May 3, 2017

Global Demand Sparks Cheese Trade

 |  By: Tom Suber

Cheese exports by the world’s top four global dairy suppliers (Australia, the EU, New Zealand and the U.S.) grew 5% to 3.5 billion lbs. in 2016 compared to the previous year. That 5% represents an additional 168 million lbs. of cheese, about 1.6 billion lbs. of milk.

It’s too early in the new 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.

Developing markets are at the center of the opportunity. Several emerging markets are reaching the tipping point where cheese progresses from a novelty to known, accepted and preferred food. 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.

Restaurants and retailers are shifting buying philosophies to ensure consistent supply, purchasing by contract rather than on spot markets. The ongoing expansion of Western foodservice chains with their cheese-laden menus continue to spread cheese-eating opportunities to wider swathes of the population.

The progression is clear in long-term cheese trade data: Cheese exports from the top four dairy suppliers have increased by 50% since 2005.

Through 2021, USDEC projects demand will drive cheese trade by 1.1 billion lbs.—on average, an additional 220 million lbs. annually. That’s 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 we are calling “The Next 5%”—is an achievable goal.

Last year, buoyant demand fueled strong cheese sales to China/Hong Kong, Southeast Asia, Mexico and the Middle East. U.S. cheese suppliers struggled to take part in export growth for much of the year, as U.S. products commanded hefty premiums compared to the world market. But 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 cheese share of its product mix with an eye on China. Last year, the EU directed more of its milk supply to the cheese vat even as milk production contracted. In its latest short-term outlook report, the European Commission projected cheese production would increase 2% in 2017 and exports would rise 3%.

This year is off to a good start for the U.S. and Europe. U.S. exports increased 6% in the first two months, and EU cheese exports in January rose 13%.

At the same time, U.S. and international Cheddar prices continue to slide, down 10-17% from recent peaks, a positive development for global demand. U.S. Cheddar now holds a pricing advantage over the EU and Oceania, which is great for U.S. suppliers looking to take advantage of growing cheese appetites