chain,” said Laine. “These new plants are also benefiting producers, as the additional capacity reduces transport distances.”
However, once these ventures are in place, there is still plenty of risk, according to Laine. For example, the market risk that a new product may not meet sales expectations still exists, and if sales targets are not met, there may be pressure from some partners to exit.
CoBank is a $124 billion cooperative bank serving vital industries across rural America. The bank provides loans, leases, export financing and other financial services to agribusinesses and rural power, water and communications providers in all 50 states. The bank also provides wholesale loans and other financial services to affiliated Farm Credit associations serving more than 70,000 farmers, ranchers and other rural borrowers in 23 states around the country.
CoBank is a member of the Farm Credit System, a nationwide network of banks and retail lending associations chartered to support the borrowing needs of U.S. agriculture, rural infrastructure and rural communities. Headquartered outside Denver, Colorado, CoBank serves customers from regional banking centers across the U.S. and also maintains an international representative office in Singapore.
For more information about CoBank, visit the bank's web site at www.cobank.com.