May 18,2004

Report on Milk Protein Concentrates


TO: Reporters and Editors
RE: ITC Report on Milk Protein Concentrates
DA: May 18, 2004

In May 2003, Sen. Chuck Grassley, chairman of the Senate Committee on Finance, requested a section 332 investigation by the U.S. International Trade Commission (ITC) on U.S. market conditions for milk proteins, including milk protein concentrate (MPC), casein, and caseinate.

Today, Sen. Grassley welcomed the release by the ITC of its report entitled Conditions of Competition for Milk Protein Products in the U.S. Market. Besides examining the milk protein industry in the United States, the report provides profiles of the industries in New Zealand, Australia, and the European Union, the world's major MPC exporting countries. The ITC's investigation focused on the period of 1998 to 2002.

Statement by Sen. Grassley —

"The ITC's report is the most comprehensive, complex, and detailed analysis of the MPCtrade I have ever seen.

"According to the ITC, industry and academic experts agree that the degree of technicalsubstitutability between imported MPCs and skim milk powder in many dairy applications is'very high.' The report states that it appears that most of the substitution of skim milk powderoccurs in the production of processed cheese products. The ITC found that it's possible toproduce processed cheese products using either MPCs or skim milk powder with little or nochange in equipment or manufacturing processes. Moreover, the report states that between 1998and 2002, imported MPC, casein, and caseinate may have displaced on a protein basis 318million pounds of domestically produced milk proteins. According to a follow-up question Iposed to the ITC yesterday, the ITC found that this amount represents about 1.2 percent ofdomestic milk protein production over the five year period.

"The ITC explains as well that U.S. imports of MPCs from 1998 to 2002 were stronglyinfluenced by government support provided to the European Union's dairy industry, both in theform of export refunds and production aids. I believe that these EU policies demonstrate theimportance of concluding agricultural negotiations at the WTO that will prohibit export subsidiesand that will lower the level of domestic support provided by the European Union to fair levels.

"The ITC also found that, as skim milk powder market prices were generally equal to theU.S. support price over the period of 1998 to 2002, the major effect of imported milk proteinswas on federal purchases of skim milk powder. The report finds that imported milk proteins mayhave contributed to a 25-35 percent increase in Commodity Credit Corporation (CCC) stocksfrom 1996 to 2002. The ITC reviewed economic studies conducted by various academicresearchers regarding milk protein imports. These studies generally found that the predominantimpact of milk protein product imports is on CCC stocks, and not on farm-level prices."

"I'm pleased that this report discusses in length many issues concerning imported MPCsand other milk proteins. I appreciate the work of the staff of the ITC in writing this report, whichat over 400 pages in length, is probably the most comprehensive and best researched report everon this topic. It raises a lot of issues and provides a wealth of data that will require a great dealof thoughtful analysis.

"That's why I've invited representatives of the National Milk Producers Federation andthe International Dairy Foods Association to meet with my staff this afternoon to discuss theITC's findings. I'm hopeful that this meeting will lead to constructive dialogue on how to moveforward to resolve issues of concern to both producers and processors. There are no simpleanswers. This is an important issue, and we need to get it right."