Dive Brief:
- Dairy farmers could receive a government bailout for tens of thousands of tons of cheese, pending a response from U.S. Agriculture Secretary Tom Vilsack.
- National Milk Producers Federation CEO Jim Mulhern sent a letter to Vilsack Friday requesting the government buy $150 million worth of cheese to assist dairy farmers struggling with tight margins due to plunging milk prices.
- Cheese stockpiles rose to a record 1.25 billion pounds in June, while milk prices have dropped 13% for dairy farmers in the past year, and are at their lowest since October 2009.
Dive Insight:
Such buyouts are not unprecedented in the food and beverage industry. The USDA made similar purchases of peanuts and chicken leg quarters after export bans following the avian flu outbreak caused poultry prices to drop.
Dairy processors have been able to ride low milk costs to higher profitability in recent quarters. With milk costs threatening to rebound, dairy producers like Dean Foods or even WhiteWave will have to ensure a strong, reliable top-line growth strategy to keep investors happy.
Further downstream, manufacturers may use the cheese glut to their advantage. They can create new products that feature cheese, either as a component or positioned as a healthy snack itself, and enjoy higher margins on these products while the supply is ample and costs are low.
Innovation and disruption in the cheese category could come at a crucial time for major cheese brands. While more competitors, such as artisanal cheese makers, enter the market, the top five global cheese brands — Kraft, Philadelphia, President, Sargento and Galbani — together owned less than 10% of the fragmented global cheese market, according to a 2015 report from Canadean.
Food waste is also a concern when the industry faces a commodity surplus, and dairy farmers have already had to dump millions of pounds of milk. Mulhern positioned his request as a bailout for dairy farmers but also a way the USDA could provide access to dairy products to families and individuals in need, which in turn reduces milk or cheese dumping and food waste.