Prospects Bright For Future US Cheese Consumption

How is it possible, one might ask, that we reported on our front page last week that growth in US cheese consumption could slow because of demographic factors, and then on the very next page opine that the cheese business is looking like a pretty attractive business to be in these days?

Well, the comments on this page are pretty self-explanatory. Actually, they came up a bit short when discussing all the recent transactions involving cheese companies; the story on Emmi acquiring Cypress Grove Chevre made it onto last week’s front page but was too late to be included in this column. So Emmi, Switzerland’s largest dairy company, is making even more investments in the US cheese business than what we mentioned in this space last week.

As far as last week’s lead story is concerned, well, for another perspective, just check out this week’s lead story, which reports that per capita cheese consumption increased last year but fell short of the record set in 2007.

With that news in mind, at least a couple of points can be made when pondering last week’s lead story. First, while the title of the Economic Research Service study includes the phrase “may slow,” per capita cheese consumption did actually decline in 2008. But that decline was a rarity; the last year prior to 2008 that per capita cheese consumption fell was in 1988.

But outside of an actual decline, what exactly does the word “slow” imply? ERS figures show some pretty impressive gains in per capita consumption over the years; for example, per capita consumption rose by more than a pound from 1998 to 1999 (from 27.75 pounds to 28.95 pounds), rose by almost a pound from 2005 to 2006 (from 31.74 to 32.64 pounds), and increased by well over half a pound from 2003 to 2004 (from 30.61 to 31.31 pounds).

But in some other years, per capita consumption gains were pretty minimal, or “slow.” For example, per capita consumption increased just from 30.55 to 30.61 pounds from 2002 to 2003, and even after declining in 1988, only rose from 23.71 pounds in 1988 to 23.79 pounds in 1989.

And does “slow” refer to percentage increases or absolute increases? For example, during the 1970s, per capita cheese consumption rose by almost six pounds, rising from 11.37 pounds in 1970 to 17.16 pounds in 1979. That’s better than a 50 percent increase.

In the 1980s, per capita cheese consumption rose more than six pounds, from 17.53 pounds in 1980 to 23.79 pounds in 1989. But although the increase in quantity was greater than in the 1970s, the percentage increase was smaller.

Growth in per capita cheese consumption was actually pretty slow in the decade just ended, in both absolute and percentage terms. Per capita consumption rose from 29.83 pounds in 2000 to 32.87 pounds in 2009. That’s under three pounds (less than any of the three preceding decades, including the 1990s, when per capita consumption rose by a bit over four pounds).

Based on those numbers, many people would argue that such a growth rate indicates that per capita cheese consumption has already “slowed.”

A second point that comes to mind regarding the ERS study is a caveat that was mentioned in the study itself. That is, there are limitations to using the Nielsen retail Homescan data, which reports only purchases of cheese and not processed foods with cheese as an ingredient, which means that the data do not include cheese used as an ingredient in frozen dinners or pizzas, snack foods or a wide variety of other foods.

Also, the Nielsen data exclude cheese consumed away from home, which is of course a huge source of cheese consumption (some sources put foodservice and retail sales of cheese at approximately the same volume).

Beyond those caveats are a few additional points worth mentioning. First, keep in mind that per capita consumption is derived by dividing total domestic use by population. So even if domestic use per person remains steady, rising population will mean a growing cheese market, albeit a slowly growing market.

Second, the US remains far below the world leaders when it comes to per capita cheese consumption. Greece and France lead the world at over 50 pounds per person per year, and several other European countries are well over 40 pounds per person.

So it’s not too difficult to project continued growth for US cheese consumption in the future. Even many European countries with much higher current consumption continue to post increases fairly regularly. What we won’t see is what the study mentioned has occurred since the mid-1970s: per capita cheese consumption more than doubling.

Finally, it should be noted that this study focused on US cheese consumption. In the past, the US cheese industry generally had to rely solely on growth in the domestic market, and stable levels of cheese imports, for market expansion.

But the cheese export market has become a pretty nice “niche” in recent years. The US set a cheese export record in 2008, at almost 289 million pounds, and appears to be ahead, maybe well ahead, of that pace through the first half of this year (cheese exports totaled almost 178 million pounds).

This is pretty significant, from a growth perspective. If, for example, the US exports 307 million pounds of cheese, that would represent one pound for every person (or one pound per capita) in the US.

So while long-term growth in US cheese consumption has already slowed, it’s still growing, most years, some more than others. And, as suggested by recent merger and acquisition activity reported on our front page in recent weeks and detailed in this space last week, growth prospects for the US cheese industry remain strong, thanks not only to that growing domestic market but also to growing exports. r

Cheese Reporter welcomes letters to the editor. E-mail your comment to Dick Groves at dgroves@cheesereporter.com.

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