Processed Cheese Comes to the Forefront

The U.S. is the largest processed cheese manufacturer in the world, but must translate its know-how to foreign markets.

Outside of Europe and the United States, processed cheese is the most-consumed cheese type in the world. The product’s ability to survive ambient distribution made it the gateway to cheese consumption in emerging markets, where incomplete cold chains, among other factors, hindered natural cheese options. Over the years, with demand steadily rising, manufacturers built capacity closer to the point of consumption—in Morocco, Japan, Egypt and elsewhere. That trend to localize manufacturing continues today and has translated into rising imports of natural cheese for processing and significant opportunity for U.S. suppliers.

A recent processed cheese research report by the checkoff-funded U.S. Dairy Export Council (USDEC) focused on 10 key markets for processed cheese: five in Asia (China, Indonesia, Japan, the Philippines and South Korea) and five in the Middle East/North Africa (Algeria, Bahrain, Egypt, Morocco and Saudi Arabia).

These 10 nations manufactured more than 1.2 billion lbs. of processed cheese in 2013. They utilize small volumes of gouda, mozzarella, cream cheese and other varieties, but cheddar dominates the kettle. Last year, they imported about 344 million lbs. of cheddar from the top four suppliers—Australia, the European Union, New Zealand and the United States.

Domestic demand in these markets continues to grow, and some of the nations, particularly those in the Middle East/North Africa, are becoming regional manufacturing hubs, exporting processed cheese to dozens of neighboring countries. USDEC projects that aggregate processed cheese production in the 10 nations will rise to more than 1.7 billion lbs. by 2017 pushing total annual cheddar import requirements to more than 450 million lbs.

New Zealand traditionally dominates raw material supply, but the United States has steadily raised its profile. We have moved into a strong No. 2 position, as our share of cheddar exports to the 10 nations jumped from 8 percent in 2008 to 26 percent in 2013.

With demand rising and market leader New Zealand signaling that cheddar for processing has taken a back seat to milk powder and other products, we now have a golden opportunity to take over the No. 1 position—if we decide to go after it.

To become the dominant supplier of cheddar for processing, we need to revise how we approach the market. The study outlined four strategies:

1) Build our technical knowledge. The United States is the largest processed cheese manufacturer in the world, but that experience does not fully translate to the processed cheese business in Saudi Arabia or Seoul.

Not only do they make a broader array of processed cheese styles—slices, blocks, jars, cans, spreads, low-salt, etc.—they face operational challenges we never have to consider. For example, shelf life, storage and cold chain problems are ever present. In addition, if you are a manufacturer in Saudi Arabia, you have to plan, forecast and make sure you always have imported cheddar coming in exactly when you need it. If your supplier lets you down, you shut your plant down. Here in the United States, supply is at your doorstep 24/7.

To step up from the No. 2 supplier to the No. 1 supplier, we need to engage our technical people—get them overseas talking to the customers and understanding their technical challenges, the way the plants operate, and the ways the products are made, packaged, stored, distributed and utilized by the consumer.

2) Develop a product portfolio. Most overseas processed cheese makers don’t buy one product; they buy cheeses in a range of specifications to achieve a desired functionality and flavor and/or to fill out production. U.S. cheese makers typically export standard table cheddar. We need to develop and offer a range of specifications that processors demand, giving them the flexibility to formulate and produce what consumers want. This involves adapting our standard cheddar products by adjusting physical factors such as moisture levels and salt content, in tune with logistical considerations like cheese maturity and storage temperatures.

3) Partner with key customers. Even though the United States controls more than a quarter of the business, U.S. sales are still largely spot and opportunistic. Buyers are looking for reliable, consistent suppliers willing to commit to understanding the technical requirements, meeting the specs, monitoring U.S. cheese performance and helping them develop new products for their markets.

Buyers and U.S. sellers need to work more closely in terms of forecasting and understanding a pricing model and product availability. Both sides need to demonstrate commitment.

4) Improve supply chain management capabilities. The first three strategies catch us up to our competitors; this fourth strategy sets us apart. As overseas processed cheese makers have grown, managing and storing product has become a major burden. Providing our customers logistical help, possibly building chilled warehousing in their markets, would help cement long-term relationships.

We as an industry have made substantial progress in serving overseas processed cheese manufacturers, and if we make these further strides, cheddar for processing could be a huge part of our cheese export opportunity well into the future.

(This article first appeared in Cheese Market News in May 2014.)

Image copyright: 123RF Stock Photo

The U.S. Dairy Export Council is primarily supported by Dairy Management Inc. through the dairy farmer checkoff that builds on collaborative industry partnerships with processors, trading companies and others to build global demand for U.S. dairy products.