Dick Groves
Editor, Cheese Reporter


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Still Plenty Of Opportunities In US Dairy Market

On the surface, the US dairy market is not exactly a rapidly growing market. This slow rate of growth was put into perspective at this week’s Dairy Forum 2016 in Phoenix, AZ, by Paul Carbonneau and Ludovic Meilhac of McKinsey & Company.

The US aggregate dairy consumption growth rate is just 0.8 percent per year, Carbonneau pointed out, compared to growth rates of 6.6 percent annually in China and 5.1 percent in India. That’s one reason why a number of US companies are aggressively pursuing export markets.

But while that 0.8 percent growth rate doesn’t seem very impressive, it doesn’t mean there’s little to no room for growth in the US dairy market.

Keep in mind, first of all, that the small growth rate includes declining fluid milk sales and consumption. Take the fluid milk business out of the equation and the growth rate becomes at least somewhat better.

And when you examine various dairy categories more closely, you begin to see that there truly are many, many opportunities for growth. For example, while Meilhac noted that commodity cheese now faces many headwinds, the specialty cheese segment of the cheese business appears to be growing quite impressively.

Just in Wisconsin, for example (which accounts for about a quarter of total US cheese production), specialty cheese production has grown from 83 million pounds in 1993 to about 660 million pounds in 2014. Some 91 of Wisconsin’s 127 cheese plants see opportunity in the specialty cheese segment.

And this opportunity is being seen by cheese makers from coast to coast, as evidenced simply by looking at the growth in what might be called non-traditional categories in various cheese contests. Indeed, just the sheer number of classes in contests such as the US and World Championship Cheese Contests and the American Cheese Society’s annual competition illustrates how many people see opportunity in the specialty cheese business.

And it’s always worth remembering that annual per capita cheese consumption in the US still trails some European countries by 10 to 20 pounds or more.

Then there’s the yogurt business. At the turn of the century, about the only consumers who had heard of Greek yogurt lived in Greece. Since then, US yogurt production has risen from about 1.8 billion pounds to almost 4.8 billion pounds, in part (or large part) because of Greek yogurt.

Yogurt output was basically flat during the first 11 months of 2015 (compared to a year earlier), so perhaps growth in the yogurt market has about run out of steam, but frankly we doubt it. As yogurt companies expand into such niche markets as Icelandic-style yogurts, and introduce so-called “better-for-you” yogurt products with less added sugar and shorter ingredient lists (among other things), well, 2015 might end up being just a bump in the road in yogurt’s phenomenal growth story.

Then there’s butter. Back in the late 1990s, it looked like US butter production might drop below 1 billion pounds. Butter output in 1997 totaled 1.15 billion pounds, down more than 200 million pounds from 1992.
Things were looking pretty bleak for butter.

Well, if there was an underlying “theme” at this week’s Dairy Forum, it was that “Butter is Back.” That point was mentioned by more than one speaker, and the statistics back up the point.

US butter production never did fall below a billion pounds; instead, it slowly increased (and sometimes decreased) to 1.6 billion pounds in 2008, fell slightly for a couple of years, then jumped to over 1.8 billion pounds in 2011 and has remained above that level ever since.

But that doesn’t tell the whole story about the growing US butter market. US butter imports roughly tripled just from 2010 through 2014 (from 8.1 to 24.2 million pounds), and were on pace through November to top 40 million pounds in 2015.

Meanwhile, US butter exports have dropped from around 178 million pounds in 2013 to probably under 40 million pounds in 2015. Thus, while US butter production has been relatively flat since 2012 (at around 1.86 billion pounds), falling exports and rising imports indicate that the US butter market is growing.

And within the butter category, there are certainly niche markets that appear to be doing quite well, including European-style butters with higher fat contents (Ireland, the home of Kerrygold butter, is currently the leading source of US butter imports) and grass-fed butter (again, a niche being filled by Kerrygold, among others).

Finally, we can’t help but touch on the beleaguered fluid milk business. The well-known decline in fluid milk sales was mentioned at the Dairy Forum about as often as butter’s comeback, but it’s worth remembering that all is not lost when it comes to milk as a beverage (and keep in mind that beverage milk remains a 50-billion-pound “niche” market).

For one thing, as we reported last September (in our Sept. 11 issue, to be exact), the number of fluid milk plants increased from 388 in 2011 to 414 in 2013, even as average plant volume declined, an indication that some relatively small bottling plants are successfully tapping into demand for locally produced foods.

And for another thing, while they might not exactly fit the definition of “fluid milk,” products like fairlife and Core Power are demonstrating that many consumers will pay extra for value-added beverage milk products.

Yes, the US dairy market as a whole is growing slowly, but there are niches within that market that are growing impressively. The opportunities are almost endless.


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