Un ited States Department of Agriculture Economics and Statistics . Service National Economics Division ESS Staff Report ANDREW. M. MOVie u.s. Casein and Lactalbumin Imports: An Economic and Policy Perspective Number AGESS 810521 , ", .. ", '\ . .' , .\ ,/ .) \ ,\ - --, / \ .. l " .. ,
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United States Department of Agriculture
Economics and Statistics
. Service
National Economics Division
ESS Staff Report
ANDREW. M. ~OV MOVie
u.s. Casein and Lactalbumin Imports: An Economic and Policy Perspective
Number AGESS 810521
, ", .. ~.... " , ~ '\ . .',
.\ ,/ . ) \ ,\ - --, /
\ .. l "
.. ,
U.S. CASEIN AND LACTALBUMIN IMPORTS: AN ECONOMIC AND POLICY PERSPECTIVE. By the Food and Agricultural Policy Branch; National Economics Division; Economics and Statistics Service; U •. S. Department of Agriculture; Washington, D.C. 20250; June 1981. ESS Staff Report AGESS810S21
ABSTRACT
This study examines the economic implications of restricting the importation of casein and lactalbumin--dairy proteins used in various food, feed, and industrial products. Under existing legislation and trade agreements, the most extreme restrictions that may be imposed are a SO-percent quota or a SO-percent ad valorem tariff. If either of these were imposed, users of casein would shift to soy-based protein and other ingredients wherever possible, although product quality could suffer. Some casein use would be replac·ed by skim milk solids, but not enough to significantly affect CCC purchases under the dairy price · support program. Import restrictions would l ncrease the cost of producing goods containing casein, and thus raise prices to consumers.
Keywords: casein, lactalbumin, Section 22, U.S. Dairy Price Support Program
The study team for this report included Kenneth C. Clayton, Felix Spinelli, Thomas Stucker, Howard Leathers, James Johnson, and Le tricia Womack.
This report was prepared for limited distribution to the research community outside the U.S. Department of Agriculture.
Introduction ••••••••••••••••••••••••••••••• Casein as a Milk Component ••••••••••••••• Institutional Setting ••••••••••••••••••••••••••••••••••• Major Determinants of Growth in Casein/Lactalbumin Use •••••• Purpose of the Study ............•...•.•.......•.............
The Supply Perspective •.••••••••••••••••••• Oceania: New Zealand and Australia •••••• The European Economic Community •••••• Summary Perspective ••••••••••••••••
U.S. Casein and Lactalbumin Use ••••• Historical Patterns of Use •••••••• Measuring Use in 1980 ............................... .
Casein Product Use and Substitution ••••••••••• Feed Product Use of Casein...... • •••••• Food Product Use of Casein...... • •••••• Industrial Products Use of Casein •••••••• Lactalbumin Use •.•.•..................... Classification of Casein Uses ••••••••••••
Economic Implications of Restrictions on Casein Imports •••••.•••• The Casein Market •.................. . -......... .
Skim Milk Solids •••••• ..... Displacement of Domestic Economic Implications of Trends and Implications.
are examples of end-products that have increased the demand for casein.
The supply/demand situation for casein/lactalbumin indicates that
supply has been growing while demand fluctuated--dropping in some product
lines and growing in others. In addition, new product lines have developed.
5
This situation has created only moderate increases in the price of casein;
in fact, the real cost of casein has probably decreased over much of the
last decade. Only in the last 1-2 years have casein prices increased and
failed to return to previous price levels. The relatively stable casein
price encouraged its use over nonfat dry milk, which is perceived by many
as a product with "built-in" price increases due to the dairy pric~ support
program.
Much of the technical progress has been encouraged by changing life
styles and diet preferences (26,30). Increased quantities of consumer
products that contain less fat, that meet certain individual dietary goals,
and that are more convenient have promoted the use of casein. Instant
breakfasts, diet drinks/meals, and lowfat imitation cheeses a r.e all products
that can be made with casein and which have experienced a growing market.
Manufacturers' perceptions of positive consumer acceptance of products
utilizing casein have influenced increased casein use.
Government regulations can also affect the amount of casein/lactalbumin
used. Import restrictions (tariffs and quotas) can directly influence the
use of any import, and Government regulation can influence how imports are
allocated once received into the United States. Quality standards, identity
standards which state the ingredients to be used in certain products, and
an outright ban on use can all be imposed to limit use. Currently, casein
use is prohibited in many specified meat products and restricted in ice
cream.
General economic conditions also exert some influence over the quantity
of casein that is utilized in anyone year. Past recessions have generally
reduced the demand for casein. However, with the advent of consumer pro
ducts such as imitation cheese that are priced lower than conventionally-made
6
counterparts, poor economic conditions could actually increase the demand
for casein.
Given our experience to date, future use would appear to depend on
(1) growth in the use of these milk proteins as substitute ingredients in
existing products (for example, calf milk replacers and margarine); (2) entry
of new products which require their use (coffee whiteners and imitation
cheese); and (3) general market growth of products that have historically
required these milk proteins as ingredients (glues and adhesives).
Purpose of the Study
The specific purpose of this study is to determine the extent to which
these two imported milk proteins--casein and lactalbumin--are used, and the
degree to which they substitute with other inputs. The results of sUGh an
assessment have direct implication for the outcome of possible policy actions.
To do this, an extensive review of all available information has been under-
taken. To achieve the specific objectives of the study, it was necessary
to:
o determine the conditions under which imported casein/lactalbumin is produced--in particular, the competitive position of the dairy industries in major casein/lactalbumin exporting countries;
o examine current uses of casein/lactalbumin to learn why they are used, to identify alternative inputs that could be used in their place, and to establish the relative economics characterizing their use;
o review the role that casein/lactalbumin plays in the marketability and sales of selected end-products;
o evaluate the implications that casein/lactalbumin availability restrictions would have on their use and on end-product sales;
o estimate any domestic milk or milk product displacement that may be occurring; and
o determine the impact that such displacement may be having on the U.S. dairy price support program.
7
The next section of the paper presents a perspective on the availability
of casein and lactalbumin. Major exporting countries are examined and
economic conditions of milk production, marketing, and use are described.
The importance of casein and lactalbumin production to the dairy industry
of each country and the government's role in influencing the production and
marketing of milk and milk proteins are highlighted.
In the third and fourth sections of the paper, major uses of these
imported dairy proteins in the United States are identified. For each use
category, reasons for using casein/lactalbumin, possible substitutes, and
the economic importance of these proteins are described.
The final section of the paper provides an evaluation of the effect
that imported milk proteins may be having on the domestic dairy industry
and dairy price support program costs, assesses possible consumer effects of
policy options, and reviews possible trends and prospects for change in
impor ts.
THE SUPPLY PERSPECTIVE
Casein and lactalbumin are supplied to processors and manufacturers in
the United States entirely from foreign sources. This was not always the
case, as a domestic casein industry existed through the forties and fifties,
and some casein was produced as late as the mid-sixties. However, a changing
economic environment, influenced largely by government policy, resulted in
a shift from casein to nonfat dry milk production.
An evaluation of the economic and policy forces affecting milk and
casein/lactalbumin production in major exporting countries is therefore
necessary to an understanding of casein/lactalbumin supply. In this context,
two issues are particularly important:
o the rela ti ve cos ts of milk produc tion in .· casein/ lac tal bumin exporting countries and in the United States, and
o the existence of any subsidies paid by the exporting countries which causes an artificially low price for casein/lactalbumin imported into the United States.
Because the cost of milk is the major component in the cost of producing
casein and lactalbumin, the competitive position of major exporters relative
to the United States can be gauged by their respective costs of producing
milk. In the absence of any governmen t in terven tion, casein would be impor ted
to the United States only from those countries which can produce milk at a
lower cost than U.S. producers.
In addition, exporting countries may choose to subsidize the production
and export of their milk or milk products. A variety of policies, e.g.,
pooling and equalization plans, are possible to make milk produc t s, including
casein/lactalbumin, competitive in world markets. To the extent that casein/
lactalbumin imports to the United States are subsidized, the ava:llability
and price of these dairy proteins now and in the future will be :lnfluenced by
policy decisions in other countries. This makes assessing current and
anticipated casein/lactalbumin production and exports a rather difficult
matter, at best. Still, comparative costs of production data and knowledge
of subsidies currently in place are basic to the supply perspective for
casein and lactalbumin.
Casein and casein mixtures are supplied to the United States by a
relatively few countries (table 1). New Zealand is by far the most signifi-
cant exporter. Australia has been important, too, and most recently Ireland
has expanded its exports of casein. Collectively, the European Community
countries of France, West Germany, the Netherlands, and Ireland provide a
sizeable portion of our casein.
These six countries--two in Oceania and four EC countries--accounted
9
for 86 percent of U.S. casein imports in 1980, 88 percent in 1979 and 86
percent in 1978. Their combined share of world casein production was also
significant: 78 percent of the world's casein in 1980, 73 percent in
1979, and 69 percent in 1978.
Casein imports presently total just over 152 million pounds per year
(table 1). The exact amount has varied from year to year depending on
casein prices and existing stocks. Imports have increased by over 40
percent since the early seventies, growing from an average annual quantity
of 106 million pounds during 1971 and 1972 to over 152 million pounds by
1979 and 1980.
Casein producing countries exhibit a rather diverse set of production
circumstances. Some countries can produce milk at a relatively low cost
because inexpensive feed sources are available. Others have surplus milk
that must be removed from the market to support their domestic dairy indus-
try. Between these are a variety of production situations that result in
a range of milk production costs. 4f
Total estimated costs of producing milk range from just over $t per
hundredweight to - just under $10 for the six EC and Oceania casein-producing
countries and the United States (table 2). The U.S. cost of production
figure differs from that reported in the Committee Print on Costs of Producing
Milk in the United States. This difference stems from the need to develop cost
estimates that are consistent across countries. A major cost item omitted
from the total reported in Table 2 is depreciation on the cattle herd. New
Zealand and Australia appear to have a distinct cost advantage, due primarily
to their low feed costs. The larger herd sizes in the Oceania countries
also reduce management and labor costs per unit of milk produced.
,..
Table l--U.S. Imports of Casein and Casein Mixtures
Country of origin 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980
Less Taxes on Inpu ts ( .00) (.19) (.36) (.64 ) ( . 33) ( . 53)
Land Cos t .20 .18 .63 .20 .63 .29 ---C-RAND TOTAL _ ~·Z.1 5.68 6.73 7.75 9.78 8.51
a/ Calendar year except for New Zealand (June-May) and Australia (July-June). h/ Details and sources are given in Appendix I. e/ Not calculated or given separately.
1978 ~/ E!
Uni ted S ta tes
3.98
s./
.08
.22
.25
.24
.59
.28
~
.97
.81
.86
.55 3.19
.04
( .00)
.16 d/ 8.92 -
~/ The difference between this amount '-and that given in the Congressional COllllllitee Print on Costa of Producing Milk for 1978 ($9.34/cwt.) is due to the different methods employed in the studies and the omission of depreciation on livestock in this report. This omission was necessary in order to be consistent in making comparison between different countries. Strict comparisons with foreign countries' cost of studies cannot be made due to different exchange rate levels and also due to different methodologies e~ployed.
!!../ Imputed interest on the value of all livestock, equipment, and machinery.
12
To provide a context for understanding the supply of casein and lactal
bumin, a more detailed review of the forces shaping the dairy industries in
the major exporting countries is provided below.
Oceania: New Zealand and Australia
New Zealand and Australia, although both major casein exporters and
located in the same part of the world, differ significantly in their outlook
for production. New Zealand, the principal casein exporter to the United
States, has recently reached record milk production. Australia, with a
less favorable set of production circumstances, is making efforts to ease
producers out of the dairy industry. Both ~ountries' dairy industries
were developed to accommodate the United Kingdom's demand for imported
milk products. Since the United Kingdom joined the EC in 1973, both · New
Zealand and Australia have sought alternative markets for at least part of
their production.
New Zealand
In 1980, New Zealand produced a record 15.1 billion pounds of milk;
however, 1981 milk production is expected to decrease slightly. The impor
tant point to be made about New Zealand's milk production is ~at only 10
percent is consumed fresh. The rest is processed into butter, nonfat dry
milk, cheese, and other dairy products. New Zealand relies heavily on dairy
exports, and processed products are therefore a major end use. In 1979/80
(July-June), 87 percent of New Zealand's dairy products were exported,
representing 14 percent of the country's total exports (~).
New Zealand has been shifting its exports from the United Kingdom to
the United States and Japan. To accommodate these and other new markets,
the commodity mix of dairy exports has changed. More emphasis has been
13
placed on exports of casein l/, nonfat dry milk, and wholemilk powder. This
new emphasis for New Zealand's dairy products has been facilitated through
the operation of the New Zealand Dairy Board. This board, operated by New
Zealand dairy farmers, owns all dairy processing plants and markets New
Zealand's dairy products--both domestically and overseas (23).
Based on industry organization and actions, New Zealand's dairy ' policy
goals apparently are to:
o increase dairy production efficiency,
o keep dairying profitable, and
o promote!the export of dairy products.
To accomplish these goals, over IS programs have been undertaken in
the areas of land fertilization, flood and drought relief, agricultural
sanitation, bovine genetics, feed storage, forage establishment, and credit.
About $180 million in grants and subsidies were allocated to agriculture
(in general) for 1978/79 with much of this funding
These funds constitute an input subsidy equivalent
for dairy support (~). , l't
to $1IIi per hundredweight
of milk produced. However, no subsidies were found which specifically
encourage casein production or export.
\ New Zealand has the lowes t es tima ted average cos t of milk produc tion .
in the world. The cost of producing one hundred pounds of milk in New q. Z,7
Zealand was estimated to be $ .... in 1978. This relatively low cost is
primarily the result of small purchased feed requirements as compared with
other countries.
Skim milk stocks are expected to be available for NFDM or casein
production at the discretion of the New Zealand Dairy Board. New Zealand's
productivity per cow is growing at roughly 1 percent per year. Average
2/ New Zealand has been exporting casein since about 1928.
14
herd size, already the largest in the world, is growing at an annual rate
of 4 percent. Thus, labor and management cost per unit of milk produced
is expected to remain low.
Although the United States purchased a large proportion of New Zealand's
casein exports in the past, a growing demand for casein by other countries
will be more of a factor in allocating exports. The U.S. export share of
New Zealand's casein production has ranged from 25 percent in 1971 to 61
percent in 1979. For the foreseeable future, production and supplies of
casein for export are expected to continue strong and to contribute toward
the New Zealand Dairy Board's policy goal of maximizing joint profit from
the sale of all dairy products.
Aus tralia
Following the U.K.'s entry into the European Community (EC), Australia
has attempted to develop new export markets while scaling back its dairy
indus try.
Australian milk production has declined from 17.0 billion pounds in
1970 to 12.4 billion pounds in 1980. Further declines are expeeted in 1981.
Casein production was highest in 1969/1970 when 71.2 million pounds were
produced, and had declined to 33.1 million pounds by 1980. Butter sold to
the United Kingdom had once been Australia's primary dairy export product
(1968/69), but currently most of the $250 million in annual dairy exports
(1979/80) is in the form of cheese shipped to Japan and dry whole milk
shipped to third world countries. Current casein exports . are about half
the size of exports of a decade earlier; chief recipients are the United
S ta tes and J apan (~).
Only a small proportion of Australian farmland is well sui t ed to dairy
ing, and production is concentrated in those areas. The number of dairy
farms has fallen dramatically as consolidation has occurred.
15
Australia approaches dairy policy in a manner more like that ·of the
United States than of New Zealand. The goals for dairy are apparently to:
o minimize price fluctuations,
o facilitate adjustments in industry structure, and
o increase efficiency.
The Government has four major programs to ease the pressure of severe price
fluctuations on the dairy industry:
o price supports for fresh milk, which provide most of the industry's financial support.
o price supports for processed dairy products, which main t ain retail prices above export (world market) prices. Returns are pooled by the dairy board for most processed products, with producers receiving the average price less transport, processing, and handling costs.
o underwriting the dairy program. The government guarantees a minimum pooled price on processed products.
o price protection from imports. Tariffs are levied on i mported dairy products, most of which come from New Zealand. Also, the New Zealand Dairy Board has agreed to limit its exports to Australia.
To facilitate structural changes in the industry, two programs are
maintained. First, farm structural assistance is offered for farm develop-
ment and relocation of displaced farmers; and second, special provisions
are made for unemployment benefits. The objective of efficient production
is pursued through government matching funds for research.
These latter programs constitute input subsidies to Australia's dairy
sector. On a production basis, these programs translated into a $0.20 per
hundredweight input subsidy in 1978. No specific subsidies were found to
encourage the production or export of casein over other dairy products.
Australia's cost of milk production was relatively low at $5.68/cwt.
in 1978 (table 2). This is primarily the result of small amounts of pur-
chased feeds being utilized in the dairy operation.
16
Available export quantities of casein will likely range from 25 to
35 million pounds annually. The dairy industry is decreasing in size, and
government efforts have facilitated this trend. Downward trends in the
production of milk, cheese, and butter have reduced the quantities of skim
milk available for casein production. The downward trend in milk production
has led to what may be stability at current levels, and milk production is
expected to increase 1/2 to 1 percent annually due mainly to improved herd
management practices.
European Economic Community
The dairy indus tries wi thin the various European Communi ty (EC) coun
tries are protected from most world agricultural supply conditions primarily
by the collective effort of all countries under the Common Agricultural
Policy (CAP). CAP's marketing and pricing arrangements can have a signifi
cant effect on the amounts of casein available from the EC and subsequently
to the United States in any given year.
Because of this important common policy mechanism, overall EC policies
for milk and milk products are discussed first. The discussion then focuses
on actual pricing arrangements employed in the EC as they relate to casein.
EC Policies for Milk and Milk Products
The pricing system for EC dairy products is intended to a chieve an
average target price for whole milk (3.7 percent butterfat) delivered to the
dairy. This price goal is achieved through "intervention" purchases of
butter, nonfat dry milk, and certain cheeses; variable levies on imported
milk products; and subsidies on exports to maintain control over domestic
supplies. Thus, the price for whole milk is not directly supported, but
is - buoyed up by support of products and exports. The target price for
17
whole milk, intervention prices for butter, nonfat dry milk and cheese,
and the threshold prices (minimum import prices) for various dai.ry products
are shown in table 4.
Domestic prices in each EC country are maintained above world prices
by import levies on products coming into the EC. In the case of selected
processed products, for which threshold prices are fixed, the levies are
equal to the difference between the threshold price and the lowest corres
ponding cost, insurance, and freight (c.i.f.) price. For other dairy
products, such as casein, levies are derived by making adjustments in the
levies for the nearest corresponding selected processed product.. Complement
ing the import levy is the availability of export subsidies for use in
moving products out of the domestic market. This subsidy helps bridge the
gap between higher internal agricultural prices and the lower world price
levels. This makes EC products competitive on world markets despite the
high internal price levels. Export payments are provided to allow sales
of selected dairy products (nonfat dry milk, butter, and cheese) on the
world market. Grants have also been available to encourage use of liquid
skim milk for animal feed and for processing into casein for domestic or
export sales.
Casein--The EC provides financial aid (subsidy) for processing liquid
skim milk into casein and caseinates. The aid granted for casein is the
only subSidy of its type (manufacturing subsidy) within the ECls common
market organization for dairy products. The subsidy is paid directly to
the processor for manufacture of a casein product, and is adjusted period
ically to take into account the movement of prices for casein in domestic
and world markets. There is no internal price support for casein in EC
member countries, nor is there a threshold price (minimum import price)
18
Table 3. EC Dairy Price Program Summary for 1980/81 1/
Target price for milk
Intervention prices bu t ter skimmed milk powder cheese (Parmesan)3
Threshold prices bu t ter skimmed milk powder whey powder dry whole milk evaporated milk condensed milk (with sugar)
parmesan cheese3
ECU per me tric ton
222.6
2,916.0 1,215.1 3,807.4
3,215.4 1,396.9
391.8 2,155.6
344.2 1,095.3
4,175.7
$ U.S. per cwt. 2/
14.15
185.16 77.11
241. 77
204.21 88.72 24.90
136.90 21. 86 69.54
265.17
1/ For dairy marketing year 1980/81 starting April 1980. 2/ Prices were converted from April 1980 European Currency Units
of-Value at $1.40 = 1 ECU. 3/ Parmesan cheese is used as example of price levels for cheese.
19
established on which a variable levy is charged. Instead, imports of
casein incur an ad valorem tariff ranging from 2 to 14 percent--depending
on the type of casein imported. Domestic EC casein prices thus respond to
fluctuations in world (open market) prices for casein, and are roughly
equivalent to world price levels. Because of the high price for the raw
material (liquid skim milk) in the EC, resulting from supports, payment of
some aid (manufacturing subsidy) is necessary if EC casein is to remain
competitive in both domestic (EC) and world markets.
Summarizing the aid given to manufacturers of skim mi lk processed into
casein and caseinates draws a clear picture of how returns from casein
production in the EC are determined:
o aid is fixed at levels such that income derived from the sale of skim milk (liquid) processed into casein or caseinates cor"responds to that derived from the sale of skim milk processed into skim milk powder (table 3).
o level of aid is based on quantities of skim milk required for manufacturing different grades of casein or caseinates---generally 2. T to 3.7 kilograms of skim milk per kilogram of casein.
o aid is paid only after the product has been sold. In April 1980, the EC reduced aid to casein manufacturers from 6.25 ECU/100 kilograms skim milk to 5.75 ECU/100 kilograms. This decision was based on rising casein prices in the EC "and world markets.
This subsidy helps explain the dramatic increase in ,:xportable supplies
of casein from the EC. In 1978, the share of total U.S. casein imports
supplied by the four EC countries studied was 8 percent; in 1979, 13 percent;
in 1980, 24 percent. The initiation of the above subsidy occurred in late
1979 at a rate of $1.28 per pound of casein manufactured to dairy processors.
The output subsidy for dairy processors was $.82/lb. in Ireland, $.83/lb.
in France, $.87/lb. in Germany, and $.83/lb. in the Netherlands for 1980.
The following discussion highlights EC production potential in the
major exporting countries and summarizes, on a country basis, important
factors affecting production.
20
Ireland
Ireland's dairy industry is the fastest growing of all major exporting
countries examined. Its milk production is growing at a rate of 4 percent
each year. Larger and more specialized farms will likely lead to reductions
in Ireland's costs of milk production. Casein production and exportable
supplies could easily reach Australia's former levels of 30-40 million
pounds annually within 3-5 years.
Production of all dairy items has shown a steady increase since 1970.
The current annual output of milk for Ireland is trending upward as Ireland
attempts to replace New Zealand as the U.K.'s major supplier of dairy
products.
Casein production has shown the fastest rate of growth for processed
milk products in Ireland, but still trails nonfat dry milk, butter, and
cheese in quantity produced. Though it is unlikely that the total output
of processed products will continue to increase at more than 4 percent
annually, the production of any single item, such as casein, could change
as price relationships are altered.
Most of Ireland's processed dairy exports (56 percent) were sold with
in the EC in 1978. Trade with the United States had not been s ignificant
until the recent development of large exportable supplies of casein; by
1978, nearly all dairy exports to the United States were casein . Exports
of casein increased rapidly from 1970 to 1978, but have not surpassed nonfat
dry milk and butter.
Ireland receives funds under a number of regional investment programs
of the CAP for irrigation and general infrastructure improvement. Costs of
producing milk in Ireland averaged $6.73/cwt. in 1978, reflecting low feed
costs of grazing as opposed to high outlays for purchase of supplemental feeds.
21
West Germany
Production and exports of all dairy products are increasing in West
Germany. EC policy has stimulated consolidation of West Germany's tradition
ally small dairy farms. Growth in casein exports is expected to continue
as production of milk and milk products has grown steadily over the past
20 years.
No input subsidization was found to exist for West Germany's dairy sec
tor, although the general EC policies do apply. Costs of milk produced in
West Germany were estimated to be $8.51/cwt. in 1978.
France
Milk production in France has risen rather steadily in recent years. Milk
production rose 17 percent between 1969 and 1979, and output of some processed
dairy products has increased dramatically. Production of casein more , than
doubled in that period, and exports have kept pace with production, rising
from 24 to 59 million pounds annually during the 1970's. France accounts
for a large share of the production of dairy products within the EC.
Much of France's dairy policy revolves around the CAP. However, an
input charge of $.64 cents/cwt. of milk is estimated to have accrued at
the farm level as a result of domestic tax programs. Output subsidies have
been substantial, and are basically determined through the CAP .
Cost of milk production in France is estimated at $7.75/cwt. Despite
the EC's overall intent to curb milk production, French milk output contin
ues to rise. Increased output per cow has more than offset declines in cow
numbers. Continued production increases will make necessary continued
exports of cheese, butter, nonfat dry milk, and casein.
The Ne therlands
Encouraged by EC milk price supports, dairying in the Netherlands has
developed into a highly capitalized, intensive industry with an annual
22
growth rate of 3 percent over the past two decades. This rate of growth
is second only to Ireland in the EC, and with approximately double the
total milk production of Ireland, the Netherlands has the capacity to
easily increase casein production from the 30 million pound level achieved
in 1978.
The Netherlands operates under the EC's Common Agricultural Policy.
Costs of producing milk are calculated to have been $9.78/cwt. i n 1978.
Growth in dairy production is expected to hold at current levels,
but casein production could easily double or triple current low export levels.
Casein and dried whey production have grown at an 11 percent annual rate
since 1960, from a relatively insignificant 7 percent of total output to
16 percent in 1978.
Summary Perspective
The United States currently imports all of the casein and lactalbumin
that its manufacturers and processors use. The situation regarding foreign
milk and milk products production thus has great bearing on the availability
and price of imported dairy proteins.
Affecting the marketing decisions of major casein exporters are the
costs of producing milk, the existence of any input or export subsidies on
milk or milk products, and the market for those milk products. Together,
these factors have a major influence on the current and future supply of
imported casein and lactalbumin.
New Zealand is the world's leading producer and exporter of casein.
Decisions by the New Zealand Dairy Board regarding the level of casein pro
duction and exports are guided by several factors: the relative jJrices of
casein and NFDM on the world market; the availability of skim milk supplies;
23
and such non-price factors as the potential for market growth. Generally,
when NFDM prices rise, skim milk supplies are diverted to NFDM, and casein
production declines. When NFDM prices fall, the opposite occurs. The
total skim milk supply available for either casein or NFDM production,
moreover, is influenced by the relative prices of cheese and butter. With
greater butter production, more skim milk is produced; cheese production
draws the milk input away from NFDM and casein.
The world market for NFDM is much larger than the world market for
casein. No one buyer dominates the demand for NFDM in the way that the
United States does for casein. However, much of the NFDM entering the world
market is subsidized by the exporting countries (particularly, the EC, Canada,
and the United States). The world markets for NFDM, butter, and cheese,
moreover, are strongly affected by the existence of import restrictions in
most developed countries. ./9
New Zealand subsidizes its milk production by an estimated $l1li per
hundredweight. Even without this subsidy, the cost of producing milk in
New Zealand would be lower than anywhere else in the world. To be competi-
tive with New Zealand in world markets, other major exporting countries
therefore find it necessary to employ various subsidization schemes.
Australia, for example, has costs for milk production that are fairly
close to those of New Zealand. Still, it is necessary for the Australian
Dairy Corporation to become quite involved through production controls,
import restrictions, and the pooling of returns across dairy product sales
to ensure a price that is higher than costs.
For European casein to be competitive in world markets, the EC has found
it necessary to directly subsidize its production. This subsidy allows Euro-
pean manufacturers to sell casein at world prices; and thereby has diverted
24
skim milk from NFDM manufacture to casein production. This subsidization
of casein manuf ac ture is directly rela ted to the growth of the "EC as a sup
plier of casein to the United States.
Looking ahead, it can be expected that New Zealand will maintain its
position as a major force in world dairy markets. Milk production in New
Zealand will continue to expand with milk supplies directed to casein pro
duction as long as the demand for casein remains strong and whenever the
market for NFDM is weak. New Zealand appears to be a reliable supplier of
low-cost dairy proteins.
Australian milk production seems likely to decline in the years ahead.
Casein exports will continue to be a major source of revenue for the Australian
dairy industry, with export levels in the 2S to 30 million pounds per year
range.
In the EC, milk production is expected to continue the upward trend it
has exhibi~ed over the past decade. Perhaps more so than for other exporters,
casein production and exports are greatly influenced by government policies.
These policies are known to change in the face of changing conditions in
the dairy industry and in the economy asa whole. If current skim milk
powder inventories remain high, continued subsidization of casein seems
likely. If these surpluses are eliminated, a lower rate of subsidization
might ensue. Without the subsidies, it seems unlikely that the EC would
be a major supplier of casein to the United States.
U.S. CASEIN AND LACTALBUMIN USE
Evaluation of the impact of imported milk proteins on the U.S. dairy
industry requires that major U.S. casein and lactalbumin uses be identified
and substitute inputs considered. In this section, the quantity of casein
-
2S
used in various produc t ca tegories during 1980 is es tima ted. The nex t sec-
tion will examine the potential for substituting soybean products and other
ingredients, including nonfat dry milk (NFDM) and skim milk, for casein.
Historical Patterns of Use
Uses of casein in the United States as early as the forti es are rela-
tively well known; however, the quantities involved were only occasionally
documented. In those early days of use, almost all casein was used strictly
for such indus trial uses as glues, adhesives, paper coatings, and paints (28).
Developments in cosmetics and textiles in the late forties and early
fifties, as well as the introduction of dried casein lactate as a medical
dietary supplement by 1953, marked the beginning of attempts to more
fully utilize the unique characteristics of casein. Soluble casein was
made available in 1955, and by 1960 casein was being applied to human
dietary preparations (~). Through the sixties, development of casein's
proper ties--especially emuls Hying and stabilizing quali ties--facili tated
the successful introduction of a powdered non-dairy coffee whitener.
Various sources indicate 1967 as the year when imitation milk products
were formally introduced (19). By 1969, as much as one-quarter of the
world's annual production of casein (estimated to be about 240 million
to 320 million pounds) is believed to have gone into coffee whiteners and
other food applications (40). Besides the use of casein in coffee whiteners,
other major edible applications at the time were:
1) medical/dietary products,
2) flavor enhancers,
3) imitation whipped cream for desserts/bakery goods, and
4) introduction into meat products, especially sausages, for waterbinding qualities.
26
Domestic use of casein in 1969 was still mainly in industrial applica
tions, although over 20 million pounds of casein, or one-fifth of casein
imports in that year, were used in food and pet food applications (12).
These food uses were limited mainly to beverages, breakfast food, coffee
whitener, desserts and toppings, and dietetic food products. Apparently,
casein had not yet been widely applied to baby foods, baked goods, confec
tionery products, processed meats, dry soups and pet foods. In all these
food uses, however, there did seem to be a very high likelihood of ingredient
replacement of the functional protein at some time in the future. All of
these products primarily relied on dry whole milk and nonfat dry milk for
protein enrichment and other functional requirements.
From the sixties to the present, changing technology and economics have
resulted in increases in casein use in both new and in many existing products.
Current uses can be described under the three general end-product groupings
of feed, food, and industrial product applications.
Measuring Use in 1980
In preparing this report, USDA's Economics and Statistics Service (ESS)
surveyed all firms which were known or thought to be probable users of
casein or lactalbumin. These firms were requested to provide i nformation
on the quantity of casein or lactalbumin used, the products in which these
proteins were used, beginning and end of year inventory holdings, the reason
for using casein or lactalbumin, and the possible substitutes for these
proteins.
Firms responded positively to the questionnaire, and the USDA survey
was able to ,account for over 51 percent of the casein imported during 1980.
The survey results are summarized in table 4 and are compared with the results
of a recent telephone survey conducted by the ITC for a similar time period.
27
Table 4--Results of USDA Survey of Casein Users
Casein use
Indus trial
Pet and animal feed
Pe t food Animal feeds
Total
Medical, pharmaceutical, nutritional; and specialty
Food
Imi ta tion cheese Coffee whi tener Bakery and Breakfast Desserts & Confec-
tionery Breakfast and Other
Total
Total reported use
Increase in inventory
Exports
Total reported 1/
1980 Reported use
of casein and caseinates
Million lbs.
11. 662
2.523 10.100
12.623
4.292
20.710 6.182 3.238
.471 1. 919
32.520
61. 097
15.080
.963
77 .140
Percen t of
reported use
19
4 17
21
7
34 10
5
1 3
53
100
Percent
Percent of total reported
by ITC
17
13
5
37 11 10
7 0
65
100
1/ USDA survey accounted for 51 percent of imported casein in 1980; ITC survey accounted for 58 percent of total imports.
28
The results of the USDA survey provide a comprehensive information
source on total casein use in 1980. The survey reported information on
changes in inventories during the year and shows a sizable increase in
inventory stocks. 3/ This increase is the result of the recent increases
in prices of casein/caseinates, the prospect that these price increases
will continue, and the heightened Government interest in the question of
import restrictions for casein.4/
It should be noted at the outset that several large manufacturers of
bakery items and whipped toppings did not respond to the USDA questionnaire.
Therefore, the percentages reported in the survey tend to understate the
actual use in these categories. The survey results were thus adjusted on
the basis of f6110wup telephone conversations with nonrespondents, informa-
tion available from other sources about sales of products known to contain
casein, and conversations with individuals knowledgeable about the industries
using casein. Out of this process the total pounds of casein used in each
use category during 1980 have been estimated (table S).
CASEIN PRODUCT USE AND SUBSTITUTION
Casein has functional as well as economic characteristics that are
reflected in its current use. The use of casein in feed, food, and indus-
trial products is discussed below, and the availability of substitutes is
noted.
3/ Total increases in inventory stocks are estimated at 23 mil lion pounds-IS-percent of imports in 1980.
4/ For the purposes of this study, increased inventory holdings are not considered as use in 1980. The increase in casein inventories i s a result of factors peculiar to the casein market (increasing prices and the threat of import restrictions). Furthermore, casein inventories cannot be thought of as replacing any NFDM in commercial channels, since CCC holdings act as inventory for users of NFDM.
29
Table 5--Estimated total use of imported casein, 1980 1/
Industrial uses Medical uses and
specialty products
Feed uses Pet food Animal feed Total feed
Food Uses Imitation cheese Coffee whitener Bakery Desserts Other foods Total food
Total use Increase inventories Exports
Total imports
Percent of casein used
13
7
4 16 20
33 10
9 5 3
60
Percent of casein imported
84.2 15.2
.6 100.0
Quantity of casein used
Million pounds
16.6
9.4
5.3 20.6 25.9
41.9 12.3 11.4
6.8 3.8
76.2
Quantity of casein
Million pounds
128.1 23.1 1.0
152.2
1/ Additional detail on how these estimates were derived is shown in Appendix II.
30
Feed Product Use of Casein
Major products found in this product category include calf milk replacers,
animal feeds (e.g., horse feeds and feed supplements), pet foods, veal feeds,
and weaning feeds for young pigs. All feed products utilize casein: pet
foods utilize caseinates, as well as casein; only research formulations
require lactalbumin.
Desirable attributes of animal feeds are that they:
o meet the nutritional requirements for growth, maintenance, and reproduction in farm, pet, and test animals;
o be more economical than homegrown feeds; for example, in the case of milk replacers, they should be more economical than feeding calves whole milk; and
o have physical characteristics that make them convenient to use.
Casein's primary role in feed use is to provide a quality source of pro-
tein to meet product specifications related to nutrition. All respondents
to the USDA survey in this end-product category indicated high protein quality
as the most important factor favoring casein use over the use of substitutes.
Because it tends to impart certain functional characteristics in some feed
products, however, casein plays a more expanded role than just to provide
protein fortification (as in most cases of lactalbumin use). The ability
to encapsulate fat particles in high-fat veal feeds (20 percent fat formu-
lation) and to enhance the appearance, nutrition, and convenience in certain
brands of dry dog food are examples of casein's unique qualities.
Reasons for casein use and the potential substitution for casein in
each specific feed product are given below. This information is based on
USDA survey responses and a review of the technical literature.
Calf Milk Replacers
Calf milk replacers rely on casein primarily for reasons of economy.
When this end-product was introduced in the fifties, it was made from by-
31
products of the butter and cheese industry--dried skim milk, dried butter-
milk, and dried whey (31). As skim milk prices rose in the mid-1960's and
when "simulated skim milk" (a casein and whey mixture) was found to perform
equally as well as skim milk-based feeds, casein began to appear in these
products. Estimates of the market share of casein-whey based feeds relative
to skim milk powder based calf milk replacers are difficult to obtain. Rates
of use of casein in these products range from 20 to 40 percent on a dry
weigh t bas is.
Young calves can readily use only two carbohydrates--Iactose and dex-
trose. In order to make a digestible product, milk replacer manufacturers
must either use NFDM or recombine casein and whey (which is over 50 percent
lactose), as dextrose is too expensive for use. <..lith existing prices, the
recombined casein and whey--which in fact, simulates skim milk powder--costs
about $0.52 per pound, compared with the NFDM support price of $0.94 per
pound. :l./
High quality calf milk replacers require milk-based protein sources (i).
USDA survey respondents indicated that soy protein concentrate could be used
as a partial replacement for dairy-based proteins in calf milk replacers.
Current research and the literature (31) suggest that perhaps up to 22-30
percent of the calf milk replacer protein can be derived from specially
manufactured soy protein or soy concentrates, while still producing an
acceptable product. The remainder of the product's protein content would
be based on skim milk powder.
Animal Feeds
Feeds, such as supplemental feeds, depend on casein primarily for pro-
tein fortification purposes. USDA survey results indicate that some
l/ In the past year, the CCC has sold some NFDM which was spoiling in Government storage. This NFDM could be used only for animal feeds, and was priced at $0.52-$0.54 per pound.
32
manufacturers could substitute nonfat dry milk and/or additional whey for
casein, if imported casein was no longer available. According to many
professionals consulted, animal feeds made from NFDM would not be exactly
identical to animal feeds made from casein. However, the NFDM feeds would
be an acceptable product--especially in pig weaning feeds. If casein prices
were to rise to a level where NFDM was an economically viable substitute,
animal feed manuf ac ture rs would a t temp t to .. ex tend" the NFDM by adding soy
or whey protein. Special ty feeds for horses and certain feed supplements
need a quality protein source: casein use is favored over skim milk powder
in these animal feeds because casein is free of lactose. There are no
good substitutes for casein in specialty feeds.
Veal Feeds
Veal feeds use casein to encapsulate fat particles and supply protein
to the growing vealer calf. Since many modern veal operations are not
necessarily connected to dairy operations, they must use prepared milk
replacer mixes that can be reconstituted on the veal feeding site. Thus,
convenience is an essential quality in these veal feeds.
There seems to be considerable agreement that milk-based proteins are
currently the best source of protein for these products. All manufacturers
of this product responded that they would not be able to supply the same
quality product without using casein; but feed experts agree that manufac
turers could make a similar product using, for the most part, nonfat dry
milk to supply the protein/functionality of the end-product.
Pe t Foods
Pet food products use casein because it is a high-quality protein, and
because it can impart certain functional characteristics in the end-product.
33
One of these characteristics is the ability of the casein product to closely
resemble fresh meat upon the addition of water.
A limited response was received from firms in this product class. Sev
eral large users of casein maintained that their pet food product could not
be supplied without casein. However, one producer did state that nonfat dry
milk would be substituted in casein's place. No technical literature could
be found which evaluated substitutes for casein in pet food. However, much
of the pet food now on the market is made with soy-based protein, and con
tains no casein. Soy-based protein must be considered a viable alternative
to casein in pet food manufacture.
Feeds for Research Animals
Many research feeds for testing animals presently require casein.
Without casein, many of these tests would lose their comparability with
past experiments through replication. If imported casein was not available,
researchers would have to find a domestic source of casein.
Food Product Use of Casein
Major products in the food product category reported by the USDA survey
include imitation cheese, nondairy coffee whiteners, medical products, imi
tation dairy products, and bakery products. Other uses include confectionery
products, meat products (such as luncheon meats), nutritional and specialty
human foods, and prepared alcohol mixes.
Imitation Cheese
The desired characteristics of imitation cheese products revolve around
their resembling natural cheeses as closely as possible--in taste, nutrition,
and texture.
34
Casein's role in these products is to provide the protein component
that binds together the other components of the product (fat and water with
some additional minerals and a small amount of carbohydrate). Casein also
gives imitation cheese proper texture and other functional properties, such
as the capacity to be melted, cooled, and melted again without burning and
changing flavor. As most imitation cheese products are used in more highly
processed food products (frozen and restaurant pizza, prepared dinners,
etc.) these functional properties are a very important factor for success
in use (43).
No alternative to dairy proteins exists at the present time for use in
imitation cheese products. However, many present imitation cheese manufac
turers, when posed with the question of how they would react if imported
casein were no longer available, indicated that they would use skim milk or
NFDM as a protein source. Much of the imitation cheese manufactured is of
the skim milk mozzarella type, used in frozen and fast food pizzas. The
natural cheese alternative to this imitation cheese is made from fluid skim
in others, blends of soybean isolate and caseinate can further reduce
caseinate needs up to 90 percent (~). Many food processors feel that the
application of milk-based proteins for this use will cease completely in
the near future. One executive from a large dairy replacer manufacturing
concern s ta ted in Augus t 1979, "If the price of casein continues to go
higher and higher, then soy isolates would replace caseinate ••• The day
that they come up with a soy isolate that's completely bland, or which
gives the same flavor as the caseinate, then you're going to see caseinate
fall off to nothing" (10).
If imported casein was no longer available to manufacturers of bakery
products, their demand for soy-based protein would increase. Also, at higher
prices for casein, little casein and/or caseinate would be demanded, and
this would be mainly in the production of some specialty items (such as the
use of caseinates in mixtures to glaze certain breads). Very small increases
in the quantity of nonfat dry milk demanded would result if imported casein
were not available.
Imitation Dairy Products, Meat Products, and Other Foods
The desired characteristics of products in this group include protein
fortification and various functional characteristics. For example, meat
products, such as imitation sausage, non-specified loaves, and stews/soups
demand an ingredient that can bind water in the product and reduce fat exu
dation (12, 4Q). In many imitation dairy products, an ingredient which
prevents weeping of liquids from the product is also desired. In most of
these products, skim milk solids can impart the desired characteristics;
casein and/or caseinates were introduced and are widely used mainly for
economic reasons (ll). Thus, this diverse group of products can be classi-
39
fied into one general food product group because they could all use skim
milk solids; most do not because of the higher cost involved.
There is some evidence that soy-based proteins could replace casein in
certain of these uses. Complete replacement of dairy protein is reportedly
possible in many cream fillings and icings (10), and whipping creams; but
further development of soybean based protein in a complete formulation is
apparently necessary.
Industrial Products Use of Casein
Major products found in this product category include adhesive and glue
products, and paper coating products. Other products using imported casein
in this end-product grouping include paint products, rubber products, leather
products, and a miscellaneous group containing lubricants, cleaning agents,
and related products. All major industrial products identified use casein
and caseinates, although leather products use only casein, not caseinate
formulations.
Adhesives and Glues
The desired characteristics of adhesives and glues containing casein/
caseinate mixtures are quick-setting ability, water-resistance, a high de
gree of durability, the ability to adhere to different surfaces (such as
paper on glass, aluminum foil to paper), and convenience in use.
The role that casein plays in these products is to serve as the main
binding agent in the adhesive mixture (29). The colloidal properties of casein
have been recognized for some time. Many users indicate that casein _ in the
adhesive mixture results in a product that is water and temperature shock
resistant (important in bottle labeling) and that is stable when mixed with
water as in the case of dry powder glue mixes.
40
There are few perfect technical substitutes for casein in the produc-
tion of glues and adhesives. Some glue and adhesive manufacturers indicated
that soy-based proteins and synthetics such as polyacrylate could be substi-
tuted for casein. Most USDA survey responses in this category claimed that
soy or synthetic-based glues and adhesives would be inferior to the casein
based products. Buyers of these products primarily are interested in low
cost, rather than high quality, glues and adhesives. In the past, when
casein prices have increased, many glue manufacturers have substituted soy
protein for casein.
Paper Coatings
The desired characteristics of paper coatings are to bind color and
print to paper and to be waterproof. Casein's role is to provide that
binding quality. Technical substitutes for casein in paper coating products
include soy-based protein substances, starch, synthetic-resin material, and
combinations of these materials. Soybean-based substances have been avail-
able since the late forties. Together, with starch (the former leading
adhesive in paper coating), it is estimated that all casein use in paper
coating would be eliminated if low-cost imported casein was unavailable.
This determination is based on past trends (1l, 18) and from USDA survey
responses. Many companies contacted have begun the process of switching
over to available substitute ingredients, primarily soy-based protein
material, in response to recent increases in the price of casein.
Other Industrial Products
The major products in this general grouping are leather products, rub-
ber products, and paints. Casein's role in these products is to serve as:
o a combined dispenser and binder of pigments in leather finishes, and to furnish a glaze and a protective shield for many leather products, such as shoe leather;
41
a a dispenser agent in the manufacture of rubber-dipped goods, such as gloves, medical supplies, and balloons; and
a a stabilizer for resin-emulsion and latex paints.
In all of the above, except perhaps for the use of casein in rubber
products, suitable substitutes for casein exist and indeed have been used
in these products (37). This fact is evident in USDA survey responses and
from inquiries to professionals in the field. In the miscellaneous indus-
trial grouping (including such products as hair setting lotion, lubricating
fluids in insecticide formulations, lace scouring cleaning agents, spackling
paste, and resilient floor covering) the use of casein is so specialized that
replacements, for all practical purposes, do not exist for the end-product.
This observation is also based on USDA survey responses.
Lactalbumin Use
Use of lactalbumin in the United States is far less extensive than the
use of casein. Lactalbumin applications tend to be much more specialized.
The total quantity of lactalbumin imports represented less than one percent
of casein imports in 1980.
Information on the use and availability of substitutes for lactalbumin
is extremely limited. The only feed use of lactalbumin reported in the 1980
USDA survey involved the manufacture of material used for microbiological
analyses and biological studies. These applications appear to be quite speci-
fie in their research needs. Lactalbumin unavailability for these uses would
imply use of a domestically produced substitute, if one was available.
Lactalbumin usage in industrial products was not reported. Lactalbumin
use in food products in the United States is limited to bakery, pasta, other
cereal food product applications and some soup preparations. Much of this
42
use is related to the protein complementarity of lactalbumin with the amino
acid deficiencies common in most cereals (13).
Lactalbumin has excellent nutritional value, exhibits moderate water
absorption in doughs, and is insoluble in many applications. Because lac
talbumin serves such a small and specialized end-product line, no increases
in nonfat dry milk use would be expected to occur if lactalbumin was unavail
able. USDA survey results seem to substantiate this point as present users
indica ted that, at bes t, only a few soy-bas'ed protein subs tanceswould have
application for their products. Most firms did not identify dairy based
protein materials as possible substitutes; however, some might use whey
protein concentrates.
Because of the small amounts of lactalbumin imported, the effect of
lactalbumin imports on the U.S. dairy industry was not further analyzed.
Classification of Casein Uses
Based on the information presented, casein uses can be classified into
three groups (see table 6).
Group A includes products in which soy-based proteins, whey proteins,
and synthetics could be substituted for casein. In some c?ses (certain pet
foods and glues), the soy-based proteins are not absolutely perfect substi
tutes for casein; the resulting end-products would have slightly different
characteristics if they were made from soy-based proteins. It does not
appear that these differences would be significant for the vast majority
of casein users in this category. Certain individual products. for which
the difference between alternative protein formulations and casein based
formulations is significant are considered specialty products and are
included in Group C.
Group B contains uses in which nonfat dry milk or fluid skim milk could
be substituted for casein. Because casein contains no fat, products containing
43
Table 6--Casein Usage by Product Grqup, 1980
C/ Group ~: . Substitutes for Casein not Available
Coffee whitener (72%) Medical and Specialty Desserts (72%) Bakery and breakfast foods (10%)
C/ Group K'Total
8.9 9.4 4.9 1.1
24.3
Group B: NFDM or Skim Milk can be Substituted for Casein
~/ The technical relationship between casein and NFDM varies by product. For imitation cheese, the amount of skim milk equivalent needed is larger than for products such as calf milk replacer.
53
Economic Implications of Restricted Casein Imports
A complete curtailment of casein imports is not legally possible under
existing legislation and trade agreements. The most extreme actions permitted
by Section 22 of the Agricultural Adjustment Act of 1935 are a 50 percent
quota or a 50 percent ad valorem tariff. A quota would be set at 50 percent
of the import levels during a "representative period." If 1979-1980 was
chosen as the base period, the quota would be 75.8 million pounds of casein
and casein mixtures per year. If 1975-1980 was used as the base period, the
quota would be 62.9 million pounds per year. For purposes of illustration, the
larger quota based on 1979-1980 will be used in this report. An ad valorem
tariff of 50 percent of the value would add 60 cents to the 1980 price of
$1.20 per pound of casein.
Impacts on Casein Users
If a 50 percent tariff was imposed, and the casein price rose to $1.80
per pound, users of casein would shift to the use of other ingredients,
primarily whey proteins, soy-based proteins, and synthetics, wherever possi
ble. Industrial users and pet food manufacturers would shift primarily to
soy-based protein. In bakery and breakfast food applications, 90 percent of
the casein use would be replaced by combinations or single ingredient mixtures
of soy-based and whey proteins. Animal feed manufacturers would replace about
20 percent of their casein with soy proteins. In total, about 36 . 3 million
pounds of casein use would be replaced by these proteins. All remaining
users of casein would continue to use imported casein; in some products,
casein use would decline because consumer demand for the final products
would decline. In total, between 79.1 and 91.8 million pounds of casein
would be imported and used if a 50 percent ad valorem tariff was imposed. No
increase in the use of domestically produced skim milk solids would result.
54
If a quota was imposed limiting imports of casein to 75.8 million
pounds, most Group A users identified in the preceding paragraph would shift
out of casein into the alternative proteins mentioned above. Total demand
for casein by other users would drop by 12.7 million pounds. Importation
and use of casein would amount to the 75.8 million pounds allowable under
the quota. The majority of the casein used by manufacturers of Group B pro
ducts would be unaffected; however, about 3.3 million pounds of casein use
would be directly replaced by skim milk solids by these manufacturers.
Most of this 3.3 million pound reduction would occur in coffee whitener
and calf feeds. Casein use in imitation cheese would not be affected
because of different technical relationships between skim milk and casein
in the manufacturing process for cheeses.
Impacts on Dairy Program Costs
Because a 50 percent tariff would not increase commercial disappearance
of skim milk solids, the tariff would have no impact on CCC purchases under
the dairy price support program (see table 7).
A 50 percent quota would increase commercial disappearance of skim milk
solids by the equivalent of 10.3 million pounds of NFDM (3.16 pounds of NFDM
are required to replace 1 pound of casein in commercial use). CCC purchases
of NFDM would decline by this amount, saving the Government $9.27 million
(based on a NFDM support price of $.90 per pound). Total CCC purchases in
1980 exceeded $1.3 billion. The savings attributable to a 50 percent quota
would amount to less than 1 percent of 1980 dairy price support program
costs (table 7).
Impacts on Consumers
Import restrictions'would increase the costs of producing goods contain
ing casein. This might add to inflationary pressures at a time when efforts
are being made to reduce the general rise in prices.
, Table 7--Comparison of policy options
Option
No action
50-percen t tariff
50-percen t quota
Casein impor ts
(1) Mil. lbs.
152.2
79.1-91.8
75.8
II Column 3 plus column 4. 21 Column 5 times 3.14. 31 Column 6 times $.90/lb.
Casein price
(2) $/lb.
1. 20
1. 80
2.65
41 Column 2-$1.20 x (Column 1 + column 5).
Casein use cur tailed
(3) Mil. lbs.
0
0
3.3
Casein Domestic imports Increased
casein replaced by: commercial produc tion domes tic use of
: skim milk 1/: NFDM 21 (4) (5) (6 )
Mil. lbs. Mil. lbs. Mil. lbs.
0 0 0
0 0 0
o 3.3 10.4
Decreased Increased CCC consumer
purchases :expenditures 31 41
(7) ( 8) --Mil. dol.--
0 0
o · 47.5-55.1
9.3 114.7 V1 V1
56
A 50 percent ad valorem tariff, adding 60 cents to the price of casein,
would increase the cost of consumer products annually by $47.5 million to
$55.1 million, given the continued use of casein in the 79.1-91.7 million
pound range (table 7).
A 50 percent quota would raise the price of casein to about $2.65, com
pared with the 1980 price of $1.20 per pound. Total casein use would be
limited to 75.8 million pounds, but 3.3 million pounds of casein would be
replaced by higher priced NFDM. A total increase in the cost of consumer
products of $115 million would be expected.
Those products for which soy proteins would be substituted for casein
would realize no significant price impact, although quality could suffer.
Trends and Implications
Up to this point, the discussion of the impact of casein imports and
policy options has focused on the situation as it existed in 1980. This
approach enables comparison of alternative policies using historical data
and avoids speculation about future changes in the supply and demand for
casein and products using this ingredient.
Policy decisions regarding dairy protein imports will not only have
an impact in 1981, however, but for some time into the future. While it
is not possible to predict with complete certainty what that future will
hold, a review of past trends in the production, importation, and use of
casein does provide an indication of expected future developments.
One of the most significant trends in casein use has been the increas
ing importance of food and feed uses. Casein use in imitation cheese has
grown rapidly since 1977, offsetting the declines in industrial use of casein.
In the absence of Government action to limit imports of casein, the market
for imitation cheese will probably continue to grow rapidly during the
next few years. The current alternative to casein in many of these food
57
and feed uses is NFDM. Therefore, import restrictions would be likely to
have a greater impact on the commercial disappearance of NFDM as casein
use increases in food and feed products.
However, there has also been increased research and development activity
directed towards discovery of viable alternatives to dairy protein in many
uses. Breakthroughs seem likely in the development of soy protein products
that have no taste problems and have an acceptable shelf life. Any import
restrictions that result in a higher price for casein would increase the
research effort directed toward such development.
In the past, technological and price relationship changes have resulted
in substitution of non-dairy and whey proteins in products such as bakery
items. Similar future developments could result in the discovery and
acceptance of protein substitutes for casein or skim milk solids in such
products as imitation cheese and coffee whiteners. Thus, domestically
produced skim milk solids would meet considerable competition in the market
even in the absence of imported casein.
Finally, it should be noted that the imposition of import restrictions
often has far-reaching impacts on relations between the United States
and its trading partners. As a signatory to the General Agreement on
Tariffs and Trade (GATT), the United States has agreed in principal not to
use quotas to restrict imports. One exception to this is quotas imposed
under Section 22 of the Agricultural Adjustment Act of 1935. Our trading
partners granted the United States a specific waiver of its GATT obligations
for Section 22 measures. Any legislated trade restrictions or changes in
Section 22 provisions would very likely put the United States in violation
of its GATT obligations. Moreover, restrictions on casein imports, even
restrictions technically allowed under GATT, could easily be considered by
our trading partners to be an impairment of concessions. Such restrictions
58
could result in demands for compensation or in retaliatory actions by casein
exporting countries (i.e., closing export markets for U.S. products).
59
REFERENCES
(1) American Institute of Baking. "Bakery Applications for Soy Protein Products," Unpublished text. Received March 1981.
(2) Andres, Cal. "Soy Isolate/Dairy Blends," Food Processing. May 1980.
(3) Andres, Cal. "Soy Isolate Successfully Replaces Caseinate and/or NFDM in Cakes," Food Processing. May 1980.
(4) Appleman, R.D. and O.E. Otterby. "Milk Replacers in Raising Dairy Calves," Dairy Husbandry Fact Sheet No. 10. University of Minnesota and Agricultural Extension Service, 1978.
(5) Baking Indus try. "Whey in the Bakery World," 1972.
(6) Baldwin, R.R., R.G. Johansen, W. Keogh, S.T. Titcomb, and R.H. Cotton. Cereal Science Today. Vol. 9, Number 7, Sept. 1964.
(7) Blumenthal, Saul. Food Products. New York: Chemical Publishing Co. Inc., 1947.
(8) Bureau of Agricultural Economics. Situation and Outlook 1981, Dairy Products. Canberra, 1980.
(9) Craig, T.W. and J.C. Colmey. produc ts ," The Bakers Diges t.
"Milk and Milk products for Use in Bakery Feb. 1971.
(10) Food Engineering. Ingredient Report. Aug. 1979.
(14) Food Product Development. "Rising Casein Prices Spur Efforts on Economical and Functional Replacers." Aug. 1980.
(IS) Hammonds, T.M. "Utilization of Protein Ingredients in the U.S. Food Industry." Ph.D. dissertation. Cornell University, 1970.
(I6) Hoover, W. "Use of Soy Proteins in Baked Foods," Journal of American Oil Chemists' Society. March 1979.
(17) Kirk, D.J. "Milk and I ts Replacers in Baked Foods," The Bakers Digest. Oct. 1973.
(I8) Miller, Robert R. "Developments and Trends in the Casein Market," USDA, Dairy Situation. DS-334, March 1971.
(19) Milk Industry Foundation. 1980 Milk Facts.
60
(20) Miner, Bert. "Edible Soy Protein: Food for the Future," excerpt from Farmer Cooperative Services Research Report 33, Operational Aspects of Soy Protein Production and Marketing. 1976.
(21) Moore , Jerry." Impact of Casein Impor ts on Domes tic Dairy Indus try. " Hearings before the Subcommittee on Dairy and Poultry of the Committee on Agriculture, House of Representatives, Oct. 24, 1979.
(22) Muller, L.1. "Manufacture and Uses of Casein and Co-precipitate," Dairy Science Abstract. 33 (9), 1971, pp. 659-674.
(23) New Zealand Dairy Board. Casein and Other Milk Proteins.
(24) A Survey of the New Zealand Dairy Industry, Wellington, March 1980.
(25) New Zealand Official Yearbook, 1979. Department of Statistics, Wellington, New Zealand.
(26) Pomerantz, Fern. "Food Additives: An Expanding Market in the '80's", Food Product Development. Vol. 14 (12), Dec. 1980.
(27) The Professional Nutritionist. "Food Ingredients in Milk Substitutes." Fall 1974.
(28) Reed, Pierce M. "Casein and Caseina tes," Technology, Food Series. Volume 2 (1974). Westport, Connecticut: AVI Publications.
Encyclopedia of Food Ed. Johnson and Peterson.
(29) Salzberg, H.K. "Casein Glues and Adhesives," Handbook of Adhesives. New York, N.Y.: Van Nostrand Reinhold Co., 1977
(30) Stanford Research Institute. Long Range Planning Report No. 515, 1974.
(31) Schugel, LaVerne. "Milk Replacers for Pre-ruminan t Calves-Formula tions , Problems, Economics," Proceedings of the 7th Annual Conference of the American Association Bovine Practice, 1974.
(32) Sipos, E.F., E. Turro, and 1.D. Williams. "Soy Protein Products for Baked Foods," The Bakers Diges t. Feb. 1974.
(33) Smith, B. J. "Critique of Cost of Production Studies and Their Use in Pricing Milk," Staff Paper 39. Pennsylvania State University, Agricultural Economics and Rural Sociology Department, Dec. 1980.
(34) Swanson, A.M. and W.B. Sanderson. '~ilk Proteins Responsible for Deleterious Effects in Continuous Mix Bread," Cereal Science Today. Vol. 12, Number 9, Sept. 1967.
(35) u.S. Department of Agriculture. Conversion Factors and Weights and Measures. Econ. Stat. Coop. Serv., Stat. Bulletin No. 616, March 1979.
(36) U.S. Department of Agriculture. Developments in Farm to Retail Price Spreads for Food Products in 1980. Econ. Stat. Serv., AER-465, Apr. 1981.
61
(37) "Marke ting Po ten tial for Oilseed Pro tein Ma terials in Industrial Uses," Technical Bulletin No. 1043, September 1951.
(38) Synthetics and Substitutes for Agricultural Products - A Compendium. Econ. Res. Serv., Misc. Pub. No. 1141, Apr. 1969.
(39) United States Department of Census, personal communication, Apr. 1981.
(40) Webb and Whittier. Byproducts from Milk. Westport, Connecticut: The AVI Publishing Company, Inc., 1970.
(41) Wingred, W.H. "Lactalbumin as a Food Ingredient," Journal of Dairy Science. Vol. 54, No.8, July 1970.
(42) Van Kreveld, A. "Casein and its Food Uses," VoIding - 30e joargang No.5, 1969.
Subto tal 15,080,407 23,127,803 23,127,803 23,127,803
Exports 963,420 963,420 963,420 963,420
Total 77 , 140 ,485 109,746,400 132,718,985 152,160,000
72
APPENDIX III--THE DERIVED DEMAND FOR CASEIN
The demand for casein is derived from the consumer demands for products
in which casein is used as an input. This appendix describes in greater
detail than was possible in the text how this derived demand relates to the
conceputal model that was outlined.
As in the text, three groups of products are identified: Group A pro
ducts which have close substitutes made from soy products; Group B products
which have close substitutes made from skim milk or NFDM; and Group C pro
ducts which have no close substitutes. For all these groups, casein is
perfectly complementary (or nearly so) to the other inputs--packaging,
labor, and capital.
The derived demand for casein used in the Group C products is relatively
inelastic, either because the product has a specialty use, or because casein
constitutes a very small portion of the final value of the finished product.
The quantity of casein demanded is thus quite insensitive to changes in
price.
In group A, casein substitutes for soy products, and in Group B, it sub
stitutes for skim milk solids. The relevant economic theory regarding these
two groups is quite similar, so for expositional purposes the derived demand
for casein use in group B products is discussed in more detail.
Derived Demand for Casein in Imitation Cheese
To illustrate the derivation of the derived demand relationship nonfat
mozzarella cheese is examined. The relevant product demand is the consumer
demand for imitation mozzarella cheese made with casein. This demand
depends on the price of imi ta tion mozzarella cheese, the price of "natural"
73
mozzarella made from skim milk and the other normal demand shifters. In
particular, since the end products are virtually identical (casein-based
imitation cheese may be slightly inferior), whenever the price of the
casein-based imitation mozzarella cheese exceeds the price of the natural
mozzarella cheese, then no imitation cheese is demanded. However, as the
price of the casein-based cheese falls slightly below the price of the
natural cheese~ a large increase in the demand for casein based cheese
occurs. This corresponds to the plateau at a $1.20 wholesale price in figure
111.1 on the demand curve for imitation cheese. (The plateau will not be
absolutely horizontal because casein and skim milk solids are not perfect
substitutes). As the price of imitation cheese decreases (holding the
price of natural cheese constant at, or near, $1.20), the demand reflects
normal price-quantity relationships. An elasticity of -0.5 is assumed
for this portion of the product demand curve. 1/
The derived demand for casein for use in imitation cheese can be
obtained quite simply because casein and casein based cheese are fixed in
proportion. This relationship can be expressed as:
Q • V o = qc
where:
Qo lbs. of casein-based cheese
qc lbs. of casein
V lbs. of casein-based cheese per lb. of casein (equal to 4).
1/ See Zuhar Hassan and S.R. Johnson, "Price Elasticity Estimates for Cross section and Panel Data: A Survey", in Food Demand and Consumption Behavior, Robert Rauniker, editor, S-119 Southern Regional Research Committee, Athens, Ga. March 1977. p. 155; and P.S. George and G.A. King, Consumer Demand for Food Commodities in the u.S. with Projections for 1980. Gianinni Foundation Monograph No. 26, University of California, March 1971.
74
The price relationship between the product market and the factor market
can be expressed as
where:
I Po = - Pc + M ,
V
Po price of casein-based cheese
Pc price of casein (currently $1.20 (1980»
M the marketing margin for transforming casein into cheese (assumed to be $.55/lb. of cheese)
Conse9uently, the wholesale price of casein-based cheese will be $.85 per
lb. when casein sells for $1.20 per lb. (.25 x $1.20 + .55 = $.85).
This price relationship can next be used to derive the demand for casein.
For any Qo (casein based cheese), which corresponds to a qc (casein) because
Qo = V q • c' a unique Po exists. Using the price rela tionship be tween the
product and factor markets a unique Pc exists.
That is: Pc = (po - M)V
The price on the casein demand curve that corresponds to Po = $1.21
per lb. of cheese is Pc = $2.64 per lb. of casein «1.21 -.55)4 = 2.64).
This implies that by holding the price of skim milk solids constant at the
NFDM support price ($0.90 per lb.), the demand for casein imitation cheese will
drop to zero when the price of casein exceeds $2.64. As shown in figure 111.1,
the demand curve for casein reflects the demand for the casein-based cheese.
The elasticity of this derived demand is proportional to the demand
elasticity in the product market. That is:
where:
E(qc,Pc)
E(Qo,Po)
derived demand elasticity
product demand elasticity.
~c ) P
o
75
Figure III .1
The Demand for Casein Based Cheese and the Derived Demand for Casein Cheese Price $lIb.
1.20 r---------_
1.00
.80 - - - - SCheese
.60
.40
.20 DCheese
o L-----------------------____ 4-__________________ -------------------
Casein Price $/lb.
3.00
2.50 t:-------__
2.00
1.50
1.00
.50
~o I I Cheese = 4 x Casein
Quantity
Cheese Price = .25 x Casein Price + .54
- - - - - - - SCasein
DCasein o L-__________________________ ~ ____________________ ~---------------
Quantity Casein
76
Thus, with Pc = $1.20, Po = $.85 and V = 4, the derived demand elasticity
is found to be 35 percent of the consumer demand elasticity, or -.176 when
the demand elasticity for cheese is -.5.
If the casein price increased from $1.20 to $2.65 for example, the drop
in demand for casein to be used in imitation cheese would be:
(41.9 million lbs. of casein) • «$2.65 - $1.20)/$1.20) • (-.176)= 8.9 million lbs. of casein.
Price of Natural Cheese -- One pound of NFDM makes 1.71 pounds of moz-
zarella type cheese--or 1.42 pound of NFDM makes one pound of cheese. Lac-
tose, (in the form of whey), has to be taken out of the NFDM to make the
cheese. It is assumed that the whey value is sligh tly larger than the cos t
of extraction. Thus the marketing margin for making cheese is smaller than
that for casein-based cheese. Therefore, based on $.90 per pound NFDM and
a marketing margin of $.27 per pound of cheese, the price of natural cheese
from skim milk solids is:
1. 4 2 ( .90) + .27 $1. 55
Demand for Casein Used in Other Products
A similar process can be applied to the market for case i n in other
Group B uses. In calf milk replacers (assuming a 20 percent shift to soy-
beans), V is about 3 and Po is about $0.70. The elasticity of demand is
assumed to be -.33. The elasticity of demand for casein in this use is -.19.
The estimated decline in casein demanded for this use is 3.8 million pounds.
For other Group B products a completely inelastic derived demand for casein
has been assumed; this assumption can be relaxed without materially affect-
ing the conclusions that are obtained.
77
Aggrega ting the Derived Demands for Casein
The total derived demand for casein is obtained by aggregating across
the derived demands for casein in its various uses in product groups A, B,
and C. Group A demand is similar ' to group B, except that demand for casein
in group A drops to zero at a casein price of $1.40, when the price of soy
demands for casein is illustrated in figure III.2.