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Conditions of Competition for Milk Protein Products in the U.S. Market

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Conditions of Competition for Milk Protein Products in the U.S. Market U.S. International Trade Commission COMMISSIONERS Deanna Tanner Okun, Chairman Jennifer A. Hillman, Vice Chairman Marcia E. Miller Stephen Koplan Charlotte R. Lane Daniel R. Pearson Robert A. Rogowsky Director of Operations Acting Director, Office of Industries Address all communications to Secretary to the Commission United States International Trade Commission Washington, DC 20436 U.S. International Trade Commission Washington, DC 20436 www.usitc.gov Conditions of Competition for Milk Protein Products in the U.S. Market Investigation No. 332--453 Publication 3692 May 2004 This report was principally prepared by Agriculture and Forest Products Division Cathy L. Jabara, Chief Animal and Forest Products Branch William Lipovsky, Chief Jonathan Coleman, Project Leader [email protected] Warren Payne, Deputy Project Leader Staff assigned Ronald Babula, Joanna Bonarriva, Devry Boughner, John Fry and Brad Gehrke Office of the General Counsel William W. Gearhart Office of Tariff Affairs and Trade Agreements Ron Heller Reviewers James Stamps and Karl Tsuji Administrative Support Phyllis Boone and Janice Wayne PREFACE On May 14, 2003, the U.S. International Trade Commission (Commission) received a request from the Senate Committee on Finance (Committee), under section 332(g) of the Tariff Act of 1930 (19 U.S.C. 1332(g)) that the Commission conduct an investigation regarding U.S. market conditions for milk proteins (appendix A). On June 5, 2003, the Commission instituted investigation No. 332-453, Conditions of Competition for Milk Protein Products in the U.S. Market. The Committee specifically asked the Commission to examine the competitiveness of a variety of milk proteins in the U.S. market, focusing on milk protein concentrate, casein, and caseinate; and the market for those products compared with other milk proteins, including whole milk, skim milk, dried whole milk, dried skim milk, whey, dried whey, and whey protein concentrates. The Committee requested that the investigation cover the period 1998-2002 to the extent possible, and that the Commission provide its completed report 12 months from the receipt of the request. In its letter, the Committee requested the Commission to transmit a report that can be fully disclosed to the public, that is, containing no confidential business information. As requested by the Committee, the Commission’s report on the investigation includes the following information: • an overview of the global market for milk proteins in their various forms, including such factors as consumption, production, and trade during the period 1998-2002; • profiles of the milk protein industries of the United States and major dairy exporting countries, and in particular, the industries of Australia, New Zealand, and the European Union;1 • information on the overall level of government support and other government intervention affecting producers of milk proteins in the United States and in each of the above-referenced trading partners together with a discussion of competitive factors, including government policies, that impact U.S. production, use, and trade in milk protein products in their various forms; • information on U.S. imports and exports of milk protein in its various forms with data broken down, to the extent possible, by protein content, end use, and manufacturing processes; • a history of U.S. tariff classification of milk proteins and tariff treatment of these products, including any fees or quotas imposed under section 22 of the Agricultural Adjustment Act, tariff-rate quotas established pursuant to the Uruguay Round Agreements, and U.S. Customs Service classification decisions; 1 For the purpose of this report, the European Union refers to Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden, and United Kingdom (i.e., EU-15). i • a qualitative and, to the extent possible, quantitative assessment of how imported milk proteins affect farm-level milk prices in the United States; and, • other information relating to competitive factors affecting: (1) the U.S. industry that imports and consumes milk proteins; (2) the U.S. industry that supplies competitive products; and, (3) the competitive factors, including government policies, that impact potential U.S. production of milk proteins in their various forms. Public notice of the investigation, reproduced in appendix B, was posted in the Office of the Secretary, U.S. International Trade Commission, Washington, DC, and published in the Federal Register (68 FR 35004) of June 11, 2003. A public hearing on the investigation was held on December 11, 2003, in Washington DC.2 2 A list of witnesses who testified at the hearing is included in appendix C. ii CONTENTS Page Preface ................................................................. i Abbreviations and acronyms ................................... xvii Executive summary ................................................ xxi Chapter 1: Introduction ......................................... 1-1 Background ............................................................ 1-1 Purpose............................................................... 1-4 Scope................................................................. 1-5 Milk components ..................................................... 1-5 Skim milk powder .................................................... 1-9 Milk protein concentrate ............................................... 1-9 Casein .............................................................. 1-10 Caseinate ........................................................... 1-10 Whey protein concentrate .............................................. 1-11 Other forms of milk protein............................................. 1-11 Functional attributes of milk protein products ............................... 1-11 Approach.............................................................. 1-12 Questionnaire process .................................................... 1-12 Organization of the report................................................. 1-13 Chapter 2: Overview of the global market for milk protein products .............................................. 2-1 Introduction ............................................................ 2-1 Global production of milk protein products ................................... 2-3 Raw milk............................................................ 2-3 Skim milk powder..................................................... 2-5 Whole milk powder.................................................... 2-5 Whey............................................................... 2-7 Casein and caseinate ................................................... 2-7 Global consumption of milk protein products ................................. 2-8 Skim milk powder..................................................... 2-8 Whole milk powder.................................................... 2-8 Dry whey............................................................ 2-8 Global trade in milk protein products ........................................ 2-10 Skim milk powder..................................................... 2-12 Whole milk powder.................................................... 2-14 Dry whey............................................................ 2-14 iii CONTENTS—Continued Page Chapter 2: Overview of the global market for milk protein products—Continued Casein .............................................................. 2-17 Milk protein concentrate, caseinate, and whey protein concentrate ............... 2-18 Milk protein concentrate.............................................. 2-18 Caseinate .......................................................... 2-19 Whey protein concentrate............................................. 2-19 World prices of milk protein products ....................................... 2-20 Chapter 3: The milk protein industry of the United States ............................................................. 3-1 Introduction ............................................................ 3-1 Overview.............................................................. 3-1 Production of fluid milk .................................................. 3-3 Production systems .................................................... 3-3 Milk production, price, and industry structure trends .......................... 3-4 Cost of production ..................................................... 3-7 Government programs.................................................. 3-9 Dairy Price Support Program .......................................... 3-10 Milk marketing orders ............................................... 3-13 Classified pricing ................................................. 3-14 Revenue pooling ................................................. 3-15 State milk marketing orders......................................... 3-15 Direct income support ............................................... 3-16 Processing of milk protein products ......................................... 3-18 Industry structure ..................................................... 3-18 Milk protein product production .......................................... 3-20 Skim milk powder, whole milk powder, and whey ......................... 3-20 Casein ............................................................ 3-21 Caseinate ......................................................... 3-23 Ultrafiltered milk ..................................................
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