The Impact of Globalization on the U.S. Dairy Industry: Threats, Opportunities, and Implications

Presentation to the Dairy Industry Advisory CommitteeJune 3-4, 2010

The Impact of Globalizationon the U.S. Dairy Industry:Threats, Opportunities, and

Implications

Tom Suber

2

Presentation to the Dairy Industry Advisory CommitteeJune 3 - 4, 2010

Goals for this discussion

■ Provide an overview of project objectives/approach

■ Review the expected evolution of the global dairy industry and the implications for U.S. dairy

■ Discuss strategic options for the U.S.

■ Recommendations for developing the appropriate option

3


Original project objectives defined by the Task Force

Primary: Provide a strategic analysis of the global dairy landscape to provide a common understanding of the challenges, opportunities and

threats posed by increasing globalization to the U.S. dairy industry

Secondary: From the analysis, determine if there are suitable programs of work at the industry level to

address the opportunities and challenges of globalization

4


Key themes■ Globalization of the dairy industry will increase in the coming years, with significant impact

on domestic and international trade1

■ Demand for dairy products will grow faster than available supply, driven disproportionately by emerging markets

2

5







6


0

100

200

300

400

500

Real GDP per capitaindexed from 2000

200

02

001

200

22

003

200

42

005

200

62

007

200

82

009

201

02

011

201

22

013

201

42

015

201

62

017

201

82

019

202

0

2020 GDPper capita

SE Asia

Russia

Brazil

EU

US

China

India $1,638

$4,731

$48,390$33,036$6,684

$9,781

$2,489

-50

150

350

550600M

World population growthforecast (2008-2030)

-27

10

95124 131

385408

543

Eu

rop

e

Oce

an

ia

Sou

thA

mer

ica

Nor

thA

mer

ica

Ch

ina

Ind

ia

Res

to

fA

sia

Afr

ica

1,5781,330 1,148729 97552838934

Future world economic and population growth will be driven by emerging markets

Source: US Census Bureau international database

2008 population (millions)

Dramatic increase in middle-class consumers(~800 million consumers by 2030)

7


0

200

400

600

800

1,000

1,200

1,400

0 10 20 30 40 $50K

USA

I celand

J apan

New Zealand

South Korea

GDP per capita 2005 ($ppp)

Animal protein Kcals per capita per day

Australia

China

Malaysia

ThailandPhilippines

I ndonesia

Pakistan

Vietnam

Sri LankaI ndia

Bangladesh

As economies create wealth, consumptionof animal protein (and dairy) will increaseGDP per capita ($ppp) and animal protein

consumption (includes fish and dairy)

Source: “Opportunities for Australian Agriculture” - Australia Farm Institute

0

2

4

6

8

10%

Japan

0.5

RO

W

0.7

EU

0.8

US

1.0

Oce

ania

1.5

Ru

ssia

/U

krain

e

1.7

Mexic

o

2.2

South

Am

eric

a

3.7

SE

Asi

a

5.6

India

7.5

Ch

ina

7.9

1912,216 1,539 867997837 2692952007

2092,346 2,374 1,3671,241925 3733362013

Dairy protein consumption CAGR('07-'13)

3,307291 1,424

3,472300 1,486

Dairy protein consumption(K MT)

Projected dairy protein consumption growth p.a., 2007-2013

High growth from emerging markets

Low growth from traditional markets

(incl US)

8


Most importers have growing dairy demand

Key importer

Note: The US and EU are both major importers and exporters of dairy products

• SE Asia will have significant import growth due to growing economies (all countries are far below saturation and growing) and limited ability to develop dairy production due to climate and land

- Domestic production only serves ~20% of consumption, with NZ even supplying fluid milk to meet demand

- Income levels are <$5,000 per capita in Thailand, Philippines, Vietnam and Indonesia, but expected to grow significantly

• China will continue to be a significant dairy importer with consumption growing faster than production in the foreseeable future

- Dairy demand will be driven by income growth and urbanization, with higher value-added products growing in Tier 1 regions

- There is opportunity to continue to develop the northern dairy region, but arable land limits and location, limited infrastructure to support expansion and political need to support the rural masses will limit speed of growth

• India is unlikely to emerge as a significant dairy importer: Political and cultural issues will drive the government to limit imports of dairy products

- India is projected to have significantly higher demand growth than production due to population and income growth

- Government will either have to support increased production or will allow pricing to dampen consumption growth

9


Most importers have growing dairy demand

Key importer


• Russia will decrease imports over the next five years, but will continue to be a net importer of dairy (mainly from CIS countries)

- Demand per capita will continue to grow as the economy expands, but expected population decline will temper consumption growth

- Production will continue to grow, but accelerated growth would depend on funding from government programs, thus economic stability from high oil prices

• Mexico will grow as an importer with imports continuing to increase across all product categories through 2013

- Consumption will continue to grow an 1.5-2% per year, due to population and income growth

- Domestic production is expected to grow more slowly due to low yields per cow

• Japan will retain import levels through 2013, though will have some product mix shift toward higher value added products

• ROW will be a significant importer with growing needs in the next five years, with the Middle East and N. Africa being the most important regions

- Domestic production is limited in many ROW countries and growth prospectsare limited

- Economies will continue to develop as globalization continues, suggesting increasing GDP per capita, thus increasing demand for dairy protein

10


Traditional exporters are slowing, while emerging sources of supply will take time to develop


Key exporter

• Australia will continue to be a significant dairy exporter with a forecasted 1-3% annual increase in production through 2013, assuming better weather

– Production growth is limited by regular droughts that constrain herd size and water availability

– Domestic dairy consumption is mature and unlikely to change over the next five years

• New Zealand will continue to be the world’s largest dairy exporter, but production growth at current cost structure will begin to be constrained due to land availability from high prices and competing land uses

– Most available pasture land is already occupied by dairy, sheep, deer, or beef cattle and trend of transitioning sheep land into dairy has subsided; small number of growth oriented producers have moved to other geographies for expansion opportunities (e.g. Chile, and US)

– Moving to feed based dairying (local corn silage or imported grain) will increase their cost structure significantly

• EU is the largest dairy market in the world, but it is unlikely to grow significantly in the global trade arena

– Net exports are forecasted to decline ~6% annually through 2015; cheese consumption will drive dairy growth and production will see marginal increase due to productivity gains

– EU policy (phasing out quota in 2015, lowered export subsidies, reduced price floors) and regional market differences will drive a short-term rebalancing, but likely has limited impact on long-term global prospects for the dairy industry

– Poland and Romania are best poised for long-term growth, with the Netherlands, Germany and Ireland likely taking share from Italy, Spain, France and the UK during transition period

• Uruguay and Chile will continue to grow as low-cost exporters, but are small markets that likely will not have significant impact on the macro global trade

11


Traditional exporters are slowing, while emerging sources of supply will take time to develop


• Ukraine and Belarus could become significant global exporters, but quality issues, lack of infrastructure, a destabilizing economy and currency (Ukraine), and political issues (Belarus) will slow growth on a global scale in the near- to medium-term

Key exporter

• Brazil has recently become a net exporter and will continue to increase exports due to strong production growth

– Brazil likely become a significant global exporter in the long term. However, growth will be limited in speed by their infrastructure, quality issues and credit limits slowing investments

– Dairy growth will be different than Beef and Cash Crop growth due to location: West Central region tends toward higher profit cattle ranches and crop farming; Southern region is less suitable to those industries and will be the prime growth area for dairy exports, but has a less developed infrastructure

• Argentina will continue to be a net exporter of dairy products with raw milk production forecasted to increase ~3% annually through 2013, but is unlikely to become a global production leader in the next 10-15 years due to economic, political, and climatic instability

– Government policies to maintain dairy supply domestically (e.g. export tariffs on dairy products) have precluded farmers from selling internationally

– Droughts, floods and extreme weather conditions have negatively impacted dairy production

12


Key takeaways – supply / demand factbase

■ Global import needs will grow significantly, driven by emerging markets that can not support their own demand growth

How will a globalizing dairy marketimpact the U.S.?

Does it create an opportunity that warrants collective industry action to facilitate?

What, if any, is the cost of inaction?

■ Traditional suppliers will not be able to meet growing import needs, creating a “latent demand gap”

13


Processors serving internal market consumption

…But demand is forecast to exceed supply, creating pressurein the form of a “latent demand gap” that will impact the broaderdairy complex

2007GlobalTrade

ImportDemandGrowth

100

14Latent Demand Gap

Import Growth

114

Projected demand with no obvious supply source

Growth where supply sources are predictable

Existing trade where U.S. would

have to steal share to grow

All dairy processors

connected to global market will

see supply- constrained

market dynamic

2013 Global Consumption

125

100

75

50

25

0

Global trade(indexed to 2007 = 100)

0

50

100

150

200

2013 Latent Demand GapEstimated Product Needs

SMP

74K MT

Whey

184KMT

Cheese

92K MT

WMP

152KMT

Butter

57K MT

6.5-7B lbs. of raw milk

2013Global Import

Demand

14


0

5

10

$15

Nominal price,$/bushel

Corn

Wheat

Soybeans

194

0

195

0

196

0

197

0

198

0

199

0

200

0

200

7

Nov

'08

Supply/demand imbalances will drive continued volatility across commodities, including dairy

Source: USDA, NASS, World Agricultural Supply

0

10

20

$30

Class I I I milk prices($/cwt)

1990

1995

2000

2005

2008

Soybeans, wheat and corn Class III milk

Volatility will impact international and domestic players in the U.S.

15


Product portfolio/

innovation

Commercial capability/

commitment

Quality

Cost

Traditional export suppliers are advantaged today, but willface slower growth and higher costs in the coming years

*New Zealand’s growth prospects and cost will begin to transition around 2013

Highlyadvantaged

Neutral/slight disadvantage

Highly disadvantaged

0

200

400

Raw milk production costs bycountry and source (2008)

EU

Ca

shC

ost

Eco

nom

icC

ost

$572

US(WI)

$485

US(West)

$411

Australia

$292

NewZealand

$287

$600/MT

26 22 19 13 13$/CWT

Structurallyhigh cost

Scalablemodel

Limited abilityto scale

U.S.New

ZealandEUAustraliaGeography

Cap

abili

ty c

omp

aris

on

Ma r

gin

al

Co

st1

00%

Feed

$371

Ma

rgin

alC

ost

10

0%

Feed

Ma

rgin

al

Cos

t5

0 %Fe

ed

Sup

ple

me

nt

$560

SupplyGrowth

16


Any strategy option must also address futurecompetition (emerging low cost-suppliers)

Cap

abili

ty c

omp

aris

on

0

100

200

300

400

$500/MT

Raw milk production costs bycountry and source (2008)

US(WI )

$485

US(West)

$411

Brazil

$329

Ukraine

EconomicCost

Cash Cost

$219

22 19 15 10$/CWT

Scalablemodel

Emerging,but small

Geography U.S. Ukraine Brazil

Cost

Quality

Commercial capability/

commitment

Product portfolio/

innovation

SupplyGrowth

Highlyadvantaged

Neutral/slight disadvantage

Highly disadvantaged

17


Customers view the U.S. as well positioned tosucceed in global dairy…

“The U.S. is the highest growth opportunity we see globally (as a source of supply)”

Head of large Asian dairy distributor

“The U.S. market has promise, but has some issues to address too…”

Head of procurement of SE Asia, top 3 dairy CPG

“The U.S. is positioned to play a bigger role globally…

Former head of China dairy procurement, top 5 CPG

“The U.S. has the technology and ability to grow faster than the rest of the global markets.”

European-based director of global equipment manufacturer

■ Low enough cost ■ Highest capacity to grow

supply■ High quality products■ Diverse supply base■ Relatively low seasonality

Identified U.S. strengths

“Implicit in our strategy is an effort to develop a diverse global supply base. Relying on supply from a single region doesn’t make sense.”

Global dairy buyer, top 5 CPG

18


…but also highlighted some shortcomingswithin U.S. dairy

“If I were King of U.S. dairy for a day, I would take advantage of frustration with Fonterra’s position through…

tightening quality developing customer service develop confidence in pricing.”

Former head of China dairy procurement top 5 CPG

“The U.S. has hurt themselves…due to lack of consistency, some customers are so used to NZ tastes and quality they are willing to pay $100/ton premium for their product…”

Head of large Asian dairy distributor

“The U.S. will be an important long-term supply base – but the current classified pricing system is confusing and makes it difficult to have price stability for our ingredients.”

Head of dairy procurement Global CPG

“…they also lack knowledge of documentation and export markets, which can limit delivery consistency”

Head of procurement of SE Asia, top 3 dairy CPG

■ “In & out” of global trade■ Quality not on par with

Oceania■ Product mix does not align

with customer needs■ Inconsistent customer service■ Volatile pricing/limited

contracts

Gaps in capability

19


We need to address the combined and cumulative effect ofdairy policies to improve our competitive position

Price Support FMMO/Classified Pricing

■ Historical policies and programs served an important purpose (e.g. safety net and a means to clear the market)

■ However, cumulative and combined impact over decades have weakened US competitive position

■ Government as fall-back customer has limited commercial focus

■ “In & Out” of export markets impacts credibility in global trade

■ Safety net distorts investment profile (market risk/reward clouded)

■ Product portfolio not aligned with customer/consumer needs

■ Limited innovation within product categories

■ Increased price volatility as a result of limited development of risk management/hedging practices

20


The right dairy strategy will address opportunities andthreats (to domestic and international trade)

Opportunities

■ Greater share of global trade, and increased growth in domestic market

■ Improved risk management (less volatility)

■ Increased use of dairy by CPG companies

■ Better product innovation

■ Competitive product portfolio

■ Increased investment in dairy

■ Limit growth of low cost supply by meeting emerging demand

■ Displaced imports ($500M opportunity)

■ Improved commercial and consumer focus

■ Growth, with less volatility

■ Strong domestic market as the basis for increased global trade

■ Strengthened competitive position

Threats/Risks

■ Underinvestment in value-added production, product innovation and commercial capabilities

■ Oceania and Europe continue migration to high end of the market

■ Ukraine and Brazil emerge as capable, low cost sources of supply

■ Decreased use of dairy in CPG

■ Increased pressure from imports (depending on trade policy)

■ Increasing volatility

■ Stagnant growth in domestic andglobal trade

■ Weak competitive position

21


Source: “World Trade Trends 2008”, USDEC; FAPRI

0

500

1,000

1,500

2,000

2,500K MT

Global dairy net trade: milk protein

South America

EU

Oceania

2008

2009F

2010F

2011F

2012F

2013F

2014F

2015F

2016F

2017F

2018F

2019F

2020F

2021F

2022F

2023F

Latentdemandgap

United States

ROW

Key question for the industry: How can the US takeadvantage of the window of opportunity?

Demand will continue to grow, driven by emerging markets

1

Traditional supplier growth slows and

costs increase

2Low cost, emerging production markets

will enter: Brazil in ~10 years, Ukraine/Belarus in ~15 years

3 4

Window of opportunity

22







23


• Complete focus on domestic market

• Use of additional tariff and non-tariff barriers to overcome foreign competition

• Supply mgt. as a means to balance production and demand, and limit volatility

• Attempt to limit effects of globalization

“Fortress USA”

• Limited industry efforts to address globalization

• Current policies and regulation

• Opportunistic participation in global trade as prices allow

• Individual companies may choose to develop differentiated export capabilities

• Limited effort to manage volatility

Status Quo

• Commitment to global opportunities for US milk supply

• Broad efforts to improve commercial focus and align product portfolio

• Collective effort to reform FMMO and price support

• Efforts to improve forward contracts, futures markets

• Strong domestic market as a basis for global trade

• Joint industry efforts to build insight/ capability

Consistent Exporter

• Consistent exporter strategy, plus:

• Industry moves to an export focused model that includes milk supply and processing assets outside of US

• Commercial and innovation capability development

• May include off-shore investment and other significant efforts

• Capabilities will support domestic market, though investments may be diverted globally

Global Dairy Player

Recommendation by IC Board

What options exist for the US dairy strategy?

24


Short-term capture of profits is uncertain at best

Road-blocks will limit implementation

Supply management may not deliver lower volatility

• Isolation of the industry is critical to successful

“F-USA” implementation- Increasing tariffs difficult due to WTO implications- Broad changes will face opposition by industry

participants looking to take advantage of export opportunities

- Very difficult to line up industry constituents. High risk of loss of control in the process

• Unsuccessful attempts have been made in the past

• Import / export variation has significant impact on ability to manage price

• Forecasting is imperfect in the dairy industry

Negative implications of Fortress USA:

Lack of growth• Falling consumption• Dairy substitution• Limited product

innovation

Rising Costs• Less focus on cost

and productivity• Increased

over-sight/regulation• Less investment

Weak Industry• Does not benefit

broader industry• Weak position if

barriers reduced• Leads to industry

stagnation

Short-term benefits of Fortress USA areunlikely, and long-term implications are disastrous

While Fortress USA could theoretically be attractive to producers if price increases were

feasible…

… the negative implications of a closed market strategy make it a highly risky strategy, leading

to stagnation an decline

25


Inaction in a period of changing market dynamics is a questionable industry strategy

■ Latent demand gap will result in some price recovery

■ However, price volatility will continue to whip-saw domestic market

■ Food processors start to limit dairy usage due to high/volatile prices

■ Sporadic investment in technology and product innovation

■ Static product portfolio

■ Opportunistic development of commercial capability

■ Limited policy/regulation reform

■ Limited growth opportunities Slowing domestic growth Export growth less than demand Limited import substitution

■ High volatility will persist, impacting market growth and stability

Peaks will drive higher substitution Troughs will be painful and may reduce market investment US as marginal player will add volatility

■ Erosion of U.S. competitiveness Lag industry leaders (Oceania) in innovation and commercial

capabilities Higher cost than emerging market supply with no

differentiation Less investment in capital, talent, innovation

■ Lack of U.S. ability to meet emerging demand will increase speed of entry of low-cost competition

■ Risk of flat or even declining domestic market (and diminished international trade)

Short term(5-10 years)

Long term(10-25 years)

Maintaining the status quo will likely resultin a weakened U.S. dairy industry

26


In summary, each option affects playerin the value chain in different ways

Depends on US ability to move up-market to value-added products

Positive impact Negative impactNeutral impact

Producers

Near-term

Long-term

FortressUSA

Status quo

Consistent explorer

Global dairy

player

Processors

Near-term

Long-term

CPGs

Near-term

Long-term

Retailers/Consumers

Near-term

Long-term

27


Globalization has and will impact domestic and export trade – the trends that create the “global demand gap” run deeper than the business cycle, and broader than U.S. dairy policy

The U.S. industry should take action to leverage strengths and bolster shortcomings to benefit from globalization – a “do-nothing” strategy is insufficient and dangerous

A strategy of becoming a “consistent exporter” will create growth and profit opportunities in both internal and external markets

Key enablers of a future strategy must address pricing policies, and enhance tools to mitigate forward market risk

As an industry, we should mobilize against a focused set of activities to build capability and create the needed change

In parallel, U.S. dairy companies should utilize the insights from the globalization study and ongoing industry resources to strengthen their competitive position

In summary, the U.S. should pursue a focused setof company and industry actions to benefit from afuture of increased globalization

28


Company specific

Collective industry

Investment in cross-border commercial capabilities/

partnerships

Reform regulated milk pricing systems (Federal

and State) and price support

Development of mechanisms for risk

management / reduction of volatility

Build on existing food safety assurances and

traceability as a competitive strength

Continue pursuit of trade treaties that provide net

export benefits

Priority

High

Low

Development ofsales / marketing

capabilities

Develop ability to deliver customer

product specifications

Product & technology innovation (possible with

financial incentives)

Develop capabilities to package/manufacture high value-added products to

meet internationalstandards

Cost and productivity

Export Marketing Board

To achieve the “Consistent Exporter” strategy, both industry and company specific actions are required

29


THANK YOU

QUESTIONS OR COMMENTS?

Tom Suber, U.S. Dairy Export [email protected]

30


APPENDIX

31


Accommodating Globalization – Internally & Externally

Staff & SupportStaff & SupportGlobalization

Operating CommitteeToland, Glanbia (Chair)Nobis, MMPACarey, Darigold Ruiz-Funes, LOLClauss, Hilmar Shelley, SchreiberCotta, CDI Taylor, LeprinoKaneb, Hood Waldvogel, DFAMurfield, UDA

GlobalizationOperating Committee

Toland, Glanbia (Chair)Nobis, MMPACarey, Darigold Ruiz-Funes, LOLClauss, Hilmar Shelley, SchreiberCotta, CDI Taylor, LeprinoKaneb, Hood Waldvogel, DFAMurfield, UDA

Volatility ManagementShelley, Schreiber (Chair)

Volatility ManagementShelley, Schreiber (Chair)

Stakeholder Coordination

Tipton, IDFAKozak, NMPF

Gallagher, DMIToland , GOC

Stakeholder Coordination

Tipton, IDFAKozak, NMPF

Gallagher, DMIToland , GOC

Quality, Safety,Traceability

Carey, Darigold (Chair)

Quality, Safety,Traceability

Carey, Darigold (Chair)

Pricing ReformPricing Reform Trade Treaties

Trade Treaties

Standards & SpecificationsStandards &

SpecificationsPre-competitive

Sales & MarketingPrograms

Pre-competitiveSales & Marketing

Programs

Science & InnovationScience & Innovation

32

Presentation to the Dairy Industry Advisory CommitteeJune 3 - 4, 2010 32

We ran our analysis across five main scenarios: 1. Fortress USA, 2. Status quo with a 5% increase in price by 2013, 3. Status quo with flat prices, 4. Consistent exporter with 50% of latent demand capture, 5. Global player with 75% of latent demand capture as well as 5% share capture of EU exports

Even though Fortress USA theoretically appears attractive in the near term, there are both short-term and long-term concerns with this strategy. We believe this strategy would detrimental to the US dairy industry

− In the near-term, the feasibility of successfully implementing a Fortress USA strategy is extremely low• It will be extremely difficult to put in place a supply management system that would effectively address

volatility in the industry and adequately anticipate new market demands• True Fortress USA would include increasing tariffs and other barriers to limit the impact of imports /

exports, which would face strong resistance due to the ramifications on other agriculture industries (due to WTO restrictions)

− Longer-term, this strategy will have drastic implications on the dairy industry• Higher cost structure due to creeping inefficiencies, depressing producer margins, pushing prices even

higher• Negative impact on dairy consumption at the consumer level• Substitution of dairy for other ingredients by CPG companies • Complete lack of investment, innovation and growth leading to stagnation• Vulnerability to imports as inevitable loopholes are exploited or if the trade barriers are ever taken down• Highly unfeasible given the required change in overall trade policy and agreements in place

− The IC Board has agreed that Fortress USA should not be pursued

On a base case, Consistent Exporter appears to be most attractive with PV of ~$29B compared to status quo (5% price increase assumed; $26B) or status quo with flat prices assumed ($21B), while Global Player has also been deemed as an premature industry strategy at this point by the board

Executive summary of scenario modeling

33


Theoretical PV of industry profits:

~26

Theoretical Fortress USA

(20% price increase due to supply mgt.)

~30

Fortress USA (Risk Adjusted)

Status Quo(5% price increase

due to latent demand)

$60B

40

20

0

Risk adjusted, Fortress USA does not create value over the Status Quo

34


0

10

20

30

$40B

PV of each scenario through 2025 (Profit)

Status quo (5%price increase)

25.7

Status quo (0%price increase)

20.9

Consistent exporter

29.1

Global player

31.1

Base case

Options studied in detail

Option deemed infeasible at industry level

Price increase No price increase

PRELIMINARY

Base case: Consistent exporter providesbetter industry value than Status quo

35


“Fortress USA” might be attractive only for producers in the near term

Producers Processors CPGsRetailers/

Consumers

Requires significant gov’t oversight and intervention and fundamental change in trade policy counter to current trade agreements


36


“Status Quo” would lead to neutral to negativeimpact in the long run



Consumers

Note: If we consider the missed

opportunity for dairy innovation and

trading up the dairy category, this could

be considered a negative impact for

consumers and retailers

37



“Consistent Exporter” would help US in global anddomestic markets; positive long term outlook


Consumers

Efforts to manage volatility as a priority strategy benefit entire value chain

38


Efforts to manage volatility as a priority strategy benefit entire value chain Positive impact Negative impactNeutral impact

Global dairy player requires significant advancement; deemed premature as an industry strategy


Consumers

39


Revenue opportunity in 2013 (separate for

each scenario)

Growth in domestic market (includes

impact of imports)Growth in exports (vol)

Impact of price (direct impact for producer

market, partial impact for processor/CPG market=

Volume impact Price impact

Margin opportunity in 2013 (separate for

each scenario)

Revenue opportunity in 2013 (separate for

each scenario)

Impact of change in margin % (price – costs) [Taking into account the difference in size and profitability of

producer, processor/CPG markets]

Impact of demand elasticity to price (will affect volume based on price assumptions)

+ X

= X

Note: We have kept most of the assumptions constant from 2013 to 2025

Approach for estimating the “size of the prize”

2

40


Assumptions for the DCF model – Base caseAssumption

Status Quo (5% price increase)

Status Quo (flat price)

Consistent Exporter Global PlayerFortress USA

41


0

10

20

30

$40B

PV of US Dairy Industry Profit (Full potentialscenarios)

Status quo(0% priceincrease)

21

5% priceincrease

5

Status quo(5% priceincrease)

26

ConsistentExporter

29

2.5% priceincrease

4

Domesticgrowth

1

Consistentexporter

-Fullpotential

34

Lower volatility, higher exports, improved domestic growth, and moderate price increase lead to

~30% additional profit than Status Quo

Status Quo

Consistent Exporter

Assuming full potential scenarios,ConsistentExporter yields ~30% higher PV than SQ

Documents

The Impact of Globalization on the U.S. Dairy Industry: Threats, Opportunities, and Implications