What Does Globalization Look Like for Cheese?

You’ve read before in this column and likely in other ag and food business publications about rising global dairy demand, rising dairy appetites in emerging markets and rising export opportunities for U.S. suppliers. This time, let’s get specific and delve more deeply into just what “globalization” looks like for cheese.

The shift in the global cheese market over the last five years has been remarkable. Consider the following:

• Global cheese production is strong and the pace of export growth stronger. Global cheese production rose from 17.2 million metric tons in 2005 to an estimated 20.4 million metric tons last year—a gain of 18 percent. Exports increased from 1.5 million metric tons to 1.9 million metric tons—a gain of 24 percent.
• While the United States and European Union (EU) remain the world’s leading cheese producers, others are making inroads. The combined U.S. and EU share of global cheese production fell from 62 percent to 57 percent from 2005-2010. Around 70 percent of “new” cheese production over the same period took place outside the United States, Oceania and the EU.
• Even more striking: All that new cheese production from emerging markets is being consumed in those markets—and that still is not enough to meet demand. Consumption in Russia, Brazil and Argentina is rising on average 5-7 percent annually. Consumption in Mexico and South Korea is gaining around 3 percent annually. Other nations boast even higher growth rates because they are starting from lower bases.

U.S. and EU cheese consumption rose as well—up 582,000 metric tons from 2005-2010—but that represents only 18 percent of incremental production over that time.

• The global cheese import market is similarly diversifying. In 2005, the top 5 cheese importers—Russia, Japan, the United States, Saudi Arabia and the EU—were responsible for 59 percent of global cheese buying. Last year, those same five countries purchased only 43 percent of globally traded cheese. Due primarily to the major drop in U.S. imports (down 34 percent—a combined sign of rising U.S. varietal cheese prowess and unfavorable exchange rates from traditional exporters to the United States), the top five cheese importers buy less now than they did five years ago—despite the fact that global cheese exports have grown by 360,000 metric tons over the same period.

The No. 6 through No. 25 importing nations in 2010 collectively purchased an additional 248,000 metric tons of cheese last year than they did in 2005.

• The globalization of the dairy industry has led to direct benefits for U.S. cheese makers. The United States has become a key player in supplying the world’s cheese needs over the last five years. In 2005, we held a little less than a 4 percent share of global cheese trade. Last year, not only did U.S. suppliers capture 9.5 percent, U.S. exports hit 173,531 metric tons—a gain of nearly 200 percent from 2005.
• To reach that level U.S. suppliers also diversified their cheese efforts, casting a broader geographic net and developing products (like lower moisture block cheese) that cater to overseas buyers needs.

U.S. companies began producing and exporting gouda specifically to meet emerging market tastes. U.S. suppliers made great strides in catering to the flourishing international foodservice market, supplying mozzarella to the Pacific Rim for the pizza sector and cheese curd to Japan, Southeast Asia and the Middle East for processed cheese used in restaurants or re-exported regionally. U.S. artisan cheeses and American Originals gained traction in Japan and Mexico as consumers grew more accustomed to cheese as a whole.

From a geographic standpoint, in 2005, only four nations purchased more than 2,000 metric tons of cheese from the United States. In 2010, 15 nations purchased 2,000 metric tons or more from the United States.

Most notably, South Korea jumped from the No. 4 U.S. market in 2005 to the No. 2 market in 2010. In the first quarter of 2011, U.S. shipments to South Korea topped U.S. exports to our No. 1 market Mexico in the first quarter of 2010—a performance that would have been unheard of five years ago.

• U.S. export competitors have had mixed results in serving rising global demand. The EU remains the No. 1 cheese supplier, shipping 676,000 metric tons in 2010. New Zealand is No. 2, but its volume has rollercoastered over the past five years and 2010 was practically unchanged from 2005’s 263,000 metric tons. Australia, due primarily to prolonged drought and reduced milk supply, has seen its cheese exports fall 23 percent to just short of 160,000 tons.

The United States is outperforming most of the world.

There are some who might say, “Sure, U.S. suppliers are doing well now. Market conditions favor us.”

It’s a valid point. U.S. pricing has been consistently lower than world prices since late 2009.

Can U.S. cheese exports be sustained and expanded even when market conditions shift?

Much will depend on U.S. supplier attitudes. But U.S. companies are increasingly exhibiting signs that they are approaching the export market as a strategic segment of the business rather than an outlet for surplus product. Considering that trends point to solid long-term opportunities in emerging markets, that is a very good sign.

(This article first appeared in Cheese Market News in June 2011.)

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.