WSJ
VISALIA, Calif.—California's agricultural Central Valley has thrived for decades on Americans' seemingly endless appetites. Now, with U.S. market growth slowing, farmers are going after a different group of consumers: middle-class Chinese attracted to Western fare like milk and almonds.
Consider Dave Bush, operating chief of California Dairies Inc. Mr. Bush recently discovered that the dairy cooperative, the nation's second-largest, wasn't exporting very much to China, whose population is now the world's biggest consumer of milk powder. So he invested $35 million in machines here that process milk into powder to meet Chinese and other Asian requirements.
"We're in an evolution," Mr. Bush said. "No question."
The shifting global economy is forcing more U.S. farmers to turn to markets they once treated as an afterthought and reshaping the relationship between rural America and the rest of the world. Milk powder from California Dairies now ends up in ice cream, flavored dairy drinks and infant formula sold by China's biggest dairy company, Inner Mongolia Yili Industrial Group .
Soybeans, used largely for feeding livestock, remain the largest American agricultural export to China. Big Midwestern growers of commodities such as soybeans and corn have looked to the Chinese market for several years. But the interest in food meant for consumers themselves is more recent.
Chinese demand for American food is linked to shifting tastes, limited domestic supply and concerns about the quality of domestic products. But when it comes to milk, American producers have lagged behind their rivals in New Zealand. On a recent grocery trip, 23-year-old Beijing finance worker Huang Xin said she would buy American milk if she could find any in her usual markets. Ms. Huang looks for New Zealand labels or Chinese brands that haven't been caught up in safety scandals.
"I just want something that tastes good and that isn't going to hurt me," Ms. Huang said.
New Zealand, the top milk exporter in the world, has benefited for years from an early investment in exports, and it sold about 379,700 tons of milk powder to China in 2011, up 10% from the previous year, according to the Global Trade Information Services. By comparison, the U.S. exported 14,900 tons last year, down 4% from 2010, according to the U.S. Department of Agriculture.
Driving through his sprawling dairy farm outside Visalia, lifelong dairyman John Moons said he is still reeling from the recent recession and sees a glimmer of hope in China's interest in milk powder—a product that had been low on American dairies' priority lists for years because it wasn't coveted in the U.S.
"All of a sudden, milk powder has become this valuable commodity," said Mr. Moons, whose farm belongs to the California Dairies cooperative. "It's exciting to know that demand's going to be there."
With many of the newly popular exports to China grown close to the important Pacific Ocean ports in California, the milk industry isn't alone. In 2010, California exported $1.4 billion worth of agricultural goods to China and Hong Kong, up 86% from 2008, according to the University of California Agricultural Issues Center. By comparison, U.S.-wide exports to China of $15 billion in the year ended September 2010 were up only 34% from 2008, according to U.S. Census Bureau trade data.
In December, California's entry in this year's Miss America pageant traveled across China to promote pistachios with the American Pistachio Growers. The Almond Board of California is sponsoring student-recipe contests in China. A trade group for Napa Valley wineries last year started plastering billboards in Shanghai and Beijing with images like the Golden Gate Bridge and a tow-haired surfer alongside the tagline, "Discover California wines."
California Dairies buys raw milk from cooperative members like Mr. Moons, who together own the business, and processes it into products like fluid milk, butter and milk powder. In recent years, the dairy noticed that China's inability to meet domestic demand for milk was boosting the demand for foreign milk powder that was then processed in China into dairy products.
China consumed an average of 1,338 kilotons of milk powder annually from 2008 to 2010, compared with 528 kilotons consumed each year in the U.S., according to the Organization for Economic Cooperation and Development and the Food and Agriculture Organization of the United Nations.
The challenge for Mr. Bush of California Dairies was that U.S. dairies have long produced the wrong kind of milk powder for China and other Asian countries. China imports mostly long-lasting milk powder to mix with water and other ingredients and make products such as fluid milk that can sit on a grocery shelf without spoiling.
U.S. milk producers, on the other hand, have produced a variety that can't sit very long at room temperature after being turned into those dairy products.
The company opened a new plant in 2009 with machinery capable of making longer-lasting powder, and it plans another facility with even more equipment within five years. The goal: getting China sales up to one-third of the company's exports, from about 5% today.
—Laurie Burkitt in Beijing contributed to this article.
Write to Vauhini Vara at vauhini.vara@wsj.com
