Cheese Time in China

There’s a general pattern to how cultures new to dairy take up the products—a learning curve of acceptance. It goes something like this: milk powder to fluid milk to yogurt to cheese. China is nearing the cheese stage.

A number of developments have aligned to potentially pull the nation’s cheese sector out of its infancy and create a sustainable business for U.S. cheese suppliers. 

For example:

• Continued economic growth, which is lifting personal incomes in China, leading people to modify their eating habits and integrate higher protein foods into their diets.
• Positive sales trends. The Chinese cheese market has boomed over the past decade. Cheese imports have seen commensurate growth, increasing 763 percent to 16,978 metric tons from 2000-2009. Through the first nine months of 2010, they jumped another 47 percent to 17,168 tons. Mozzarella for pizza chains and cheddar for making processed cheese dominate, but there are additional opportunities for cream cheese in commercial bakeries and for many varieties at retail.
• Foodservice boom. More than any other dairy product, cheese is tied to foodservice industry expansion, and China’s foodservice sector has been growing at about 15 percent annually. The biggest players in the market continue to pour development dollars into China: McDonald’s, Yum, Subway, Domino’s and Papa John’s. Deutsche Bank forecasts that in five years Yum will generate twice as much revenue from China as it does from the United States.
• Widespread urbanization. With urban lifestyles comes exposure to Western quick-service restaurants. Less than half of China’s current population or about 620 million people (about twice the size of the entire United States) live in cities, according to a 2010 Deloitte research study. By 2030, more than two-thirds of China’s population will reside in cities. That’s another 280 million people, or, in other words, nearly another U.S.-size market.
• Nutrition. The Chinese government officially raised the recommended daily dairy intake from 100g to 300g in 2008. Chinese consumers view cheese as a good source of calcium, which is especially appealing to a mother making food choices for her one and only child under China’s one-child policy.

The key to turn these developments into increased consumption is education. Many Chinese consumers still don’t really know how to eat cheese when they have to prepare it themselves.

USDEC has run a cheese educational program in China for a decade now, and most recently conducted a U.S. cheese supplier mission, pizza workshops in three cities and a training seminar for in-store supermarket personnel.

International suppliers will be the main beneficiaries as consumption rises. China has scarce natural cheese manufacturing capacity, and that is likely to remain the case. The high price of Chinese milk and the investment required to build plants provide little financial incentive for China to produce cheese to replace imports. Large-scale cheese manufacturing is limited to processed cheese, which would still need to be supplied by bulk natural cheese exporters.

This could be excellent news for U.S. cheese suppliers. Chinese cheese end users have made it clear that they want to source from the United States. They recognize that we offer high-quality and safe cheeses in a wide variety of styles.

Now it’s up to U.S. cheese suppliers to deliver to the needs of the market. As is often the case with dairy exports, overseas buyers often desire specs and packaging that might differ from typical U.S. products.

Chinese retail buyers, for example, desire smaller packages. At foodservice, buyers are often looking for different performance characteristics that don’t always align with traditional U.S. performance characteristics. At the bakery level, buyers have expressed interest in larger package sizes. And lower salt content (to align with Chinese taste buds) is often mentioned as a desirable specification for U.S. cheese makers looking to successfully service this market.

The challenge faced by U.S. cheese suppliers is that Oceania was “first in” the Chinese market and set the standard for what cheese “should” look like and taste like. Part of the education process USDEC extols is demonstrating that Oceania product is not the only taste and functionality option.

A combination of education and customer service could lead to a prominent U.S. position in what is expected to be an increasingly significant cheese market.

Let me leave you with these numbers: Annual per capita cheese consumption in China is estimated at 10 grams at present, compared to almost 15 kg (or 1,500 times that of China’s) for the United States and Europe. Moving the needle to just 1.5 kg, one-tenth of Western consumption, would require nearly 2 million metric tons of cheese.

(This article first appeared in Cheese Market News in November 2010.) 

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.