Challenges and Opportunities for U.S. and New York Cheese Makers in the 2020s
Andrew M. Novakovic, PhD The E.V. Baker Professor of Agricultural Economics 4 March 2019 Cornell University Charles H. Dyson School of Applied Economics and Management All Natural Cheese U.S. Annual Production of All Cheese and Major Styles, 1940-2017,leap year adjusted pounds Categories continue to show growth 14,000,000,000
USDA collects data on cheese CHEESE, TOTAL production for quite a large variety of 12,000,000,000 cheese. Of course, many of the more AMERICAN STYLES current, special varieties (European, Middle Eastern, even Hispanic) are not 10,000,000,000 ITALIAN STYLES enumerated, often because there are not enough plants to allow them to do HISPANIC so. 8,000,000,000 American Style cheeses are primarily Cheddar and Colby with a small 6,000,000,000 volume of other washed curd styles Italian Styles are dominated by mozzarella but include a wide variety 4,000,000,000 of hard and soft style Italians Hispanic is one of a set of miscellaneous cheese, the leading 2,000,000,000 type of which is Swiss style cheeses.
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prepared by A.M. Novakovic 2 Cheddar, Colby, Jack, and U.S. Annual Production of American Style Cheese, by Major Type, 1950-2017, leap year adjusted pounds Monterey cheeses remain a staple category 4,000,000,000 CHEDDAR COLBY, JACK & MONTEREY Cheddar was long the single most popular variety of cheese consumed in 3,500,000,000 the US. For table top consumption, it probably still is, although we have 3,000,000,000 eaten more mozzarella since the beginning of the 21st Century. (In the early 1970s, mozzarella was less than 2,500,000,000 half of Cheddar volume.) 2,000,000,000 Since 1950, Cheddar production has increased about 44 million pounds per 1,500,000,000 year. The pace of Cheddar growth has accelerated since about 2010. 1,000,000,000
500,000,000
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prepared by A.M. Novakovic 3 Processed Cheese, U.S. Annual Production of Processed Cheeses and Cream Cheeses, 1956-2017, leap year adjusted including spreads, and pounds Cream Cheeses PROCESSED PROCESSED FOODS & SPREADS COLD PACK & CHEESE FOODS CREAM & NEUFCHATEL Sharp and steady growth in processed 3,000,000,000 cheeses from the 1950s gave way to stagnation in the 1990s and declines in the 2000s. Although there is some 2,500,000,000 rebound in the last couple of years, industry reports suggest that this is a struggling category as Millennials and 2,000,000,000 others are resisting processed foods in general but processed cheese in particular. 1,500,000,000 This may be part or most of the reason for the rebound in Cheddar. 1,000,000,000 On the other hand, spreadable cheeses are showing growth. Cream cheese has consistently grown but 500,000,000 spreadable processed cheeses are showing a particular resurgence in the 2010s. 0
prepared by A.M. Novakovic 4 Italian Style Cheeses have U.S. Annual Production of Italian Style Cheeses, by shown steady growth but Major Category, 1973-2017 Mozzarella (pizza cheeses) leap year adjusted pounds has been far and away the 6,000,000,000 CHEESE, ITALIAN, HARD, dominant driver in terms of PARMESAN & SIMILARS scale and trend. CHEESE, ITALIAN, HARD, 5,000,000,000 Americans continue their love affair PROVOLONE & SIMILARS with pizza, despite numerous CHEESE, ITALIAN, SOFT, alternative dining choices and formats MOZZARELLA in the last 20 years. 4,000,000,000 CHEESE, ITALIAN, HARD + SOFT
Although vulnerable to recessions and other events that inhibit away from 3,000,000,000 home food consumption, consumption shows no signs of slowing down. 2,000,000,000 Hard Italian cheese styles probably do better in restaurant formats, with soft styles general doing better in deli 1,000,000,000 formats.
This is a very important category with 0 respect to protected European designations.
prepared by A.M. Novakovic 5 US Annual Production of Other Cheeses, 1950-2017, Other Cheese Varieties leap year adjusted pounds Data are mixed bag 400,000,000 SWISS BRICK & MUENSTER Swiss and similar styles have long been 350,000,000 the third largest cheese type in the US, FETA although only 5-10% of Cheddar or 300,000,000 GOUDA Mozzarella volume. Production (and BLUE & GORGONZOLA Consumption) pattern are also similar CHEESE, PART SKIM for Brick and Muenster, another fairly 250,000,000 large category, reflecting that these are popular deli cheeses. 200,000,000
Probably reflecting a growing interest in European style cheese beyond 150,000,000 Italian, Feta and Gouda have shown fairly steep growth in US production. 100,000,000
50,000,000
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prepared by A.M. Novakovic 6 Sales of American Cheeses are primarily to domestic markets Sales of American Cheese, 1995 to 2017 6,000.00
5,000.00
4,000.00
3,000.00
million pounds Domestic Disappearance Commercial Exports 2,000.00
1,000.00
0.00
prepared by A.M. Novakovic 7 Exports Slightly Greater than for American Styles, Domestic Increasing Less Domestic vs. Export Usage of Cheeses Other Than American, 1995 to 2017 8,000
7,000
6,000
5,000
4,000 Domestic Export 3,000 million pounds 2,000
1,000
0
prepared by A.M. Novakovic 8 Stocks Levels are Concerning
Year Ending Stocks an Percentage of Domestic Commercial Disappearance 2017 2015 2013 2011 2009 2007 2005 2003 2001 1999 1997 1995 0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0%
prepared by A.M. Novakovic 9 What Happened (Is Happening?)
Production is consistent with typical seasonal patterns, even down in December, but it is backing up in storage.
prepared by A.M. Novakovic 10 Per Capita Consumption Still Strongly Favors Standard, Familiar Varieties
Per Capita Consumption by Cheese Types, pounds, 2017
Total processed Cold pack, cheese foods, and other foods and spreads Proc Cheese Total natural cheese 6 Imported cheese not from cows 5 Total other-than-American cheese, exluding cheese not… Total OTH Hispanic 4 Cream and Neufchatel Muenster Brick Blue 3 Swiss 2 Total ITAL Other than Mozzarella Mozzarella Total AMER Other than cheddar 1 Cheddar
0.00 5.00 10.00 15.00 20.00 25.00 30.00 35.00 40.00
prepared by A.M. Novakovic 11 The US has some per Per Capita Consumption of All Cheeses, capita head room 2014 (from data collected by the International Dairy Federation and (perhaps) but … published by Statistics Canada) US consumption of cheese is South Africa 1.8 Japan 2.2 probably somewhere around a Brazil 3.7 world average. Some countries Egypt 4.6 with lower levels are not dairy Iran 4.8 countries. Some are but probably Russia 5.8 Uruguay 7.7 consume higher levels of other Turkey 7.8 fermented dairy foods. New Zealand 8.6 Spain 9.5 United Kingdom 11.7 While we may have some head Argentina 12.4 room, we also have some head Australia 13.6 winds. United States 15.5 Israel 16.3 Bulgaria 16.4 European Union (28) 17.9 Italy 20.1 Germany 24.6 Denmark 24.6 France 26.7
0 5 10 15 20 25 30 kg per capita
prepared by A.M. Novakovic 12 Retail Dairy Price Inflation has been considerably lower than for All Food or All Items
Consumer Price Index, All Urban, Selected Products 260.0 250.0 240.0 230.0 All Items Food Dairy 220.0 210.0 200.0 190.0 180.0 170.0
84 = 100 160.0 150.0 1982 - 140.0 130.0 120.0 110.0 100.0
prepared by A.M. Novakovic, please feel free to reuse or distribute but with 13 attribution Retail Prices Trending Up About 3x Greater, but Does Follow Market Up and Down Class III , AMS/NASS Block Cheddar, and Retail Natural Cheddar Cheese Prices, adjusted to $/cwt of milk equivalent $70.00 Class III Price (M-W, BFP) AMS/NASS $60.00 Retail Wholesale Trend Retail Trend $50.00 y = 38.225 + 0.0812 x month R² = 0.70781 $40.00
$30.00 y = 12.794 + 0.026 x month R² = 0.29425 $20.00 $ per cwt, milk $ per milk cwt, equivalent $10.00
$0.00
prepared by A.M. Novakovic 14 How much more milk or cheese would you buy if you had $1,000 more of annual income. Milk, and to a lesser extent other dairy products, is a staple good, i.e., consumption is not particularly sensitive to changes in income or price. Does that mean income or price doesn’t matter? Depends on where you are on the curve!
prepared by A.M. Novakovic, please feel free to reuse or distribute but with 15 attribution The US is a rich country, but we have a lot of families who are poor or have low incomes
prepared by A.M. Novakovic, permission to 16 use with attribution Cultural Composition of America Impacts Food Preferences This presents many opportunities, if we are willing to adapt.
prepared by A.M. Novakovic 17 Where We Buy Food Share of Total US Consumer Continues to Slowly Move Expenditures on Food, 2017 Outside the Home The share of food expenditures has been slowly but steadily shifting from meals prepared at home to meals consumed outside the home. Millennials tend to have: • Smaller family size • Lower household income • Eat out more often • Spend much less money on milk (along Stores with Gen X) 46% • Spend somewhat less money on dairy Away from • About as much on yogurt Home Double Income families (working 52% Moms) more likely to buy ready-to- eat, ready-to-prepare, and away-from- home. Cheese industry fits well into this lifestyle BUT how well prepared is it for home delivery and food selection based on health guidelines or green agenda? Direct Purchase Mail Order 0% 2%
prepared by A.M. Novakovic 18 Helping Consumers Make Food Choices Labeling and standards – we will likely win the battle on what can be called milk but the victory may be Pyrrhic Front-of-Pack (FOP) labeling is on the cusp of exploding and could be good news and bad news for dairy products
prepared by A.M. Novakovic, use with attribution 19 Cheeses are perhaps the most versatile of dairy foods. They continue to represent a great opportunity, but we have to be prepared to adapt to some new realities. • Where we eat, how we eat, when we eat, what we like, what we think is good for us, what we just enjoy, our concerns for society and the environment, etc. etc. are shaping food choices like never before. • We are challenged to • Maintain an enviable record of consistently high quality product at an affordable price, while • Also being nimble in bringing on new products and food experiences • Sorting price conscious foodservice customer from experience seeking retail customer • Just about the time you think you have Millennials figure out, you have to get ready for Gen Z (or “Homelanders”)
prepared by A.M. Novakovic 20 Challenges and Opportunities for U.S. and New York Cheese Makers in the 2020s
Andrew M. Novakovic, PhD The E.V. Baker Professor of Agricultural Economics 4 March 2019 Cornell University Charles H. Dyson School of Applied Economics and Management