The U.S. Dairy Exporter Blog: Market Analysis, Research & News

  • Emerging Economies will Drive Future Cheese Demand

    By Mark O'Keefe February 25, 2016

    U.S. cheese exports tripled over a seven-year period. Despite a decline in 2015, USDEC research forecasts a continuing opportunity.

    In 2014, the world quietly passed a cheese milestone.

    For the first time, developing countries—Russia, Mexico, China, Central America, most of Southeast Asia and the Middle East—imported more cheese than developed countries.

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    Those emerging economies accounted for nearly 52 percent of cheese import volume in 2014, a marked shift from just seven years earlier when they represented 42 percent. In pure volume terms, that equates to a near doubling of imports for developing nations to more than 1.2 million tons in 2014.

    “U.S. cheese exports benefited from the demand, more than tripling over that same period, and despite the current challenging, oversupplied market, emerging economies will continue to create significant cheese export opportunities for U.S. suppliers over the mid-term,” says Ross Christieson, USDEC senior vice president, market research and analysis, and author of the USDEC report, “U.S. Dairy Export Prospects: Looking out to 2020.”

    The report conservatively projects a compound annual growth rate of 3.2 percent in international cheese trade from 2014-2020, resulting in significant additional demand for cheese exports. This creates potential for U.S. cheese exports to not only rebound from their 2015 decline but reach new heights.

    “The competition for that additional volume will be stiff, but the United States is better positioned to take a significant share of that projected growth than most other cheese suppliers,” notes Christieson.

    Limited demand-response capacity

    Both developing countries and a number of U.S. export competitors face sizable barriers to cheese export growth, including the need for infrastructure investment and limited capacity to grow milk output.

    Milk deficit countries like Egypt, Indonesia, Morocco and the Philippines have higher priorities, such as fluid milk and fresh dairy, for their limited resources, particularly given the cost for developing a homegrown natural cheese industry from a consistent, quality milk supply. As their internal cheese consumption rises, they are likely to focus domestic cheesemaking ventures on manufacturing processed cheese from imported solids.

    Emerging dairy suppliers are similarly limited in developing domestic cheese industries, but often due to political or economic instability.

    "Long-touted expectations of large export gains from countries like Argentina, Belarus and Ukraine have never materialized in part because investors are unconvinced the governments or economies are stable enough to take the risk,” says Christieson.

    “Even among the four major global export competitors—Australia, New Zealand the European Union (EU) and the United States—only the United States and the EU have the capacity and product range to meet the sizable volumes of projected demand growth through 2020 while also producing the variety of product that international buyers require,” he adds.

    New Zealand has been a leading cheese exporter for some time, but its exports have remained relatively flat since the late 1990s. Processor spending for the last two decades indicates a clear preference to invest in milk powder, nutritional products, UHT milk and other ingredients. Cheese now represents only 10 percent of the nation’s dairy exports, down from 20 percent two decades ago.

    “High seasonality, inconsistent milk supply and a limited cheese manufacturing infrastructure restrict major medium-term cheese export growth,” says Christieson. “Meeting projected demand would require considerable investment, as well as allocation of all of the forecast new milk that New Zealand may produce, plus some.”

    Responding to the EU challenge

    Competitor limitations certainly brighten U.S. cheese export prospects, but while costs and resource constraints may rein in emerging markets and Oceania, the post-quota EU has emerged as a far stronger competitor than ever before.

    Many of the U.S. cheese gains in recent years have come in areas of strength to New Zealand, in geographies in which U.S. suppliers have gone the extra yard to build relationships and service customers like Mexico and South Korea. Gains have come in products that fit well into the U.S. product portfolio—cheddar for processing, pizza cheese and cream cheese. Overseas foodservice expansion in familiar strongholds will continue to deliver opportunities to U.S. suppliers moving forward. However, the United States will increasingly need to expand products, market investments and strategy to compete in areas of strength to EU suppliers—like the Middle East and in the retail sector—to maximize potential.

    “U.S. suppliers need to better craft a number of differentiated strategies for different cheese categories: processing solids, pizza cheese and cream cheese but also retail, packaged foodservice and specialty/artisan,” says Christieson.

    If U.S. suppliers can up their game, the payoff could be significant.

    Christieson sums it up: “Growth in disposable income and population will continue to fuel global dairy consumption at a far faster rate in emerging economies than in developed countries, creating opportunities for nations with the capacity and competitive wherewithal to serve their needs.”

    Note: A version of this story previously appeared in Cheese Market News.

    Learn more: Related articles on cheese demand have appeared in the U.S. Dairy Exporter Blog: 

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    The U.S. Dairy Export Council fosters collaborative industry partnerships with processors, trading companies and others to enhance global demand for U.S. dairy products and ingredients. USDEC is primarily supported by Dairy Management Inc. through the dairy farmer checkoff. How to republish this post.    

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