Around the World in New Cheese Capacity

Since Jan. 1, at least 17 companies have announced significant plans to expand existing cheese manufacturing facilities or build new cheese plants. Geographically, the tally breaks out as follows: one in Japan, one in South America, three in Australia, six in Europe and six in the United States. That does not include projects that started taking milk over the past five months—like Brasil Foods’ new mozzarella plant in Itumbiara, Brazil—or new cheese capacity expansions that are on the drawing boards.

Even so, 17 is a sizable number and warrants a closer look for two reasons:

1. Cheese has arguably become the United States’ best export performer and steadiest export growth product of the past two years.

U.S. monthly cheese export volume compared to the previous year grew in 29 of the past 30 months. Over the past four years, 38 percent of incremental cheese output in the United States went to overseas markets. It’s also delivering value, ranking No. 2 on 2011’s total dairy exports at $958 million, behind skim milk powder.

If the target for new overseas cheese plants is hard-won U.S. export market share gains, it could send ripples throughout the industry.

2. The locations and types of new cheese capacity are signposts from which cheese makers may gain insights into trends in the U.S. and global cheese industries, consumer tastes and consumption. They can help direct investment and plot business strategy.

A number of the current projects clearly reflect the globalization of the industry. Australia’s Bega Cheese and Murray Goulburn Co-operative, for example, are each expanding cream cheese production specifically to meet rising demand in the Middle East.

The projects align with reports that Australia is looking to build its overall cheese capacity to better serve Japan, South Korea and other Asian markets.

Similarly, Argentina’s NAM Corp. plant expansion at its Villa Maria Cordoba facility will boost mozzarella output primarily to service export markets. South America in general is showing signs that it wants to be a bigger player in global cheese trade in the years ahead.

Other projects announced January-May also hope to target emerging market demand, but through investment in the target country rather than exports. Finland’s Valio is upgrading its cheese plant near Moscow to capitalize on Russian demand for sliced cheese, while Denmark-based Arla Foods through a joint venture with Russia’s Molvest Group is building a factory to make and market yellow cheese.

Other recently announced projects in Europe and Japan are simply looking to build scale and efficiency (sometimes mothballing old plants in the process) and serve domestic demand.

Much of the U.S. activity is a hybrid. Half of the six projects here are run by European parents who came to the United States because of the abundant U.S. milk supply and a global ambition similar to Valio and Arla in Russia: They wanted to both play in the lucrative U.S. market rather than ship products here from their overseas plants, as well as potentially use the U.S. market as an export platform to Latin America and Asia.

The primary focus of the announced U.S. projects is specialty cheese sales to the domestic market. That focus may seem out of line given that domestic cheese growth has slowed of late—up 1.1 percent per year over the past four years, much slower than the rate of growth over the previous two decades.

But the projects reflect the evolution of the American palate. Lactalis’s Nampa, Idaho, fresh mozzarella facility, Emmi Roth USA’s Platteville, Wis., plant, Bel Brands USA’s Brookings, S.D., operation and the others seek to capitalize on increasingly sophisticated U.S. tastes.

In other words, we may be seeing a slowdown in U.S. per capita consumption growth, but the product mix is changing to higher-profile, higher-end products.

From a global perspective, this has two positive implications. First, it suggests U.S. cheeses will continue to displace imports from Europe. Second, it demonstrates we have as diversified a cheese portfolio and cheese-making expertise as any nation in the world and are interested in more than merely churning out commodity volumes.

Last month, we discussed opportunities presented by overseas foodservice growth based on a series of USDEC reports on China, South Korea and Southeast Asia. What we skimmed over was Europe’s role in many of those markets. Europe still has a reputation—and a corner on the market—as a provider of high-cost specialty cheeses to the growing emerging-market hotel and high-end restaurant sector.

U.S. cheese plant diversification earns the industry greater credibility as a supplier to upscale end-users, as do mounting U.S. honors in high-profile competitions such as the World Cheese Awards.

On the commodity side, the U.S. industry is maturing in its global outlook. Our cheese makers are doing a better job of making the right products for the global market, and we have the ace in the hole of a stable year-round milk supply.

But we can’t rest on our laurels. We have to keep adding capacity, especially in the most popular varieties, to keep up with rising international demand. Our competitors are building with an eye to foreign markets. We have not yet fallen behind, but without greater focus on export opportunity, we run that risk.

(This article first appeared in Cheese Market News in June 2012.)

The U.S. Dairy Export Council represents dairy farmers, proprietary processors, cooperatives, ingredient suppliers and export traders. Its mission is to enhance U.S. competitiveness and increase global sales of U.S. dairy ingredients and products.