cheddar cheese blocks

Analysis: Global demand sparks increased cheese trade

U.S. exports increase 12% in first quarter.

Demand trends suggest that cheese trade numbers could be strong for a while, according to Matt McKnight, senior vice president of market access, regulatory and industry affairs for the U.S. Dairy Export Council (USDEC).

McKnight said 2016 cheese exports by the world’s top four global dairy suppliers -- Australia, the European Union, New Zealand and the U.S. -- grew 5% from the previous year to 1.6 million tons. That 5% growth represents an additional 76,185 tons of cheese, which is equivalent to about 710,000 tons of milk, he added.

“It’s too early in the year to definitively state that last year’s growth will repeat in 2017, but demand trends suggest solid cheese trade numbers could be in the cards for some time to come,” McKnight said.

Developing markets are at the center of the opportunity, he explained.

“Several emerging markets are reaching the tipping point where cheese progresses from novel food to known, accepted and preferred food," McKnight said. "Consumers, increasingly familiar with cheese applications and tastes are seeking it out more frequently. Chefs and restaurants are obliging them by creating dishes that incorporate cheese while often aligning with more traditional regional tastes.”

According to McKnight, restaurants and retailers are also shifting their buying philosophies to ensure a consistent supply, purchasing by contract rather than on spot markets. “The ongoing expansion of Western foodservice chains, with their cheese-laden menus, continues to spread cheese-eating opportunities to wider swathes of the population,” he noted.

The progression is clear in long-term cheese trade data, McKnight said, with cheese exports from the top four dairy suppliers having increased 50% since 2005.

Additional 100,000 tons annually

Through 2021, USDEC projects that demand will drive cheese trade by a half-million tons — or, on average, an additional 100,000 tons annually. This is one of the reasons why USDEC believes lifting total U.S. dairy exports from the equivalent of about 15% of the U.S. milk supply to 20% — or what it is calling “The Next 5%” — is an achievable goal.

Last year, McKnight said buoyant demand fueled strong cheese sales to China/Hong Kong, Southeast Asia, Mexico and the Middle East, but U.S. cheese suppliers struggled to take part in export growth for much of the year, because U.S. products commanded hefty premiums compared to the international markets through the summer. However, U.S. domestic demand also remained strong, offering a convenient export alternative, and U.S. suppliers closed 2016 with a 14% increase in cheese shipments in the fourth quarter.

“The competition is well aware of the opportunity. New Zealand is investing to increase the cheese share of its product mix, with an eye on the market potential in China. Last year, the EU directed more of its milk supply to the cheese vat in the second half, even as milk production contracted. In its latest short-term outlook report, the European Commission projected EU cheese production would increase 2% in 2017 and exports would rise 3%,” he said.

Year off to a good start

McKnight said this year is off to a good start for the U.S. and Europe. U.S. exports increased 12% in the first quarter compared to January to March 2016, and EU cheese exports rose 9%.

At the same time, U.S. and international cheddar prices continue to slide, dropping 8-15% from recent peaks, which he said is a positive development for global demand. “U.S. cheddar now holds a pricing advantage over the EU and Oceania -- a positive development for U.S. cheese suppliers looking to take advantage of growing global cheese appetites,” McKnight noted.

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