A cooperation agreement between the U.S. Grains Council and a Chinese dairy association has expanded the U.S. DDGS market eastward, where the potential for growth is enormous.
The U.S. Grains Council is helping to increase exports of U.S. dried distillers grains with soluables (DDGS), a co-product of the ethanol industry, through its cooperation program with dairies along China's coastline. On March 10, 2009, the USGC signed a cooperation agreement with the Guangdong Provincial Dairy Association. Through their agreement, the USGC provides educational sessions, demonstrations and training in an effort to increase demand for U.S. DDGS in China.
Thanks to the quality of U.S. DDGS, the affordability of the feed ingredient and the marketing efforts by the USGC, demand has risen consistently since 2007 and shows no sign of slowing down.
Cooperation Agreement
The USGC has utilized cooperation agreements for a number of years to expose developing nations to modern feeding technologies and practices. The agreement with the Guandong Provincial Dairy Association was designed to help teach members of the association how to use U.S. DDGS as a ration in their dairy feed.
Cary Sifferatch, director of USGC Beijing, says the agreement is beneficial for both sides, not just the Chinese dairy farmers.
"The agreement says that the Guangdong Provincial Dairy Association will cooperate with USGC on all dairy management training programs within Guangdong Province," says Sifferath. "They help us set up on-farm consultations where we can go directly to dairy farms and show how U.S. DDGS can be used in dairy rations. Also, the association must assist USGC in doing an annual benchmarking survey to see how well our dairy management training programs are meeting the goals we set forth each year."
Mike Callahan, USGC senior director of international operations for Asia, says cooperation agreements such as these are successful because they give foreign markets the opportunity to see the product firsthand.
"Proving to the Chinese dairy associations that U.S. DDGS is a valuable product takes more than simply saying ‘we've been using it in the United States, so you should, too,'" says Callahan. "The demonstrations we provide are necessary because they want to try it, smell it, see how it works."
However, the demonstrations would be useless had the USGC not had a quality product to work with. A main reason that U.S. DDGS exports are increasing is because the quality is superior to that of China's domestic DDGS.
U.S. DDGS Advantage
U.S. DDGS appeals to Chinese dairy farmers for many reasons. It's competitively priced, it's a good source of energy and protein, and U.S. DDGS has very little variability. China has its own supply of DDGS because of its grain-based ethanol and alcohol production, so many feed companies and livestock operations have used domestic DDGS in the past, but were not impressed with the outcome. The USGC's goal now is to reverse the thinking in China that DDGS is a poor quality feed ingredient.
"Chinese DDGS is of a different quality than U.S. DDGS, with lower energy, lower digestible protein and lower available phosphorus levels," says Sifferath. "USGC educates Chinese endusers on the nutritional value of U.S. DDGS and the fact that the United States has a growing supply of DDGS, as the U.S. ethanol industry continues to grow."
According to Callahan, the Chinese farmers who attend DDGS demonstrations almost immediately notice the higher quality of U.S. DDGS.
"We've found that by and large, when doing demonstrations, we don't have to give away the sample," says Callahan. "They're usually willing to buy a container as soon as we show them the product and how to use it."
The price of U.S. DDGS has also impacted its growth. Since Guangdong is part of the coastal region of China, it allows U.S. DDGS to be competitive with other feed ingredients because the imported DDGS are used in the feed of livestock industries located close to the importing facilities. Transportation farther inland China usually makes U.S. DDGS less competitive.
Growth Potential
Although right now the coast is the primary location where U.S. DDGS demand is increasing, there is great potential for it to increase elsewhere. The upward trend has already begun. In 2007, China imported around 100 metric tons of U.S. DDGS. In 2008, China imported 8,500 metric tons of U.S. DDGS, and thus far in 2009, China has imported roughly 4,400 metric tons. And there is still potential for China to import much larger volumes.
"We have already seen the Guangdong Dairy Association become a repeat buyer of U.S. DDGS to supply to several dairy farms throughout Guangdong Province," says Sifferath. "We hope to repeat similar experiences in the dairy farming areas of Shanghai."
The potential for U.S. DDGS export growth is immense, but will require some targeted marketing to reach its full potential.
"Realistically, we think U.S. DDGS sales could reach 100,000 metric tons within the next couple of years if some of the constraints to DDGS imports can be overcome," says Sifferatch. "So far, we have only penetrated a small part of China's dairy market, with around 14 million head of cows [total of milking and replacement heifer numbers] in 2008. A big portion of China's dairy industry is in the Northeast part of China, and farther inland, so that is why we are tying up our dairy management training programs with our DDGS promotion programs in coastal areas where U.S. DDGS are more competitively priced. We've learned that you have to be more specific in marketing your product where you think it will be realistically competitive."
Another factor that may inhibit U.S. DDGS sales from reaching its full potential is the new Chinese regulations on U.S. DDGS.
Possible Barrier
According to Callahan, one barrier constraining growth is the regulations imposed on U.S. DDGS by China's Ministry of Agriculture. It considers DDGS from the U.S. a new feed ingredient, despite the fact China produces DDGS domestically.
Ethanol plants in the United States should prepare to register their plant for full feed registration with the Ministry of Agriculture in order to export the DDGS to China.
"This is one of the major constraints that USGC is currently working on as we feel it will keep China from becoming a larger market of U.S. DDGS," says Sifferatch. "USGC in China is already working on this problem and should have some potential assistance to offer to USGC member companies who want to register their ethanol plant for export of DDGS to China. Currently the smaller shipments of U.S. DDGS [200, 500 or 1,000 metric tons at a time] are coming to China without any feed registration, but to move to larger shipments, feed registration will be needed."
