Dick Groves
Editor, Cheese Reporter


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A Look Back At 2016

As 2016 draws to a close, we’d like to take a quick look back at some of the biggest stories and developments in the cheese and dairy industry during the year.

Arguably the biggest story of the year, at least for the US cheese industry, happened back in March, when Emmi Roth USA, of Fitchburg, WI, captured top honors in the biennial World Championship Cheese Contest with its Roth Grand Cru Surchoix.

Not only did this victory mark the first time since 1988 that a US cheese maker captured top honors in the contest, it was the first time since 2000 that the US even placed a cheese in the top three. No matter how you look at it, a US-produced cheese capturing top honors in the World Championship Cheese Contest is a huge achievement.

On the pricing front, 2016 will go down as the second straight year in which cheese prices didn’t rise above $2.00 per pound. The last time the CME 40-pound Cheddar block price didn’t reach $2.00 per pound for two straight years was in 2009 and 2010.

But cheese prices moved around quite a bit under that $2.00 level. Specifically, the block price ranged from a low of $1.2700 per pound back on May 12 to a high of $1.9300 per pound on November 7, a range of 66 cents.

How does that price range for blocks compare with other recent years? In 2015, the block price ranged from a low of $1.4000 to a high of $1.8000, a difference of 40 cents; in 2014, the block price ranged from a low of $1.4950 to a high of $2.4500, a difference of 95.5 cents; in 2013, the block price ranged from a low of $1.5500 to a high of $2.0000, a difference of 45 cents; and in 2012, the block price ranged from a low of $1.4600 to a high of $2.1200, a difference of 66 cents (coincidentally, the same as in 2016).

So cheese prices in 2016 were more volatile than in at least a couple of recent years, less volatile than in 2014, with the lowest low in recent years and also one of the lowest highs in recent years.

Meanwhile, the CME butter price failed to top $3.00 per pound for the first time since 2013 (in case anybody doesn’t remember, the butter price reached $3.0600 per pound in September 2014 and then hit a record $3.1350 a pound a year later), which also means butter prices were far less volatile this year (a high of $2.3675 and a low of $1.7550, a difference of 61.25 cents) than in the last couple of years (the CME butter price ranged from a low of $1.5400 per pound to a high of $3.1350 per pound in 2015, a difference of $1.5950 per pound; and ranged from that same low of $1.5400 per pound to a high of $3.0600 per pound in 2014, a difference of $1.52 per pound).

On the production front, arguably the biggest story in 2016 (outside of the usual records for milk production, cheese production, etc.) was the shake-ups in the leading milk-producing states. In 2015, the top seven states were, in order, California, Wisconsin, Idaho, New York, Pennsylvania, Texas and Michigan.

By June, Michigan had passed both Texas and Pennsylvania to take over the number five spot in milk production. As noted in this space back on Aug. 26, (Michigan Joins The Top Five Dairy States) Michigan’s move into the top five dairy states was the first time since 2002 that the top five states included states other than California, Wisconsin, New York, Idaho and Pennsylvania (Minnesota was in the top five back in 2002, Idaho was not).

But Michigan’s stay in the top five didn’t last long. By October, Texas had surged past both Michigan and Pennsylvania into the number five spot, pushing Michigan back to sixth and Pennsylvania down to seventh.

Where these states end up for the entire year remains to be seen, but it appears that the days of the top five consisting of California, Wisconsin, Idaho, New York and Pennsylvania are over.

It’s been a relatively quiet year on the legislative front, as is often the case in a presidential election year. Probably the biggest development in Congress was the passage, back in July, of legislation creating a national bioengineered food disclosure system.

This law accomplishes at least two things, one in the short term and one in the medium term. In the short term, it preempts state GMO labeling laws, including the Vermont law that went into effect on July 1, 2016. And in the medium term, USDA’s Ag Marketing Service has two years to implement the law.

Also at the federal level, it was a mighty busy year for the US Food and Drug Administration. Among other things, the agency issued two final rules required under the Food Safety Modernization Act (one on sanitary transportation of food and feed, the other on intentional contamination); issued numerous guidance documents pertaining to the implementation of FSMA rules; issued final rules updating the Nutrition Facts label and updating serving sizes for foods and beverages; and proposed voluntary sodium reduction targets for a variety of cheese, butter and other food products.

On the trade front, the 12 countries that are participating in the Trans-Pacific Partnership agreement signed the historic trade pact early this year, but at this point it appears that the US will withdraw from the agreement after President-elect Donald J. Trump takes office.

And that might be another truly major story in 2016, from a dairy and food industry perspective: the election of Donald Trump as President. Trump doesn’t take office until January 20, 2017, so his impact on 2016 is minimal, but he’ll have tremendous influence in the next four years over everything from trade policy and the next farm bill to FDA’s activism on issues ranging from food labeling to food safety.

Dairy Products Poised To Remain A Bargain For Consumers

Predicting dairy product sales is about as difficult as predicting dairy product prices (and they’re related), but at this point it appears that US dairy product sales, at least at the retail level, could fare quite well in 2017 because price inflation is pretty much non-existent.

We were reminded of this point, and the long-term great bargain dairy products have been for consumers, when looking over the latest food price forecasts from USDA’s Economic Research Service. ERS now expects the Consumer Price Index for dairy products to decline 1.5 to 2.5 percent this year, compared with 2015. And in fact, as reported on our front page last week, the CPI for dairy and related products in November was 1.7 percent lower than in November 2015.

For 2017, ERS is forecasting that the dairy CPI will increase 1.5 to 2.5 percent. In other words, 2017’s predicted increase will basically cancel out 2016’s decline, and leave retail prices right where they were in 2015. And in 2015, the dairy CPI actually declined 1.3 percent from 2014.

Going back to the mid-1970s, the dairy CPI, like all other food CPIs, has had its ups and downs, some of which have been pretty extreme. Arguably the worst period over the last four decades for retail dairy product price inflation was from 1978 through 1981.

It may be recalled that, under the 1977 farm bill, the support price for milk — and therefore the CCC purchase prices for cheese, butter and nonfat dry milk — was increased twice a year to keep that price at 80 percent of parity.

Under this policy, the support price increased from $9.00 per hundredweight starting in April 1977 to $13.10 per hundred in October 1981, and the CCC purchase price for Cheddar blocks rose from $1.16 per pound in April 1977 to $1.3950 per pound in October 1981.

How did that affect the dairy CPI? According to ERS figures, the CPI for dairy products increased 6.8 percent in 1978, 11.6 percent in 1979, 9.8 percent in 1980 and 7.2 percent in 1981. Obviously, those were some pretty hefty increases.

More recently, dairy inflation has been considerably more moderate. The dairy CPI increased 2.1 percent in 2012, just 0.1 percent in 2013, and 3.6 percent in 2014 before dropping 1.3 percent in 2015.

The dairy CPI will drop again here in 2016. How significant is that? Pretty significant. From 1974 through 2014, there were just four years in which the dairy CPI declined: 1991 (down 1.1 percent), 2003 (down 0.1 percent), 2006 (down 0.5 percent), and 2009 (down 6.4 percent).

Note that none of those declines happened in consecutive years, which is what is happening right now.

This lack of retail dairy price inflation is certainly making dairy products look like a bargain. This point is nicely illustrated by some average retail dairy product price figures published by the US Bureau of Labor Statistics.

As we reported last week, in November, the average retail price for Cheddar cheese was $4.914 per pound, the first time the average retail Cheddar price was under $5.00 per pound since December 2010 and the lowest average retail Cheddar price since October 2010, when it was $4.651 a pound.

Meanwhile, the average retail whole milk price in November was $3.28 a gallon. That marked the 10th straight month in which retail whole milk prices averaged under $3.30 per gallon.

To put that in a bit of historical perspective, back in June 2007, the average retail whole milk price reached $3.43 a gallon. It remained above $3.40 per gallon for the remainder of 2007, and was actually above $3.65 per gallon every month in 2008, including a record high of $3.96 a gallon in July of that year. It wasn’t until March 2009 that the average retail whole milk price fell back below $3.30 per gallon, when it dropped to $3.12 a gallon.

And now average retail whole milk prices have been under $3.30 per gallon for 10 months in a row.

So, depending on how far back you go, and which product you’re looking at, there’s been either very little inflation or some deflation in retail prices. The average retail Cheddar price in November was the lowest for that month since 2009, and it was also almost 92 cents below the November 2012 average retail Cheddar price.

Meanwhile, the average retail whole milk price in November was not only the lowest for that month since 2009, but it was also more than 62 cents per gallon lower than in 2007 (when the price averaged just over $3.90 a gallon).

There’s at least one more way to look at what a bargain dairy products are these days, and that’s by comparing the dairy CPI with the CPIs for other food product categories. In November, the dairy CPI was 216.773 (1982-84=100), while the CPI for meats, poultry, fish and eggs was 243.633, the CPI for cereals and bakery products was 271.896, and the CPI for fruits and vegetables was 293.554.

With back-to-back declines in the dairy CPI, the increase forecast for 2017 will just bring the dairy CPI back to around where it was last year, which is to say still lower than in 2014.

And that should make for a pretty positive sales environment for dairy products.

There is at least one wild card here: the remarkable lack of predictability in dairy prices. Most expectations are for higher milk prices in 2017, but some combination of factors including but not limited to further declines in European Union milk production and big increases in imports by countries such as China and Japan could raise prices faster and further than currently expected.

But right now it looks like dairy products will again be a pretty good bargain for consumers in 2017.

Sodium Issue Brings Out Best In Dairy Industry

The sodium issue has been a thorn in the dairy industry’s side for about as long as anybody can remember. It’s also provided a great example of an issue that has united the dairy industry, hopefully for the long-term benefit of everyone.

How long has sodium been generating problems for the dairy industry (specifically cheese and butter)? It was way back in July 1978 when the Center for Science in the Public Interest filed two petitions that called on the US Food and Drug Administration to set ceilings (tolerances) for sodium in processed foods, to reclassify salt (sodium chloride) from Generally Recognized As Safe (GRAS) to food additive status, and to require sodium labeling on packaged foods.

CSPI has been pushing FDA to limit sodium in foods ever since. Among other things, just since the turn of the century, CSPI has (in 2005) petitioned FDA to revoke the GRAS status of salt and require food manufacturers to reduce the amount of sodium in all processed foods; and filed at least two lawsuits against FDA regarding the agency’s handling of the salt issue.

And CSPI has definitely found an advocate in the federal government (if not necessarily FDA). Starting in 1980, the first edition of the Dietary Guidelines for Americans offered seven pieces of advice, the sixth of which was: “Avoid Too Much Sodium.” And to avoid too much sodium, the federal government advised consumers to limit their intake of “salty foods,” including cheese.

Also at the federal level, Congress passed the Nutrition Labeling and Education Act of 1990, which resulted in FDA mandating the Nutrition Facts label on most packaged foods. And of course sodium is one of the mandated nutrients on that label (and in boldface, to emphasize sodium’s alleged importance). Score one for CSPI.

Most recently, FDA earlier this year released draft guidance that provides voluntary sodium reduction targets for a variety of cheese, butter and other food products.
These include both short-term (two-year) and long-term (10-year) voluntary sodium reduction targets.

So how has the dairy industry responded to all of this anti-sodium activism? First of all, the industry hasn’t panicked. As noted earlier, FDA has been under pressure for close to 40 years (maybe longer) to set ceilings for sodium in processed foods, and/or to require food manufacturers to reduce the amount of sodium in their products.

But since FDA hasn’t done anything official to require food makers to make such reductions, the dairy industry has wisely continued to use just as much salt as it has for centuries.

At the same time, the industry acknowledged the need for some consumers to reduce their sodium intake by introducing a limited number of reduced-sodium products.

To put this in a bit of perspective, and contrast it with the cheese industry’s efforts to offer products with less fat, it should be noted that the World Championship Cheese Contest first included a category for reduced sodium cheeses in 2010; by that time, there were three separate classes for cheeses with reduced fat content: reduced fat hard cheeses, reduced fat soft and semi-soft cheeses, and lowfat cheeses.

Also, a few years ago, the Innovation Center for US Dairy convened a task force of cheese industry representatives to address the opportunities and challenges associated with reducing the sodium content in cheese. One of those challenges — detailed in a study published in the Journal of Dairy Science in 2011 — was the need for cheese makers to reduce the variability of sodium content in their products.

And most recently, dairy industry organizations have teamed up, at least informally, to advocate that cheese and butter be removed from FDA’s sodium reduction guidance.

When FDA issued its voluntary sodium reduction guidance earlier this year, it asked for comments, and set two separate deadlines for those comments.

For both comment periods, the International Dairy Foods Association and National Milk Producers Federation teamed up to ask FDA to remove the entire cheese category, as well as butter, from the sodium reduction guidance. IDFA and NMPF don’t agree on every issue, but when they team up, they represent a powerful and positive force for the industry.

Meanwhile, in its comments, the American Cheese Society agreed with IDFA and NMPF that FDA should remove the entire cheese category from any sodium reduction guidance. And NMPF and IDFA also incorporated, by reference, comments submitted by both the ACS and the National Dairy Council.

All of this has happened at a time when FDA’s voluntary sodium reduction guidance faces what might be termed a cloudy future. As noted in this space last week, President-elect Donald J. Trump plans to make regulatory reform a “cornerstone” of his administration, and that effort will include a temporary moratorium on all new regulation, which would appear to stop FDA’s sodium efforts right where they are, at least for now.

Meanwhile, scientific evidence continues to mount against excessive sodium reduction. Specifically, some studies have found that ideal sodium intake is between 3,000 and 6,000 milligrams per day, above the current government advice to limit sodium intake to 2,300 milligrams per day.

Unfortunately, the latest edition of the Dietary Guidelines for Americans still advises limiting sodium intake to less than 2,300 milligrams per day.

Until federal dietary advice catches up to science, it’s essential that the industry work together on the sodium issue. And that’s exactly what’s been happening.

What Will Trump’s Regulatory Reform Mean For Dairy?

President-elect Donald J. Trump has stated that regulatory reform will be a “cornerstone” of his administration, and the effort will include a temporary moratorium on all new regulation as well as a “thorough review” to identify and eliminate unnecessary regulations.

So, what might this mean for the dairy industry? Well, at first blush, perhaps not all that much, for at least three reasons.

First, many of the new regulations that have been or are in the process of being implemented by federal agencies are actually required by law, and at least in one instance implementation is also required by court order.

For example, the US Food and Drug Administration has issued several sweeping regulations in the last year or two as required by the Food Safety Modernization Act, which was passed by Congress in late 2010 and signed into law by President Obama in early 2011.

Not only does that law require FDA to promulgate regulations under the FSMA, the agency is also under a court order to issue such regulations. After FDA failed to issue FSMA regulations according to the law’s timeline, the agency was sued by the Center for Food Safety.

In February 2014, FDA and the CFS reached an agreement that set firm deadlines for FDA to issue final regulations under the FSMA. Those final rules have now all been released, some compliance dates have already passed, and so it’s hard to imagine any of these regulations being rolled back at this point.

Meanwhile, the US Department of Agriculture is currently developing a national mandatory system for disclosing the presence of bioengineered material in food. Again, this is not an initiative of a federal agency, but rather it’s a federal agency following the law.

Specifically, earlier this year Congress passed, and President Obama signed, the National Bioengineered Food Disclosure Law. USDA has two years to establish this mandatory GMO labeling program.

This provides an interesting example of how a federal regulation can actually be beneficial to industry. One of the arguments made while Congress was debating GMO labeling legislation was that, without a federal law, states would implement their own labeling programs, and food companies would have to deal with a patchwork of requirements from coast to coast.

So in this case, one federal regulation, due to be implemented during Trump’s first term, will prevent 50 or more potential state and local labeling regulations.

Another reason Trump’s regulatory moratorium might not mean all that much for the dairy industry will hinge on how the term “new” is defined. For example, earlier this year, FDA released a final rule requiring changes to the Nutrition Facts label.

Yes, this is certainly a new rule, one that will end up costing the food industry hundreds of millions of dollars once foods are reanalyzed and labels are revamped. But it may be recalled that the original Nutrition Facts label was actually required under federal law, specifically the Nutrition Labeling and Education Act of 1990.

This presents an interesting dilemma. On the one hand, since the Nutrition Facts label has been around for more than two decades, and nutrition science has changed quite a bit over that period, is it unreasonable to update the Nutrition Facts panel to reflect those changes? Indeed, FDA in its final rule released back in May noted that, between 1993 and 2013, it had received 12 citizen petitions asking the agency to make various changes to the Nutrition Facts label.

On the other hand, in addition to costs, the Nutrition Facts final rule released in May also includes benefits. Here the final rule notes that the Nutrition Facts labels contain nutrient content information that can help people maintain healthy dietary practices, and mentions the growth in the prevalence of obesity and diabetes.

The problem there is, obesity and diabetes have actually become more prevalent since the Nutrition Facts label became mandatory more than 20 years ago, so are there really any benefits to this final Nutrition Facts rule?

A third reason Trump’s regulatory moratorium might not mean much for the dairy industry, and more generally the food industry, is because some new regulations being contemplated were actually requested by industry itself, or by federal courts.

For example, a little over a year ago, FDA established a docket to receive comments on the use of the term “natural” on food labels. The agency did so in response to petitions from the Grocery Manufacturers Association, Consumers Union, and the Sugar Association.

FDA further stated, in its request for comments, that three federal district courts had deferred to the agency, for an administrative determination, the question of whether food products containing ingredients produced using bioengineering may be labeled as “Natural,” “All Natural,” and/or “100% Natural.”

So will the Trump administration be opposed to a new FDA regulation defining “natural” if that regulation is in response to both industry petitions and federal court requests?

One area in which the dairy industry will likely benefit from a regulatory moratorium is sodium reduction.
Earlier this year, FDA released voluntary sodium reduction targets for a variety of cheese, butter and other food products.

It seems highly likely that these sodium reduction targets will remain voluntary under the Trump administration.

A regulatory moratorium seems beneficial in theory, but it’s a lot more complicated in the reality of federal regulatory initiatives.

Reducing Food Waste Will Help Reduce Hunger

There’s good news and bad news on the US food insecurity front. The good news, according to a recent report from USDA’s Economic Research Service: the estimated percentage of US households that were food insecure in 2015 declined significantly from 2014, to 12.7 percent, continuing a downward trend in food insecurity from a recent high of 14.9 percent in 2011.

The bad news is, well, there’s plenty of bad news. Obviously it’s a huge problem to still have 12.7 percent of US households that are food insecure (the ERS report notes that this food insecurity prevalence rate is still above the 2007 pre-recessionary level of 11.1 percent); 5 percent of US households had very low food security last year; and children were food insecure at times during the year in 7.8 percent of US households.

ERS explains that food-insecure households (those with low and very low food security) had difficulty at some time during the year providing enough food for all their members due to a lack of resources, while very low food security means the food intake of some household members was reduced and normal eating patterns were disrupted at times during the year due to limited resources.

Here’s some more bad news: a lot of food is wasted in the US (and around the world, for that matter). Specifically, in the US, food waste is estimated at between 30 and 40 percent of the food supply. This estimate, based on estimates from ERS of 31 percent food loss at the retail and consumer levels, corresponded to approximately 133 billion pounds and $161 billion worth of food in 2010.

Further, food waste is the single largest component going into municipal landfills, quickly generating methane and helping to make landfills the third largest source of methane in the US (natural gas and petroleum systems are the largest source, followed by animal agriculture, according to the US Environmental Protection Agency).

Efforts are ongoing to reduce both the number of households that are food insecure and the amount of food that is wasted.

For example, on the hunger reduction front, there’s Feeding America, a nationwide network of 200 food banks that helps lead the fight against hunger in the US. Feeding America provides food to more than 46 million people through 60,000 food pantries and meal programs in communities across the country, and also supports programs that improve food security among the people it serves; educates the public about the problem of hunger; and advocates for legislation that protects people from going hungry.

On the food waste issue, in 2013, USDA and EPA joined together to launch the US Food Waste Challenge to provide a platform to assess and disseminate information about the best practices to reduce, recover, and recycle food loss and waste. By the end of 2014, the joint US Food Waste Challenge (EPA plus USDA) had over 4,000 participants.

But there’s a lot more that can be done. For example, as reported on our front page this week, considerable progress and investments have been made in food waste reduction, but there are still “many opportunities for improvement in food waste reduction and diversion,” according to a new report from the Food Waste Reduction Alliance (FWRA). That alliance consists of the Grocery Manufacturers Association, Food Marketing Institute and National Restaurant Association.

The top barrier to food donations for food manufacturers was regulatory constraints, the FWRA found. Ranking second was liability concerns.

Believe it or not, a possible solution to at least some of these problems could come from Congress.
Earlier this year, legislation was introduced in both the House and Senate that would standardize food date labeling.

How would this help reduce food waste? As the Food Date Labeling Act of 2016 explains, date labeling practices on food packaging cause confusion with “sell-by,” “best-by,” “use-by,” and “best before” dates, leading up to 90 percent of consumers to “occasionally” throw out still-fresh foods. Confusion over the meaning of date labels is estimated to account for 20 percent of consumer waste of safe, edible food.

The legislation would regulate two types of dates on food: quality dates (“best if used by”) and safety dates (“expires on”).

Here again, there’s both good news and some bad news. The bad news is that Congress is going to be adjourning in a few (mercifully) short weeks, and it’s safe to say that the Food Date Labeling Act is not on its lame-duck agenda. Also, after it was introduced back in May, the legislation didn’t pick up a single co-sponsor.

The good news is that (as Chicago Cubs fans no longer have to say) there’s always next year, or the next two years anyway. Both the chief Senate sponsor of the legislation, US Sen. Richard Blumenthal (D-CT), and the chief House sponsor, US Rep. Chellie Pingree (D-ME), were re-elected earlier this month, so chances are they will be reintroducing the Food Date Labeling Act sometime in the next year or so.

Here’s another piece of good news: while the legislation was introduced by two Democrats, Republicans have taken notice. Shortly after the Food Date Labeling Act was introduced last May, the House Ag Committee held a hearing on the sources and impacts of food waste. US Rep. Mike Conaway (R-TX), the panel’s chairman, said it wouldn’t be the committee’s last hearing on the subject. That’s good to know.
Solving the food waste problem is one step toward solving the food insecurity problem.. DG

Dairy Trade Might Not Get Any Freer, Or Fairer, For A While

While President-Elect Donald Trump’s positions on agricultural policy aren’t all that well-known at this point, he’s been an outspoken critic of current US trade agreements, from the more-than-two-decades-old North American Free Trade Agreement to the recently signed (but not yet ratified) Trans-Pacific Partnership agreement.

Coupled with some other seemingly unrelated events around the world, it would be appear that international dairy trade, at least as far as the US is concerned, is not going to be getting any freer, or fairer, in the near future.

As we noted in this space a few months ago (please see “Do Trade Agreements Help US Dairy Industry? Yes, They Do,” in our Aug. 12th issue), since the US entered into NAFTA and the numerous trade agreements that followed, US dairy exports have risen from $913 million in 1993 to a record $7.1 billion in 2014 before falling to $5.2 billion last year and probably around $4.6 billion this year.

The TPP, which involves both major dairy exporters such as the US, New Zealand and Australia as well as major dairy importers such as Mexico and Japan, is basically dead from a US perspective. Trump opposes the agreement, and Congress, during its lame duck session, isn’t planning to take up TPP ratification.

Is that bad news for the US dairy industry? Yes, it is, at least according to the US International Trade Commission. In a report released back in May, the USITC concluded that, if TPP is implemented, US dairy exports to TPP member countries would increase $2.0 billion relative to the baseline, while dairy imports from all TPP members would increase $369 million after full implementation (for more details, please see “Trans-Pacific Partnership Pact Would Have Positive Impact On US Dairy Exports, Imports,” on page 1 of our May 20, 2016 issue).

So it’s probably safe to say that the US won’t be entering into any new trade agreements under the Trump administration, and also might be opening up previously approved trade agreements, which seem to have worked out rather well for the US dairy industry.

But that’s not the only reason we’re not expecting dairy trade to get any freer in the near future. There are also a couple of things that have happened in the European Union in recent months that point to further efforts to restrict trade in the future.

For one thing, while the EU and Canada did finally sign the EU-Canada Comprehensive Economic and Trade Agreement (CETA) late last month, the signing didn’t come easily. Wallonia, a region in Belgium, actually delayed the signing of CETA, an indication that, at least when it comes to the EU, approving trade agreements is never an easy undertaking.

Further, when the US and the EU started negotiating the Transatlantic Trade and Investment Partnership a couple of years ago, the EU was a relatively cohesive bloc of 28 nations. But earlier this year, the United Kingdom voted to leave the EU, so if TTIP talks aren’t dead, they’re certainly on life support.

That’s really too bad, from a US dairy industry perspective, for at least a couple of reasons. First, US-EU dairy trade is currently pretty much a one-way street, with EU dairy exports to the US running close to $1.5 billion over the last couple of years, while US dairy exports to the EU reached a recent high of $143 million back in 2013.

Both the US and the EU were seeking increased access to each other’s agricultural markets, which may or may not have helped the US narrow its dairy trade deficit with the EU. But without any new trade agreement in place, it seems like the current US dairy trade deficit with the EU will continue, if not increase, in the future.

Second, there were a number of other dairy trade-related issues that could have been addressed in a potential TTIP agreement, ranging from geographical indications for cheese and the US Pasteurized Milk Ordinance to US restrictions on raw milk cheeses and the US dairy import promotion assessment.

With TTIP talks either dead or on indefinite hiatus, those issues aren’t going to be addressed anytime soon. If nothing else, it would have been interesting to see what kinds of dairy tradeoffs were included in a TTIP agreement.

Instead, what we’ll probably see in the coming years is the US negotiating a new trade agreement with the UK. That’s pretty minor compared with a potential TTIP agreement; US dairy exports to the UK have been under $15 million in recent years, while US dairy imports from the UK reached a recent high of $75 million last year.

At first blush, the lack of any new trade agreements isn’t necessarily bad news for the US dairy industry; after all, as noted earlier, US dairy exports reached a record $7.1 billion in the current trade environment.

But other countries will continue negotiating new deals, in addition to the TPP, that could end up hurting the US. For example, Australia already has its own free trade agreement with Japan, while New Zealand is currently negotiating an agreement with several countries, including Japan.

The US, meanwhile, participated in TPP negotiations, which would have liberalized dairy trade with Japan, but won’t be ratifying that agreement. It will be status quo as far as dairy trade policy with the number five US dairy export market, while other major dairy exporters negotiate increased access to that market.

And it looks like it will be status quo as far as US dairy trade policy with everybody else as well. In short, what we have now, for better or worse, is as free or fair as dairy trade will get for the US for the foreseeable future. DG




It’s (Almost) All In The Packaging

A record-breaking Pack Expo International was held in Chicago this week, and the event served as a nice reminder of the importance of packaging for moving cheese and other dairy products from the plant to the final user.

Say what you want about the local food movement, but the vast majority of food, including dairy products, still has to travel some distance before being consumed. And that makes packaging one of the most important components in the marketing chain.

There are numerous ways to look at the importance of packaging, but we’ll focus on just a couple of them.
This year, US cheese production will be somewhere in the neighborhood of 12 billion pound. (The US will also import more than 400 million pounds of cheese this year, and if you think packaging is important for moving cheese from coast to coast, well, that’s nothing compared to how important it is for moving cheese around the world.)

At least some of that cheese will initially be produced in 640-pound blocks, then eventually sold in one-ounce sticks. For example, while there aren’t a lot of statistics around concerning cheese production by style, Wisconsin does publish such figures, and according to the recently released Wisconsin 2016 Agricultural Statistics, the state last year produced almost 268 million pounds of Cheddar cheese in 640-pound blocks.

Certainly one-ounce sticks represents a pretty small outlet for those 640s, or for 40-pound blocks or other styles as well. But spending a few minutes in a supermarket (or warehouse store, or numerous other retail outlets, or even online) reminds us of just how important varied packaging options have become over the years.

Twenty-five years ago, about the only pre-packaged sliced cheese you could find at the retail level was processed cheese. Today, you can find pre-packaged slices of almost any cheese, from Cheddar and Swiss to Muenster and Havarti.

The same thing applies to other forms of retail cheese packages, ranging from shreds to diced cheese.
Cheese varieties that either weren’t produced at all in the US 30 years ago, or were produced only in very small quantities (such as Hispanic cheeses, or the aforementioned Havarti), are now available in a variety of retail styles.

And the number of single-serve cheese packages has skyrocketed in recent years, with cheeses ranging from Cream cheese to Queso Fresco to fresh Mozzarella now available in single-serve packages. That’s a whole lot of packages for 12 billion pounds of cheese.

Another way to look at the importance of packaging is another report from the Wisconsin Department of Agriculture, Trade and Consumer Protection. Well, this isn’t actually a report, it’s the state’s dairy plant directory, and it helps illustrate the growing importance of packaging and converting to the state’s cheese industry.

Back in the 1999-2000 directory, there were 143 cheese factories in the state, and 109 plants involved in cutting, wrapping and shredding cheese. According to the recently released 2016-17 directory, there are now 144 cheese factories (impressive on its own), and 163 plants involved in cutting, wrapping and shredding cheese.

During that period, the state’s cheese production grew from around 2.12 billion pounds in 1999 to around 3.1 billion pounds in 2015. Thus, the state added almost a billion pounds to its production with roughly the same number of plants, but now has more than 50 additional facilities converting that cheese into everything from slices to shreds to sticks for the final end-user, be that end-user a consumer or a restaurant.

There’s one additional indication of how important packaging is in today’s cheese and dairy industry (or the food industry more generally, or in the packaged goods and pharmaceutical industries even more generally): the proliferation of shows sponsored by Pack Expo.

As noted earlier, Pack Expo International took place in Chicago this week and drew a record crowd. But if you weren’t able to attend, don’t worry, there are still some packaging trade show options available between now and the next Pack Expo, which is scheduled for Sept. 25-27, 2017, in Las Vegas, NV.

For example, Pack Expo East 2017 is scheduled for Feb. 27 through Mar. 1 at the Pennsylvania Convention Center in Philadelphia, PA. If you’re not familiar with Pack Expo East, perhaps that’s because the 2017 event will be just the second; the first Pack Expo East was held last year.

That inaugural show attracted more than 6,500 attendees, 386 exhibiting companies and 92,413 net square feet of exhibit space, according to show owner and producer PMMI, the Association for Packaging and Processing Technologies.

Less than two months later, the first ProFood Tech will be held at McCormick Place in Chicago. ProFood Tech, scheduled for Apr. 4-6, 2017, is being presented by Pack Expo, the International Dairy Foods Association and Anuga.

The inaugural ProFood Tech is expected to attract some 6,000 processing professionals, more than 400 suppliers, 150,000 net square feet of exhibit floor and 45 hours of educational programming.
And couple of months after ProFood Tech, Expo Pack Guadalajara will be held in Mexico.

As the proliferation of packaging trade shows indicates, packaging is growing in importance in the dairy and food industries. It’s one thing to produce 12 billion pounds of cheese; it’s another thing to make sure it reaches the end-user safely. Well, not just safely, but also conveniently, attractively, efficiently, and other factors that demonstrate packaging’s importance. DG


There’s Plenty At Stake In 2016 Election

Election Day is Tuesday, November 8, and arguably the biggest thing that will come out of that election is...no more political commercials for a while.

Just kidding (sort of). Actually, there’s plenty at stake in this year’s election. As usual, we make just one endorsement: get out and vote.

Just a quick recap of what’s at stake nationally: the White House, of course; the Senate, where one-third of the seats are up for election; and the House, where all 435 seats are up for election.

Keep in mind that Republicans currently control both the House and the Senate. That means that the agriculture committees in both houses are chaired by Republicans, as are all the agriculture subcommittees.

That will matter, because many if not most of the provisions in the current farm bill, passed in early 2014, are scheduled to expire in 2018. That includes the two key dairy policy initiatives included in the 2014 farm bill: the Margin Protection Program for dairy producers and the Dairy Product Donation Program.

Both of these programs are currently authorized through December 31, 2018. So therein lies a good starting point for the dairy title of the 2018 farm bill: looking at how to improve the Margin Protection Program.

This is, after all, a brand new program, established under the 2014 farm bill and officially in operation for less than two full years now (USDA published regulations implementing the MPP in August of 2014, and then dairy producers had until late 2014 to sign up for the program for 2015). So we would fully expect some “tweaks” to the MPP in the next farm bill.

As far as the rest of the dairy title of the farm bill is concerned, we did offer one suggestion in this space last week: Congress should require another round of federal order reforms. By late 2018, it will have been more than 20 years since USDA released its federal order reform proposal, and close to 20 years since federal order reforms became effective.

One other note about the next farm bill: the next President might actually have the opportunity to sign not just one but two farm bills. In a bit of a statistical oddity, the last two Republican Presidents who served two terms each signed two farm bills (Ronald Reagan signed the 1981 and 1985 farm bills, George W. Bush signed the 2002 and 2008 farm bills), while the last two Democratic Presidents who served two terms each signed just one farm bill (Bill Clinton signed the 1996 farm bill, while Barack Obama signed the 2014 farm bill).

If the next President ends up being re-elected in 2020, and serves through 2024, he or she might end up signing both a 2018 farm bill and a 2022 farm bill.

Of course, that assumes that Congress actually passes a farm bill in 2018. It may be remembered that the 2014 farm bill originally was to have been approved in 2012, then in 2013, before finally being passed and signed into law in 2014.

Provisions of the 2014 farm bill expire less than two months after the 2018 mid-term election, so Congress might have priorities in 2018 other than writing a new farm bill (such as campaigning). We shall see, but there’s a possibility that the 2018 farm bill will become the 2019 farm bill and possibly even the 2020 farm bill.

What else is at stake in the upcoming election? Under President Obama, the US negotiated the Trans-Pacific Partnership agreement with almost a dozen other countries, including such major dairy exporters as New Zealand and Australia and such major dairy importers as Japan and Mexico. Congress has yet to ratify the TPP, but will possibly be voting on the agreement after the election.

Meanwhile, the US also started negotiating the Transatlantic Trade and Investment Partnership (TTIP) agreement with the European Union a couple of years ago. A total of 15 rounds of negotiations have taken place so far.

Of course, the EU has its own internal issues, what with the United Kingdom deciding earlier this year to leave the EU in a couple of years. It seems at least somewhat likely that the EU will be too busy negotiating terms of the Brexit with the UK over the next year or two than in negotiating terms of the TTIP with the US, so our guess is that the TTIP won’t be making all that much progress over the next couple of years.

So the US might possibly put TTIP talks on the back-burner and focus instead on negotiating a new trade agreement just with the UK. Who could have seen that coming when TTIP negotiations were initiated?
Under President Obama, the US Food and Drug Administration has been pursuing what might be described as an activist agenda, an agenda that has included everything from implementing the Food Safety Modernization Act and updating the Nutrition Facts label to issuing voluntary sodium reduction targets for a variety of cheese, dairy and other food products and trying to define terms such as “natural” and “healthy.”

Some of these initiatives might fade under a new President, but final FSMA rules have been published and implementation is well underway, so it looks like there’s no turning back on the FSMA. But some other FDA initiatives might be scaled back or even halted under a new President.

These are just a few of the issues the next President and the next Congress will possibly or definitely be tackling in the next one to four years. Certainly there are many others that will affect the dairy industry, ranging from ethanol policy to child nutrition policy.

So get out and vote, then enjoy the lack of political commercials until the 2018 campaign gets underway, just after Thanksgiving.

Time For Another Round Of Federal Order Reform

By the time the US Department of Agriculture completes the ongoing California federal order proceeding, it will have been more than 20 years since the last round of major federal order reform got underway. Some current trends indicate that the time is right for another round of federal order reform in the near future.

It’s been almost a year since the California federal order hearing ended after some 40 days of testimony, and roughly five months since the final reply briefs were submitted to USDA. One of these days, USDA will release a recommended decision on a California order, followed by a comment period, then a final decision and finally a producer referendum.

Also still pending is a petition, from the Organic Trade Association, asking USDA to hold a hearing on a proposal that would provide a credit to organic fluid milk handlers against their monthly federal order pool obligations, dependent upon the price paid to farmers for organic milk.

The OTA submitted that petition more than a year ago, and almost four months ago requested some additional data and information from USDA. The agency completed that request by the end of September, when it also told the OTA that it was continuing to review the proposal.

Assuming both of these proceedings are concluded by the end of 2017, it will have been more than two decades since USDA undertook the previous federal order reform process. It may be recalled that the previous order reform process was mandated under the 1996 farm bill, basically took place from 1997 through 1999, and became effective on January 1, 2000.

Our guess is that any attempt at further major order reforms would take at least a couple of years, meaning it would be at least 2020, and probably later, when those reforms would be implemented.

So why is it time for another round of federal order reforms? In addition to the aforementioned fact that the previous round of order reform got underway more than 20 years ago, there are reasons for further reforms in both Class I and Class III price formulas, just for starters.

As far as Class I pricing is concerned, as reported on our front page two weeks ago, last year marked the third straight year in which less than one-third of the milk pooled under federal orders was used in Class I. More specifically, Class I utilization in 2015 was 32.7 percent, up from 32.0 percent in 2014 and 32.4 percent in 2013.

To put that in some historical perspective, back in the 1997-99 period, when federal order reforms were being contemplated, Class I utilization ranged from 42.7 percent in 1997 to 45.3 percent in 1998.

Last year, California’s Class 1 utilization was just 13 percent, so if California ends up being the 11th federal order, Class I utilization could drop below 25 percent.

All of this raises the question of whether the dairy industry should continue applying a premium to a category that is of decreasing importance to the industry as a whole. And is that premium itself actually contributing to the decline in Class I sales?

Then there are at least a couple of ongoing issues related to Class III pricing. First, Cheddar cheese continues to account for either a stable or slowly declining percentage of total US cheese production, but it remains the only cheese product used in the Class III pricing formula.

More specifically, in 2015, Cheddar cheese accounted for 28.7 percent of US cheese production, down from 34.1 percent back in 2000, when federal order reforms became effective. Meanwhile, Mozzarella last year accounted for 33.8 percent of US cheese production, up from 31 percent in 2000.

For what it’s worth, Cheddar production through the first eight months of this year was down 0.8 percent from a year earlier, while Mozzarella output was up 3.5 percent. So while Cheddar continues to account for less and less total cheese production, it continues to account for 100 percent of the cheese price in the Class III formula.

Then there’s dry whey, the price of which was added to the federal order Class III formula in 2000 (it was added to California’s Class 4b formula in 2003). Dry whey production has fallen from almost 1.2 billion pounds back in 2000 to 975 million pounds last year (the fourth straight year in which dry whey output was under a billion pounds), while the number of plants producing dry whey (human) has declined from 46 back in 2000 to 29 in 2015.

In short, Cheddar cheese and dry whey are relatively “thin” markets, and they look to get even “thinner” in the years ahead.

These aren’t the only controversial (or at least potentially controversial) aspects of the Class III price formula. It may be recalled that the dairy industry spent several years — starting with an Agri-Mark request in September of 2005 — arguing over appropriate levels for make allowances in both Class III and Class IV pricing formulas.

Obviously we’ll never find a perfect level for make allowances — California’s annual “Manufacturing Cost Exhibit” has, for example, found that Cheddar manufacturing costs have increased for four consecutive years — but more broadly, there has been at least some talk, for close to a decade or maybe longer, that perhaps product price formulas should be scrapped and replaced with some sort of formula using competitive pay prices.

So here’s a good starting point for the dairy title in the 2018 farm bill: require another round of federal order reforms, with an effective date of January 1, 2021. By then, order reforms will be long overdue (since they already are).


The EU’s Frustrating GI Policies

We have to hand it to the European Union: it has come up with an issue that is about as frustrating for the cheese industry as any issue in recent memory. And it’s an issue that just isn’t going to go away anytime soon (if ever), making it all the more frustrating.

That issue is geographical indications, or GIs, which have a legitimate place in the food business but not to the extent to which the EU would like them to have. And the EU has been, and will continue to be, relentless in pushing its GI protections around the world, harming the US cheese industry (and the cheese industries of other countries, including some in the EU itself, as well) as it does.

As reported on our front page last week, according to an analysis by Informa Economics IEG, the immediate impact of enforcing the EU’s GI restrictions in the US would be to reduce consumption of US-produced cheeses by 578 million pounds. The delayed impacts of the EU’s GI restrictions would cause consumption of US-produced cheeses to fall by 1.71 billion pounds.

The Informa study — which was commissioned by the Consortium for Common Food Names and unveiled jointly by CCFN, International Dairy Foods Association, National Milk Producers Federation and US Dairy Export Council — broke US-produced cheeses into three categories to estimate the impact of granting GI protections to common-name cheeses. Two of those categories help illustrate the problems with the EU’s policies.

The first category is cheeses that are produced and marketed in the US under names that are currently registered or have pending EU registration for PDO/PGI designation.

These cheese varieties, and 2015 production where available, include: Asiago (USDA’s National Ag Statistics Service doesn’t track Asiago production, but Wisconsin does, and the state’s 2015 Asiago output totaled 31.9 million pounds), Gorgonzola, Parmesan (339 million pounds), Romano (55 million pounds), Havarti, Feta (112.5 million pounds), Neufchatel, Fontina and Muenster (177.2 million pounds).

Two of these cheese varieties help illustrate just how frustrating this issue is, both for the US and for other countries (including some in the EU). Parmesan has a long and distinguished history in the US as well as around the world. The US has had a standard of identity for Parmesan since the late 1940s, and NASS has been reporting US Parmesan production since at least 1961, when it totaled all of 19.4 million pounds.

But the European Commission decided several years ago (much to the consternation of Germany) that the name “Parmesan” is a translation through French of “Parmigiano Reggiano.” Therefore, only Italy among the EU’s 28 member countries can produce and market Parmesan cheese.

Meanwhile, the Codex Committee on Milk and Milk Products spent several years discussing the possibility of elaborating a standard for Parmesan, but was unable to reach agreement on whether or not to proceed with this effort (that’s how Codex reported on this effort in 2004).

The majority of the CCMMP present at the committee’s sixth session, held in 2004, were of the opinion that the name “Parmesan” is and has been generic for quite some time. But the EU currently considers that there is an “indissoluble relationship” between the words “Parmigiano-Reggiano” and “Parmesan.”

Meanwhile, the European Commission decided, back in 2002, to register the name “Feta” as a PDO for a white cheese soaked in brine, originating only in Greece. Feta had first been registered in 1996, at the request of Greece, but that registration was annulled by the European Court of Justice in 1999 following actions brought by Denmark, Germany and France.

But the European Court of Justice, in 2005, upheld the name “Feta” as a PDO for Greece, despite the fact that it has been produced since the 1930s in France and Denmark.

How likely is it that the US and the EU, in the Transatlantic Trade and Investment Partnership agreement, would agree to limit the use of these names in the US? The EU’s proposal for the list of GIs in TTIP (tabled for discussion with the US and then made public back in March) includes Munster, Neufchatel, Feta, Asiago, Gorgonzola, Fontina, and Parmigiano Reggiano (recall Europe’s translation), among others.

Also, under the Comprehensive Economic and Trade Agreement negotiated between the EU and Canada a few years ago, Canada can continue to use the term Parmesan. But as far as Asiago, feta, fontina, Gorgonzola and Munster are concerned, CETA won’t affect the ability of current users of these names in Canada to keep using the names, but future users will be able to use the names only when accompanied by expressions such as “type,” “style,” “imitation” or the like.

The other cheese category that helps illustrate how frustrating this issue is, is cheeses where European GI designations do not currently restrict the use of the common name but could be applied for or interpreted in ways that do restrict its use in the future. And if you don’t think the EU would someday try to interpret the existing PDO for “Mozzarella di Bufala Campana” in a way that restricts the use of “mozzarella,” well, remember the Parmesan example.

Oh, and both Mozzarella di Bufala Campana and West Country farmhouse Cheddar cheese are included in that EU GI proposal noted above.

All in all, the GI issue is one mighty frustrating issue, thanks to Europe’s ongoing, never-ending desire to expand its GI protections in illogical and harmful ways. DG


FDA Should Stop Trying To Define ‘Healthy’

The US Food and Drug Administration recently started a public process to redefine the “healthy” nutrient content claim for food labeling. To save time, energy and resources, FDA should just stop this process now, because trying to define “healthy” is simply an unhealthy idea.

As reported on our front page two weeks ago, FDA is requesting comments (the deadline for submitting these is January 26, 2017) on several questions or issues, including when, if ever, the use of the term “healthy” may be false or misleading, and what types of food, if any, should be allowed to bear the term “healthy.”

So why should FDA stop trying to redefine the term “healthy?” It’s pretty simple, really.
FDA published the final rule defining the term “healthy” back in January of 1993, meaning we’ve had more than two decades to live with the consequences of that definition. And how has that worked out?

Well, by most measures (including obesity and type 2 diabetes, to mention just two measures), people have gotten less healthy over the last 23 years. That alone should provide sufficient evidence that trying to define a term such as “healthy” does more harm than good.

But there are plenty of additional reasons why FDA should stop trying to define “healthy.” Just speaking generally, there’s that old saying: “There are no good foods or bad foods, only good diets or bad diets.”
Trying to define “healthy” so that it can be placed on food labels contradicts that notion. It basically suggests, or at least implies, that if you eat a food labeled “healthy,” or, better yet, eat several foods labeled “healthy,” you will, in fact, be “healthy.” That’s ridiculous.

This point was raised more than 20 years ago, in comments submitted to FDA in response to the agency’s proposal on “healthy” claims. As FDA explained in its final rule, some comments opposed the agency’s proposal to define “healthy” on the grounds that the term is more appropriately applied to overall diets. These comments further urged FDA to prohibit the use of the term on food labels “because it describes the total diet, is misleading to consumers, reinforces the ‘good food-bad food’ concept, and could easily lead a consumer to overconsume those products labeled as ‘healthy’ rather than consuming a variety of foods.”

FDA rejected those comments, and said (again, this is more than 20 years ago) it believes that foods labeled with the term “healthy,” whether they are individual foods, main dishes, or meals, “can be used with a variety of foods to assist consumers in maintaining healthy dietary practices.” FDA went on to say that the comments “have not provided convincing information to the contrary.”

No, but more than 20 years later, the evidence seems to point pretty clearly to the fact that allowing the use of the term “healthy” on food labels has, in fact (and among other factors) made people less healthy.

Also just looking at this issue from a broad perspective, it’s worth remembering that science keeps changing what exactly a “healthy” food is, or more specifically what nutrients should or should not be included in a “healthy” food.

This point is raised in a December 2015 petition submitted to FDA by KIND LLC, a producer and marketer of snack bars and related products. As KIND points out in its petition, under FDA’s current regulations, whether or not a food can be labeled “healthy” is based on specific nutrient levels in the food rather than its overall nutrition quality.

“FDA formulated those regulations more than 20 years ago, when available science and federal dietary recommendations focused on limiting total fat intake,” KIND noted. “Today, these regulations will require that the majority of foods featuring a ‘healthy’ nutrient content claim meet ‘low fat’ and ‘low saturated fat’ standards regardless of their nutrient density. This is despite the fact that current science no longer supports those standards.”

Related to that point, the prevailing wisdom for more than half a century was that margarine could be part of a “healthy” diet, but butter could not. Today, margarine (at least the traditional type of margarine) is close to extinct, and FDA has decided that the main ingredient in traditional margarine, namely partially hydrogenated vegetable oil, is no longer generally recognized as safe (GRAS).

FDA wants to know what types of food, if any, should be allowed to bear the term “healthy.” Here’s an idea: allow butter to bear that term. In fact, FDA should allow, if not mandate, the following statement on butter labels: “Healthy. Because it’s not margarine.”

There is at least one other area where the science is slowly changing but FDA’s “healthy” definition is not (at least not yet): sodium. Back in 2005, FDA published a final rule concerning the maximum sodium levels permitted for foods that bear a “healthy” claim.

In that final rule, FDA noted that it had received a comment maintaining that there was no evidence that restricting sodium consumption will result in improved cardiovascular health outcomes, and responded, in part, as follows: “The effects of sodium on blood pressure are well documented.” And FDA noted that the 2005 Dietary Guidelines for Americans recommended that individuals consume less than 2,300 milligrams of sodium per day.

But at least a couple of recent, major studies have concluded that sodium intake above that level is actually healthier than sodium intake at or below that level.

Here’s a healthy idea for FDA: Stop trying to define “healthy.” The more often that claim shows up on food labels, the less healthy people have become. DG


Per Capita Cheese Consumption: Still Plenty Of Room To Grow

USDA’s Economic Research Service has released detailed per capita cheese consumption statistics for 2015 and, as reported on our front page last week, quite a few records fell last year, including overall per capita consumption as well as per capita consumption of several categories or varieties of cheese.

Certainly, per capita cheese consumption of 35.33 pounds is impressive in many respects. For one thing, it means per capita cheese consumption grew by more than two pounds just since 2011, when it was 33.23 pounds.

That’s notable because there have been periods in the not-too-distant past when per capita cheese consumption barely grew at all. Just to cite one example; per capita cheese consumption reached a record 32.43 pounds back in 2006, but by 2010 had only increased by slightly less than half a pound, to 32.92 pounds.

So an increase of more than two pounds from 2011 to 2015 is pretty impressive.

Still, we can’t help but feel there’s plenty of room for further growth in per capita cheese consumption in the US, if for no other reason than because the US still trails some European countries significantly.

For example, according to the International Dairy Federation’s World Dairy Situation 2015, per capita cheese consumption for the EU as a whole in 2014 was about 39.4 pounds. France leads all EU countries broken out in the IDF report, at an astounding 58.7 pounds in 2014, followed by Finland at 56.3 pounds, and Denmark and Germany both at 54.1 pounds.

That’s more than a pound of cheese per person per week. It’s also somewhere between about 19 and 23 pounds higher than current US per capita cheese consumption. In that context alone, it’s hard to imagine US per capita cheese consumption not growing in the future, and probably growing substantially.

In what cheese categories will per capita consumption rise in the future? Cheddar might be a good place to start. Last year, per capita Cheddar consumption was 10.16 pounds, up from 9.84 pounds in 2014 and the highest level since 2005, but still below the record 10.61 pounds set way back in 1987, or the recent high of 10.43 pounds achieved in 2006.

It’s hard to believe per capita Cheddar consumption has been more or less flat or down slightly over the past decade, but that also provides an obvious category in which consumption can grow in the future.

Swiss cheese would fall into the same category as Cheddar. Last year, per capita Swiss cheese consumption was 1.05 pounds, up from 1.02 pounds in 2014 but considerably below the record of 1.35 pounds, set in 1979 and matched in 1990.

Back around the turn of the century (give or take a few years), it appeared that the sky was the limit for Cream and Neufchatel cheese, given the rising number of bagel chains opening stores around the US.
And indeed, per capita consumption of Cream and Neufchatel rose from 2.04 pounds in 1995 to 2.49 pounds in 2007.

But last year, per capita Cream and Neufchatel consumption was still 2.49 pounds. Consumption fell for four straight years after reaching that record high in 2007, and only last year made it back to that level. There would certainly appear to be some potential for consumption growth in this category.

It’s also worth noting that per capita Hispanic cheese consumption last year, at 0.72 pound, was actually unchanged from 2014, but almost triple the 1996 level. In the 20 years in which ERS has reported per capita consumption of Hispanic cheese separately, it declined just once (in 2011), held steady three times, and increased 15 times. Our guess is that Hispanic cheese will resume its growth trend this year or next and probably reach the one-pound mark by perhaps 2020.

Finally, it’s difficult if not impossible to see potential growth in each of the three “other” categories included in the ERS statistics. The first of these is American-type cheese other than Cheddar, per capita consumption of which was a record 3.86 pounds last year.

However, that’s up only 0.68 pound from 2003, and in fact per capita consumption was under three pounds as recently as 2008. It’s hard to believe there’s not room for further growth in consumption of Colby and Monterey Jack cheeses.

Then there’s Italian-type cheeses other than Mozzarella. Let’s face it, Mozzarella has been the star of the Italian-type cheese category, with per capita consumption soaring from just 1.19 pounds back in 1970 to 6.88 pounds in 1990, 9.06 pounds in 2000 and a record 11.27 pounds last year.

By comparison, per capita consumption of other Italian-type cheeses has grown at a rather slow pace, rising from 2.14 pounds in 1995 to 3.19 pounds last year. Considering that this category includes long-time stalwarts such as Parmesan and Provolone, as well as under-appreciated cheeses such as Mascarpone, it would seem that the sky is the limit.

And then there’s all other cheeses, a category that includes everything from Brie and Camembert to Feta and Gouda (it should be noted that Blue, Muenster and Brick are reported as separate categories by ERS). Production of at least two of these varieties, Feta and Gouda, is now reported separately by USDA’s National Ag Statistics Service, and Feta production has grown from 77.6 million pounds in 2010 to 112.5 million pounds in 2015, while Gouda output rose from 19 million pounds to 58.3 million pounds in 2015.

No doubt, 2015’s record was impressive, but per capita cheese consumption should continue to set new records in the future. DG

‘Average’ Prices Depend On The Starting Point

It’s been a somewhat below average year for milk and dairy product prices thus far in 2016. Or has it?

Well, that depends in part on how far back you want to go when calculating averages. Adding or subtracting a high-price or a low-price year, decade or other period of time can make a pretty big difference in determining what “average” really means.

For example, here in 2016, it’s pretty much impossible to talk about average prices over recent years without including the one year that was so memorably above “average”: 2014. And the fewer years included in the calculation of an average, the more impact the way-above-average prices of 2014 make.

If you go back a few more years, you’ll also bump into two years that featured way-below-average prices: 2009 and 2006.

To illustrate this point, here are the average yearly prices, per pound, for the CME cash market for 40-pound Cheddar blocks over the last 10 years: 2006, $1.2385; 2007, $1.7578; 2008, $1.8558; 2009, $1.2961; 2010, $1.4964; 2011, $1.8064; 2012, $1.6980; 2013, $1.7642; 2014, $2.1094; and 2015, $1.6103.

So the five-year average of the CME 40-pound block Cheddar price was $1.7977, while the 10-year average was about $1.66.

Here in 2016, the block Cheddar price at the CME averaged $1.5150 from January through August, which is below average by almost any definition and way below average when comparing it to the five-year average (2011-15).

The key here, though, is “almost any definition.” For example, a logical place to start comparing “average” prices might be the year 2000, both because it’s a nice round number and also because that was the year in which federal order reforms became effective.

But five of the first six years from 2000 through 2005 were low-price years by pretty much any definition. The CME block price actually averaged under $1.20 per pound in two of those years (2000, when it averaged $1.1466, and 2002, when it averaged $1.1822), and only came close to the recent 10-year block price average of $1.66 once (in 2004, when the block price averaged $1.6492).

The block price from 2000 through 2015 averaged $1.5537, so even going back to those (mostly) low-price years in the early part of this century, cheese prices here in 2016 are below average.

Even the year 2000 is perhaps not the best year in which to begin comparisons. It might be recalled what happened in the final three years of the 1990s: in 1997, the cheese industry’s cash market moved from the National Cheese Exchange in Green Bay, WI, to the CME in Chicago; in 1998, the CME cash cheese market moved from weekly to daily trading sessions (that started on Sept. 1, 1998); and 1999 was the first full year of daily cash cheese trading at the CME.

In that context, perhaps only 1999 should be included in long-term “average” calculations, since that’s the first year in which CME cash cheese trading was pretty much the same as it is today. Back in 1999, the CME block price averaged $1.4037 a pound, so the 1999-2015 block price average was about $1.5450 a pound.

In that context, cheese prices this year have still been below the long-term average.

What if we go all the way back to 1990? During the 1990s, the NCE (and later CME) block price averaged $1.3427 per pound. Adding the 1990s to the period of 2000 through 2015 lowers the block price average to around $1.47.

Finally, we have a comparison that shows cheese prices here in 2016 are actually a bit above average. But that’s about as misleading as statistics can get, considering that block prices averaged above $1.50 per pound just once in the 1990s (in 1998, at just under $1.57 a pound) and averaged under $1.40 per pound every year except 1998, 1999 ($1.4037), and 1996 ($1.4663).

What about milk prices, specifically the federal order Class III price? Here, it’s a little easier to find a starting point, since there’s only been a Class III federal order price since 2000 (prior to that, there was a Basic Formula Price for several years, and before that there was the legendary Minnesota-Wisconsin price).

Through the first eight months of 2016, the federal order Class III price averaged $14.13 per hundredweight, which is down $1.67 from 2015’s average. And what about 2015? Was the Class III price that year just about average, below average or above average?

Again, it depends on your starting point. Just taking the most recent five-year period, last year’s Class III price ($15.80 per hundred) was way, way below average (the 2011-2015 Class III average was $18.39 per hundred). Indeed, the lowest Class III price average other than 2015’s $15.80 over the last five years was 2012’s $17.44.

To put the recent (well, at least up until 2015) strength in Class III prices in perspective, over the 2000-2009 period, the Class III price averaged about $13.29 per hundred, or $5.10 below the 2011-15 average, $2.51 below last year’s average and $9.05 below 2014’s record-shattering average.

For what it’s worth, the Class III price from 2000 through 2015 averaged $14.95 per hundred, which is still above the average through the first eight months of 2016.

As the foregoing analysis indicates, statistics can pretty much be manipulated to tell any story. If you go back far enough, cheese prices thus far in 2016 are above average or at least average, and if you go back to the pre-Class III decade of the 1990s, Class III prices thus far in 2016 are also above average.

But by pretty much any “modern” comparison, cheese and Class III milk prices have been below average thus far in 2016. DG

The One-Two Punch That Devastated Dairy

It hasn’t always been easy trying to market dairy products over the past 60 years or so, what with dairy products coming under criticism for numerous alleged nutrition-related offenses, ranging from saturated fat and cholesterol to sodium.

During this period, it’s often seemed like it was the dairy industry versus the health establishment, and the health establishment kept coming up with more reasons to avoid dairy products, or at least reduce consumption of traditional (full-fat) dairy products.

As it turns out, the so-called health establishment had at least a couple of industries working in the background, conspiring to pin all sorts of ills on dairy and other products that contained dietary fat in general and saturated fat in particular. Those industries were the vegetable oil industry and the sugar industry.

The role of the vegetable oil industry (or companies marketing such products) in shaping the connection between saturated fats and heart disease is detailed in Nina Teicholz’s 2014 book, The Big Fat Surprise.
The “real heavyweights” in shaping federal nutrition policy back in the 1970s wasn’t the dairy, egg and meat groups, but rather the “big food manufacturers,” such as General Foods, Quaker Oats, Heinz, the National Biscuit Company and the Corn Products Refining Corporation, Teicholz wrote.

In 1941, these companies had set up the Nutrition Foundation, which “steered the course of science at its very source by developing relationships with academic researchers, funding important scientific conferences, and funneling many millions of dollars directly into research,” Teicholz wrote.

“The promotion of carbohydrate-based foods, such as cereals, breads, crackers, and chips, was exactly the kind of dietary advice large food companies favored, since those were the products they sold,” she continued. “Recommending polyunsaturated oils over saturated fats also served them well because these oils were a major ingredient of their cookies and crackers and were the principal ingredient in their margarines and shortenings.”

Among the other results from this push: “From the early 1960s, consumers were advised to replace butter with margarine or Crisco and always to choose vegetable oils over animal fats as part of a healthy, prudent diet,” Teicholz noted.

In her book, Teicholz also touches upon the other “enemy” of the dairy industry over the past half-century or more: the sugar industry. In 1999, when the lead Italian researcher from the infamous “Seven Countries” study went back and looked at the data from the study’s 12,770 subjects, he noticed that the category of foods that best correlated with coronary mortality was sweets, more specifically sugar products and pastries.

That brings us to 2016, when, as reported on our front page last week, a report published online by JAMA Internal Medicine suggests that the sugar industry sponsored research to influence the scientific debate to cast doubt on the hazards of sugar and to promote dietary fat as the culprit in heart disease.

The report describes how the sugar industry sought to influence the debate over the dietary causes of coronary heart disease in the 1950s and 1960s. And so, by the 1980s, few scientists believed that added sugars played a significant role in CHD, and the first Dietary Guidelines for Americans, published in 1980, focused on reducing total fat, saturated fat, and dietary cholesterol for CHD prevention.

The internal documents used for the report released last week indicate that the Sugar Research Foundation, which later evolved into the Sugar Association, initiated CHD research in 1965 and its first project was a literature review published in the New England Journal of Medicine in 1967.

That review concluded there was “no doubt” that the only dietary intervention required to prevent CHD was to reduce dietary cholesterol and substitute polyunsaturated fat for saturated fat in the US diet. That review was published “without disclosure of the sugar industry’s funding or role.”

So there you have it: the vegetable oil industry and the sugar industry have been conspiring for years against dietary fat, saturated fat and products that contain them, including dairy.

How did their efforts impact the dairy industry? For one thing, per capita butter consumption fell from a peak of over 17 pounds for a number of years back during the first 40-plus years of the 20th century to under six pounds by 1966 and under five pounds for every year from 1972 through 2007 (with the exception of 1984, when consumption reached five pounds). Thanks to that drop in consumption, the US butter production record, 1.872 billion pounds, was set way back in 1941.

And sales of whole milk fell from a peak of 44.7 billion pounds in 1966 to less than 20 billion pounds by 1993 and a recent low of 13.9 billion pounds in 2013.

Fortunately for the dairy industry, there have been at least a couple of positive developments in recent years.
First, Nina Teicholz’s book, the JAMA Internal Medicine report and others are shedding new light on the industry influence that long shaped dietary advice. And that advice is slowly changing, as health professionals and others realize how wrong the “saturated-fat-is-bad” mantra really was.

Second, per capita butter consumption and whole milk sales are on the upswing, as consumers begin to realize that saturated fat isn’t the dietary villain it’s been purported to be and taste wins out. The health establishment continues to lag on this realization, but eventually, science will win out, and so will full-fat dairy products.

If you don’t believe the pendulum is swinging back toward saturated fat, just ask somebody in the margarine business. DG

Cheese Reporter welcomes letters to the editor. Comments should be sent to: Dick Groves by Fax at (608) 246-8431; or e-mail your comments to dgroves @cheesereporter.com.

Misleading Statistics Distort Dairy Market Realities

Back on August 22nd, USDA’s National Ag Statistics Service, in its monthly “Cold Storage” report, noted that total natural cheese stocks in refrigerated warehouses on July 31, 2016, were a record high for the month of July (at 1.276 billion pounds), “since the data was first recorded in 1917.”

The agency made the same reference to 1917 in the “Cold Storage” reports it released in July, June and May.

Frankly, we find it a bit shocking, and somewhat amusing, that NASS would actually offer any sort of comparison between current cheese stocks and the level of cheese stocks 99 years ago.

There are at least two problems with using the 1917 comparison for cheese stocks. First, US cheese production back then didn’t even amount to half a billion pounds, let alone the almost 1.3 billion pounds currently being stored.

That’s our guess, anyway, since the NASS statistical database for cheese production begins in 1919, when US output was around 479 million pounds. And it wasn’t until 1925 that US cheese production even cracked the 500-million-pound barrier.

Further, it wasn’t until 1942 that cheese production first topped 1 billion pounds, and it wasn’t until 1947 that total annual cheese output, at 1.283 billion pounds, actually topped the amount of cheese in refrigerated warehouses at the end of July, 2016.

It would have been pretty much impossible for there to have been all that much cheese being stored back in 1917, simply because there wasn’t all that much cheese being produced (or consumed).

For what it’s worth, cheese stocks at the end of August 1917 (end-of-July stocks aren’t reported on the NASS website) totaled about 95 million pounds, or roughly 20 percent of annual cheese production.

At 1.276 billion pounds, the quantity of cheese in refrigerated warehouses at the end of July 2016 amounted to around 11 percent of annual cheese production. In that historical comparison, cheese stocks seem a bit low right now.

Not only has cheese production increased steadily if not spectacularly over the past century, the types of cheese being produced in the US have changed tremendously. For example, NASS statistics for US Parmesan production date back to 1961; that year, US Parmesan production totaled all of 19.4 million pounds.

Last year, US Parmesan production was a record 339 million pounds, all of which has to be stored for anywhere from several months to almost two years before being sold.

Indeed, we can’t help but notice that US Parm production grew by more than 100 million pounds just since 2010 (when output was just under 234 million pounds). Meanwhile, stocks of “other” natural cheese (other than American and Swiss) rose from 402.9 million pounds as of July 31, 2010 to 480.7 million pounds as of July 31, 2016.

Seems like a lot of the increase in total cheese stocks over the last six years can be explained by the increase in Parmesan production.

Another way of looking at the amount of cheese being held in warehouses is described in an article in the April 2011 Northeast federal order market administrator’s bulletin.

The article noted that total cheese stocks exceeded 1 billion pounds in March 2010 and had remained above that level through March 2011. Yet the NASS (now AMS) block Cheddar cheese price still spent five weeks over $1.88 per pound from late February through March 2011 and remained over $1.60 per pound through April 2011.

“Though current total cheese stocks over a billion pounds sounds like a very big number historically, it has to be viewed in context with current historically strong cheese production and commercial disappearance numbers,” the article pointed out.

When cheese stocks were last above a billion pounds, in 1983-84, government stocks of American cheese accounted for roughly 60 percent of total cheese stocks. There was indeed a “glut of cheese” in storage, relative to the size of the cheese market at that time. Stocks were 314 percent higher than total monthly production.

From 1988 on, total cheese stocks averaged 96 percent of total monthly cheese production, ranging mostly between 80 and 116 percent, the article continued. Stocks averaged 104 percent since 2000.

“These data imply that stocks have grown mostly in proportion with production,” the article explained. In relative terms, 1984’s billion pounds of cheese in cold storage is not the same as today’s billion pounds.

US cheese production back in 1984 totaled around 4.7 billion pounds, or an average of about 392 pounds per month. By 2011, when the Northeast market administrator’s bulletin ran its article about cheese stocks, cheese production had risen to around 10.6 billion pounds, or an average of about 883 million per month.

And, as noted, stocks were over a billion pounds. This year, cheese production is on pace to top 12 billion pounds for the first time ever, which works out to an average of around a billion pounds of cheese every month.

In that context, the current US cheese inventory of almost 1.3 billion pounds doesn’t really seem all that out of line. If anything, what’s out of line is any sort of reference to 1917, or any historical reference that doesn’t reflect the growth and changes in cheese production.

Rising inventories, looked at in the manner described in the Northeast market administrator’s article more than five years ago, indicate a growing market. If anything, rather than getting bent out of shape when inventories top 1.2 billion pounds, folks should worry when they drop below that level.

Some Reasons For Optimism Despite Dismal Milk Sales Figures

USDA’s Economic Research Service recently released some mighty interesting statistics on the beverage milk business, and as reported on our front page last week, there wasn’t much in the way of positive developments in those statistics. Still, the numbers aren’t completely dismal.

The “bottom line” in the statistics is that US beverage milk sales in 2015, at 49.924 billion pounds, were at their lowest level since 1963. And beverage milk sales have fallen almost 5 billion pounds just since 2010.

There are a couple of things that can help put the 1963 comparison in perspective. First, the US population back then was around 189 million, or some 133 million fewer people than today.

It’s kind of hard to fathom how a market can expand by 133 million potential consumers while sales have stayed flat, but that’s what’s happened with fluid milk.

And statistics released Friday by ERS (and reported on our front page this week) illustrate what the rising population and flat sales have meant for per capita fluid milk consumption: it’s fallen from roughly 270 pounds back in 1963 to 155 pounds last year.

Can you imagine how different the dairy industry would be today if per capita milk consumption had remained unchanged over the past half-century or so while the population kept increasing?

Second, back in 1963, US milk production totaled around 125 billion pounds. Thus, beverage milk sales that year accounted for close to 40 percent of total milk utilization.

Last year, US milk production totaled about 208.6 billion pounds, so beverage milk sales accounted for less than a quarter of total milk utilization. At some point in the not-too-distant future, we might actually see exports account for a higher percentage of milk utilization than fluid milk products.

Despite the ongoing decline in milk sales, there were some bright spots in the ERS numbers. For one thing, whole milk sales last year, at 14.584 billion pounds, were up 4.3 percent, or 600 million pounds, from 2014 and at their highest level since 2009.

If nothing else, this says something about how people feel about the federal government’s dietary recommendations. The Dietary Guidelines for Americans, for over three decades now, have recommended lowfat or fat-free milk and dairy products, and schools are no longer allowed to serve anything beyond lowfat and fat-free milk.

But whole milk sales are posting some nice increases, having risen by 65 million pounds in 2014 and then another 600 million pounds in 2015.

And this is continuing here in 2016. According to figures recently released by USDA’s Ag Marketing Service, while conventional beverage milk sales during the first half of 2016 were down 0.8 percent from the first half of 2015, whole milk sales were up 5 percent.

Organic whole milk sales are also increasing, AMS figures show. During the first six months of this year, organic beverage milk sales were up 5.6 percent from a year earlier, while organic whole milk sales were up 16.3 percent.

How significant this is in the long term remains to be seen, but it’s worth noting that, back in 1963, whole milk sales accounted for more than 90 percent of total beverage milk sales; last year, whole milk sales accounted for under 30 percent of total beverage milk sales.

Perhaps as consumers turn back to the great flavor of whole milk, beverage milk sales as a whole will start to improve. It’s just unfortunate that kids aren’t even being allowed to consume 2 percent milk in school, let alone whole milk.

Another positive in the statistics released last week by ERS involves the number of fluid milk plants in the US. There were 456 fluid milk plants in the US last year, 16 more than in 2014 and 68 more than in 2011, when fluid milk plant numbers reached a recent low of 388. And average product volume per plant has declined for four straight years.

Obviously, there are far fewer fluid milk plants now than there were, say, half a century ago (a separate set of ERS numbers shows there were 3,743 fluid milk plants in the US back in 1965). But that’s true for almost every sector of the dairy processing business, from cheese to ice cream.

What does that mean for the fluid milk business? If nothing else, it would appear to indicate that there are some nice niche opportunities available in the fluid business (especially, according to the AMS sales figures, in the organic fluid milk sector).

Finally, as we look over the latest fluid milk sales and consumption statistics, we can’t help but wonder if there might be some milk pricing policy implications in the ongoing sales declines.

Specifically, we can’t help but wonder if it’s time to re-examine federal milk marketing order pricing policies.
Under federal orders (and California’s state order, for that matter), milk for beverage use is priced higher than other classes of milk.

Maybe this made sense back in, say, 1963, when close to 40 percent of all milk was consumed in beverage form, and sales were still rising almost every year. But does it still make sense today, when milk production keeps increasing, fluid milk sales keep declining and the percentage of total milk consumed in beverage form keeps falling?

Probably not, but that point is largely irrelevant, since federal orders aren’t going away anytime soon. And frankly, it’s unlikely that lower prices will spur fluid milk sales increases; after all, fluid milk prices last year were well below 2014, and sales still declined by 734 million pounds from 2014.

Still, it doesn’t make much economic sense to attach a premium to a product that’s in such decline.

USDA’s Cheddar Purchase Is Poorly Timed

The US Department of Agriculture last week announced plans to buy about 11 million pounds of Cheddar cheese from private inventories to aid food banks and pantries, while also assisting the “stalled marketplace” for dairy producers.

If you believe in the old saying, “timing is everything,” well, USDA’s announcement was poorly timed, to put it mildly.

There were at least a couple of troubling aspects to USDA’s announcement, starting with the headline on the agency’s Aug. 23rd news release announcing its plans. “USDA to Purchase Surplus Cheese” is how the headline started, but we can’t help but wonder: is this cheese really surplus?

USDA, under the old dairy price support program, did purchase surplus dairy products from the dairy industry at pre-announced (CCC purchase) prices. Back in the 1980s, USDA’s surplus cheese — along with its surplus butter and nonfat dry milk — caused considerable consternation for the dairy industry, USDA and taxpayers.

But the dairy price support program was terminated under the 2014 farm bill, so USDA no longer acquires, stores and disposes of surplus cheese, butter and nonfat dry milk.

So none of the 1.276 billion pounds of cheese that was sitting in warehouses at the end of July could really be considered “surplus” cheese. Every pound of that cheese will eventually be sold commercially. The phrase “surplus cheese,” like the price support program itself, should be relegated to the scrap heap of history.

That point aside, USDA’s planned cheese purchase is poorly timed for a couple of reasons. First, the dairy market as of August 23 (when USDA announced its plans to buy cheese) could hardly be described as “stalled.”

Indeed, by almost every measure, the dairy market has been on the upswing in recent months. On the day USDA announced its plans to buy cheese, the CME cash market price for block Cheddar cheese stood at $1.8450 per pound, up more than 57 cents from this year’s low price of $1.2700 per pound back on May 12th.

To put this price in perspective, just twice since the turn of the century has the CME block price averaged above $1.8450 for an entire year: in 2008, when the block price averaged $1.8558 per pound; and in 2014, when the block price averaged just under $2.11 a pound.

Interestingly, the day after USDA announced its cheese purchase plans, the CME block price dropped 6.5 cents, and as of today has declined some 16.5 cents since that announcement. It’s difficult if not impossible to recall a government initiative aimed at boosting prices that’s had a more immediate and opposite reaction than what was intended.

The second, and related, problem with USDA’s cheese purchase plans is that, because cheese prices have increased so much in recent months, the agency is going to get far less “bang for its buck” than if it had purchased cheese back in May.

USDA’s cheese purchase announcement actually included a couple of key numbers: approximately 11 million pounds of cheese, and a value of $20 million. Those numbers reflect a cheese purchase price of about $1.82 per pound, which is pretty much in line with the CME block price last week.

But what if USDA had decided to purchase cheese back in May? Using that month’s average CME block price of just under $1.32 a pound, USDA could have purchased about 4 million more pounds of cheese than it will be able to acquire at current prices.

Well, that was the case last week, anyway. If cheese prices continue to fall, USDA might end up buying almost as much cheese as it could have back at May prices.

Still, it certainly seems like USDA could have timed this cheese purchase better. And unfortunately, this isn’t the only example of government getting involved with the intention of aiding the dairy industry and being a bit off in its timing.

Milk prices in the European Union have been in the tank for more than a year now, and the European Commission has been struggling to come up with solutions. Back in mid-July, the Commission presented a new package of measures to support dairy farmers in the face of ongoing market difficulties.
One of the elements of that package is an EU-wide scheme to incentivize a reduction in milk production.
The Commission plans to spend 150 million euros to incentivize milk production cuts, and noted at the time (mid-July) that EU milk collection was up 5.6 percent in the first four months of 2016.

The European Commission finalized the details of the aid package this week, according to the European Milk Board, and dairy farmers will, in the near future, be able to choose a period in which to reduce milk production, starting with the October-December period, according to the Irish Farmers Association.

There’s one small problem with this: EU milk production is already declining. According to a chart recently posted on the EU’s Milk Market Observatory, while EU milk production during the first half of 2016 was up 3.3 percent from the first half of 2015, June milk production was actually down slightly from June of 2015.

Milk prices “have bottomed out,” FrieslandCampina, one of the world’s largest dairy companies, declared Thursday. And at least a couple of EU-based dairy companies have been raising their milk prices in recent months, an indication that the economic situation for EU farmers is improving even before the EU starts paying farmers to cut production.

The dairy market may adjust slowly, but it still moves more rapidly than does the government.

Michigan Joins The Top Five Dairy States

It doesn’t happen very often, but it’s happening here in 2016: there’s a new member of the top five milk-producing states.

Specifically, Michigan has, at least temporarily and possibly for a long time, moved into the number five spot in US milk production — trailing only California, Wisconsin, Idaho and New York — bumping Pennsylvania into the number six spot.

Michigan has been closing in on Pennsylvania for quite a while now. The gap in milk production between the two states was 552 million pounds last year, down from over 1 billion pounds in 2014 and almost 1.4 billion pounds in 2013.

In June, Michigan’s milk production topped Pennsylvania’s output by 8 million pounds, and that was also the gap between the two states in July. With that small gap, it’s likely that Pennsylvania will still end up ranking fifth in milk production for 2016, but Michigan appears poised to move solidly into the number five spot for the foreseeable future.

Trends thus far in 2016 help support that view. During the first quarter, Michigan’s milk output was up 8.3 percent from a year earlier, while Pennsylvania’s was up 1.4 percent. Second-quarter production increases were 6.3 percent for Michigan and 0.5 percent for Pennsylvania.

Further, in July, Michigan’s milk cow numbers were up 11,000 head from a year earlier, while Pennsylvania’s cow numbers were unchanged. And Michigan’s output per cow in July was up 40 pounds from July of 2015, while Pennsylvania’s output per cow was up just five pounds. As a result, Michigan’s July production was up 4.5 percent from July of 2015, while Pennsylvania’s was up just 0.3 percent.

Michigan’s move into the top five dairy states, and Pennsylvania’s fall into the number six position, got us wondering: When was the last time the top five dairy states didn’t include California, Wisconsin, New York, Idaho and Pennsylvania?

That would be in 2002. That year, the top five dairy states were, in order, California, Wisconsin, New York, Pennsylvania, and Minnesota. Idaho ranked sixth, followed by New Mexico and then Michigan.

In 2003, Idaho bumped Minnesota out of the top five, and since then, the top five states have been unchanged. There has been some shifting among the top five, with Pennsylvania falling to fifth and Idaho and New York taking turns in third and fourth, but the top five states have been unchanged since 2003.

With this history in mind, we thought it would be interesting to look back a bit further, to see how the top five dairy states has evolved over the past half-century or so, and where the current top five has ranked over the years (if they weren’t yet in the top five).

Back in 1960, the top five milk-producing states were, in order: Wisconsin, Minnesota, New York, California and Pennsylvania. Michigan actually ranked seventh that year, while Idaho ranked 21st. In addition to Michigan, other states that ranked sixth through 10th back in 1960 were, in order, Iowa, Ohio, Illinois and Missouri. Obviously, there was a lot of milk being produced in the central part of the US back then (and now).

In 1970, the top five dairy states were, in order: Wisconsin, New York, Minnesota, California and Pennsylvania. Michigan continued to rank seventh, while Idaho had dropped to 23rd.

Ten years later, the top five dairy states was still the same, with one state making a big move. Those five states were, in order: Wisconsin, California, New York, Minnesota and Pennsylvania. Michigan ranked sixth in milk production in 1980, although the gap between Michigan and Pennsylvania was about 3.5 billion pounds. Idaho moved up to 19th.

In 1990, the top five dairy states were, in order: Wisconsin, California, New York, Minnesota and Pennsylvania. Michigan ranked seventh that year (Texas moved up to sixth), and Idaho had moved up to 12th.

And then in 2000, the top five dairy states were, in order: California, Wisconsin, New York, Pennsylvania and Minnesota. Idaho had moved up to sixth, while Michigan fell to eighth (Texas was seventh).

From all of this, we can reach several conclusions, the most obvious being that the top five milk-producing states doesn’t change all that often. Indeed, the top five states in 2000 was the same as it was back in 1960 (although the top five in 1960 was different than in 1950, with Pennsylvania replacing Iowa). That’s why Idaho moving into the top five back in 2003 was a big change, and Michigan moving into the top five now is a big change.

And this of course leads to the obvious question of what state will be next in joining the top five dairy states. The answer isn’t any easier than trying to predict what the CME block Cheddar price will average next year.
At the top of the list, California remains a solid number one; although the gap between California and Wisconsin has declined a bit, it remained over 10 billion pounds last year. And New York and Idaho look solid in the number three and four positions (New York outproduced Pennsylvania by over 3 billion pounds last year).

Assuming Michigan’s milk production continues to grow, the state’s hold on the number five spot appears solid. Texas had outproduced Michigan as recently as in 2014, and at this point is expanding its milking herd at almost the same pace as Michigan, so at this point the only feasible change would be Texas passing Michigan.

But Michigan ranked eighth back when Idaho moved into the top five states, so maybe we should keep our eyes on Minnesota.


Margin Protection Program Is A Work In Progress

By the time it was mercifully relegated to the scrap heap of dairy policy history by the 2014 farm bill, the dairy price support program had been around for some 65 years. That was more than enough time for the dairy industry, lawmakers, USDA and others to uncover, and try to fix, various shortcomings with the program.

The 2014 farm bill also terminated the Dairy Export Incentive Program, which dated back to the 1985 farm bill; and the Milk Income Loss Contract program, which was a truly 21st century policy initiative, given that it only dated back to the 2002 farm bill.

By contrast, this month marks just two years since USDA issued a final rule implementing regulations for the Margin Protection Program for Dairy, along with the Dairy Product Donation Program, which were both authorized under that same 2014 farm bill that eliminated the price support program, the DEIP and the MILC program.

Given their relative youth, it can be expected that both MPP-Dairy and the DPDP are far from perfect, and that both programs will be tweaked, probably many times, during their lifespans.

In the case of the DPDP, it might even be several years before the program is even activated, let alone tweaked and improved. It may be recalled that, under the DPDP, USDA will purchase dairy products to support dairy producer margins and to provide such products to individuals in low-income groups through public and private non-profit organizations.

The 2014 farm bill specifies that such purchases will be made whenever the “actual dairy production margin”, calculated using a formula prescribed in the 2014 farm bill, is determined to be $4 or less per hundredweight for two consecutive months.

Earlier this month, US Ag Secretary Tom Vilsack announced approximately $11.2 million in financial assistance for dairy producers enrolled in the 2016 MPP-Dairy. In announcing the assistance, USDA noted that the national average margin for the May/June 2016 two-month consecutive period was $5.76277 per hundred.

Considering that cheese prices have improved considerably since May and June, and if anything, feed costs appear poised to decline in the coming months, that May/June margin will likely represent the bottom for the foreseeable future. That means the new DPDP won’t be kicking in anytime soon.

But the MPP-Dairy program is alive and, if not well, as least operating. And as such, it’s going to come under some criticism.

One area of MPP-Dairy of which we’ll likely not hear much criticism is the program’s cost to taxpayers. As noted at a House Ag Committee hearing back on May 24 by Randy Mooney, a Missouri dairy producer and chairman of both the National Milk Producers Federation and Dairy Farmers of America, in 2015, US dairy producers paid $73 million in premiums and fees to USDA, while USDA only paid out $700,000 under the program.

This year, Mooney said, dairy farmers have paid in another $23 million. And, as noted earlier, Vilsack earlier this month announced payments of approximately $11.2 million for May and June.

Back in the early and mid-1980s, USDA’s Commodity Credit Corporation would spend far more than that in a single week, acquiring surplus cheese, butter and nonfat dry milk. If nothing else, MPP-Dairy is shaping up as a relatively inexpensive dairy producer safety net.

But it’s also a safety net that’s very much a work in progress. Indeed, USDA back in April announced several changes to MPP-Dairy, including allowing dairy operations to update their production history when a son, daughter, grandchild, or spouse of a child or grandchild of a current producer participating in the MPP-Dairy program joins the operation, providing for a later due date for the payment of the entire premium and clarifying that dairy operations that purchase buy-up coverage on less than 90 percent of their production history will also receive catastrophic coverage on the balance, up to 90 percent of the production history.

USDA also extended the MPP-Dairy sign-up deadline in both 2014 and 2015, and has already been asked to do so again this year.

We have no doubt that USDA will be making further tweaks to the MPP-Dairy program in the future. And it seems that the MPP-Dairy program will have a future, beyond its current expiration date (the program is authorized through December 31, 2018, under the 2014 farm bill). It’s hard to imagine Congress deciding to terminate MPP-Dairy, both because of the program’s short life and because of its remarkably low cost to taxpayers.

But Congress might change the program. Already, at least one bill introduced in the House would do just that: the Dairy Margin Insurance Location Calculation Act of 2016 (Dairy MILC Act) would require USDA to calculate the average feed cost for MPP-Dairy using data from each state, rather than the national average, and to take into consideration other costs.

Is the MPP-Dairy program the perfect dairy safety net? No, of course not. There’s no such thing as a perfect dairy safety net. To paraphrase Winston Churchill, the MPP-Dairy program might end up being the worst dairy safety net ever, except for all the others.

Since it remains a work in progress, perhaps the safest thing to say about the effectiveness of the MPP-
Dairy program is that the jury’s still out. So far it’s a clear winner for taxpayers, and that’s about all we know for sure at this point, except that the program will look different in a few years than it did when USDA announced implementing regulations two years ago.

Do Trade Agreements Help US Dairy Industry? Yes, They Do

Amidst all the garbage already emanating from the presidential campaign is a fair amount of talk about the impact of the Trans-Pacific Partnership agreement. And there’s also been some talk about how trade agreements in general and the TPP specifically have been and/or will be bad for US dairy and agriculture.

So this got us wondering: have trade agreements entered into by the US over the last 25 years been good, bad or neutral for the US dairy industry? By most measures, it appears that they have been more positive than negative or neutral.

To examine the impact of these trade agreements, we went back to 1993, the year before implementation of the North American Free Trade Agreement began. That year, US dairy exports were valued at about $913 million, while US dairy imports were valued at about $372 million (it may be recalled that the US was subsidizing a considerable volume of its dairy exports under the Dairy Export Incentive Program back then).

Also back in 1993, US milk production totaled 150.6 billion pounds, cheese production totaled about 6.5 billion pounds, the old Minnesota-Wisconsin price (predecessor of today’s Class III price) averaged $11.80 per hundredweight, the block price on the old National Cheese Exchange averaged around $1.2850 per pound, and the CME butter price averaged around 77 cents a pound.

A year later, the US began to implement the North American Free Trade Agreement, which also included Mexico and Canada. NAFTA liberalized dairy trade between the US and Mexico, but not between the US and Canada.

US dairy exports to Mexico were valued at around $250 million in 1993, the year before NAFTA implementation started, fell to $109 million by 1996, then reached $508 million in 2005 and topped $1 billion for the first time in 2011, at $1.66 billion (higher than total US dairy exports back in 1993). US dairy exports to Mexico have topped $1 billion in value for five straight years, and are on track to top that mark again this year.

Among other things, Mexico is the leading destination for US cheese, nonfat dry milk/skim milk powder and ice cream.

For what it’s worth, US dairy imports from Mexico have also grown over the years, from less than $1 million back in 1993 to around $113 million last year.

Meanwhile, while US-Canadian dairy trade was excluded from NAFTA, US dairy exports to Canada have risen from about $58 million back in 1993 to $554 million last year, while US dairy imports from Canada have increased from around $27 million in 1993 to about $153 million last year.

After NAFTA came the Uruguay Round Agreement, implementation of which began in 1995, and then several other trade agreements, including the US-Australia Free Trade Agreement, the US-South Korea FTA, the Dominican Republic-Central America FTA, and the US-Chile FTA.

And what has been the impact of all of these trade agreements? US dairy exports topped $1 billion in value back in 2001, topped $5 billion in 2012 and reached a record $7.1 billion in 2014 before falling to $5.2 billion in 2015, while US dairy imports first topped $1 billion in 1995, surpassed $2 billion in 2004 and then topped $3 billion last year.

Within a few specific product categories since 1993, US cheese exports have risen from 38 million pounds in 1993 to almost 700 million pounds last year (down from a record 810 million pounds in 2014); nonfat dry milk exports rose from 208 million pounds in 1993 (mostly subsidized under the DEIP) to 1.2 billion pounds in 2015 (all unsubsidized); dried whey exports rose from 148 million pounds in 1993 to almost 400 million pounds in 2015 (down from more than 500 million pounds in several different years); and lactose exports have risen from 164 million pounds in 1996 (figures for earlier years aren’t available) to almost 800 million pounds in 2015.

As far as the growth of the US dairy industry is concerned, US milk production has risen from 150.6 billion pounds in 1993 to almost 209 billion pounds in 2015; cheese production rose from 6.5 billion pounds in 1993 to 11.8 billion pounds in 2015; and lactose output grew from 236 million pounds in 1993 to 1.05 billion pounds in 2015.

From these figures, we can conclude that, without all the trade agreements the US has entered into over the past 25 years, the US dairy industry would be quite a bit smaller than it is today. According to the US Dairy Export Council (which, it should be noted, didn’t exist 25 years ago), the US in 2014 exported more than 15 percent of all the milk it produced.

So without NAFTA and other trade agreements, US milk production last year might have totaled somewhere under 200 billion pounds, rather than close to 209 billion pounds. And cheese production might have been 500 million pounds lower, lactose output 400 million pounds lower, etc.

What about prices? If you look just at 2014, you could conclude that, without a doubt, trade agreements have had an unbelievably positive impact on US prices, from cheese and butter to milk prices. But if you look at current prices, well, the impact still appears positive, just not as positive as it did two years ago.

As far as the TPP is concerned, the US International Trade Commission concluded, in a report released back in May, that the TPP will have a positive effect on US dairy exports and a positive but more limited impact on US dairy imports.

Milk and dairy product prices will undoubtedly remain volatile with or without the TPP. But the market for US milk will be larger than ever, at least at times.

GMO Labeling Impact Is Now Up To Consumers

Now that President Obama has signed a GMO labeling bill into law, the focus turns to implementation. But in the long run, what will really matter is how consumers respond to this new labeling mandate.

The National Bioengineered Food Disclosure Law requires USDA’s Ag Marketing Service (AMS) to develop a national mandatory system for disclosing the presence of bioengineered material in food and beverage products. This disclosure could come in the form of text or a symbol on the label, or electronic or digital link (such as a QR code, but not a website).

Initially, what this new law will require of dairy and food companies is...absolutely nothing. AMS has two years to establish a national mandatory bioengineered food disclosure standard, so at this point, about the only thing that changes is that Vermont’s law, which went into effect a little over a month ago, is no longer being enforced.

Over the longer term, what this new law will require of dairy and food companies won’t just depend on the system that AMS devises, but how consumers respond to that system. And consumers could end up going any number of ways on this issue — and therein lies the peril for dairy and food companies.

Certainly, there are a lot of consumers that just aren’t going to care about biotech labeling, if for no other reason than no survey has ever found that 100 percent of consumers read labels before buying food.

For example, according to the US Food and Drug Administration’s 2014 Health and Diet Survey, the results of which were released earlier this year, 77 percent of US adults reported using the Nutrition Facts label always, most of the time, or sometimes when buying a food product.

That means that 23 percent of US adults don’t use the Nutrition Facts label at all, while a number of adults just read the label some of the time. We would expect this to hold true once statements regarding bioengineered ingredients start appearing on labels.

In other words, a pretty fair number of consumers simply won’t care whether or not food products have any information available, on the label or through a QR code, about whether genetic engineering played a part in the creation of a specific food product.

Also noteworthy is the fact that, under this new law, milk derived from animals that have consumed feed produced from, containing, or consisting of a bioengineered substance is not subject to the mandatory labeling provision. So, as was the case under Vermont’s law, milk and many dairy products are exempt from the law.

Still, we have to believe that more than a few consumers will be questioning whether any genetic engineering was involved in the production of their dairy products. Dairy companies might not be required to provide this information on their labels, or via a QR code, but they might end up having to provide it somehow anyway simply because consumers will be looking for answers.

Indeed, this is where QR codes might prove to be inadequate for at least some consumers. That’s because several major food companies have already announced plans to provide information on their labels about the use of biotech ingredients in their products.

These companies — including General Mills, Kellogg, ConAgra Foods, and Mars Incorporated — decided to follow Vermont’s labeling law, which means they planned to place text on their product labels. And if these companies go forward with these labeling plans, that means that a pretty good chunk of US food products will, in the near future if not already, bear some sort of label statement regarding biotech ingredients (that is, if companies continue to label according to Vermont’s law even though that law has been halted).

So consumers who really care about GMO ingredients will, in a couple of years, see text statements on some product labels and possibly QR codes on other labels. For time-pressed consumers, it seems likely that they’ll choose those products with statements on the label rather than monkeying around with a QR code.

On the other hand, since most dairy products won’t have to be labeled, a QR code might become a necessary addition to a product label. That’s because at least some consumers are already curious about the origins of various dairy products, and our guess is that they’ll only get more curious once biotech-related statements or QR codes start showing up on other food products.

So how might QR codes on dairy packages help? As far as cheese is concerned, we can think of at least a couple of examples.

First, at least some consumers are interested in what type of rennet is being used to produce cheese. At least some consumers prefer cheese to be made using vegetable rennet rather than animal rennet. And some consumers are also curious about fermentation-derived chymosin. These concerns could be addressed via a QR code.

Second, as noted earlier, milk derived from animals that have consumed feed produced from a bioengineered substance is exempt from the new labeling law, but that doesn’t mean it’s exempt from consumer curiosity. Again, tens of millions of consumers simply don’t read food labels, but tens of millions of other consumers are looking for as much information as they can find, and if that information isn’t on a product label, who knows how they might respond?

The new GMO disclosure law exempts many dairy products. But what really matters isn’t so much what’s in that law, or in the regulations promulgated by USDA, but what’s on consumers’ minds. The dairy industry should be prepared for anything, and everything.


UW Needs To Stick To Original CDR Building Plan

The dairy industry in Wisconsin and around the US came together a few years ago and raised more than $16 million to construct a new Wisconsin Center for Dairy Research at the University of Wisconsin-Madison and to renovate the Babcock Hall Dairy Plant. It was an amazing effort.

More than three years after that fundraising goal was not only met but exceeded, the CDR/Babcock Hall project is facing some problems, apparently because the UW has lost sight of what this massive project was supposed to be. It’s time for the UW to get back to the original building plan so that this project can finally move forward as the industry envisioned.

According to a fund-raising letter sent out in 2012, the CDR-Babcock Hall plans were developed “through extensive consultation with dairy leaders and include a major expansion of facilities at CDR and a renovation of the Babcock Hall Dairy Plant.”

At the heart of the “Campaign To Secure Wisconsin’s Dairy Future” was a proposed new $32 million dairy research and education facility in Babcock Hall. The new facility was supposed to encompass an area of at least 67,000 gross square feet and dedicate more than 20,000 square feet to new research and processing space for CDR.

This point was touted in a news release issued by the UW-Madison College of Agricultural and Life Sciences (CALS) in August of 2012, which noted that the University of Wisconsin Board of Regents had approved a plan to provide half of the funding for remodeling and expansion of dairy research and teaching space and ice-cream and cheesemaking facilities in Babcock Hall. Industry would provide the other half of the project’s funding.

The Babcock Hall project, that news release continued, “entails renovating existing space used by the University’s Center for Dairy Research and the UW dairy plant and building an addition that will provide about 27,000 square feet of new research space. Among new amenities will be a facility for protein fractionation and powder drying, specialty cheese ripening rooms, expanded facilities for training industry professionals, and a cultured products area that will focus on emerging markets such as Greek yogurt.”

Almost exactly one year later, on August 7, 2013, Wisconsin Gov. Scott Walker announced that the proposed plans for the CDR and Babcock Hall building project would move forward with the design stage beginning immediately. And in November of 2013, the Wisconsin Department of Administration selected Zimmerman Architectural Studios Inc., Milwaukee, WI, as the architectural and engineering firm for the CDR/Babcock Hall project.

According to a tentative timeline for the CDR/Babcock Hall building project released at the time of Walker’s announcement (and reiterated in a CDR release in November of 2013 announcing that Zimmerman Architectural Studios had been selected as the A&E firm for the project), groundbreaking on the new CDR building was to take place in the summer of 2015, with substantial completion of the new CDR building as well as the renovated Babcock Hall Dairy Plant slated for March of 2018.

Well, it’s now July of 2016 and it’s safe to say that more hearts than ground have been broken on this project. As the Wisconsin Cheese Makers Association reported in its July 5th WCMA “Dairy Facts” newsletter, CDR staffers and project fundraising co-chair Dave Fuhrmann learned at a June 28 meeting that the CDR/Babcock Hall project, as currently designed, will cost $11 million more than initially estimated.

The WCMA further reported that cost-cutting (“value engineering”) proposals outlined at that June 28 meeting focused all square footage cuts on the new CDR; more specifically, the cost-cutting plan suggests the elimination of 11,200 gross square feet of the new CDR. An alternative plan retains this square footage as unfinished, walled-in space (a “shell”).

Either cut would eliminate food application labs in the basement of the new addition, and on the first floor, eliminate most of the CDR cultured products research area, and on the second floor, eliminate most of the CDR cheese research area, the WCMA noted. The CDR would also see significant cuts to equipment, including a two-stage dryer and vats.

Meanwhile, the WCMA reported last Friday that CALS has altered the original scope of this project with a fully rebuilt dairy plant, two new loading docks and new freezers and coolers (and more) that “have sent costs soaring.” But, despite the cost overrun, no cuts in square footage are proposed for the dairy plant.

It’s time for the UW’s College of Ag and Life Sciences to go back to the drawing board. According to the project description and scope approved by the UW Board of Regents in 2012, the project “will construct a three-story addition to and will remodel portions of Babcock Hall to house the Center for Dairy Research.”

Also in 2012, at least two fundraising packets were sent out to dairy companies inviting them to join the Campaign To Secure Wisconsin’s Dairy Future. This was described as a “dairy-industry-wide campaign that builds upon the leadership of the Wisconsin Center for Dairy Research in research, technology, training and outreach.”

In short, this was never about completely rebuilding Babcock Hall, but that seems to be what the UW now wants to do. It’s time for the UW to go back to the original CDR/Babcock Hall project and move forward with the plans so enthusiastically supported by the dairy industry. The industry should get what it paid for.


FDA Should End, Not Just Pause, Its Generic E. Coli Testing

Back in February, the US Food and Drug Administration announced that it had paused its testing for generic E. coli in raw milk cheese as it considers implementation of Food Safety Modernization Act rules and what role generic E. coli should have in identifying and preventing insanitary conditions and food safety hazards for cheese makers.

Based on recent evidence, FDA should make that pause permanent, and end its testing for generic E. coli in raw milk cheese (and other cheese, for that matter).

As reported on our front page last week, FDA found raw milk cheese aged 60 days to have less than a 1 percent contamination rate for Salmonella, Listeria monocytogenes, E. coli 0157:H7 and Shiga toxin-producing E. coli (STEC).

Generic E. coli, FDA explained in its raw milk cheese sampling report, is a type of E. coli, a diverse group of bacteria that ordinarily lives in the intestines of people and animals. Some E. coli are pathogenic, but generic E. coli rarely causes illness. Many countries, including the US, have historically used the presence of E. coli as an indicator of insanitary processing conditions.

In its raw milk cheese sampling program, FDA detected violative levels of generic E. coli in 87 of the 1,606 samples tested, which makes for an overall contamination rate of 5.4 percent. And of the 1,606 samples tested, FDA found just one sample contaminated with both violative levels of generic E. coli and a pathogen (specifically, Listeria monocytogenes).

To put that in perspective, of the 1,606 samples tested in this sampling program, FDA detected Salmonella in three samples, Listeria monocytogenes in 10 samples, E. coli 0157:H7 in zero samples, and STEC in 11 samples.

FDA evaluated the relationship between generic E. coli and the pathogens detected under its raw milk cheese sampling assignment, and concluded that the test “provided no evidence of an association” between the presence of generic E. coli and Salmonella, Listeria monocytogenes, E. coli 0157:H7 or STEC.

FDA then went on to note that it is “established in scientific literature that the presence of index or indicator organisms, such as E. coli, coliforms, fecal coliforms and Enterobacteriaceae, generally does not correlate well with the presence of foodborne pathogens and is not useful for determining contamination of individual lots of food by pathogens. Likewise, the absence of such index/indicator organisms from a lot of food generally does not correlate with the absence of foodborne pathogens.”

Further, FDA noted, written assignments by the UN’s Food and Agriculture Organization (FAO) and the National Research Council’s Subcommittee on Microbiological Criteria concluded that levels of E. coli, coliform, fecal coliforms and Enterobacteriaceae “should not be used to predict the safety of food products.”
On the other hand, as FDA pointed out in its sampling program report, detection of index/indicator organisms, such as E. coli, “are useful in assessment of facility hygiene and the potential loss of process control.”

Coincidentally, also on our front page last week was a story on the results of a study, written by several researchers in the food science department at Cornell University and appearing in the August edition of the Journal of Dairy Science, which concluded that “generic coliform testing cannot be used to assess the safety of natural cheese.”

The Cornell researchers tested a total of 273 cheese samples for the presence of coliforms and for Salmonella, Staphylococcus aureus, STEC, Listeria monocytogenes and other Listeria species. Among all tested cheese samples, 27 percent tested positive for coliforms in concentrations greater than 10 cfu/gram

All cheese samples tested negative for Salmonella, Staph. aureus, and STEC, while Listeria spp. were found in 12 cheese samples, including five samples positive for L. monocytogenes. However, the study said a positive coliform test “provides no additional information about the presence of Listeria spp. in cheese.”

FDA’s use of indicator organisms was roundly criticized last year in comments submitted in response to the agency’s request for more information about the safety of raw milk cheese.

For example, here’s what the Cellars at Jasper Hill said in its comments: “By taking enforcement actions on the basis of positive results for indicator organisms, FDA creates disincentives to test raw materials, in-process production, finished product and food contact surfaces.” Also, “FDA should abandon performance criteria for non-toxigenic E. coli in raw-milk cheese and refocus its efforts on pathogen detection.”

FDA said its reason for testing cheese samples for non-toxigenic E. coli is that bacteria above a certain level could indicate unsanitary conditions in a processing plant. The agency said it will re-evaluate its criteria in the context of the overarching framework for the oversight of food production provided by the FSMA, which requires that food producers identify hazards in their product and operations and put controls in place to prevent or minimize those hazards.

Looking ahead, with the FSMA preventive controls rule now final, FDA said it will be taking another look at what role non-toxigenic E. coli should have in identifying and preventing insanitary conditions and food safety hazards for both domestic and foreign cheese makers. FDA’s own sampling program found no association between the presence of generic E. coli and several pathogens.

Sounds like the agency should make its pause permanent.

‘Volatile’ Is The Name Of The Dairy Trade Game

Over the past 25 years or so, the term “volatile” has been used, or over-used, primarily to describe milk and dairy product prices. Today it can also be used to describe the global dairy trade business.

This point came into focus during a presentation by Al Levitt, vice president of communications and market analysis for the US Dairy Export Council, at the Wisconsin Dairy Products Association’s annual Dairy Symposium in Egg Harbor, WI, this week (for more details, please see the story starting on our front page).

Levitt was blunt in stating that his presentation was not necessarily “upbeat,” which is in sharp contrast to presentations he’s made in previous years, when US dairy exports were posting regular if not spectacular increases. Today the global market is “in the tank,” and there aren’t a lot of positives for US exporters, he pointed out.

At least some of the factors Levitt mentioned as having changed over the last couple of years will be changing again in the not-too-distant (but unpredictable) future. For example, US dairy exports steadily increased when the US dollar was weak, but they’ve been declining now that the dollar has gained strength.

But the dollar won’t remain strong forever, so that’s one factor that worked in the US dairy industry’s favor in the past, isn’t working in the industry’s favor today, but will again work in the industry’s favor sometime in the future.

Also, Levitt noted that the 2003-14 period was characterized by a strong commodity cycle, while there’s been a weak commodity cycle since 2015. Evidence of this point can be seen in a number of ways, including oil and corn prices, both of which reached record highs at some point (or points) over the past decade but, like the global dairy market, are in the tank today.

There are few guarantees in the world today, but here are two of them: oil won’t stay under $50 per barrel forever, and corn won’t stay under $5.00 per bushel forever.

Yet another factor that’s changed just since 2015 is the end of the EU’s milk production quota system. That system had been in place since the mid-1980s, when the US was almost exclusively focused on its domestic market.

Unlike some other changes over the past couple of years, the EU quota system is gone forever. There is some talk of some form of voluntary milk production cutbacks in the EU, due to ongoing and unsustainably low milk prices, but it seems highly unlikely that the EU will bring back any sort of mandatory quota system, let alone one that remains in place for more than three decades.

So what does all of this trade volatility mean for the US dairy industry? Let’s take a look at one specific segment of US dairy trade: cheese.

Back in 2000, the first year in which the Uruguay Round Agreement on Agriculture was fully implemented, US cheese exports totaled 101.1 million pounds, while US cheese imports totaled 415.2 million pounds, for a cheese trade deficit of 310.1 million pounds.

US cheese imports reached an all-time high two years later, at 474.6 million pounds. US cheese exports that year totaled 118.6 million pounds, for a noteworthy cheese trade deficit of 356 million pounds.
The US cheese trade deficit actually grew slightly in 2003, reaching 359.2 million pounds, as cheese imports fell less than a million pounds from 2002 but cheese exports dropped about 4 million pounds.

That year, 2003, was the beginning of a long and steady decline for US cheese imports, which finally bottomed out at 304.8 million pounds in 2010, due at least in part to a weak US dollar.

Meanwhile, US cheese exports bounced around a bit, falling to 127.1 million pounds in 2005, rising to 288.6 million pounds in 2008, falling to 238.5 million pounds in 2009 and then growing phenomenally over the next five years to a record 810.4 million pounds in 2014.

As cheese imports fell and cheese exports rose, the US cheese trade deficit shrank, to 86.2 million pounds in 2008, then rose to 117.7 million pounds in 2009 (the year in which the global financial and economic crisis had its main impacts).

And then it disappeared. In 2010, the US exported 381.3 million pounds of cheese and imported 304.8 million pounds of cheese, for a cheese trade surplus of 76.5 million pounds. By 2014, when US cheese exports reached a record high, the US was running a cheese trade surplus of some 448 million pounds.

But in a world in which nothing lasts forever, US cheese exports started to decline in 2015 and are continuing to decline here in 2016, while cheese imports last year were at their highest level since 2006, and are running ahead of that pace this year.

So is all of this volatility in dairy trade a positive for the US dairy industry? We’re reminded of an observation made years ago by Clayton Yeutter, when he served as US agriculture secretary under President George H.W. Bush. Yeutter stated that volatile prices generally lead to higher overall price levels.

It looks like dairy trade is similar: volatile trade still leads to higher overall exports for the US dairy industry.
Looking at the aforementioned cheese trade balance, cheese exports did in fact drop by more than 110 million pounds from 2014 to 2015 and are on pace to fall maybe another 150 million pounds this year. But the US will still be exporting over half a billion pounds of cheese, something that was unheard of just a decade ago.

International dairy trade is indeed volatile, but it’s still a key source of growth for the US dairy industry.

Butter’s Comeback Continues To Gain Momentum

For several decades now, butter has been associated mainly with two things: good taste and bad health. The latter appears to finally be changing, and that means butter’s future is brighter than it has been for a long, long time.

As reported on page 12 in this week’s issue, a new review and meta-analysis led by researchers from Tufts University suggests relatively small or neutral overall associations of butter with mortality, cardiovascular disease and diabetes.

There are at least three points worth emphasizing here. First, milkfat in general and butter in particular have long been associated with heart disease, but that has been changing, pretty dramatically, in recent years.
We were reminded of this fact when looking back at the early history of the federal government’s Dietary Guidelines for Americans, which are released every five years. The very first edition of the Dietary Guidelines came out in 1980 and included a recommendation to avoid too much fat, saturated fat, and cholesterol, and to do so, consumers were encouraged to limit their intake of butter, cream, hydrogenated margarines, shortenings and coconut oil, and foods made from such products.

How “anti-butter” was the federal government back then? In early 1981, USDA released a publication that included menus and recipes to make use of the new dietary guidelines and, astonishingly, two of those recipes called for margarine, but not a single one called for butter.

Today, as the new review published in PLOS ONE explains, growing uncertainty and changing views on the role of butter in cardiovascular disease have been “prominently discussed, including in the New York Times and Time Magazine.” One review didn’t just question the “alleged relationship” between saturated fat and heart disease or call for dietary guidelines to be reconsidered; it concluded that such advice “should not have been introduced” in the first place.

Second, not only has the heart disease-butter link been largely debunked, some research is also finding that full-fat dairy products may help reduce the risk of type 2 diabetes. Considering the number of Americans who have type 2 diabetes or prediabetes, any link between dietary fat intake and reduced risk of diabetes is a link worth exploring further.

And third, related to that point, we’re hard-pressed to find any recent studies that don’t include among their findings a recommendation for further research.

For example, here’s the view of Tufts University’s Dariush Mozaffarian, senior author of the review published in PLOS ONE: “More research is needed to better understand the observed potential lower risk of diabetes, which has also been suggested in some other studies of dairy fat.”

The changing nature of the butter-health relationship has resulted in a pretty impressive rebound for the US butter business. Among other things, US butter production has now topped 1.8 billion pounds for five consecutive years, which is pretty impressive considering butter output was under 1.2 billion pounds as recently as 1998.

Also, per capita butter consumption in the US in 2014 (the most recent year for which USDA statistics are available) was 5.5 pounds, unchanged from both 2013 and 2012 but up more than a pound since 2002.

Butter also brings to mind a term that it wasn’t associated with very much 20 or 30 years ago: volatility. Back in 1994, the Grade AA butter price on the CME ranged from a low of 65.0 cents per pound to a high of just 75.5 cents per pound.

Last year, the CME butter price ranged from a low of $1.5400 per pound to a high of $3.1350 per pound.
US butter trade has also been pretty volatile in recent years. US butter exports reached 178.4 million pounds in 2013, but fell to 37.3 million pounds last year, and exports through the first five months of 2016 were down 47 percent from the first five months of 2015.

Meanwhile, US butter imports jumped from 11.7 million pounds in 2013 to 42.9 million pounds in 2015, and were running 63 percent ahead of last year’s pace through the first five months of this year.

So against the backdrop of improved publicity and health “positioning” for butter, as well as the current butter market situation, what might butter’s future hold?

For one thing, we expect butter production to increase in the coming years. It’s actually declined slightly for two straight years, after reaching a recent high of 1.863 billion pounds in 2013.

Our guess is that the all-time butter production record of 1.872 billion pounds, set way back in 1941, will fall in the next year or two, and butter output will top 2.0 billion pounds by maybe 2020 or so. And that will mean the US needs to add butter manufacturing capacity in the years ahead.
Also, per capita butter consumption will continue to grow, albeit slowly, because butter prices will probably remain historically high. Butter prices have averaged above $2.00 a pound for two years in a row, and appear poised to do so again this year.

Simply put, no matter how much favorable publicity butter receives, it will be priced too high for some consumers, which will put a crimp in future consumption increases.

Finally, our guess is that US butter imports will continue to rise (because the growing US market is so attractive), while exports will keep falling (because US butter isn’t competitive globally).
Study after study has found that butter not only isn’t a dietary villain, it might actually have health benefits. Coupled with its great taste, butter’s comeback continues to gain momentum.

Pondering The Latest USDA Milk Production Figures

The monthly “Milk Production” report from USDA’s National Ag Statistics Service always contains plenty of interesting data, but the report released by NASS last week, covering May milk production, was especially interesting, for several reasons.

For starters, as we reported on our front page last week, production per cow in the 23 reporting states averaged 2,019 pounds for May. That was the first time ever that production per cow in the 23 reporting states — or for the US as a whole, for that matter — topped 2,000 pounds in a single month.

Milk production per cow (at least on a monthly basis) tends to peak in May, so if the 2,000-pound barrier was going to be broken, it was most likely to occur in May. Indeed, production per cow in the 23 reporting states in May of 2015 had fallen just two pounds short of the 2,000-pound mark.

Breaking the 2,000-pound barrier in monthly output per cow got us wondering: When did monthly output per cow first top 1,000 pounds in a single month?

For this statistical milestone, rather than using figures for the 23 reporting states, we used statistics for the entire US, in part because monthly milk production statistics have been reported for the 23 reporting states just since 2003 (prior to that, it was the 20 reporting states from 1993-2002 and the 21 reporting states from 1986-1992), and in part because, when NASS first started reporting production for the 21 reporting states, production per cow was already well over 1,000 pounds a month (it totaled 1,219 pounds in May of 1986).

According to NASS figures, it was 40 years ago when milk production per cow first topped 1,000 pounds in a single month. In May of 1976, milk production per cow for the entire US totaled 1,007 pounds. So May output per cow has doubled over the past 40 years.

Another interesting statistic in the latest NASS “Milk Production” report concerned milk cow numbers. Specifically, in both the 23 reporting states and for the US as a whole, the number of milk cows in May was exactly the same as it was in both April and in March.

This raises another question: When was the last time US milk cow numbers were unchanged for three consecutive month?

Unfortunately, that question can’t be answered. It may be recalled that, back in 2013 and due to “sequestration” (basically, mandatory budget cuts for most federal agencies), NASS initially decided to stop publishing its monthly “Milk Production” report, then started to provide just partial milk production estimates for roughly the latter half of fiscal 2013. Those estimates included milk production estimates but not dairy cow and milk per cow statistics.

It is worth noting that milk cow numbers were unchanged from January to February of 2013, but increased by 12,000 head by July of that year, when milk cow numbers were again released by NASS. But we’ll never know for sure if milk cow numbers increased, declined or didn’t change in March of that year.

Just as a general observation, looking back over the past decade, it’s not all that unusual for milk cow numbers to be unchanged for two consecutive months; over the past decade, that happened several times, including the aforementioned 2013, as well as in 2014 and 2012, but three straight months with no change in milk cow numbers is, well, it hasn’t happened for a while, if ever.

At the state level, California’s milk production in May posted its 17th consecutive monthly decline, dropping 2.8 percent, or 101 million pounds, from May of 2015. That was the lowest May milk production total for California since 2010. The state’s May milk production had reached a record high of 3.754 billion pounds in 2014, but its May 2016 output was some 201 million pounds lower than that record.

May milk production statistics help illustrate how dramatically things have changed in California in recent years. From 1983 (when its May milk output totaled 1.288 billion pounds) through 2008 (when its May milk production totaled 3.583 billion pounds), California’s May milk production increased every single year.

Since then, the state’s May milk production declined in 2009, 2013, and also in both 2015 and 2016.
It’s interesting to compare California in May of 2008 (the last year of its consecutive, tremendous production increases) and May of this year. Back in May of 2008, California had 1.847 million milk cows, or 75,000 more milk cows than it had in May of 2016.

Also, back in May of 2009, when California posted a 2-percent milk production decline compared to May of 2008, the state’s output per cow, 1,935 pounds, was 102 pounds above the average for the 23 reporting states. This year, California’s output per cow in May, 2,005 pounds, was 14 pounds below the average for the 23 reporting states.

Thus, while production per cow for the 23 reporting states grew by 186 pounds from 2009 to 2016, it only increased by 70 pounds in California.

Meanwhile, 2009 may also be remembered as the year in which Wisconsin finally broke the annual milk production record it had set back in 1988. And just in May of 2009, Wisconsin’s milk production was up 2.5 percent from May of 2008.

So how does Wisconsin in May of 2016 compare with Wisconsin in May of 2009? The state has actually added 23,000 milk cows, and output per cow has increased by 315 pounds.

If nothing else, the latest “Milk Production” report from NASS illustrates just how important this type of monthly data is for the US dairy industry.

Are Stable Retail Prices Helping To Boost Organic Milk Sales?

Fluid milk is a pretty good bargain for US consumers these days, but that’s not necessarily translating into improved sales. On the other hand, organic fluid milk is kind of expensive (at least relatively speaking), but organic milk sales are continuing to increase.

These points raise at least three questions. First, does consumer demand rise and fall when retail prices for conventional milk products fall and rise? Second, do organic milk sales rise no matter what happens with retail prices?

And third, when it comes to consumer demand, is it better to have relatively consistent or slowly rising prices rather than prices that are relatively low from time to time but also relatively high at other times?

Regarding that first question, by pretty much any measure, retail milk prices for fluid milk are a bargain right now. For example, the Bureau of Labor Statistics (BLS) reports CPIs (Consumer Price Indices) for three fluid milk categories: whole milk (where 1982-84=100), milk, and milk other than whole (for the latter two, December 1997=100).

As we reported last week (for more details, please see “CPI For Dairy Products Falls To Lowest Level In Almost Three Years,” on page 1), the CPI for whole milk in May was 200.588, down 0.2 percent from April, down 5.3 percent from May of 2015 and the lowest whole milk CPI since February of 2011 (which was also the last time it was under 200).

And how are sales responding to these low retail whole milk prices? Pretty impressively, as it turns out.
According to figures from USDA’s Agricultural Marketing Service, during the first four months of this year, whole milk sales were up 4.8 percent from the first four months of last year, and flavored whole milk sales were up 7 percent.

On the other hand, May’s CPI for fresh milk other than whole was 142.518, up 0.2 percent from April but down 5.5 percent from May of 2015. Whereas the CPI for milk other than whole was above 150 during each of the first five months of 2015, it’s been under 150 during each of the first five months of 2016, and under 145 in March, April and May.

And how are sales responding to those low prices? Again according to AMS figures, during the first four months of 2016, compared to the same period in 2015, sales of reduced fat (2 percent) milk were down 1.9 percent, sales of lowfat (1 percent) milk were down 3.9 percent, and sales of fat-free (skim) milk were down an eye-opening 10.3 percent.

So the answer to our first question, about whether consumer demand rises and falls as prices fall or rise, is: it depends. Our guess is that whole milk sales are benefitting from some of the ongoing favorable news about the “newly discovered” health benefits of dietary fat, as well as the fact that whole milk simply tastes better than fluid milk products that have had some or (especially) all of their fat removed.

Related to that point, it’s notable that CPIs for the three different fluid milk categories tracked by the BLS were all at or near record highs back in 2014, but whole milk sales actually increased 48 million pounds from 2013 (sales of reduced fat, lowfat and skim milk all declined in 2014).

As far as organic milk is concerned, according to figures collected by federal order market administrators, retail prices for organic milk during the first half of 2016 were running maybe 10 to 20 cents per half-gallon higher than a year earlier, while AMS figures show that organic milk sales during the first four months of this year were 4 percent higher than during the first four months of last year.

Going back to 2013, market administrators’ figures show that retail organic milk prices have risen fairly slowly and without a lot of volatility (for example, in 2015, average retail organic whole milk prices averaged $4.29 per half-gallon for the entire year, with a low of $4.18 per half-gallon in January and a high of $4.34 per half-gallon in July).

The general consensus is that organic fluid milk sales have been rising in recent years, so it could be concluded that organic milk sales do in fact increase no matter what happens with retail prices.

Finally, what about the impact of retail price volatility on fluid milk sales? There are a number of ways to look at this, but we’ll mention just a couple of them.

First, retail milk prices were relatively high back in 2007 and 2008, then fell in 2009 and 2010 before rebounding in 2011 through 2014 and then falling last year. And milk sales fell in 2007 and 2008 before rebounding in 2009 and 2010 and then dropping for the next four years (the total decline from 2010 through 2014 was more than 4 billion pounds).

It could be argued that milk sales fell over the 2010-2014 period because prices were relatively high, or because prices had become relatively high again and consumers started to get tired of the roller-coaster nature of milk prices.

Second, whether deserved or not, organic milk enjoys a “halo” that conventional milk does not. And so sales of organic milk keep rising, even as prices keep climbing, albeit more slowly than conventional milk prices have at times in recent years.

Can any of this information be used to boost conventional milk sales? Unfortunately, under current milk pricing formulas, milk prices are going to continue to fluctuate, at times significantly, and sales are going to respond accordingly.

It’s pretty difficult to see anything positive as far as retail fluid milk prices and sales trends are concerned (whole milk is a notable exception). Milk is a bargain right now, but sales are declining anyway. A year from now, it might not be a bargain anymore, but sales will probably still be falling.


FDA’s Sodium Reduction Targets Should Remain Voluntary

The US Food and Drug Administration recently released draft guidance that provides voluntary sodium reduction targets for a variety of cheese, butter and other food products.

The key word in this guidance is “voluntary”; these sodium reduction targets should remain voluntary, and FDA should never make them mandatory.

FDA’s draft guidance actually includes two targets for sodium reduction: short-term (two-year) targets, and long-term (10-year) targets. The long-term goal is to cut sodium intake to 2,300 milligrams per day, which is what’s recommended in the latest edition of the federal government’s Dietary Guidelines for Americans.

Average sodium intake in the US is currently around 3,400 milligrams per day, so FDA is aiming, over the next decade, to cut about 1,100 milligrams per day out of the American diet. And since about 75 percent of total sodium intake comes from processed and commercially prepared (e.g., restaurant) foods, FDA is aiming to get food companies to reduce the amount of sodium they use in their products.

Sodium reduction has been a goal of at least one organization for close to four decades now. Way back in 1978, the Center for Science in the Public Interest submitted two petitions to FDA relating to salt. The petitions asked FDA to set tolerances for sodium in processed foods, to reclassify salt from GRAS (generally recognized as safe) to food additive status, and to require sodium labeling of processed foods.
FDA denied both petitions in 1982, but CSPI was just getting warmed up. The organization sued FDA in 1983, seeking to force the agency to complete its safety review of sodium, to regulate the quantity of salt added to processed foods, and to require sodium content labeling on processed foods.

CSPI lost that case because the court found that FDA was “continuing to work on this issue.” More than three decades and at least one additional CSPI lawsuit later, FDA is continuing to work on this issue.
FDA’s sodium reduction targets offer both some good news and some bad news for both industry and consumers. The good news is that, by calling attention to sodium, FDA is prompting manufacturers to re-examine their sodium use, and the sodium content of their products.

Sodium is obviously an important ingredient in cheesemaking. As Cary Frye, vice president of regulatory and scientific affairs at the International Dairy Foods Association, puts it, “Salt is a critical component of the cheesemaking process as it controls moisture, texture, taste, functionality and food safety.”

But one thing that’s been discovered in recent years is that the salt content of cheese can vary quite a bit, from cheese variety to cheese variety, and even between cheese vats made by the same company. Indeed, several years ago, the Journal of Dairy Science published a study entitled “Sodium content in retail Cheddar, Mozzarella, and process cheeses varies considerably in the United States.”

What that study found was, among other things, that across Cheddar cheese forms and brands, the mean analytical sodium was 615 milligrams per 100 grams, while analytical sodium ranged from 250 to 982 milligrams per 100 grams; and across all low moisture part skim Mozzarella forms and brands, the mean analytical sodium was 666 milligrams per 100 grams, while sodium in samples ranged from 350 to 1,010 milligrams per 100 grams.

The point here is, all of this focus on sodium reduction might not end up reducing the sodium content of cheese products very much (at least compared to the mean) but it might result in more consistent sodium content than is the case right now. And that’s beneficial both to the industry and to consumers.

The bad news in all of this is that it appears that the long-running “war on salt” is a fraud. That is, salt doesn’t appear to be nearly the dietary villain it’s been made out to be for all these years.

Indeed, the conventional wisdom on sodium reduction has been seriously challenged in recent years. Here’s how writer Gary Taubes put it in a lengthy article in Science back in 1998: “While the government has been denouncing salt as a health hazard for decades, no amount of scientific effort has been able to dispense with the suspicions that it is not. Indeed, the controversy over the benefits, if any, of salt reduction now constitutes one of the longest running, most vitriolic, and surreal disputes in all of medicine.”

Four years ago, Taubes revisited the salt controversy in an article he wrote for the New York Times, and noted that, while back in 1998 “the evidence merely failed to demonstrate that salt was harmful, the evidence from studies published over the past two years actually suggests that restricting how much salt we eat can increase our likelihood of dying prematurely.”

Even more recently, a study published two years ago in the New England Journal of Medicine concluded that an estimated sodium intake between three grams per day and six grams per day (higher than what the US government currently recommends) “was associated with a lower risk of death and cardiovascular events than was either a higher or lower estimated level of intake.”

And that’s really why FDA needs to keep these sodium reduction targets voluntary. Our guess is that, as more research emerges, US sodium intake will end up being right about where it should be.
FDA is accepting comments on its sodium guidance until August 31, 2016 (for the short-term goals). The Docket No. is FDA-2014-D-0055.


New Products Bode Well For Industry’s Future

What’s new in the cheese and dairy industry? Quite a bit, it turns out, and that’s as good a sign as any that the industry’s future will be bright.

Walking the many aisles at this week’s IDDBA show and seminar in Houston, TX, as well as spending some time in the New Product Showcase, we were impressed, if not a bit overwhelmed, by the sheer number of new or recently introduced cheese products targeting various consumer segments.

New products being sampled at the IDDBA fell into a number of different categories. Arguably the leading category for new product introductions was the convenience category.

Indeed, we had to chuckle while listening to IDDBA chairman John Cheesman, of Clyde’s Donuts, discussing the IDDBA’s humble beginnings back in the mid-1960s as the Wisconsin Cheese Seminar.
Times have certainly changed in the 50-plus years since that first seminar was held in Milwaukee, WI.

Back then, if consumers wanted to snack on cheese, they pulled out a chunk of cheese from their refrigerator and cut off a piece or two. Pretty simple, really, but today’s snacking consumer has an almost endless array of convenient options that don’t require a cheese slicer or a knife.

For that matter, they don’t even need a refrigerator for their cheese any more. Several companies exhibiting at the IDDBA show this week were introducing (or have recently introduced) dried cheese products.
Probably the best-known of these is the award-winning Cello Whisps, from Arthur Schuman Inc., which is made from the company’s Copper Kettle Parmesan.

This is another sign of how much things have changed since the IDDBA’s beginnings. Half a century ago, if you wanted dry cheese, you left it out on the kitchen counter, unwrapped, until it dried out.

It’s also interesting to see how just the nature of “convenience” has changed in recent years. A decade or so ago, convenience seemed to primarily mean shredded or sliced cheese, available in numerous varieties but limited by the types of cheese that could be shredded or sliced by high-speed equipment.

Today, convenience is limited only by the imagination. Sticks of cheese? Those are available in varieties ranging from String cheese (and flavored versions of String) to Cheddar (and, again, flavored versions of Cheddar). Or if you’re not into sticks, there are endless varieties of other individually wrapped cheeses in shapes such as rectangular mini-blocks, or mini-wheels.

Speaking of flavors, the cheese industry is coming up with new flavor varieties that were unimaginable 50 years ago — or even 30 or 40 years ago, for that matter. And there are a couple of areas where flavors are really taking off.

The first is in “hot” products. A couple of decades ago, “hot” meant jalapeno peppers, and maybe chili peppers, and that was about it. Then habaneros came along to raise the heat level.

But apparently that’s no longer enough. Ghost peppers and various other very hot peppers intended to kick up the heat are being added, very carefully, to cheeses these days, and consumers can’t seem to get enough of them.

And some cheese companies are going a step further by pairing hot and sweet flavors, such as mango and habanero, in the same product.

Here in the 21st century, this is another area of expertise that’s almost a requirement for cheese makers: familiarity with the Scoville scale, which measures the level of heat in peppers.

Another interesting area for flavored cheeses is in flavors that weren’t around, at least not to any great extent (and at least not in the US), a decade or two ago. Garlic and herbs, dill, caraway and a few others have been around forever (or so it seems), but fenugreek? Sriracha? Truffles?

New products hitting the market these days are certainly not just limited to domestic products. Imports are also getting in on the act. This is noteworthy if for no other reason than because US cheese imports last year were above 400 million pounds for the first time since 2007, and through the first four months of this year, they’re up 25 percent from the same period last year.

Cheese imports fall into several categories, including commodity cheeses, but lately imports have been moving into areas largely occupied by domestic cheeses, such as individually wrapped products, and flavored cheeses.

Obviously a major target of all these new products is Millennials, a nice little “niche” market of consumers who were ages 18 to 34 last year. That’s more than 75 million consumers, slightly more than there are Baby Boomers.

Being quite a bit younger than Boomers, Millennials will tend to eat more. And they will also tend to be more adventurous in their tastes, hence the interest in hotter flavors in cheese, as well as in flavors that weren’t common, or even available, a couple of decades ago.

That’s not to say that Baby Boomers are suddenly an insignificant market. After all, they remain a “niche” of roughly 75 million consumers, and as they get older, their taste buds aren’t quite as sharp, meaning they too have a greater interest in stronger-flavored cheese, whether that strong flavor comes from peppers or any number of other ingredients.

Industry representatives who attended the very first Wisconsin Cheese Seminar more than half a century ago probably wouldn’t recognize many if not most of the cheese products on display this week. The way new products are being rolled out, we’ll be able to say the same thing in perhaps another 20 or 30 years.

Nutrition Facts Update: FDA Gets More Wrong Than Right

The US Food and Drug Administration two weeks ago released its final rule updating the “Nutrition Facts” label that appears on most packaged foods (for more details, please see the lead story in our May 20th issue), and we’ve reached the conclusion that there’s more to dislike than to like with this update.

What’s to like with the new Nutrition Facts label? From a dairy industry perspective, arguably the most favorable change is that FDA got rid of the requirement to list “Calories from Fat” next to the calorie content of food products.

“Calories from Fat” was always a useless piece of information, but it was blatantly biased against several categories of products, including dairy products that weren’t fat-free or lowfat, as well as foods that have recently taken on a much more positive “glow” in the nutrition world, such as nuts and avocados.

Once the new Nutrition Facts labels are in place, consumers will see “Calories” in larger typeface, and no mention whatsoever of “Calories from Fat.” Good riddance.

Among the many negatives in FDA’s Nutrition Facts update is that the agency will continue to require the listing of “Cholesterol” on the label — and in boldface, no less.

FDA will continue to require the listing of cholesterol content (as well as the percent Daily Value for cholesterol) despite the Scientific Report of the 2015 Dietary Guidelines Advisory Committee (DGAC) concluding that “available evidence shows no appreciable relationship between consumption of dietary cholesterol and serum cholesterol,” and that cholesterol “is not a nutrient of concern for overconsumption.”

And, as FDA itself noted in the Nutrition Facts update final rule, the 2015-2020 Dietary Guidelines for Americans stated that, while adequate evidence “is not available for a quantitative limit for dietary cholesterol specific to the Dietary Guidelines, individuals should eat as little dietary cholesterol as possible...”

FDA received quite a few comments about the continued mandatory declaration of cholesterol on the Nutrition Facts label, and it doesn’t appear that all that many of these comments were in support of that idea. FDA responded to a number of these comments, and the agency’s final rule starts off many of these responses with something like: “Some comments opposed mandatory declaration of cholesterol because...”

Of course, the agency downplayed these comments, but it also had one overriding reason for continuing to require cholesterol content to be listed on the Nutrition Facts label: it’s required under Section 403(q)(1)(D) of the Food, Drug & Cosmetic Act. So maybe it’s time to change that law.

Another negative aspect to the Nutrition Facts update is that it continues the failed emphasis on nutrients to avoid. That is, in the upper part of the label, you’ll find calories, followed by total fat, saturated fat, trans fat, cholesterol, sodium, total carbohydrate, dietary fiber, total sugars, added sugars (which is new) and protein.

Of those, dietary fiber and protein are the only nutrients that consumers are supposed to be seeking out.
Everything else, from calories and fat to sodium and sugar, are nutrients that consumers have been told, for decades now, to avoid, or at least minimize.

Meanwhile, at the bottom of the new Nutrition Facts label, FDA will require the listing of four nutrients that are “of public health significance,” namely vitamin D, calcium, iron and potassium. Certainly the addition of potassium to this list is good news for dairy products, since they are among the best sources of potassium.

But we can’t help but wonder why FDA continues to put nutrients to avoid at the top of the Nutrition Facts label, with many of these nutrients in boldface, and puts nutrients of public health significance at the bottom, and in normal typeface.

After all, the agency has been taking this approach for over two decades, ever since the Nutrition Facts label became mandatory on most packaged foods. And how has that worked out for consumers? By most health-related measures (obesity and type 2 diabetes, to mention just a couple of these measures), not all that well.

This is a labeling approach that makes bottled water (and its zero calories, zero fat, zero cholesterol, zero sodium and no sugar) look good, while nutrient-dense foods like dairy products, which also happen to contain saturated fat as well as actual flavor, look bad.

Yet another problem with FDA’s Nutrition Facts update is that it represents another admission by the federal government that its previous viewpoint was incorrect. Specifically, for more than 20 years, FDA has required “Calories from Fat” to be listed on the Nutrition Facts label, right near the top.

Now, the agency explains that it is removing the “Calories from Fat” declaration “because current science supports a view that the type of fat is more relevant than overall total fat intake in increased risk of chronic diseases.” And in 20 years FDA will probably drop the requirement to list saturated fat content because “current science” will have found that at least some saturated fats are good for you.

Finally, this is going to be a costly final rule for the food industry. FDA estimates that the costs could range from more than $2 billion to over $8 billion.

Those costs pale in comparison to FDA’s estimated benefits, but frankly, after seeing the impact of FDA’s first edition of the Nutrition Facts panel, we’re not sure there are any actual benefits, let alone benefits in the billions of dollars.

FDA’s Nutrition Facts update basically builds on a failed first attempt and will do more harm than good for both industry and consumers. DG

20 Years Of Hispanic Cheese Production Growth

About 20 years ago, USDA’s National Ag Statistics Service decided to start tracking US production of Hispanic cheeses. Thanks to that decision, we now have 20 years of Hispanic cheese production statistics.
And what do those statistics show? Growth, growth and more growth.

Back in 1996, US production of Hispanic cheese totaled 67.4 million pounds. That was the total output of 28 US plants that produced Hispanic cheeses back then.

Last year, Hispanic cheese production totaled a record 254.3 million pounds, almost four times the level back in 1996. It’s also notable that Hispanic cheese production grew by about 187 million pounds over the 1996-2015 period, and it now exceeds the production of several other cheeses broken out by NASS, including Blue and Gorgonzola (94.5 million pounds in 2015), Feta (112.5 million pounds in 2015), Gouda (58.3 million pounds in 2015), Muenster (177.2 million pounds in 2015), Brick (3.4 million pounds in 2015), Ricotta (243.3 million pounds in 2015), and Romano (55 million pounds in 2015).

Hispanic cheese production now also exceeds the production of “all other types” of cheese (166.2 million pounds), which included Hispanic cheeses up until 1996. For what it’s worth, production of “all other types” of cheese back in 1995, the last time the category included Hispanic cheeses, was about 165 million pounds.

The NASS statistics show pretty impressive growth for Hispanic cheese production over the past two decades. Indeed, Hispanic cheese production declined exactly once in the two decades that NASS has been tracking its production; that was in 2012, when production of 223.9 million pounds was down about half a million pounds from 2011.

Other than that exception, Hispanic cheese production has grown every year, sometimes by fairly small amounts (for example, 2008 production was about 3.7 million pounds higher than in 2007), and sometimes by pretty impressive amounts (for example, production in 2013 was more than 17 million pounds higher than in 2012).

There’s one more set of statistics that helps illustrate the growth of Hispanic cheese production over the years. The state of Wisconsin actually started tracking Hispanic cheese production back in 1993 (when it started tracking specialty cheese production).

Back in 1993, Wisconsin’s production of Queso Blanco and other Hispanic cheeses (that’s how the category was described back then) totaled 9 million pounds, and there were five plants producing those cheeses.

Last year, Wisconsin’s Hispanic cheese production totaled 77.2 million pounds, and there were 13 plants producing those cheeses in the state. That’s pretty impressive, but it should be remembered that Wisconsin today accounts for less than a third of US Hispanic cheese production.

The impressive production growth of Hispanic cheeses over the past 20 years has obviously drawn considerable attention in the cheese industry (and in the food industry, for that matter). That point is reflected by the fact that the number of plants producing Hispanic cheese in the US has grown from 28 back in 1996 to 63 last year. And last year’s figure was actually down three plants from the peak of 66 plants, in 2011.

Again to put this in perspective, in 2015 there were 45 US plants producing Blue and Gorgonzola, 41 producing Muenster, 21 producing Brick, 46 making Feta, and 61 producing Swiss, just to mention several other cheese categories (most of which have existed for decades longer than the Hispanic cheese category).

That’s a brief review of the 20-year growth pattern for Hispanic cheeses in the US, but it begs the question: What does the future hold for the production and consumption of these cheeses?

To begin answering that question, we thought we’d look at another dairy product that’s relatively “young” in the statistical sense: yogurt.

NASS first started reporting US yogurt production back in 1989, and output has grown from 912.4 million pounds that year to 4.7 billion pounds in 2015. Over that period, yogurt production has declined just three times: in 1996, 1997 and then last year.

Our expectation is that Hispanic cheese production will follow a similar pattern, and grow steadily (if not spectacularly, as yogurt has since the turn of the century) in the future.

There are a couple of other indications that Hispanic cheese production and consumption will continue to grow in the future. For one thing, Mexican and related foods (such as Tex-Mex and southwestern) is one of the most popular ethnic cuisines in the US. A recent National Restaurant Association report found that Italian, Mexican and Chinese are the top three cuisines in terms of familiarity, trial and frequency of eating, and that Chinese is by far the most common cuisine for restaurant takeout and delivery, followed by Mexican and Italian.

Second, the US Hispanic population is large, growing, and young. According to the Pew Research Center, there were 55.3 million Hispanics in the US in 2014, comprising 17.3 percent of the total US population.
Hispanics are also the youngest major racial or ethnic group in the US; about one-third of the US Hispanic population is under the age of 18.

Oh, and the Hispanic population is projected to grow by about 10 million people per decade over the next 50 years.

Recent history, as well as current culinary and population trends, point to continued growth in Hispanic cheese production and consumption in the years ahead.

Geography Of US Milk Production: The More Things Change...

Analyzing the statistics we used for last week’s front-page story on US milk production shares by region and by state, we were surprised by how much some things have changed over the years, and also by how much some things haven’t changed all that much.

It turns out that this is yet another area where statistics can be cherry-picked to tell almost any story, including some stories that might be somewhat surprising.

For example, we were surprised to see that California’s share of US milk production last year, 19.6 percent, wasn’t all that different than it was in 2000, when it was 19.26 percent. After all, California’s milk production grew by about 9 billion pounds during that period.

In fact, California’s share of US milk output did grow after 2000, topping 20 percent in 2001 and eventually reaching 21.91 percent in 2007, when the state’s production first topped 40 billion pounds.

But two things have happened since then. First, California’s milk production didn’t really grow; it totaled 40.683 billion pounds in 2007 and was just 215 million pounds higher than that last year. And second, US milk production grew by about 23 billion pounds, from 185.7 billion pounds in 2007 to 208.6 billion pounds in 2015.

We were also surprised to see that Wisconsin’s share of US milk production last year, 13.91 percent, was also almost exactly the same as it was back in 2000, when it was 13.88 percent.

Interestingly, Wisconsin’s milk production has followed a very different pattern since the turn of the century. While California’s output grew by more than 5 billion pounds from 2000 to 2005, Wisconsin’s production actually declined by almost 400 million pounds.

Since then, California’s milk production has had its ups and downs — including declines in 2009, 2013 and 2015 — while Wisconsin’s output has moved in just one direction: up. The state’s milk production grew by about 6.2 billion pounds from 2005 to 2015, which brought its share of US milk production back up to what it was in 2000 (it actually fell below 13 percent for several years).

That’s what’s happened with the nation’s two biggest milk-producing states since the turn of the century, but what happens when you look back a bit further? Half a century ago (in 1965, to be exact), when US milk production totaled about 124.2 billion pounds, Wisconsin’s share of US milk output was 15.2 percent, while California’s share was 8.9 percent.

Thus, over the past half-century, Wisconsin’s share of US milk production hasn’t really changed all that much — declining from 15.2 percent to 13.9 percent — while California’s share has more than doubled, from 8.9 percent to 19.6 percent.

Speaking of half a century ago, it’s amazing to see how much has changed as far as regional milk production shares are concerned, and also how much more concentrated milk production has become in recent years.

Back in 1965, three regions each accounted for more than 10 percent of US milk production: the Lakes States region accounted for 28.3 percent, while the Northeast region accounted for 20.7 percent and the Corn Belt accounted for 17.1 percent.

Last year, four regions each accounted for more than 10 percent of US milk production: the Pacific region, at 24.01 percent; the Lakes States region, at 23.37 percent; the Mountain States region, at 16.2 percent; and the Northeast region, at 14.52 percent.

From those figures, we can reach at least two conclusions: the Northeast, Lake States and Corn Belt regions have all seen their share of US milk production decline over the past half-century; and the Pacific and Mountain States regions have both seen their shares increase during the same period.

More broadly, over the past 50 years, seven of the 10 milk-production regions broken out by USDA’s Economic Research Service have seen their share of US milk production decline, while just three have seen their share increase.

A closer look at the top 10 milk-producing states in 1965 and in 2015 helps illustrate this trend. Back in 1965, of those top 10 states, three were located in the Lake States region (Wisconsin, Minnesota and Michigan), two were located in the Northeast (New York and Pennsylvania), four were located in the Corn Belt (Iowa, Ohio, Illinois and Missouri), and one was located in the Pacific (California).

In 2015, of the top 10 milk-producing states, three are still located in the Lakes States region, two are still located in the Northeast, two are located in the Pacific (California and Washington), two are located in the Mountain region (Idaho and New Mexico), and one is located in the Southern Plains region (Texas). None of the four Corn Belt states that ranked in the top 10 in milk production back in 1965 is still in the top 10 today.

As far as the concentration of US milk production is concerned, it’s notable that, in 1965, each of the 10 regions accounted for at least 2 percent of US milk production, and just one region accounted for less than 3 percent.

Last year, one region accounted for just 0.21 percent of US milk production. That was the Delta States region. Two other regions, the Southeast and Appalachian each accounted for under 2.5 percent of milk production last year.

Finally, the top five dairy states 50 years ago accounted for 45.3 percent of US milk production. Last year, the top five dairy states accounted for 52.2 percent of US milk production.

And the bottom 10 states 50 years ago accounted for 1.85 percent of US milk output, but last year accounted for just 0.4 percent of total output, an indication that US production is becoming more concentrated in fewer states.

USDA’s Rules Of Practice For Federal Orders Aren’t Working

The 2008 farm bill included a section that required the US Department of Agriculture to establish supplemental rules of practice for amending federal milk marketing orders. Basically, these rules were intended to speed up the federal order amendment process.

USDA’s Agricultural Marketing Service published a final rule establishing these supplemental rules of practice back in August of 2008. Almost eight years later, we can conclude that these supplemental rules of practice aren’t working as intended.

Those supplemental rules of practice, among other things, specify timeframes for actions taken after the receipt of a proposal for amending federal orders. Within 30 days of the receipt of a proposal to amend a provision of a federal order, USDA must: issue a notice providing an action plan and expected timeframes for the different steps in the formal rulemaking process for completion of the hearing not more than 120 days after the date of the issuance of the notice; request additional information from the entity submitting the proposal to be used in deciding whether a hearing will be held; or deny the request.

Why are these new rules of practice not working? Back on September 29, 2015, AMS received a proposal from the Organic Trade Association, requesting that USDA call a hearing to consider a proposal that, if adopted, would provide organic milk handlers who make an annual election with an alternative mechanism, based upon the historical “Wichita Option,” for meeting their producer-settlement fund obligations.

AMS responded as it was supposed to under the supplemental rules of practice; 30 days after receiving the OTA’s proposal, it requested additional information from the OTA on several issues.

The OTA responded approximately 30 days later, answering some of AMS’s questions but also noting that “some of your requests fall into the category of information or ‘evidence’ that,” in OTA attorney Chip English’s more than 30 years of experience with federal orders, “would be provided only during a hearing, if one is noticed.”

AMS again responded to the OTA, on December 30, 2015, stating that the response USDA received from OTA on November 30 “was incomplete, and although OTA noted the reasons for its inability to comply fully with the request, USDA must make a thorough examination and is therefore continuing to review and gather information to properly consider the efficacy of the OTA proposal.”

In addition to receiving correspondence from the OTA, AMS has also received some opposition to the hearing request. National Milk Producers Federation, in an October 22, 2015, letter, told Ag Secretary Tom Vilsack that it “strongly opposes” the OTA’s petition for a hearing.

Less than a month later, the Pennsylvania Association of Milk Dealers and the Northeast Dairy Foods Association urged USDA to deny the OTA hearing request. And in mid-December, NMPF reiterated its opposition to the OTA’s petition.

Since the beginning of this year, several dairy cooperatives have also voiced their opposition to the OTA’s proposal. Specifically, Dairy Farmers of America, Agri-Mark, Land O’Lakes, Prairie Farms Dairy, Michigan Milk Producers Association and Upstate Niagara Cooperative have all asked USDA to deny the OTA’s request for a hearing (for what it’s worth, all six co-ops are NMPF members).

Also since the beginning of the year, USDA has, well, USDA hasn’t really done a thing. As noted earlier, just as 2015 was ending, USDA informed Chip English, the OTA’s attorney on this matter, that the OTA’s response to USDA’s initial request for additional information was “incomplete,” and that the agency was therefore continuing to review it.

Since then, AMS has sent four letters to English, each informing him that USDA is continuing to review the concerns raised and the information provided in the OTA’s proposal, as well as gather additional information to evaluate the OTA’s request. Those letters were dated January 28, February 29, April 1 and April 29.

In each of those letters, USDA has also asked the OTA to submit any additional information it may have, so USDA can include that material in its review. Given the OTA’s initial response to USDA’s request for further information, it seems pretty certain that the OTA isn’t going to be submitting any additional information.

Meanwhile, USDA continues with what appears to be stalling tactics. And it also appears that the agency is not following the intent, and certainly not the spirit, of the supplemental rules of practice it adopted back in 2008 to speed up the federal order amendment process.

Under those rules, USDA has three options after receiving a proposal to amend federal orders: issue a notice providing an action plan and expected timeframes for the different steps in the formal rulemaking process; request additional information; or deny the request.

USDA obviously hasn’t issued a notice providing an action plan and expected timeframes, nor has it denied the OTA’s request. Rather, the agency requested additional information from the OTA, and received that information more than five months ago.

USDA’s federal order amendment process remains a model of inefficiency, even with the supplemental rules of practice adopted back in 2008. It’s now been more than seven months since the agency received the OTA’s petition, and essentially nothing has happened.

It’s time for the agency, in the spirit of its supplemental rules of practice, to do something other than just avoid making a decision.

Consequences Of Some Laws Are Felt For Many Years

Laws have consequences. Sometimes these consequences are known pretty quickly, such as in the case of a new farm bill, and sometimes it takes years before the consequences of some laws are fully understood.

We are reminded of this point from time to time in the heavily regulated dairy industry. And we’re not even going to mention (except for right now) the Food Safety Modernization Act, the implementation of which has dragged on through proposed rules, supplemental proposed rules, extended comment periods, at least one lawsuit, final rules, meetings, webinars, staggered compliance dates and more.

Two recent examples have helped to make this point, and also to illustrate just how long the regulatory process can drag on after legislation is passed by Congress and signed into law by the President.

Back in 2010, Congress passed the highly controversial Patient Protection and Affordable Care Act, more commonly known just as the Affordable Care Act or Obamacare. Buried in that law (which has a total of 10 titles, or two less than the 2014 farm bill), in Section 4205 (Title IV is “Prevention of Chronic Diseases and Improving Public Health”) is a requirement for nutrition labeling of standard menu items at chain restaurants.

President Obama signed the Affordable Care Act into law back on March 23, 2010, and last Friday, more than six years after the ACA became law, the US Food and Drug Administration issued final guidance on the menu labeling section of the ACA.

The menu labeling regulation has had a rather lengthy history. FDA initially published a proposed rule on menu labeling back in April of 2011. More than three and one-half years later, on December 1, 2014, the agency published a final menu labeling rule.

FDA received about 900 comments on its proposed menu labeling rule. The final rule includes the agency’s responses to many of these comments.

A couple of numbers can help put the complexity of this process into perspective. First, FDA’s proposed menu labeling rule ran a total of 46 pages in the Federal Register; the final rule more than doubled that, running 105 pages.

Second, the main reason the final rule ran so long was because FDA responded to numerous comments in that final rule. Specifically, FDA’s final rule included the agency’s responses to a total of 155 comments that were submitted in response to the proposed rule.

But that wasn’t the end of it. FDA last Friday published its final industry menu labeling guidance; the draft guidance had been released last September. That final guidance runs some 58 pages.

The agency said it will begin enforcing the menu labeling rule one year after a “Notice of Availability” for the final guidance is published. That’s some seven years and a few weeks after Obama signed the ACA into law.

Also back in 2010, Congress passed something called the Healthy, Hunger-Free Kids Act of 2010. That law was (at least compared to the ACA) relatively short; it only had four titles, and ran all of 84 pages in its final form.

But the dairy industry is still dealing with regulations stemming from the HHFKA. Just last week (as reported on our front page last week), USDA’s Food and Nutrition Service published a final rule that updates the meal pattern requirements for the Child and Adult Care Food Program, as required by the HHFKA.

USDA had published a proposed rule on the CACFP back in January of 2015. The agency received a whopping total of 7,755 comments on that proposal, of which 6,508 were copies of form letters related to 32 different mass mail campaigns. Those comments aside, USDA received over 1,200 unique submissions.

And the final rule included USDA’s response to a number of those comments. Indeed, USDA’s final rule runs some 37 pages in the Federal Register, and over a dozen of those pages are devoted to comments on various aspects of the proposed rule, and USDA’s response to those comments. And none of USDA’s proposals were without controversy (as least as indicated by comments).

For example, USDA’s proposal would have eliminated the option to serve cheese, cottage cheese, or cheese food or spread to infants and would have continued to prohibit serving yogurt to infants. Several entities expressed support for this proposal, but a larger portion of commenters voiced opposition to restricting cow’s milk products for older infants.

USDA’s final rule modified the proposed rule to allow cheese, cottage cheese, and yogurt as allowable meat alternates for infants six through 11 months of age, but the final rule still does not allow the service of cheese foods or cheese spreads under the infant meal pattern.

The HHFKA is further complicated because it requires USDA to update the meal pattern requirements for the CACFP to better align them with the Dietary Guidelines for Americans. The HHFKA was signed into law back in 2010. The 2010 update to the Dietary Guidelines for Americans wasn’t released until January of 2011, and then the 2015 update was released in early January of this year.

Laws like the ACA and the HHFKA require federal agencies to promulgate numerous regulations that have various impacts on the dairy and food industries. And laws sometimes obligate the agencies to use other government edicts in their regulations.

Bottom line: what happens in Washington these days can and will have a future impact on dairy businesses. Watch Congress now and find out what to beware of in, say, the year 2022.

A Hot Summer Could Definitely Heat Up Dairy Prices

One of the more thought-provoking speakers at the annual ADPI/ABI convention in Chicago in recent years hasn’t actually been from the dairy industry. Jon Davis of Riskpulse (not to be confused with the Jon Davis of Davisco, a business unit of Agropur), is a meteorologist by trade, and his talks at the ADPI/ABI meeting are fascinating and obviously a bit different than most other dairy meeting presentations, to say the least.

During his ADPI/ABI presentation on Monday, Davis offered one key takeaway (that was his description): that there’s a “significant” risk of a hot summer in the Lower 48 states this year.

What will that mean for the dairy industry? As Davis pointed out, much of the US dairy industry had an ideal summer last year; weather in the central and eastern parts of the US were very favorable for both animals and for crops.

So what happened? Among some of the leading milk-producing states in those two regions last year, compared to 2014, Wisconsin’s milk production was up 4.4 percent, Michigan’s output was up 6.7 percent, Minnesota’s production was up 3.7 percent, New York’s output was up 2.7 percent, and Pennsylvania’s production was up 1.3 percent.

In short, ideal summer weather meant ideal weather for producing milk. And the only two states among the top 10 milk-producing states to post milk production declines last year, California and New Mexico, are located in the Southwest US.

But Davis said we’re probably heading into a La Nina this year, which raises the risk for a hot summer in the central and eastern regions of the US. And that, we think, could mean higher dairy prices, perhaps much higher prices, before the year is over.

To try to put this into perspective, we went back to 2011, which we seem to recall was a pretty hot summer in the Midwest and elsewhere. Indeed, here’s how USDA’s Dairy Market News began its summary of the fluid milk situation in its report for the week of July 25-29, 2011: “Heat and humidity are the buzzwords across most of the United States this week. High temperatures have stressed cows and production declines of 10% and up are common.”

Oh, and California and the Pacific Northwest were the exception from the hot weather and milk production declines in 2011.

About three weeks later, USDA’s National Ag Statistics Service released its “Milk Production” report for July, and the impact of the hot and humid weather was very clear in some key dairy states, particularly in the Upper Midwest.

Specifically, compared with July of 2010, milk production in July of 2011 looked like this: Wisconsin’s output was down 3.5 percent, with production per cow down 65 pounds (the state actually had 1,000 more milk cows); Minnesota’s output was down 6.6 percent, with production per cow down 115 pounds (Minnesota also had 1,000 more milk cows); and Michigan’s production was down 1.5 percent, with production per cow down 75 pounds (the state had 8,000 more milk cows).

Milk production for the 23 reporting states back in July of 2011 was up 0.8 percent from July of 2010, thanks in large part to some impressive gains in the states not impacted by the heat and humidity. Specifically, compared with July of 2010, California’s July 2011 milk production was up 4.4 percent, Idaho’s output was up 4.8 percent, New Mexico’s production was up 2.4 percent, and Washington’s output was up 6.6 percent.
All four states had both more milk cows and higher output per cow than a year earlier.
And what was the impact of those Upper Midwest milk production declines back in the summer of 2011?

Well, at the beginning of May that year, CME cash market prices for both 40-pound Cheddar blocks and 500-pound barrels were in the mid-$1.60s; specifically, blocks during the first week of May averaged $1.6390 per pound, while barrels averaged $1.6375 per pound.

By the first week of August, the weekly block price average was over $2.14 per pound, while the weekly barrel price average was over $2.13 per pound.

That brings us to 2016, and the potential for hot weather once again for the central and eastern portions of the US. And that’s kind of an eye-opening possibility, for at least one key reason.

As noted earlier, much of the US got hit by hot and humid weather back in the summer of 2011, and had the milk production declines to show for it. But for the US as a whole, milk production was still up, thanks primarily to the key western dairy states.

But at least one of those key western dairy states has been struggling lately. Indeed, the most important US dairy state — California, which produces around 20 percent of all the milk in the US — has posted 15 consecutive monthly milk production declines dating back to the beginning of 2015, and just last month reported a drop of 2.4 percent compared to March of 2015, due both to fewer milk cows and less milk per cow.

Certainly the prospect of lower milk production in the central and eastern regions of the US, along with California’s continuing declines, could have an impact on cheese and other dairy product and milk prices before 2016 is over.

It’s worth noting that cheese prices haven’t been above $2.00 per pound since November of 2014. Also, current settling prices for cheese futures at the CME are under $1.70 per pound for at least another year.

Hot and humid weather in key dairy regions in the US this summer could be one of the biggest things to hit the dairy industry since, well, since hot and humid weather hit key dairy regions in the US back in 2011.

Is California The New Wisconsin?

David Ahlem, president and CEO of Hilmar Cheese Company, made some mighty interesting observations about California’s dairy industry during his opening address at the International Cheese Technology Expo in Milwaukee, WI, last week (for more details, please see the lead story in last week’s issue).

“California still is going to be a large milk producer going forward but the days of significant growth are over,” Ahlem remarked.

While looking over some statistics to put Ahlem’s comments in perspective, something struck us as vaguely familiar. California’s milk production reached 40.7 billion pounds back in 2007, eventually rose to a record high of 42.3 billion pounds in 2014, but fell to 40.9 billion pounds last year, its lowest level since 2010 and just slightly above 2007.

This pattern, or something like it, has indeed been seen before in the dairy industry. It was Wisconsin’s experience for more than two decades.

It should be noted that Wisconsin’s milk production expansion was largely a case of “slow and not all that steady” for several decades. The state’s milk output first topped 15 billion pounds back in 1947, then finally reached 20 billion pounds in 1976, or almost 30 years later. During that period, the state’s milk production actually declined roughly 10 times.

The next 5 billion pounds of milk production came a lot faster for Wisconsin; the state’s milk output reached 25 billion pounds in 1988, or just 12 years after it first reached 20 billion pounds.

And over that period, Wisconsin’s milk production declined just twice: in 1984 and then again in 1986. It may be recalled that two different government programs were operating during those years in an effort to reduce milk production: the milk diversion program (which operated during all of 1984 and into early 1985) paid dairy farmers who reduced marketings by a percentage of a historical base; and the whole-herd buyout program (which was in operation from April of 1986 through September of 1987), under which entire dairy herds were bought and retired.

After reaching a record 25 billion pounds in 1988, Wisconsin’s milk production went into a 21-year funk. It was actually under 23 billion pounds for six consecutive years (1993-98), and twice early in this century came within 100 million pounds of dropping under 22 billion pounds (in 2002, when it totaled 22.074 billion pounds, and again in 2004, when it totaled 22.085 billion pounds).

But then a funny thing happened: Wisconsin’s milk production started to rebound. Indeed, 2004 more or less represented “rock bottom,” and the state’s milk production has increased every year since then.

In 2009, it finally broke the 1988 record, reaching 25.239 billion pounds, and last year, Wisconsin’s milk production topped 29 billion pounds for the first time. If Wisconsin comes close this year to duplicating last year’s increase, 2016 milk production will easily top 30 billion pounds.

That brings us back to California, a state that holds more milk production records than we can even begin to list here. So we’ll focus on just one: the state that was the fastest to grow its milk production by 10 billion pounds.

As noted earlier, Wisconsin’s milk production first topped 20 billion pounds in 1976, and appears likely to finally top 30 billion pounds here in 2016, some 40 years later. And the state’s milk production back in the mid-1920s was over 10 billion pounds, so it took over 50 years for that earlier 10-billion-pound expansion.

And what about California? It was in 1972 that California first reached 10 billion pounds of milk production.
The state’s milk output actually fell slightly twice before the 1970s ended (in 1973 and again in 1978) and then experienced a growth spurt that had never been seen before in the dairy industry (and in all likelihood will never be seen again).

Specifically, California’s milk production grew every year between 1979 and 2008, before finally posting a decline in 2009. During that period, the state’s milk production increases ranged from fairly modest (by just 38 million pounds in 1998) to spectacular (by 2.3 billion pounds in 1994).

During that period, California topped three production milestones, reaching 20 billion pounds in 1990, 30 billion pounds in 1999 and 40 billion pounds in 2007.

But as Hilmar’s David Ahlem noted, California’s days of significant growth “are over.” Indeed, the statistics would seem to indicate that California’s days of significant growth ended almost a decade ago, since the state’s 2015 milk production was just 215 million pounds higher than its 2007 output.

And if the first quarter of 2016 is any indication, California’s milk production this year could fall below 40 billion pounds for the first time since 2009.

So what’s the future look like for California’s dairy industry? As Ahlem noted, California “still is going to be a large milk producer going forward.” If in fact California’s milk production drops below 40 billion pounds this year, and Wisconsin’s rises above 30 billion pounds, it will mark the first time in over a decade that the milk production gap between the two states is less than 10 billion pounds.

Meanwhile, California last year produced over 2.4 billion pounds of cheese and more than 580 million pounds of butter. So this is the “niche” that California will occupy for the foreseeable future: the nation’s leading milk and butter producer (among other products) and the number two cheese producer.

Even without significant growth, California will remain a very significant dairy player, as Wisconsin was during its lengthy “funk.”

Cheese Reporter welcomes letters to the editor. Comments should be sent to: Dick Groves by Fax at (608) 246-8431; or e-mail your comments to dgroves @cheesereporter.com.

Have Federal Orders Really Continued To ‘Evolve’?

While the dairy price support program was relegated to the scrap heap of dairy policy history two years ago, thanks to the 2014 farm bill, the dairy industry is still left operating under one policy relic from the first half of the 20th century: the federal milk marketing order program.

Indeed, here in 2016, the federal order program appears poised to grow significantly in the not-too-distant future. If the proposed California federal order becomes a reality sometime next year, the volume of milk being pooled on federal orders will increase by somewhere around 41 billion pounds annually (California’s 2015 milk production totaled about 40.9 billion pounds).

That would mean that milk marketed through federal orders by 2017 could account for roughly 80 percent of all milk sold in the US (in 2015, about 126 billion pounds of milk was marketed through federal orders, or roughly 60.5 percent of all milk sold in the US; that was down from about 63 percent of all milk sold in 2014, when more than 129 billion pounds of milk was pooled on federal orders).

So the volume of milk pooled on federal orders is poised to grow significantly in the next year or so, while the federal order program continues to plod along, largely unchanged since the turn of the century. And that’s kind of depressing.

We were recently reminded of the unchanging nature of federal orders by comments submitted to USDA by Dairy Farmers of America back in February. In those comments, DFA asked USDA to deny the Organic Trade Association’s request for a modified Wichita option for organic milk.

In its comments, DFA also stated that FMMOs “continue to evolve” with industry changes, and cited as a recent example the reduction in the number of federal orders “as dairy farm size and scale, combined with the consolidation of processor assets, required larger marketing area boundaries to recognize the broader marketplace competition for milk sales and supply regions.”

There are at least a couple of problems with that observation. First of all, the reduction in the number of federal orders isn’t really a recent phenomenon; it occurred back in 2000, when federal order reform resulted in the creation of 11 federal orders (the Western order was terminated in 2004, so there have been 10 orders for more than a decade).

Prior to the consolidation of federal orders under federal order reform, there were 31 federal orders operating in the US, so that consolidation in 2000 was a pretty radical change. Indeed, in the previous 20 years, the number of federal orders declined from 47 in 1980 to 31 in 1999, so the drop to 11 orders in 2000 was a major and sudden change, to say the least.

But we’ve been stuck with the current federal orders (minus the Western order) for more than a decade and a half now. To put this in some historical perspective, back in 1960 there were 80 federal orders; by 1975, there 56 orders, and by 1990 there were 42 orders.

DFA also refers to increases in dairy farm size and scale, and the statistics certainly back that up. But if anything, those increases should have led to further consolidation of federal orders.

Back in 2000, the average daily delivery per dairy producer pooling milk on federal orders was 4,590 pounds; by 2014, that figure had more than doubled, to 9,236 pounds.

Looked at another way, back in 2001, dairy farm operations with more than 500 head accounted for 39 percent of all US milk produced, up from 29 percent in 1997. By 2012 (the most recent year for which we could find statistics), operations with more than 500 head accounted for 63 percent of all milk produced; just farms with 2,000 or more cows accounted for 34.7 percent of all milk produced.

So it would seem that the number of federal orders is due for further reduction, just given the increases in dairy farm size and scale, not to mention all the other industry changes that have taken place since federal order reforms became effective back in 2000.

There’s another example of just how overdue federal orders are for further change. It’s now been over five years since USDA’s Dairy Industry Advisory Committee issued its final report.

That report included two specific recommendations regarding the federal order program (both were supported by all 17 DIAC members). The first was that the secretary of agriculture should appoint a committee to review implications of federal orders; the second was to “strongly consider” the elimination of end product pricing.

More than five years later, nothing has happened as far as those two recommendations are concerned.

One other point worth mentioning here is Class I utilization in federal orders. As the DIAC noted, in the mid-20th century, the percentage of federal order milk used to make fluid milk products was in the range of 60 to 65 percent, but in the 21st century, Class I utilization has been around 40 percent. And over the last three years (2013-15), Class I utilization has been under 33 percent.

Bringing California into the federal order program will reduce that Class I utilization percentage considerably. The DIAC cited the “long-term declines in per capita beverage milk consumption,” along with a number of other developments, that “necessitate a strategic look” at the future role of federal orders, especially in their role in price setting and pooling.

Federal orders haven’t really evolved much since the turn of the century, but the dairy industry, and the marketplace, have changed considerably. It’s time for further evolution, or maybe even some sort of a revolution, in federal order policy. DG

USDA’s Report On Dairy Promotion Programs A Tad Overdue

It’s now been five years since the US Department of Agriculture published a final rule requiring that US dairy importers pay a mandatory assessment of 7.5 cents per hundredweight of milk equivalent on dairy products imported into the US. That final rule also added two importers to the National Dairy Promotion and Research Board.

As we reported on our front page last week, USDA is now proposing to reduce the number of importers on the Dairy Board from two to just one. Comments on this proposal are being accepted until May 2, 2016.
This proposal has us wondering: just how are importers benefitting, or not benefitting, from having to pay this promotion assessment?

It may be recalled that it took two farm bills for the import assessment to be implemented. The 2002 farm bill required that the Dairy Promotion and Research Order be amended to implement a mandatory assessment on dairy imports, with two importers added to the Dairy Board, while the 2008 farm bill specified the mandatory assessment rate of 7.5 cents per hundredweight of milk equivalent on dairy products imported into the US.

Dairy importers have been paying that assessment since August 1, 2011. And now USDA is proposing to reduce their representation on the National Dairy Board from two people on a 38-member board to one person on a 37-member board (the total number of domestic Dairy Board members would remain the same, at 36).

There are at least a couple of different ways to look at whether or not importers are actually benefitting from paying this dairy promotion assessment. First, how have dairy imports fared since the assessment was implemented?

Well, they’ve done okay, as it turns out. The value of US dairy imports has risen from about $2.5 billion in 2011 to a record $3.01 billion last year, an increase of about 22 percent.

But there are several other factors at play here, including, among other things, the strong value of the US dollar, price differences between the US and its competitors, and the fact that leading markets for dairy exports for both the European Union and New Zealand (Russia and China, respectively) have reduced or completely banned those imports.

Another way to attempt to assess the effect of the dairy import assessment is to look at USDA’s annual report to Congress on the dairy promotion programs (the farmer- and importer-funded dairy promotion program as well as the fluid milk processor-funded fluid milk education program). These annual reports usually include a chapter evaluating the effectiveness of the marketing and promotion activities of the Dairy Board and the Fluid Milk Processor Board.

So what does this latest report have to say about the dairy import assessment’s impact? Here’s a brief excerpt from the most recent report: “The overall finding of this evaluation is that the US dairy checkoff programs have effectively increased the supply, demand, prices, and exports of dairy products. The gains in profit at the farm level were far larger than the costs of the checkoff programs.”

There are a couple of points worth noting here. First, there’s no mention, in this very short excerpt, of any sort of benefit for dairy importers. And that holds true for the entire evaluation chapter.

Indeed, the evaluation highlights the benefit-to-cost ratios (BCRs) of the investments made by dairy farmers, dairy importers and dairy processors. The BCR is the dollar value of gains to the checkoff funders from a one-dollar investment in promotion.

The BCRs in terms of producer profit were calculated to be $2.14 for every dollar invested in demand-enhancing activities of fluid milk, $4.26 for every dollar invested in demand-enhancing activities of cheese; and $9.63 for every dollar invested in demand-enhancing activities of butter. The BCR of export promotion is $5.12 per dollar invested.

There is no mention of the BCR in terms of dairy importer profit.

This leads to the other important point worth mentioning: this is the USDA report to Congress covering 2012 program activities. Yes, the report covering 2012 program activities is, here in the fourth month of 2016, the most recent annual report to Congress on the dairy promotion programs.

By way of brief background, as noted in the executive summary of that 2012 annual report, the enabling legislation of the dairy producer (and now also importer) and fluid milk processor promotion programs requires USDA to submit an annual report to the House Agriculture Committee and the Senate Agriculture Committee.

These reports include summaries of the activities for the dairy and fluid milk promotion programs, including an accounting of funds collected and spent; USDA activities; and, as noted earlier, an independent analysis of the effectiveness of the advertising campaigns of the two programs.

Back in the early days of the National Dairy Board, this annual report was released pretty much on schedule; we have printed copies from the late 1980s and early 1990s, dated July 1 (back then, the NDB’s fiscal year started on May 1; more recently, the reports cover calendar years). These reports arrived in our office in Madison before the end of July, back then.

Today, the reports are electronic, and the most recent one available on the website of USDA’s Ag Marketing Service covers 2012.

You’d think at least one of the 45 members of the House Ag Committee or one of the 20 members of the Senate Ag Committee would notice the fact that USDA is three years behind on these reports. And if they don’t care, they should just end the requirement that USDA submit these annual reports. DG

Preparing For The Likelihood Of A Lot More Milk

As we’ve noted in this space before, and undoubtedly will note again, making predictions in the dairy business is never an easy, nor safe, undertaking. The dairy industry has been notoriously unpredictable for years.

Still, we do feel fairly safe in making one prediction: US milk production will continue to grow in the future. And depending on how much and how fast production expands, the US dairy industry is going to have to build quite a bit of additional processing capacity in the next few years.

When we refer to “the future” here, we’re talking about the next decade, or through 2025. In that context, while annual milk production increases are pretty much taken for granted these days (the last time milk production declined was in 2009, and before that was in 2001), increases even over an entire decade haven’t always been guaranteed.

For example, back in the 1960s, US milk production declined from 123.1 billion pounds in 1960 to 116.1 billion pounds in 1969. That was despite the fact that production actually grew to almost 127 billion pounds by 1964, then dropped by almost 11 billion pounds by 1969. It’s difficult to fathom such a drop here in the second decade of the 21st century.

So given the expectation that milk production will continue to grow, just how much additional milk could the US dairy industry be looking at by 2025? Well, according to USDA’s long-term agricultural projections, released back in February, US milk production can be expected to reach 255.3 billion pounds by 2025, or almost 47 billion pounds higher than last year’s record output.

Again to put that in some historical context, USDA’s projection is that US milk production will grow by almost as much between 2015 and 2025 as it did between 1999 and 2015. Looked at another way, a 47-billion pound production increase between last year and 2025 would be about 10 billion pounds greater than the milk production increases during the last decade of the 20th century and the first decade of the 21st century, combined.

There is one huge caveat here. USDA points out that its long-term agricultural projections are not an agency forecast about the future. Instead, the projections are a conditional, long-run scenario about what would be expected to happen under a continuation of current farm legislation and other specific assumptions.

For example, the USDA report assumes that there are no domestic or external shocks that would affect global agricultural supply and demand, and normal weather is assumed.

Hmmm. Looking back over the past decade, the global economy experienced the worst economic crisis since the Great Depression, milk prices and margins in 2009 were at historic lows (which resulted in the milk production decline that year), and then milk, cheese and butter prices all soared to record highs in 2014. Oh, and there was a terrible drought back in 2012.

So domestic and external shocks can pretty much be guaranteed over the next decade, and there’s no such thing as “normal weather.” Other than that, USDA’s projections should be pretty accurate.

One other way to put USDA’s projections in context is to compare them to projections included in the annual baseline published by the University of Missouri’s Food & Agricultural Policy Research Institute. “The world is an uncertain place and commodity markets will continue to be volatile,” FAPRI explains in its report.

As far as milk production is concerned, FAPRI sees US milk output reaching 237.7 billion pounds by 2025, or some 18.5 billion pounds less than USDA is projecting. That’s no small difference.

Still, both USDA and FAPRI have milk production expanding by at least 2 billion pounds per year over the next decade. And that’s a lot of additional milk.

All of that “new” milk begs at least three questions. First, what kind of products will all that milk be made into? One thing that new milk probably won’t end up as is fluid milk; after all, sales of fluid milk have been flat to declining for decades now, and it would be quite surprising if fluid sales suddenly and consistently rebounded over the next decade.

Instead, our guess is that cheese and yogurt production will continue to grow in the future, if for no other reason than because they’ve grown so consistently in recent years.

The answer to the second question helps answer the first: Where will all of this new milk be sold? Certainly at least some of this additional milk will be sold internationally, so perhaps that bodes well for the future of milk powder and whey products production, as well as cheese production.

Third, and perhaps most important, where will all this additional milk be produced? To answer this question, it might be helpful to look at some per capita milk production figures, as compiled by the Central federal milk marketing order market administrator’s office (and detailed in a story on page 51 in this week’s issue).

Per capita milk production tops 600 pounds annually in a total of 19 states (the 600-pound level roughly approximates annual per capita consumption of all dairy products on a milk equivalent basis). Six of those 19 states posted per capita production increases of over 10 percent between 2010 and 2015, including South Dakota, Kansas, Michigan, Utah, Colorado and Indiana. Wisconsin posted a 9.9 percent increase.

If these patterns hold, a pretty significant chunk of additional milk will be coming from the Midwest in the coming years. And processing capacity will be needed for all that additional milk. DG

Cheese Reporter welcomes letters to the editor. Comments should be sent to: Dick Groves by Fax at (608) 246-8431; or e-mail your comments to dgroves @cheesereporter.com.

Time For A Federal Solution On GMO Labeling

In some ways, the issue of GMO (genetically modified organism) labeling is a no-win situation for the food industry. But there is one potential solution that might be less painful than any other approach.

The GMO labeling issue, also known as biotech labeling and GE labeling, among other things, has been garnering a lot of headlines over the past year or so. The US House passed a GMO labeling bill last summer, while the US Senate just last week failed to approve its own version of a GMO labeling bill.

Meanwhile, the state of Vermont a couple of years ago passed its own state GMO labeling law, and that law is scheduled to go into effect on July 1 of this year. That’s just more than three months away.

The GMO issue is a dicey one for the food industry. On the one hand, GMOs have been used in agriculture for a couple of decades or more, and some pretty reputable organizations don’t have any problems with their safety.

Here’s an excerpt from a statement by the AAAS (American Association for the Advancement of Science) board of directors on the labeling of genetically modified foods (dated Oct. 20, 2012):

“The World Health Organization, the American Medical Association, the US National Academy of Sciences, the British Royal Society, and every other respected organization that has examined the evidence has come to the same conclusion: consuming foods containing ingredients derived from GM crops is no riskier than consuming the same foods containing ingredients from crop plants modified by conventional plant improvement techniques.”

On the other hand, if food marketers believe the old adage that “the customer is always right,” well, in this case the customer seems mighty interested in the labeling of foods containing GM ingredients. Or at least they respond that way in surveys.

So far, the legislation approved last year by the House calls for voluntary labeling of foods produced from GM ingredients. That was also the approach used in the bill offered by US Sen. Pat Roberts, the Kansas Republican who chairs the Senate Ag Committee.

But that bill was defeated, meaning that federal GMO labeling legislation faces an uncertain future.

That’s a big problem for the food industry, because, as noted earlier, at least one state, Vermont, has a mandatory GMO labeling law that goes into effect shortly, and several other states are considering similar laws. It’s a potential 50-state nightmare for the food industry.

For such a small state (population under 700,000, according to recent estimates), Vermont appears to be exerting an enormous amount of pressure for mandatory GMO labeling on a national scale.

Just in the past two weeks, four major US food companies have announced plans to label their nationally distributed products with language required by the state of Vermont.

More specifically, to comply with Vermont’s law, as reported on our front page this week, Mars, Incorporated, is introducing on-pack labeling on its products that contain GM ingredients nationwide; and General Mills, Kellogg and ConAgra have also stated their intention to label their products sold nationally to comply with Vermont’s law.

At least three of these companies stressed that they believe GM ingredients are safe. And at least three of the companies called for a federal solution to the problem, saying the possibility of various state regulations would be a nightmare for companies marketing their products nationally.

Back in January, Campbell Soup Company announced its support for federal legislation to establish a single mandatory GMO labeling standard. If federal legislation isn’t enacted, Campbell said it is prepared to label all of its US products for the presence of ingredients that were derived from GMOs, not just those required by Vermont’s law.

Campbell’s January 7, 2016 press release announcing its support for a national GMO labeling standard included an example of a GMO label that was prepared to comply with Vermont’s law. Basically, under the Nutrition Facts and ingredient statement on the back of the product, there’s a statement that reads: “Partially Produced with Genetic Engineering.” It then provides a website (www.whatsinmyfood.com) where consumers can find more information about GM ingredients.

Meanwhile, back on Capitol Hill, while the Roberts voluntary legislation was defeated last week, there’s an alternative bill that might satisfy pretty much everybody. This legislation, the Biotechnology Food Labeling Uniformity Act, was introduced by four Senate Democrats, making its future uncertain in the Republican-controlled Congress.

There are at least three pretty big advantages to that bill. First, it wouldn’t require any sort of warning label or symbol on the front of food packages. Instead, food companies would have to disclose the presence of GM ingredients on the Nutrition Facts panel in one of several ways (this appears to be similar to what Campbell Soup Company is doing).

Second, the bill represents a national solution to this issue. That means that food companies would no longer have to face different regulations in a number of different states, starting with Vermont.
And third, it satisfies at least one influential consumer group, Consumers Union, not to mention one big food company, Campbell.

There is no perfect solution to this controversy, but the Biotechnology Food Labeling Uniformity Act appears to offer several advantages for the food industry, while requiring the disclosure of sought-after information for consumers.


The Potential, And Limits, Of Plant-Based ‘Dairy’ Products

Last week (as we reported in a story on page 19 of last week’s issue), 23 food companies announced the launch of the Plant Based Foods Association, which is described as the first trade group to represent the $3.5 billion plant-based foods sector.

This development has led us to ponder both the potential, and the potential limits, of plant-based versions of foods such as cheese, milk, yogurt, butter and ice cream.

So what’s the potential for these foods? Just for starters, it’s usually a sign of future growth just when a group of companies forms a trade association. The Plant Based Foods Association plans to educate the public about the benefits of moving toward a plant-based diet, and advocate for policies that encourage shifting toward a plant-based diet, both of which should help grow the industry in the future.

As far as actual sales are concerned, as noted above, the plant-based foods sector is currently a $3.5 billion “niche,” and growing. The association itself uses the phrase “fast-growing” to describe the plant-based foods sector, and there’s no doubt some truth to that, given that many of the association’s charter members didn’t exist at the turn of the century.

It’s also notable that the association says plant-based milks, at $2.1 billion, are driving the category’s growth, having enjoyed 14.4 percent growth in total sales volume over the last two years. Considering what fluid milk sales have been doing in recent decades (declining in bad years, stable in good years), the sales growth for plant-based milks is pretty impressive.

The association also describes the plant-based foods sector as an industry that “supports consumer health and the environment,” and we have no doubt that those are two areas that will drive growth of these foods in the future.

As far as consumer health is concerned, estimates vary, but in all likelihood there are several million consumers in the US who consider themselves vegans (and 310 million or more who don’t).

Why do consumers go vegan? According to The Vegan Society, there are three key reasons: preventing the exploitation of animals, for the health benefits, and for the environment.

Looking more closely at each of those reasons, regarding animal welfare, it’s probably safe to say that the number of consumers who consider themselves vegans increases every time there’s a story about alleged animal abuse on a dairy farm. Such stories don’t occur all that often, but they don’t have to, to prompt more consumers to question their consumption of dairy products.

The health benefits angle sort of depends on your perspective. The butter industry suffered for decades as everybody from the federal government to health organizations touted the benefits of margarine (the main ingredient of which is partially hydrogenated vegetable oil) over butter.

Now the pendulum is swinging back, and indeed it’s difficult if not impossible to find anybody with anything positive to say about stick margarine. And there’s a fair amount of research about the health benefits of milkfat in the diet, as well as the detrimental impacts of eliminating milkfat from the diet.

As far as environmental benefits of plant-based foods are concerned, we’re not really convinced that these products are actually better for the environment than animal-based foods. For example, Melt Organic’s spreads contain coconut oil sourced from Sri Lanka and palm fruit oil sourced from Colombia.
It’s hard to believe that this product is more sustainably produced than butter is.

Speaking of ingredients, the lengthy list of ingredients in some of these plant-based dairy alternatives would appear to be one of factors that will limit their growth in the future. Survey after survey has found that consumers are looking for “simple” foods, that is, foods with short ingredient lists and ingredients that they can actually pronounce. But at least some of these plant based dairy alternatives are pretty much the complete opposite of what these consumers are seeking.

For example, Medium Cheddar Style Farmhouse Block from Daiya Foods contains, among its roughly 17 ingredients, such things as tapioca starch, pea protein isolate, xanthan gum, tricalcium phosphate, tricalcium citrate and pea starch. Meanwhile, regular medium Cheddar contains milk, cheese cultures, salt, enzymes and possibly annatto; or maybe just milk, salt and enzymes (depending on the brand).

One of dairy’s simplest products, half and half, contains only milk and cream, but Dairy-Free Creamer from Nutpods contains not only coconut cream and almonds but also acacia gum, gellan gum, sunflower lecithin and dipotassium phosphate.

Interestingly, many of these plant based dairy alternatives tout what they’re free from: the aforementioned Dairy-Free Creamer from Nutpods, for example, is free from dairy, soy, gluten, carrageenan, high-fructose corn syrup, refined sugars and sugar alcohols. But it still includes nine ingredients, which is seven more than dairy half and half.

One other factor potentially limiting the growth of plant based dairy alternatives is taste. Maybe the sum of these products is greater than the parts, but most of them don’t exactly conjure up thoughts of gourmet, specialty or even average. They simply sound unappetizing, although anything is possible given today’s scientific advances.

Plant-based foods now have their own trade association, which is usually a sign of future growth. Time will tell what sort of growth these foods have, given both their perceived benefits as well as their very real shortcomings. DG

A Tale Of Two Cheese Industries

This week, the World Championship Cheese Contest took place in Madison, WI. Some 2,959 contest entries from around the world competed to be the “best of the best.”

It was a great showcase for the tremendous variety of high-quality cheese, butter and yogurt products available today to consumers worldwide.

Meanwhile, since the beginning of this year, lawsuits have been filed from coast to coast alleging shortcomings in cheese quality. And just in the past couple of weeks, several cheese companies and/or their owners/officers have pleaded guilty to charges related to food adulteration and/or misbranding.

These legal proceedings have provided a depressing showcase for some of the shady shenanigans that, sadly, have been going on in the cheese and dairy industries since at least the 19th century.

To briefly review several cheese quality-related lawsuits and/or legal settlements that have occurred just since the beginning of this year: a lawsuit filed in US District Court in California alleges that the “Mozzarella Sticks” being sold by McDonald’s are “adulterated and misbranded”; separate lawsuits filed in New York and California allege Parmesan cheese deception by Wal-Mart Stores, Inc., and Kraft Heinz Foods Company; two cheese companies and a cheese company executive pleaded guilty to charges relating to their introduction of adulterated and misbranded cheese products into interstate commerce; and Delaware-based Roos Foods, Inc., a manufacturer of ready-to-eat cheeses, pleaded guilty to a charge of food adulteration.

While each of these cases is different in many ways, they all have one thing in common: they have all brought some negative publicity to the cheese industry. And while there’s an old observation about how there’s no such thing as bad publicity, well, for the cheese industry in 2016, that’s highly debatable and easily refutable.

It should be noted that the recently filed lawsuits alleging cheese quality problems are part of a larger trend in the food business. That is, more and more consumers (and/or their lawyers) are taking more and more food companies to court over various alleged food-related offenses.

Indeed, according to a 2013 study by the US Chamber Institute for Legal Reform, courts are “seeing an unprecedented surge in consumer class actions against food manufacturers.” The authors of that study identified nearly 150 food class actions filed since 2011.

That point aside, these recent lawsuits and settlements remind us that the cheese industry has been battling quality-related problems for almost as long as there has been a formal, organized cheese industry in the US.

Evidence of that point can be found in the First Annual Report of the State Dairy and Food Commissioner, published way back in 1890 (the “State” is Wisconsin). We thought it worthwhile to reprint a small section of that report here:

“Sixty million pounds of cheese is annually made in this state. There is not an article of commerce that requires greater skill in handling in order to secure favorable markets. No industry has been so perverted.
No business exists that has been so basely manipulated, and no article of food has been so degraded by counterfeiters. In no time has the honest manufacturer met with such dishonest competition. Matters have come to such a pass that the genuine article is under the ban of suspicion at home and abroad. The result has been that the subject has been thoroughly investigated by importers and steps have been taken to reduce the exportation of filled cheese from the United States.”

Just a bit of background on that report: the Wisconsin legislature, in 1889, passed a bill creating the office of Dairy and Food Commissioner for the state. That bill stated that it was to be the duty of the commissioner to enforce all laws (both in existence at that time or that may have been enacted thereafter in the state) regarding the production, manufacture or sale of dairy products, or the adulteration of any article of food or drink.

So some 126 years after that report was published, there are still numerous alleged and real cheese quality problems cropping up. Why is that?

Here’s an interesting observation from that 1890 report that still rings true today: “The clamor of our people for cheaper food, for cheaper wear and for cheaper everything has had a pernicious result upon the purity of articles offered for sale by our tradesmen. The people ask for low-priced foods and in many cases the merchants are unable to supply the demand with an honest article, and fraud is resorted to. The merchants, in turn, must have the goods that are called for and the manufacturer is drawn into the gap and makes the spurious article.”

In short: blame the consumer (among others). More than a few of them want cheap food (or can’t afford anything but cheap food) and at least a few companies are willing to cut some corners to provide those cheap products.

Unfortunately, at least some of the time (such as here in early 2016), a few alleged or real problems end up giving the entire industry a black eye.

This week, at the Monona Terrace Convention Center in Madison (just a couple of blocks from the State Capitol, where that 1889 legislation was passed), judges from around the world evaluated cheeses from around the world to determine the winner of the biennial World Championship Cheese Contest. This event generated an unbelievable amount of favorable publicity for the cheese industry.

And with a US-produced cheese winning the contest for the first time in 28 years, all the negative publicity generated earlier this year has been swept away, for now.


A Billion Pounds Of Cheese, In A Month

It’s happened three times now: in December of 2014, in December of 2015 and now in January of 2016, the US has produced more than 1 billion pounds of cheese.

Yes, you read that correctly: the US has now produced more than a billion pounds of cheese in a single month. Three times.

This remarkable production milestone prompts some research about past cheese production milestones, as well as some thoughts about what might be expected in the future.

It was way back in 1942 that the US first produced a billion pounds of cheese in an entire year. That milestone was achieved some 17 years after the US first produced half a billion pounds of cheese in a single year.

Unlike in recent years, when cheese production seems to set new records every single year (it hasn’t declined since 1991), cheese production experienced a lot more ups and downs back in the “good old days.”

After reaching a record 501.1 million pounds in 1925 (at least it appears to be a record; the cheese production figures on the website of USDA’s National Ag Statistics Service only go back to 1919), cheese production fell below the half-billion-pound mark for four straight years, topped that mark in 1930, then fell below it again the following two years.

As noted above, it wasn’t until 1942 that the US finally produced a billion pounds of cheese in a single year. And the following year ended up being the last time the US didn’t produce at least a billion pounds of cheese in a single year.

After reaching 1 billion pounds in 1942, it took almost three decades for cheese production to reach the 2-billion-pound level. That was achieved in 1970, when output totaled 2.2 billion pounds.

Billion-pound barriers fell more quickly after that. US cheese production first topped 3 billion pounds in 1976 (at 3.3 billion pounds), first topped 4 billion pounds in 1981 (at 4.3 billion pounds), and first surpassed 5 billion pounds in 1985 (at 5.1 billion pounds).

After achieving additional milestones in 1990 (topping 6 billion pounds), 1996 (7 billion pounds), 2000 (8 billion pounds), and 2005 (9 billion pounds), US cheese production reached the astonishing 10-billion-pound mark for the first time in 2009. And the 11-billion-pound mark was reached in 2013.

One other related milestone: the US first produced half a billion pounds of cheese in a single month back in May of 1989.

In addition to total cheese production, the US also produces well over a billion pounds, annually, of two different cheese varieties. US Cheddar production first topped the billion-pound mark back in 1961.

To put that in perspective, Cheddar back in 1961 accounted for about 62.5 percent of total cheese production; last year, when Cheddar output totaled 3.35 billion pounds, it accounted for around 28.6 percent of US cheese production.

Mozzarella production first topped a billion pounds back in 1985, and last year reached 3.97 billion pounds.

Finally on the historical front, when it comes to cheese production, two states belong to the billion-pound club: Wisconsin, which first produced over a billion pounds of cheese back in 1972 and last year (pending the release of final figures in a couple of months) produced over 3 billion pounds of cheese for the first time; and California, which first produced over a billion pounds of cheese in 1996 and last year produced about 2.4 billion pounds of cheese.

With that bit of history in mind, what does the future hold for US cheese production? For starters, in 2016 and beyond, we’ll see cheese production top a billion pounds a month more and more frequently.

Last year, in addition to topping 1 billion pounds in December, US cheese production topped 990 million pounds in March, July, October and November. Cheese production in July can be pretty unpredictable (depending at least in part on how hot and humid the weather is), but it’s probably a safe bet that the US will produce more than a billion pounds of cheese in March, May, October and November this year, in addition to January and December.

It might not be until 2020, however, that cheese production exceeds a billion pounds every single month. That’s due to the simple fact that February will have 28 days in each of the next three years, and won’t have 29 days again until 2020.

Meanwhile, the US already produces more than a billion pounds annually of one cheese category in addition to Mozzarella and Cheddar: other American-type cheeses, production of which reached almost 1.3 billion pounds in 2014. Because NASS lumps both Monterey Jack and Colby into this category, there’s no way of knowing if production of either variety even approaches a billion pounds.

The US did produce around 851 million pounds of Cream and Neufchatel cheese in 2014, so it’s possible that production of these cheeses could top a billion pounds annually in the next several years. Otherwise, the US doesn’t produce even half a billion pounds of any single cheese variety.

At the state level, Idaho appears poised to become the third state to join the billion-pound-a-year club. Last year, Idaho produced around 941 million pounds, so possibly in 2016 or maybe in 2017 Idaho should produce over a billion pounds of cheese.

No matter how you slice it, a billion pounds is a lot of cheese, whether it’s the production of a single state or production of a single variety.

When the US starts producing a billion pounds of cheese in a single month, well, that’s a pretty remarkable achievement. DG


‘Commercial’ Disappearance Has Become Obsolete

Two weeks ago, on our front page, we reported 2015 figures for commercial disappearance of several dairy products as well as for milk in all products.

And while researching and writing up that story, we realized that the term “commercial,” as used in conjunction with disappearance, has become obsolete in today’s dairy industry.

USDA’s Economic Research Service (ERS) actually uses the term “commercial” in five different columns in its disappearance tables: for beginning commercial stocks, domestic commercial disappearance, commercial exports, total commercial disappearance, and ending commercial stocks.

ERS defines total commercial disappearance as the total commercial supply (which in turn is defined as beginning commercial stocks plus production plus imports) minus net government removals minus commercial ending stocks. And domestic commercial disappearance equals total commercial disappearance minus commercial exports.

The “obsolete” nature of the term “commercial” actually lies in the “net government removals” category. In short, there’s no longer such a thing as “net government removals” because, well, because the government has been “removed” from helping dairy products “disappear.”

There are a couple of points worth noting here, both having to do with government policies. And those policies were the Dairy Product Price Support Program and the Dairy Export Incentive Program.

It may be recalled that, two years ago this month, both of those programs were terminated when President Obama signed the 2014 farm bill into law. And so there will be no more USDA net removals in the future.

Prior to those two programs being terminated, there had actually been no USDA net removals for several years. “USDA net removals” is defined as price support purchases plus DEIP exports minus unrestricted sales of stocks held by USDA’s Commodity Credit Corporation (CCC).

So USDA net removals can be either positive or negative, and in fact were both in 2010, the last year there any removals by the agency. More specifically, in 2010 there were positive net removals of cheese and butter but negative net removals of nonfat dry milk.

And then there was nothing in 2011, 2012 and 2013, which turned out to be the final three years of both the price support program and the DEIP.

Both of these programs had a long history both of operating and of impacting dairy product disappearance. The dairy price support program was initially established by the 1949 farm bill, and arguably had its “glory years” (at least as measured by the size of CCC purchases of surplus dairy products) back in the 1980s.

The Dairy Export Incentive Program is considerably younger than the price support program, having been established by the 1985 farm bill.

The impact of these programs can be seen in looking over historical ERS statistics for commercial disappearance and net government removals.

On a milk equivalent milkfat basis, milk equivalent skim solids basis, and on a product-by-product basis, USDA removals peaked in 1983. That year (which, as noted earlier, was before the DEIP was established and so included only price support purchases), the CCC purchased about 833 million pounds of American cheese, 413 million pounds of butter and 1.06 billion pounds of nonfat dry milk.

That accounted for 12.4 percent of total marketings on a milk equivalent milkfat basis, and 15 percent of total marketings on a milk equivalent skim solids basis, ERS figures show. On a milk equivalent milkfat basis, government removals that year amounted to almost 17 billion pounds; on a milk equivalent skim solids basis, government removals totaled around 20.6 billion pounds.

Back in that era, US dairy product ending stocks also took on a different look than what the dairy industry has grown accustomed to here in the second decade of the 21st century. At the end of 1983, for example, commercial stocks included 368 million pounds of American cheese, 105 million pounds of other cheese, 36 million pounds of butter, 75 million pounds of nonfat dry milk and 47 million pounds of canned milk. That was about 5.1 billion pounds on a milk equivalent milkfat basis and 5.7 billion pounds on a skim solids basis.

By comparison, government stocks at the end of 1983 included 793 million pounds of American cheese, 464 million pounds of butter, and 1.3 billion pounds of nonfat dry milk. That was 17.7 billion pounds on a milk equivalent milkfat basis and 23.3 billion pounds on a skim solids basis.

Needless to say, there were more government-owned dairy product stocks at the end of 1983 than there were commercial dairy stocks. Today, of course, there are no government-owned dairy product stocks, either at the end of the year or at any other time. Nor are there any USDA net removals. It’s all “commercial,” so there’s no need to refer to it as “commercial” any longer.

There is one caveat to all of this discussion about “commercial” disappearance. That is, the 2014 farm bill created the Dairy Product Donation Program (DPDP), under which USDA would buy dairy products when the margin falls below a certain level, and will distribute those products to individuals in low-income groups through public and private non-profit organizations. Those would likely be considered USDA net removals.

But for now, using the term “commercial” when discussing disappearance, stocks or exports seems completely unnecessary. DG

Cheese Reporter welcomes letters to the editor. Comments should be sent to: Dick Groves by Fax at (608) 246-8431; or e-mail your comments to dgroves @cheesereporter.com.

US Becoming A Dumping Ground For World’s Dairy Surpluses

For a number of years now, US dairy trade statistics held mostly positive news: exports were growing impressively, imports were growing just slightly if at all, and the US was becoming a more important player on the world market.

But the final dairy trade statistics for 2015 (and some January 2016 import figures) appear to contain more bad news than good news. The most obvious number is for US dairy exports, which in 2015 were valued at $5.24 billion, down 26 percent, or almost $1.9 billion, from 2014’s record high.

But at least some of that is because prices were so much lower in 2015 than they were in 2014. Just to cite one example: the US exported a record volume of nonfat dry milk and skim milk powder last year — 1.234 billion pounds, to be exact — but the value of those NDM and SMP exports, at about $1.4 billion, was down 34 percent, or $715 million, from 2014.

While the US dairy export figures for 2015 are disturbing, what’s more alarming are the dairy import figures. For starters, as reported on our front page last week, US dairy imports in 2015 were valued at a record $3.012 billion.

Yes, that was up just 1 percent from 2014, but keep in mind, as noted above, that commodity prices in 2015 were considerably lower than they were in 2014. So, for example, the value of US cheese imports last year, $1.292 billion, was up just 1 percent from 2014, but the volume of US cheese imports last year, 435.3 million pounds, was up 20 percent from 2014 and the highest level since 2006.

But it could be argued that this cheese import increase isn’t all that significant, since domestic commercial disappearance of cheese in 2015 reached a record high of 11.241 billion pounds. Back in 2006, the last time US cheese imports topped 400 million pounds, domestic commercial disappearance of cheese totaled 9.684 billion pounds, so imports that year accounted for a larger percentage of domestic disappearance than they did in 2015.

Still, there are a few somewhat disturbing figures in the 2015 cheese import statistics. For example, New Zealand is once again one of the leading sources of US cheese imports; last year, the US imported 32.8 million pounds of cheese from New Zealand, up more than 16 million pounds from 2014 and up more than 30 million pounds from 2013.

Notably, US cheese imports from New Zealand last year, while up impressively from recent years, still pale in comparison to 2002, when the US imported about 100 million pounds of cheese from New Zealand. In fact, from 1998 through 2007, US cheese imports from New Zealand never fell below 58 million pounds. In that context, last year’s cheese imports from New Zealand seem pretty insignificant.

But these aren’t exactly specialty cheeses that the US is importing from New Zealand; they’re largely commodity cheeses, including Cheddar.

It’s also notable that, in January, licensed US cheese imports totaled 19 million pounds, up 88 percent from 2015. Some 5.9 million pounds of that cheese came from New Zealand, including over 3 million pounds of Cheddar.

Meanwhile, the US imported more than 25 million pounds of cheese from Lithuania last year, up almost 20 million pounds from 2014, up more than 22 million pounds from 2013 and the highest level of US cheese imports from Lithuania since 2002, when those imports totaled 28.9 million pounds. The majority of the cheese being imported from Lithuania is Goya, a hard grating cheese that likely displaces such US-
produced cheeses as Parmesan, Romano and Asiago.

The US is also importing quite a bit of butter these days, from countries ranging from Ireland to New Zealand. The US ran a butter trade deficit of about 6 million pounds last year, after running butter trade surpluses of more than 100 million pounds in both 2013 and 2014.

So why is the US such an attractive market these days for imported dairy products from areas such as New Zealand and the European Union? There appear to be two key reasons.

First, both New Zealand and the EU are facing difficulties in some of their key export markets. For example, back in August of 2014, Russia banned the importation of dairy products from the EU.

How important is that Russian import ban for the European Union? According to a 2014 European Commission report, cheese exports to Russia accounted for close to one-third of EU total cheese exports.
US cheese imports from the EU in 2015, the first full year of Russia’s import ban, totaled 311.2 million pounds, up 18 percent, or 47.1 million pounds, from 2014.

That same 2014 European Commission report noted that close to 25 percent of EU butter exports went to Russia, and that two-thirds of these exports originated from Finland and France. Coincidentally, US butter imports from France rose from 1.9 million pounds in 2013 to 8.6 million pounds last year.

As far as New Zealand is concerned, China is New Zealand’s leading export market, but China has reduced its purchases lately, so New Zealand’s exports are ending up in other markets. And the US is one of those “other markets.”

A second factor boosting US dairy imports and hampering dairy exports is the value of the US dollar, which hurts US competitiveness and helps other dairy exporters.

Neither of these factors will likely change anytime soon, meaning the US will continue to be, to some extent, a dumping ground for the world’s dairy surpluses. And that will make it more difficult for domestic manufacturers to protect their home turf. DG

Cheese Reporter welcomes letters to the editor. Comments should be sent to: Dick Groves by Fax at (608) 246-8431; or e-mail your comments to dgroves @cheesereporter.com.


Letter to the Editor

Response To ‘California Discount’ Letter
by Rob Vandenheuvel
General Manager
Milk Producers Council

published Februray 12, 2016

A response to last week’s “open letter” written by Rachel Kaldor, Executive Director of the Dairy Institute of California, entitled, “A Total Myth: ‘The California Discount’” (Feb. 5, 2016):

Rachel Kaldor proclaims the “California Discount” is a myth? Let’s call a spade a spade; the Dairy Institute of California is in the business of advocating for their processor clients. Ms. Kaldor’s job is to preserve the advantage her California processors have received, in the form of a regulated discount in the minimum milk prices they pay. Our job, as California producers, is to call them on it and smoke out the steer manure.

The “California Discount” is a running tally of the devastating financial impact on California dairy farms of having a State Milk Marketing Order that establishes a monthly minimum price for milk sold to cheese plants (Class 4b) significantly below the Federal Order Class III price. That tally is up to $1,951,728,890 since 2010, AND COUNTING!

We’ve been fighting this battle for years, but last Fall a wonderful thing happened.
We had an opportunity – in the context of a USDA hearing on a California Federal Order – to ask pointed questions of Dairy Institute witnesses under oath about some of the rhetoric we’ve heard over the years.

Check out the excerpts below from testimony given by two large cheese manufacturers with operations in both California and Federal Order areas: Saputo Cheese Company and Leprino Foods. (The full transcripts from this hearing can be found at: https://www.ams.usda.gov/rulesregulations/ moa/dairy/ca/transcripts.)
October 22, 2015

Question by Marvin Beshore, Counsel for the California Dairies, Inc., Dairy Farmers of America and Land
O’Lakes: “Do you know what your average cost of milk in [Saputo Cheese Company’s] Wisconsin plants is?”

Answer by Greg Dryer, Senior Vice President, Saputo Cheese Company: “Well, it is higher. Definitely higher than the minimum [Class III] price.”

October 29, 2015
Question by Mr. Beshore: “So I just want to talk about [Leprino Food Company’s six] non- California plants, briefly. Those are all nonpool plants, correct?
Answer by Sue Taylor, Vice President, Leprino Foods: “Correct.”

Beshore: “And while they are nonpool plants, the contracts are based on Federal Order prices, are they not?”

Taylor: “Yes.”

Beshore: “Without getting going any further than this, they are at least minimum class prices, federally, correct?”

Taylor: “We are also from time to time offered milk at below Federal Order minimums by that supplying cooperative.”

Beshore: “Okay. So the average price paid by your plants on, you know, throughout the year, year-to-year, is at least Federal Order minimum price, is it not?”

Taylor: “Yes, it is.”

Let’s get this straight: In sworn testimony, two of the nation’s largest cheese manufacturers had to admit that whether or not they buy occasional spot loads of milk at distressed prices, the average price they pay for all the milk their plants (outside of California) need is at or above the Federal Order minimum price!
Seems like the “myth” that has been “debunked” by the “facts” is Ms. Kaldor’s myth that a California Discount doesn’t even exist!

The sad reality is that the Dairy Institute has been completely shortsighted in their insatiable thirst for cheap milk. They have completely missed the fact that their demand for a steep California Discount is actually killing the golden goose of milk production in the State.

Dairy farming is no longer the prized agricultural activity in California, with milk production dropping year-over-year and modern dairy facilities being plowed over to grow almonds, pistachios or other tree crops. The Dairy Institute has believed that California dairies will produce the milk they need no matter the price; that arrogant position is being proven wrong in front of their own eyes.

So what’s the bottom line? Ms. Kaldor and her clients clearly know that their days of the California Discount are numbered, and they are desperately clinging to every opportunity to preserve it however they can and for as long as possible. California producers have united in a way that’s unprecedented in supporting a unified proposal for a California Federal Order that will finally establish a level playing field in California. Enough is enough; the California Discount must end once and for all.


Rob Vandenheuvel
General Manager
Milk Producers Council
Ontario, California


About The California Discount

If nothing else, last week’s letter from Rachel Kaldor and this week’s response from Rob Vandenheuvel illustrate just how controversial current milk pricing policy is in California.

The current controversy is due in large part to the dry whey factor in the California 4b and federal order Class III formulas, which makes us wonder if it’s time to re-examine the use of product price formulas in both the federal order program and in California.

There is no perfect milk pricing policy, but the controversies surrounding product price formulas over the past 16-plus years — controversies ranging from make allowances to the use of dry whey prices — tells us that maybe it’s time to try a different approach to pricing milk. DG

Cheese Reporter welcomes letters to the editor. Comments should be sent to: Dick Groves by Fax at (608) 246-8431; or e-mail your comments to dgroves @cheesereporter.com.


Letter to the Editor

A Total Myth: ‘The California Discount’
by Rachel Kaldor, Executive Director
Dairy Institute of California

published Februray 5, 2016

An open letter from the Dairy Institute of California:

California dairy farmers have been sold a bill of goods. They’ve been told that since they aren’t getting the Class III price, they’re being cheated. But it’s a myth, a total myth.

This fiction has gotten in the way of any reasonable discussion about dairy pricing in California. It has become all or nothing. Unless California farmers get the Class III price, they’re completely dissatisfied.

Here are the facts that completely debunk the myth:
• In no existing federal milk marketing order does USDA require all cheese makers to pay the Class III price. So the claim that California dairy farmers should get paid what Wisconsin farmers get paid deserves closer scrutiny.

• Today, Wisconsin spot milk sales are happening at between $4.00 and $8.00 UNDER Class III. That is never part of the “California Discount” story. California processors, however, never pay less than the Class 4b price.

• California’s binding minimum price regulations limit competition across manufacturers and that has led to adequate supply, limiting market pressure for increased premiums.

• Wisconsin has many specialty, value-added cheese plants, which generate more revenue than commodity products. California’s largely commodity cheese plants were built to accommodate our large milk volume; those commodity products generate lower revenue.

• Wisconsin cheese plants are nearly half a continent closer to our domestic market. California is the most distant dairy region from domestic cheese markets. It costs money to move product to market.
These facts add up to the real story.

Let’s look at a federal order that has large commodity cheese plants, with a normally ample supply of milk, but closer to domestic markets than California: New Mexico. What’s the most recent mailbox price paid to farmers in that Federal Order? For October 2015, in New Mexico — a federal order with the same rules as Wisconsin but with a dairy industry structured a lot like California — the price was $15.55. But the price paid to dairy farmers in California was $15.82.

That is the real story. It’s not the California discount. It’s the California difference — one state’s unique industry structure compared to another’s.

“The California Discount” makes an easy target of our state’s industry. It deliberately distracts from the real work needed to make our industry successful in changing markets; domestic and now global. And it’s simply a myth. A total myth.


Rachel Kaldor
Executive Director
Dairy Institute of California
Sacramento, CA

About The California Discount

Thank you to Rachel Kaldor for contributing the Letter to the Editor on the California Discount.

By way of brief background, the “California Discount” to which Kaldor refers represents the difference between the California Class 4b (cheesemilk) price and the federal order Class III price.

Historically, the gap between these prices has always been significant. What has drawn criticism from dairy producer organizations in recent years is the fact that the dry whey price has a far greater positive impact on the federal order Class III price than it does on the California Class 4b price.

So, according to California’s Milk Producers Council, high dry whey prices over the 2010-2014 period resulted in a “California Discount” of nearly $2 billion.

And the California producer community has been trying to reduce the size of the “California Discount” for several years now. As Karen Ross, secretary of the California Department of Food and Agriculture, noted in October of 2013, since 2011, the CDFA has held six hearings and denied five hearing requests; and in the last 10 years, it has held a total of 18 hearings and denied a total of 12.

This was of course before the CDFA held a hearing in June of 2015, the result of which was a one-year increase in the whey factor in the Class 4b price formula from August 1, 2015, through July 31, 2016.

As Ross noted in that October 22, 2013 letter to dairy industry stakeholders, testimony submitted at a September 2013 hearing supported the CDFA’s position “that the manufactured milk pricing formulas need to be changed to equitably return value to producers and recognize that only a few processors are realizing the full value of whey.

“California’s 1960’s system of regulated milk pricing is outdated and impairs the ability of the dairy industry to meet 21st century challenges and opportunities in national and international markets,” Ross added.

Unfortunately (at least in our opinion), the “solution” now being pursued in California is a throwback to the Depression era; USDA held a lengthy hearing last fall on establishing a federal milk marketing order for the state of California.

Certainly, that’s one way for California producers to receive the Class III price (or close to it). But it doesn’t seem to be a long-term answer to milk pricing issues either in California or nationally. DG

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.

Maybe Lower Retail Prices Would Boost Fluid Milk Sales

Sometime later this year, USDA’s Economic Research Service will likely report that US beverage milk sales in 2015 totaled less than 50 billion pounds (beverage milk sales include whole, 2 percent, 1 percent, and skim milk, along with flavored whole and other milk and buttermilk).

This seems like a fairly safe prediction because, first of all, beverage milk sales in 2014 were, at 50.659 billion pounds, down almost 1.6 billion pounds from 2013; and second, through the first 10 months of 2015, fluid milk sales were down 1.5 percent from the first 10 months of 2014.

Obviously there are many reasons why fluid milk sales are declining, or at least not increasing (according to ERS figures, beverage milk sales over the past four decades reached a high of 55.426 billion pounds in the year 2000), but we’d like to focus on just one of those factors: retail milk prices.

How important are retail milk prices in overall milk sales? Here’s an excerpt from one of USDA’s recent annual reports to Congress on the dairy and fluid milk promotion programs:

“From 1995 through 2006, annual average fluid milk prices rose 23.6 percent relative to other beverages.
These retail fluid milk price increases are likely responsible for some of the decline in per capita fluid milk consumption.”

So what happened with retail fluid milk prices last year? Well, the good news is that those prices were lower than they were in 2014. According to prices collected monthly by federal milk marketing order market administrators, retail whole milk prices last year averaged $3.61 per gallon, down from $3.84 per gallon in 2014.

That seems like kind of a high price average for whole milk prices, when taking into account the fact that the federal order Class I base price averaged $16.34 per hundredweight last year after averaging a record $23.29 per hundred in 2014.

Indeed, at $16.34 per hundred, the Class I base price last year averaged its lowest since 2010, when it averaged $15.35 per hundred. And retail whole milk prices back in 2010? They averaged $3.24 per gallon.

A year later, when the Class I base price averaged a then-record $19.13 per hundred, retail whole milk prices averaged $3.57 per gallon, four cents less than they averaged last year.

Frankly, it seems like fluid milk sales might fare a bit better if retail prices better reflected federal order minimum prices.

But that’s not even the most frustrating part of this retail price problem. For their price series, federal order market administrators survey one outlet of the largest and second largest food store chains and the largest convenience store chain in a total of 29 cities or metro areas in federal order markets.

Obviously, there’s considerable variation in average retail milk prices between the cities and metro areas surveyed by the market administrators. In 2015, consumers in Cincinnati, OH, and Houston, TX, could consider themselves lucky; retail whole milk prices in those cities averaged $2.85 per gallon and $2.83 per gallon, respectively.

On the other hand, it was a bummer being a milk drinker in Milwaukee, WI, last year, where retail whole milk prices averaged $4.25 per gallon. The same can be said about milk drinkers in Kansas City, MO, where retail whole milk prices averaged $4.23 per gallon.

Isn’t that interesting? Milwaukee had the most expensive whole milk among the 29 cities and metro areas surveyed by market administrators, yet Milwaukee sits in one of the biggest milksheds in the US.

More milk is pooled on the Upper Midwest order, where Milwaukee is located, than any other federal order. And Kansas City is located in the Central federal order, which ranks fourth among the 10 federal orders in volume of producer milk, trailing the Upper Midwest, Northeast and Mideast (at least in 2014).

It’s astonishing to see that, in 2015, retail whole milk prices averaged higher in Milwaukee and Kansas City than in, for example, New Orleans (where they averaged $4.08 per gallon), which is located in Louisiana, which has one of the largest milk deficits among all 50 states.

Another interesting aspect of these high retail milk prices in cities located in milk surplus regions is that these high prices haven’t always been the case, at least in some instances. Back in 2006, for example, retail whole milk prices averaged $3.20 per gallon in federal order markets, and averaged $3.80 per gallon in Milwaukee, but only $3.22 per gallon in Kansas City. Obviously milk prices have gotten a bit out of whack in Kansas City over the last decade.

Perhaps what’s needed in cities like Milwaukee and Kansas City is more retail competition. Related to that point, a new study by agricultural economists Vardges Hovhannisyan and Marin Bozic found that “grocery retail concentration had a positive statistically significant effect on retail dairy product prices.” (For more details, please see the story on our front page.)

Specifically, a 10 percent increase in concentration was found to lead to a 0.46 percent rise in retail dairy product prices.

Will more competition bring about lower milk prices? Who knows? The world of retail milk prices is a complex world, impacted by everything from farm milk prices to processing costs and retailer pricing practices.

But it seems reasonable to expect that lower retail milk prices would boost sales. Notably, fluid milk sales in the Upper Midwest order were down 3.2 percent during the first 10 months of 2015, the largest drop among all 10 orders.

Maybe more competition would mean lower prices and higher sales.

Some Possible Dairy Milestones In 2016

No doubt 2016 will bring many surprises for the dairy industry, but there are also a few things that can be reasonably expected in this new year. Some of these things are based on what happened in 2015 or earlier.

For example, from a price standpoint, 2015 was noteworthy for its relative lack of volatility and relatively “moderate” price levels. For one thing, the CME 40-pound Cheddar block market didn’t reach the $2.00 per pound level for the first time since 2010. Also for the first time since 2010, the federal order Class III price didn’t rise above $17.00 per hundredweight nor fall below $14.00 per hundred.

So our expectation for 2016 is more price volatility than was experienced in 2015. The last time the CME block price failed to reach $2.00 per pound for two consecutive years was in 2009-2010, so we wouldn’t be surprised to see blocks reach that level at some point (probably later in 2016 as opposed to earlier). And given where the block market ended 2015, that would mean that the range between the high and low for the block market in 2016 would be considerably wider than the range in 2015.

Our expectation for milk prices in 2016 is similar. In 2015, the Class III price ranged from a low of $14.44 per hundred to a high of $16.72 per hundred, or a difference of just $2.28. In 2016, we might see both lower lows (maybe $14.00 per hundred or lower) and higher highs (maybe above $18.00 per hundred) than we saw in 2015.

Speaking of milk prices, 2015 saw something that many long-time industry observers thought they’d never see: the California dairy industry petition USDA to establish a California federal order.

That happened early in 2015, and was followed by, among other things, an opportunity for others to submit proposals, a few informational meetings, a hearing notice, and finally a hearing that lasted for a total of 40 days.

So can we expect a new California federal order before the end of 2016? No. USDA recently outlined the next steps in the California federal order process, and under that process, transcript corrections are due on January 15, post-hearing briefs are due March 31, and reply briefs are due May 16.

After reply briefs are submitted, USDA will develop and issue a recommended decision based on the evidence presented during the rulemaking. The agency will then request comments on that recommended decision, analyze those comments, and issue a final decision.

So in short, at the end of 2016, California will still be operating under its state milk order, but it will be closer than it is today to getting its very own federal order.

Speaking of California, it will be mighty interesting to watch what happens in the nation’s largest milk-producing state in 2016. As noted in this space last week, California’s milk production in 2015 was down in every month compared to a year earlier, and the state continues to grapple with a horrendous drought.

Will 2016 bring more production declines in California? Or will the state’s extremely resilient dairy industry turn things around in 2016? We shall see.

Last year was a very busy year for the US Food and Drug Administration, and we fully expect 2016 to also be very busy for FDA. For one thing, the agency is required to issue two more final Food Safety Modernization Act rules in 2016, one covering the sanitary transport of food and feed, the other covering intentional contamination.

Also, FDA in recent years has undertaken a number of proposed rulemakings, some of which could result in final rules being released in 2016.

For example, back in March of 2014, FDA released two proposed rules to update the Nutrition Facts label. One of those proposals dealt with the appearance and content of the Nutrition Facts panel itself, while the other proposal dealt with serving sizes. In 2015, FDA issued a supplemental proposed rule on revising the Nutrition Facts panel.

This has been a pretty significant undertaking for FDA, as evidenced just by the fact that the agency received almost 800 comments on its proposal to update the Nutrition Facts panel and over 100 comments on its proposal to update serving sizes.

It’s certainly possible that FDA will publish final rules to revise the Nutrition Facts panel and serving sizes sometime in 2016.

FDA in 2015 also sought comments on reducing the risk of raw milk cheese. The agency received roughly 50 comments from around the world.

Can we expect some sort of proposed FDA rule regarding raw milk cheese in 2016? That’s doubtful. After all, FDA has been reviewing its raw milk cheese policy since the late 1990s. It doesn’t seem likely that the agency would propose any changes to that policy so soon after the period for submitting comments on reducing the risk of raw milk cheese ended.

On the trade front, possibly the biggest story in 2016 will be the ongoing Transatlantic Trade and Investment Partnership negotiations between the US and the European Union. Just as one of 2015’s biggest trade stories was the completion of the Trans-Pacific Partnership agreement, perhaps one of 2016’s biggest trade stories will be the completion of the TTIP. Or maybe not.

But neither the recently concluded TPP nor the TTIP will bring about actual policy changes in 2016. The TPP still has to be ratified before it can take effect, and the ratification process will take a fair amount of time in 2016. And of course the TTIP hasn’t yet been completed, let alone ratified.

Combining these few “knowns” with all of the unknowns, we can all stay tuned for a dairy interesting 2016. DG

A Look Back At Some 2015 Dairy Developments

The year 2015 is rapidly coming to an end, so there’s no better time to look back at some of the more interesting happenings this year, from a dairy industry perspective.

Compared to 2014, 2015 could perhaps best be described as kind of boring. Last year, after all, featured, among other things, a new farm bill that terminated the longstanding dairy price support program, Dairy Export Incentive Program and Milk Income Loss Contract program; record-high prices for cheese, butter, and milk; and new record highs for both dairy exports and imports.

And 2015? Well, we did see a new butter price record set, but otherwise on the price front, things were pretty average. Through the first 11 months of 2015, the CME 40-pound Cheddar block price averaged around $1.6250 per pound, which will end up being the lowest block price average since 2010 but a few cents above the 2000-14 average.

Meanwhile, the federal order Class III price is on pace to average somewhere around $15.80 per hundredweight, down about $6.50 from 2014’s record high but almost a dollar above the 2000-14 average.

On the congressional front, things were pretty quiet this year, with the issue of GMO labeling perhaps garnering the most attention but not being resolved by the end of 2015 (the House passed a bill back in July but the Senate hasn’t addressed the issue yet).

Things were a bit busier this year on the regulatory front. Specifically, the US Food and Drug Administration has been generating headlines like perhaps never before. Some of those headlines concerned implementation of the landmark Food Safety Modernization Act, which was signed into law almost five years ago.

Back in September, FDA published its long-awaited preventive controls final rule, which requires, among other things, that food companies establish and implement hazard analysis and risk-based preventive controls, and modernizes FDA’s current good manufacturing practices regulations.

About a month later, FDA released a couple of additional final rules required under the FSMA: the foreign supplier verification program and the program for accreditation of third-party certification bodies to conduct food safety audits. Implementation of these final rules will keep the dairy industry busy for several years.

FDA also made some progress, sort of, on its raw milk cheese regulations. Back in late July, the agency sought comments on reducing the risk of raw milk cheese. This might, eventually, lead to FDA bringing its raw milk cheese regulations into the 21st century.

On the trade front, US dairy exports will end the year down by somewhere around $1.8 billion from 2014’s record level of $7.1 billion, while US dairy imports will probably end up topping $3 billion for the first time ever.

But arguably the biggest dairy trade story this year was the conclusion of the Trans-Pacific Partnership agreement, which includes not only the US but also such dairy export giants as New Zealand and Australia and such significant dairy importers as Japan and Mexico.

The jury’s still out on the net impact of the TPP agreement; about the only conclusion that seems safe at this time is that it’s the most significant dairy trade agreement since the Uruguay Round agreement more than 20 years ago.

On the domestic front, 2015 could be remembered as the “Year of California,” for at least a couple of reasons. Of course, every year in the dairy industry could be remembered as the “Year of California,” simply because California accounts for over 20 percent of total US milk production and is also the leading producer of butter and nonfat dry milk, among other products.

But 2015 will be more memorable than usual from a California dairy perspective, for at least a couple of reasons. First, the year was less than a month and a half old when the three largest dairy cooperatives in California petitioned USDA to hold a hearing to consider establishing a federal order for California.

About seven months and lots of rigamarole later, the historic California federal order hearing got underway, running for a total of 40 days. Obviously, 2015 will end with California still operating under its own state milk order, but just the fact that the process has gotten this far is historically significant.

The other major development in California in 2015 has been the state’s falling production. Compared to 2014, the state’s milk production has been down every month thus far in 2015, and through 11 months California’s milk output is down about 1.3 billion pounds from a year earlier.

That volume of milk is about what the state of Missouri produced in 2014.

Milk production declines in California have obviously meant declines in the production of various dairy products. Through October, California’s cheese production was only down 0.3 percent from a year earlier (thanks to output being higher in six of the first seven months of 2015), but cheese production in August, September and October was down 3.2 percent, 2.9 percent, and 4.9 percent, respectively, from those same months in 2014.

Meanwhile, California’s butter production through October was down 5.9 percent from a year earlier, while yogurt output was down almost 14 percent and production of whey protein concentrates and isolates was down almost 30 percent.

All in all, 2015 has provided lots of interesting developments in the dairy business, although if nothing else it made us appreciate, even more how memorable 2014 really was. DG


Revisiting An Ongoing Problem With Product Price Formulas

Product price formulas have been a formal part of US milk pricing for more than two decades now, ever since USDA issued a final rule, for all federal orders in operation at the time, that implemented the base month Minnesota-Wisconsin (M-W) price updated with a butter/powder/cheese formula as the replacement for the old M-W price series.

And product price formulas have been generating controversy in the dairy industry for, well, for more than two decades now. These controversies have focused on issues ranging from the use of National Cheese Exchange prices 20 years ago to the use of dry whey prices in recent years.

One aspect of product price formulas that has been generating controversy for more than a decade now is make allowances. Indeed, it was just over a decade ago, in September of 2005, when Agri-Mark requested that USDA hold an emergency hearing to, among other things (and primarily) update the make allowances for cheese, dry whey, butter and nonfat dry milk.

At that time, federal order make allowances for cheese, butter, nonfat dry milk and dry whey were 16.5 cents per pound, 11.5 cents per pound, 14.0 cents per pound and 15.9 cents per pound, respectively. Agri-Mark’s emergency hearing request noted, among other things, that California’s make allowances were higher for all four of those products.

Make allowances were increased twice in the aftermath of Agri-Mark’s emergency hearing request (hearings were held in early 2006 and then reconvened later that year). First, USDA bumped up the make allowance for cheese (among other changes) from 16.5 cents per pound to 16.82 cents per pound, and then raised that make allowance to 20.03 cents per pound (among other changes).

The current federal order make allowance for cheese has been 20.03 cents per pound since October 1, 2008. In its tentative partial final decision that set the cheese make allowance at that level, USDA explained that the California Department of Food and Agriculture’s 2006 survey of average cheese manufacturing costs “is the best available information representing the manufacturing cost of producing a pound of cheddar cheese.”

Accordingly, USDA proposed for adoption a make allowance for Cheddar cheese of 20.03 cents per pound, including a .15-cent per pound marketing cost adjustment. That meant the CDFA’s average Cheddar manufacturing cost for 2006 was 19.88 cents per pound.

Since 2006, California’s Cheddar cheese manufacturing cost has gone both up (reaching 20.99 cents per pound in 2008) and down (reaching 19.21 cents per pound in 2010), but has now risen four straight years, including new record highs for three straight years.

As reported on our front page last week, California’s average cost of manufacturing Cheddar cheese last year was a record 23.55 cents per pound, up from 22.91 cents per pound in 2013. And therein lie at least two problems with product price formulas.

First, as noted earlier, the federal order make allowance for cheese in the Class III formula has been 20.03 cents per pound for more than seven years, and that make allowance, when established back in 2008, was based solely on CDFA cost data.

That CDFA cost data shows that the average cost of manufacturing Cheddar cheese is now more than 3.5 cents per pound higher than it was back in 2006. And that CDFA cost data has shown for three years now that the average cost of manufacturing Cheddar cheese is at least 1.68 cents higher than the federal order make allowance for cheese.

Interestingly, during the initial federal order make allowance hearing in January of 2006, Agri-Mark’s Bob Wellington proposed that USDA increase the cheese make allowance from the 16.5 cents per pound then in effect to 18.1 cents per pound, an increase of 1.6 cents per pound.

If USDA were to convene a new hearing on make allowances, it would seem appropriate to propose something along the lines of a 3.5-cent increase in the make allowance for cheese.

Another problem with product price formulas revealed by the CDFA’s latest cost surveys is that the CDFA is now only able to collect and summarize manufacturing cost data from four California cheese plants. The volume total (which includes both Cheddar and Monterey Jack cheeses, but couldn’t be published due to confidentiality reasons) reflected only 40-pound Cheddar blocks, although two plants processed 500-pound barrels or 640-pound blocks.

Back in 2006, the CDFA’s survey included seven cheese plants that processed a total of 826.8 million pounds of cheese (Cheddar and Monterey Jack), representing 98 percent of the Cheddar and Monterey Jack produced in California that year.

Last year, California produced 375.8 million pounds of Cheddar cheese, and Cheddar accounted for 15.4 percent of the state’s total cheese output. Back in 2006, Cheddar accounted for 22.5 percent of the state’s cheese output.

The point is, both in California and nationally, the cheesemilk price is based on the price of a commodity (Cheddar) that’s becoming less important in the category as a whole (cheese). US Cheddar output last year accounted for 28.5 percent of total cheese production, down from 33.4 percent 10 years ago.
More than two decades of experience indicates that there are numerous problems with product price formulas. With that experience in mind, perhaps it’s time for another round of federal order reform.

The Goat Milk Boom

Some recent, and not-so-recent, news items have led us to reach the following conclusion: the goat milk business, both in the US and globally, is definitely a growth market, now and in the years ahead.

This isn’t necessarily an easy conclusion to reach, for the simple reason that “official” statistics on the goat milk industry are pretty limited.

Indeed, USDA’s National Agricultural Statistics Service offers only one report that includes statistics pertaining to goat milk. The agency’s annual Sheep and Goats report, released early every year, includes information about milk goat inventory, both for the US as a whole and for various states and regions.

So what does that report show? According to the report released back in January, there were 365,000 milk goats in the US as of January 1, 2015, 7,000 head more than a year earlier.

Digging a little deeper into the NASS statistics, we find that the US milk goat inventory has risen from 300,000 head as of January 1, 2005, to 365,000 head as of January 1, 2015.

That’s notable, because we weren’t able to find any statistics on milk goat inventory prior to 2005. NASS has only been tracking the inventory of milk goats for about a decade now.

Beyond the statistics, there are a couple of additional indicators of the health and vitality, not to mention growth prospects, of the goat milk industry in the US.

First, there are at least a couple of companies that have made significant acquisitions of goat milk businesses recently. Just last week (as reported on page 9 of December 4 issue), Switzerland’s Emmi announced that it has acquired Redwood Hill Farm & Creamery in Sebastapol, CA.

Redwood Hill has a turnover of more than $22 million per year, and produces artisan goat milk cheese, yogurt, and kefir. According to Emmi, the Redwood Hill Farms Plain Goat Milk Yogurt in one-liter cups is the country’s biggest-selling large yogurt distributed via the US natural food channel.

The Redwood Hill acquisition isn’t Emmi’s first acquisition of a US goat milk products pioneer. Several years ago, Emmi acquired California-based Cypress Grove Chevre.

In short, Emmi’s recent acquisition history indicates that the company sees solid potential for goat milk cheeses and other goat milk products in the US.

Meanwhile, Canada’s Saputo announced back in October that it had acquired the companies forming Woolwich Dairy, which generates annual revenues of about $70 million and produces, distributes, markets and sells goat cheese in Canada and the US.

Woolwich itself illustrates the growth taking place in the US goat milk business, having been founded in Canada back in 1983 and then opening a plant in Lancaster, WI, in 2008.

Like Emmi, Saputo certainly seems to see the potential for growth in the goat milk cheese business. And why not? After all, the combined sales of Redwood Hill and Woolwich are more than $90 million (although Woolwich has a longer and stronger presence, and presumably greater sales, in Canada than in the US).

The second indicator of the health and vitality of the goat milk industry in the US can be seen in the number of classes and entries for goat milk cheeses in various cheese contests.

Just to cite one example, less than 25 years ago, the biennial United States Championship Cheese Contest didn’t have a single class for goat milk cheese. Six years later, when a goat milk cheese captured the top prize in that contest, there were two classes for goat milk cheese: one for fresh goat’s milk cheese and the other for aged/cured goat’s milk cheese. The two classes together drew fewer than two dozen entries.

The US Championship Cheese Contest held back in March had a total of seven categories for goat’s milk cheeses, plus three classes for mixed milk cheeses (for blended cow, goat, sheep and/or buffalo milks). The seven goat’s milk cheese categories attracted approximately 135 entries.

One interesting aspect of the growth in the number of goat milk cheese classes and entries in the US Championship Cheese Contest is that several companies that have long produced only cow’s milk cheeses have now ventured into producing goat’s milk cheeses (not to mention mixed milk cheeses).
These companies include, among others, Marin French Cheese, Sartori Company, Hook’s Cheese Company and Carr Valley Cheese.

Without going into specifics, it’s safe to say that most if not all other US cheese and dairy product contests have expanded the number of goat milk cheese classes in recent years, and have seen a rising number of entries as a result.

Not only are US cheese contests attracting a growing number of goat cheese makers, international competitions are also attracting more and more US goat cheese makers. The latest and perhaps best example of this is the 2015 World Cheese Awards, results of which were reported in a front-page story in last week’s issue.

The US did quite well in that contest, capturing a total of eight Super Golds (a total of 62 Super Golds were awarded). Amazingly, four of the eight Super Golds earned by US cheese makers were for goat’s milk cheeses; these included Midnight Moon from Cypress Grove Chevre, Smoked Billy Blue from Carr Valley Cheese, Chaumine from Goldin Artisan Goat Cheese, and Miette from Baetje Farms.

It’s never easy, or safe, making predictions in the dairy business, but it looks like a pretty safe bet to predict that the future of the US goat milk industry is extremely bright. DG

Comprehensive Food Label Update An Intriguing Idea, But...

A couple of weeks ago, four Democratic members of Congress introduced legislation that would address food labeling reform in what sponsors call a comprehensive manner.

That’s an intriguing idea, but the bill as introduced has far too many flaws to deserve support from the food industry — or consumers, for that matter.

As reported in last week’s issue (please see page 3), two Democrats in the House and two Democrats in the Senate introduced a bill called the Food Labeling Modernization Act of 2015.

It should be noted, first of all, that the legislation has absolutely no chance of being approved by either house of Congress, for the simple reason that it was introduced by Democrats only and both the House and Senate are controlled by Republicans.

Similar legislation was introduced in both the House and the Senate two years ago and went absolutely nowhere, despite the fact that the Senate at that time was controlled by Democrats.

While it has absolutely no chance of advancing, there are at least three positives in this food labeling legislation. For one thing, it’s been about a quarter of a century since Congress passed the Nutrition Labeling and Education Act of 1990, and the Nutrition Facts panel has been mandatory on most packaged foods for more than 20 years. That alone means an update isn’t such a bad idea.

Second, this legislation is pretty comprehensive, addressing such issues as the Nutrition Facts panel, the ingredients statement, and front-of-package labeling. The US Food and Drug Administration has been working on an update to the Nutrition Facts panel for almost two years now, and because this update is going to happen sooner or later, why not take a look at other aspects of food labels as well?

And third, the bills require that the formatting for the ingredient labels on foods be improved for the purposes of readability (i.e., the size of lettering, contrast of lettering, bolding, bullet points, etc.). As the US population continues to age (the oldest baby boomers hit 70 in a few short weeks), ingredient statements become harder and harder to read; larger typeface wouldn’t be such a bad idea.

Still, there are more negatives than positives in this legislation. For one thing, it requires FDA to promulgate a final rule relating to the use of the term “natural,” taking into consideration consumer surveys and studies.

We addressed the complex issue of trying to define “natural” in this space two weeks ago, after FDA announced that it was seeking input on whether and how it should define “natural.” We recommended that FDA continue its current approach on the use of the term “natural,” but the bills introduced in Congress two weeks ago would force FDA to define “natural.” That’s just not a good idea.

The bills also require FDA to clarify the definition and usage of the term “healthy.” The clarifications deal with whole grains and added sugar, but what FDA should really do is stop regulating the use of “healthy” altogether, for the same reason it shouldn’t try to define the term “natural”: there’s simply no way to actually come up with an accurate, useful and not misleading definition of the term.

That’s especially true given how much our knowledge of nutrition and health has changed over the past two or three decades. For example, for many years there was a general belief that foods containing high levels of dietary cholesterol were “unhealthy.”

But the 2015 Dietary Guidelines Advisory Committee, in its report released earlier this year, concluded that dietary cholesterol is “not a nutrient of concern.”

In other words, what’s considered “healthy” or “unhealthy” today might be considered just the opposite in a few years. And by the time any final FDA labeling regulations take effect, the 2020 Dietary Guidelines Advisory Committee will be undertaking its report, which will undoubtedly be different than the 2015 DGAC’s report.

The bills also address front-of-package labeling, and not in a good way. Basically, the legislation requires FDA to promulgate regulations regarding the summary nutrition information required on the front of food packages, and the labeling is required to be a single, simple, standard system that is easily seen and understood and displays caloric information related to a common serving size and information related to nutrients strongly associated with public health concerns.

There are at least two huge problems with this. First, as noted in the cholesterol example cited earlier, the nutrients strongly associated with public health concerns keep changing; that is, what was considered a public health concern back in, say, 1990 might not be a concern today.

And second, food labels have focused on nutrients of concern, such as fat, cholesterol and sodium, for over two decades, with dismal results. If FDA mandates front-of-package labeling, it should focus on nutrient density, or on the positive attributes of foods (such as being good sources of calcium, protein, potassium, magnesium, phosphorus, etc.), rather than on so-called negative attributes.

Yes, food labels are arguably in need of an overhaul, not just the Nutrition Facts panel but also pretty much every other aspect of the labels. And yes, it would be nice to do this all at once, so that just one label changeover would be required, rather than several.

But the legislation introduced in Congress last month isn’t the right approach. So it’s probably a good thing that only Democrats are behind the bills.

Maybe what’s really needed is some sort of bipartisan approach to updating food labels. DG

The Hunger Problem Persists

It’s that season again: the season of holidays, parties, and general over-indulgence.

But not for everyone. The fact is that hunger remains a persistent problem in the US, not to mention around the world, despite the fact that millions of Americans will in all likelihood gain a pound or three between now and early 2016.

We’d like to make a couple of points here. First, just how big is the hunger problem?

According to a recent report from USDA’s Economic Research Service, in 2014, 86 percent of US households were food secure throughout the year, while the remaining 14 percent (17.4 million households) were food insecure. Food-insecure households (those with low and very low food security) had difficulty at some time during 2014 providing enough food for all their members due to a lack of resources.

Further, in 2014, 5.6 percent of US households (6.9 million households) had very low food security, ERS reported. In this more severe range of food insecurity, the food intake of some household members was reduced and normal eating patterns were disrupted at times due to limited resources.

Children (also known as “the future”) were food insecure at times during 2014 in 9.4 percent of US households with children (3.7 million households). These households were unable at times during the year to provide adequate, nutritious food for their children.

What about globally? According to the latest edition of the annual United Nations hunger report, the number of hungry people in the world has dropped to 795 million (216 million fewer than in 1990-92).

In the developing regions, the prevalence of undernourishment — which measures the proportion of people who are unable to consume enough food for an active and healthy life — has declined to 12.9 percent of the population, down from 23.3 percent a quarter of a century ago, according to “The State of Food Insecurity in the World 2015,” published earlier this year by the UN’s Food and Agriculture Organization, the International Fund for Agricultural Development, and the World Food Program.

These hunger statistics prompt a couple of thoughts. First, in the US, it seems that obesity garners a majority of the food-related headlines, but hunger poses a significant problem as well, one that arguably deserves more attention than it currently receives.

And globally, we’ve been hearing for a number of years now that agriculture is going to have to gear up to feed 9 billion people by the year 2050. That’s even more challenging than it might seem, considering that we’re not even adequately feeding all of the current population.

Our second point here concerns how people can help reduce the hunger problem, both in the US and worldwide. We’re frankly not optimistic that the hunger problem will ever be totally eliminated, but at least, as recent trends indicate, the problem can be reduced.

In the US, Feeding America (formerly Second Harvest) is the largest hunger-relief organization, a network of 200 food banks across the country. Feeding America feeds 46 million people at risk of hunger, including 12 million children and 7 million seniors.

There are at least three ways to support Feeding America. First, Feeding America accepts monetary donations, and says that, for every dollar donated, the Feeding America network of food banks secures and distributes 11 meals to people facing hunger.

Also, Feeding America accepts food donations. The organization bills itself as a leading waste diversion partner across the food supply chain, partnering with top industry groups and companies in the retail, manufacturing, and produce spaces. This is significant, considering that, according to the federal government, food loss and waste in the US accounts for approximately 31 percent of the overall food supply available to retailers and consumers.

Finally, Feeding America and the National Dairy Council last year launched the Great American Milk Drive, which aims to get people to donate milk to hungry families. More information is available at https://milklife.com/give. And more information about Feeding America (which provides liability protection and tax benefits for its corporate partners) is available at www.feedingamerica.org.

Feeding America is the largest US hunger-relief organization, but it’s not the only one. Among the others: Share Our Strength (more information is available at www.nokidhungry.org).

Internationally, there are numerous organizations devoted to reducing hunger. One of these organizations, Heifer International (www.heifer.org), provides livestock, trees, seeds and training in environmentally sound agriculture to families in 30 countries, including the US, to help families and communities become more self-reliant.

Another organization that works internationally is Stop Hunger Now (www.stophungernow.org), which gets food and life-saving aid to the world’s most vulnerable people, and works to end global hunger. And Action Against Hunger’s (www.actionagainsthunger.org) programs are designed to bolster agricultural production, jumpstart local market activity, support micro-enterprise initiatives, and otherwise enhance a vulnerable community’s access to sustainable sources of food and income.

There are many, many other organizations, too numerous to list here, that are also devoted to trying to end, or at least reduce, global hunger.

Many of us will overindulge during this holiday season; there are numerous ways to help those who won’t have that opportunity.

FDA Should Not Try To Define ‘Natural’ For Food Labels

origianally appeared in the 11/20/15

The US Food and Drug Administration last week announced that it is interested in receiving comments on the use of the term “natural” on food labels. Among other things, the agency wants input into whether it should define the term “natural,” or prohibit the use of the term on food labels.

What FDA should actually do on this issue is nothing. That is, it should neither define the term “natural” nor ban its use. In this case, it should leave things alone.

As reported on our front page last week, FDA said it is seeking comments on the use of the term “natural” in part because it has received three petitions asking that the agency define the term “natural” for use in food labeling, and one petition asking that the agency prohibit the use of the term “natural” on labels.

Two of the petitions asking FDA to define the term “natural” illustrate how difficult this undertaking is. Both Sara Lee Corp. and The Sugar Association basically want FDA to adopt a unified policy with other government agencies regarding the use of the term “natural.”

FDA explained that the use of “natural claims” in the USDA-FSIS Food Standards and Labeling Policy Book states, in relevant part, that the term “natural” may be used on labeling for meat and poultry products if the applicant for such labeling demonstrates that: the product does not contain any artificial flavor or flavoring, coloring ingredient, chemical preservative, or any other artif icial or synthetic ingredient; and the product and its ingredients are not more than minimally processed.

Of course, nothing is ever simple when it comes to defining terms such as “natural,” so the FSIS policy book goes on to explain that minimal processing may include traditional processes used to make food edible or to make it safe for human consumption (we can see where this would cause some interesting discussions over whether milk that’s been pasteurized has been “minimally processed”), or physical processes which do not fundamentally alter the raw product and/or which only separate a whole, intact food into component parts.

We can’t even begin to imagine how this might work when applied to whey products. After all, products such as whey protein isolate and lactoferrin are “component parts” of milk, but it seems that milk needs to be more than “minimally processed” in order to produce those products.

A third petition, from the Grocery Manufacturers Association, asks FDA to issue a regulation authorizing statements such as “natural” on foods that are or contain foods derived from biotechnology.

In its petition, GMA notes that, for over 20 years, FDA “has not wavered in its position that foods derived from biotechnology, as a class, are just as safe as their traditionally bred counterparts.” And based on FDA’s own analysis and findings concerning plants derived from biotechnology, “it follows that a statement of ‘natural’ or a similar statement would be neither false nor misleading on a food derived from such technology solely because of its heritage,” GMA added.

As far as foods derived from biotechnology are concerned, it should be kept in mind that, back in July, the US House of Representatives passed a bill on GMO labeling, but the Senate has yet to act on any such measure. FDA is specifically seeking input on whether the term “natural” should include such production practices as genetic engineering.

It would seem that FDA can’t make a final determination on the use of the term “natural” at least until Congress passes some sort of GMO labeling bill (especially since the House bill requires FDA to define the term “natural”).

Based on all the questions that FDA is seeking input on, it would appear that trying to define the term “natural” will be next to impossible for the agency. So the petition from Consumers Union, requesting that FDA ban the use of the term “natural” on food labels altogether, is intriguing.

Consumers Union states in its petition that, according to a survey it conducted in April of 2014, a majority of US consumers are misled by the “natural” label, and almost 90 percent expect it to mean much more than it does. So Consumers Union wants FDA to issue an interpretive rule stating that the term “natural” is “vague and misleading and should not be used.”

While we agree with Consumers Union’s point that the term “natural” is “vague and misleading,” we don’t think an outright ban on its use is practical, or even constitutional (thanks to the First Amendment). If nothing else, how would a ban on the use of the term “natural” impact companies that use it in either their company name or a product name?

Rather than an outright ban or some sort of formal definition, we think the best solution to the “natural” labeling dilemma is for FDA to simply do nothing. And that’s both because every consumer has a different interpretation of what the term “natural” means, and because there’s already plenty of information available to consumers to help them decide what food products are and aren’t “natural.”

For example, FDA wonders whether manufacturing practices, such as pasteurization, should be considered in determining when a food can be called “natural.” It seems likely that consumers of raw milk wouldn’t consider pasteurized milk to be “natural,” and everybody else probably would, or wouldn’t care.

Between information on ingredient statements, company websites and elsewhere, consumers can gather enough information to decide whether foods are “natural,” depending on how they define the term. They don’t need FDA’s help.

On Raw Milk Cheese, FDA Should Listen To Europe

origianally appeared in the 11/13/15

Back at the end of July, the US Food and Drug Administration asked for comments and data to help the agency identify and evaluate intervention measures that might have an effect on the presence of bacterial pathogens in cheeses made from raw milk. The agency received somewhere around 45 comments during the comment period that ended early last week.

As reported in a lengthy story that starts on our front page this week, comments submitted to FDA touch on a number of subjects pertinent to raw milk cheese, ranging from the 60-day aging rule and HACCP to indicator organisms and product testing.

There are several conclusions that can be reached when reading through these comments, but we’ll mention just a couple here, and they’re related. First, it doesn’t appear that the current 60-day aging rule for raw milk cheese has many, if any, fans outside the US.

Indeed, the current 60-day aging rule is far from universally supported even in the US, where it’s been the rule of law for somewhere around six decades. Just to cite two examples from comments submitted to FDA:

•Crown Finish Caves LLC, a cheese aging facility located in Brooklyn, NY, does not feel science supports the 60-day rule and aging periods “are inconsequential as the risks can be managed.”

•Cellars at Jasper Hill, based in Greensboro Bend, VT, said aging periods are of “no consequence or significance” in its food safety plan, and that the 60-day aging period “aggravates the food safety implications for some of our award winning cheeses.”

For our second conclusion, we note that Cellars at Jasper Hill further recommended that FDA abandon the 60-day aging requirement for raw milk cheese and should harmonize performance criteria for pathogens in both pasteurized and raw milk cheese with EU Regulation No. 2073/2005.

Yes, what FDA should do, or probably should have done years ago, is harmonize its raw milk cheese regulations with those of the European Union. There are at least two good reasons why FDA should now take this approach.

For one thing, as the European Commission pointed out, there is a “long history” of producing many different cheeses from raw milk in the EU, and the legislative basis for the EU food safety system “ensures high safety standards and consumer protection” in regard to such products.

In addition to the reference by Cellars at Jasper Hill noted earlier, at least a couple of other comments include references to the EU’s regulations. For example, the European Commission notes that Regulation (EC) No 853/2004 establishes requirements for raw milk production, the hygiene on farms, and health criteria applicable to raw milk and dairy products (everything from criteria before processing to labeling).

The point here is that the EU has far more experience and expertise in regulating cheese made from raw milk than does the FDA, just as evidenced by the relatively recent regulations (implemented in the 21st century!) that currently are applied to the production and marketing of raw milk cheeses in the EU. FDA probably has nobody working on these rules who’s as old as the rules themselves. The agency should utilize the EU’s vast experience with raw milk cheeses as it reworks US regulations.

Second, the European Commission also noted that the EU has a long history of producing raw milk cheeses “traditionally for domestic production, but increasingly, also for export.”

The EU exports these cheeses to many countries around the world, including the US. Coincidentally, the EU and the US are also currently negotiating the Transatlantic Trade and Investment Partnership (TTIP). Under that agreement, the US and the EU are seeking greater compatibility of US and EU regulations and related standards development processes.

When it comes to raw milk cheeses, US and EU regulations are currently, well, they’re less than fully compatible. There is absolutely no way the EU would ever agree to include something like the 60-day aging rule in a final TTIP agreement, and in fact it’s a safe bet that the EU will be seeking to export more raw milk cheeses, including some aged less than 60 days, to the US in the future.

The EU also exports some cheese to Australia and New Zealand and, as the American Cheese Society noted in its comments to FDA, the Australian approach detailed in a 2005 report on Roquefort cheese “provides an example of a less-restrictive, science-based path to cheese safety.” Food Standards Australia New Zealand roots pathogen control for Roquefort in the implementation of an effective HACCP-based approach supported by prerequisite programs and animal health, and verified through microbiological testing.

The bottom line to all of this, it seems, is twofold. First, the 60-day aging rule will, eventually, be relegated to the scrap heap of regulatory history. It’s not supported by science, it’s outdated, and it isn’t even supported by everyone in the US cheese industry, let alone by US trading partners such as the EU and Australia.

Second, FDA should be listening to the European Union (and countries such as Switzerland) on this issue. Europe not only has great tradition on its side when it comes to raw milk cheeses, it also has the regulations that bring those raw milk cheesemaking traditions into the global market of the 21st century.

And when (or if) FDA listens and moves its raw milk cheese regulations closer to the EU’s, US cheese makers will be able to continue producing these cheeses without the regulatory uncertainty of recent years. DG

Educating The Next Generation, Ensuring The Industry’s Future

origianally appeared in the 11/6/15

A few months ago in this space (May 22nd, to be exact), we wrote about how the dairy industry would, due to everything from growing milk production to increasing specialty cheese production to baby boomer retirements, have plenty of job openings in the future.

Our lead story last week looked at this situation from a slightly different perspective: it focused on how the next generation of dairy technologists and dairy scientists was going to be educated and trained (or not).
And the story focused on the particular concerns of the western dairy industry.

Why should this “western problem” matter to the US dairy industry? It’s pretty simple, really. The two regions that could be considered to comprise the western dairy industry, the Mountain and Pacific regions (these are the milk production regions as broken out by USDA’s Economic Research Service, and they’re the same as the West region as broken out by USDA’s National Ag Statistics Service for cheese and other dairy product production), accounted for over 41 percent of total US milk production in 2014.

And those western states include two of the top three milk-producing states (California and Idaho), and two additional states in the top 10 milk-producing states (New Mexico and Washington).

Some might also consider Texas to be a part of the western dairy industry, although ERS places Texas in the Southern Plains region and NASS places Texas in the Central region. Including Texas in the so-called western dairy region would mean five of the top 10 milk-producing states are located in the western region of the US.

As Don McMahon of the Western Dairy Center pointed out at last week’s Global Cheese Technology Forum, there are only a few professors remaining in the western region of the US who have a primary interest in dairy foods, including himself at Utah State University; Phil Tong and David Everett at Cal Poly-San Luis Obispo; Lisbeth Goddik at Oregon State University; and Bruce German and David Mills at the University of California, Davis. And Tong (who participated in that panel discussion last week) is planning to retire within the next year.

A couple of other points help illustrate the education and training situation facing the western dairy industry.
First, according to a “Dairy Technology Workforce Education” white paper included with abstracts from the Global Cheese Technology Forum, six western states do not have a university food science program, including New Mexico, Arizona and Colorado.

Granted, food science-related degrees are available in some of these states; for example, the department of family and consumer sciences at New Mexico State University offers a degree in food science technology.
But the lack of an actual food science department in three states that rank in the top 15 in milk production (New Mexico ranks ninth, Arizona 12th and Colorado 15th) should be at least somewhat concerning to the entire US.

To put this in perspective, across the Upper Midwest, South Dakota State University has a dairy science department that focuses on both milk production and dairy processing, while the University of Nebraska has a food science and technology department, Iowa State University has a department of food science and human nutrition, the University of Minnesota has a department of food science and nutrition, the University of Wisconsin-Madison has a department of food science, UW-River Falls has a department of animal and food science, the University of Illinois has a department of food science and human nutrition, Purdue University has a department of food science, Michigan State University has a department of food science and human nutrition, and Ohio State University has a department of food science and technology.

This tells us that at least some of the dairy scientists and technologists working in the western dairy industry in the future will be trained and educated in the Midwest. And that should be of concern to both regions.

It’s also interesting to note that, at the recent Collegiate Dairy Products Evaluation Contest in Chicago, there was exactly one US team from a state located to the west of perennial champion South Dakota State; that was the combined team of Washington State University and the University of Idaho.

This lack of participation is perhaps more symbolic than anything else, and can be attributed to a number of factors, ranging from the lack of a faculty member who can devote the necessary time to coach a team to budget constraints. Still, it’s difficult to put a positive spin on the lack of western teams in a contest that represents the culmination of student training by college professors who are experts in dairy product evaluation.

So what’s the solution to this dilemma? Basically, it will be up to the industry itself to ensure that the dairy centers and universities in general are adequately focused on dairy processing.

This will include a substantial financial commitment (money), but it will also require the dairy industry to maintain a higher profile with universities, to make sure that these schools understand that the dairy industry is growing in both size and complexity (and jobs), that the industry contributes billions of dollars to state economies (for example, a 2015 study for the California Milk Advisory Board concluded that California milk production and processing contributed about $65 billion in total sales to the state’s economy last year), and that well-trained scientists and technologists are key to future industry prosperity. DG

The Beleaguered Federal Standards Of Identity For Dairy

origianlly appeared in the 10/30/15

A funny thing happened at the Global Cheese Technology Forum this week in Reno, NV: a seldom-discussed dairy industry issue was mentioned no less than three times just during the opening day of the meeting.

That issue was standards of identity, which have been around in the dairy industry for almost as long as federal milk marketing orders, and are just as much in need of some serious updating, if not outright elimination.

The three opening-day speakers at the Global Cheese Technology Forum who mentioned standards of identity were Ron Dunford of Schreiber Foods, Mark Leddy of Valley Queen Cheese, and Mark Steffens of Tetra Pak. These speakers represent companies with many years of experience in the dairy business, and none of them spoke highly of standards of identity.

Coincidentally, our “From Our Archives” column just last week had an interesting item under the “10 Years Ago” heading: it was back in October of 2005 when the US Food and Drug Administration published a long-awaited proposal to allow the use of fluid ultrafiltered (UF) milk in the manufacture of standardized cheeses and related cheese products.

Note the use of the term “long-awaited” in that sentence. By the time FDA published that proposed rule in October of 2005, it had been almost six years since the American Dairy Products Institute filed a petition requesting that FDA amend the definition of “milk” to include fluid UF milk, thereby permitting the use of fluid UF milk in the manufacture of standardized cheeses and related cheese products. ADPI submitted that petition on December 2, 1999.

A little over half a year later, in June of 2000, FDA received another petition, this one from the National Cheese Institute, Grocery Manufacturers of America and National Food Processors Association. That petition requested, among other things, an amendment to the federal standards of identity to include “filtered milk” in the definition of “milk” and “filtered skim milk” in the definition of “nonfat milk” for use in standardized cheeses and related cheese products.

That 2000 petition was submitted so long ago that the GMA and the NFPA have since merged into one organization, and that organization is still the GMA but is actually now the Grocery Manufacturers Association. Time flies when you’re waiting for FDA to act on petitions related to standards of identity.

FDA’s proposed rule wasn’t the agency’s final step in its consideration of the industry petitions. About two years after it published the proposed rule, FDA actually reopened the comment period to seek further comment only on two specific issues raised by the comments concerning the proposed ingredient declaration.

The reopened comment period closed on February 11, 2008, meaning it’s now been seven years and almost nine months since FDA stopped accepting comments on the UF milk petitions and started contemplating a final rule.

And so, if and when the agency does finally issue a final rule, it’s at least somewhat likely that we’ll report that FDA issued a “long-awaited” final rule to allow (or not allow) the use of fluid UF milk in the manufacture of standardized cheeses.

Such is life with standards of identity these days. And it’s not just for cheese. It was back in January of 2009 that FDA proposed to revoke its regulations on the standards of identity for lowfat yogurt and nonfat yogurt and amend the standard of identity for yogurt in numerous respects.

Believe it or not, that proposal was even more “long-awaited” than the UF milk proposal. It was way back in February of 2000 when the National Yogurt Association submitted a petition requesting that FDA revoke the standards of identity for lowfat yogurt and nonfat yogurt and amend the standards of identity for yogurt and cultured milk. Almost nine years later, FDA finally published a proposed rule in response to that NYA petition.

Earlier this year, the International Dairy Foods Association grew so impatient that it wrote to FDA to, among other things, urge the agency to move forward with finalizing the 2009 proposed rule to update the existing federal standards of identity for yogurt.

Today, both the fluid UF milk proposal and the yogurt proposal are languishing at FDA, an agency which seems to have better things to do with its time and budget than worry about outdated standards of identity for dairy products. Indeed, with the agency focused on implementation of the Food Safety Modernization Act, which will take at least a few more years, it’s hard to see how FDA will get around to finalizing any standards-related proposals before, say, 2020.

So where does the dairy industry go from here, as far as the standards of identity are concerned? Frankly, there are no easy answers on this issue.

On the one hand, the standards of identity have generally served the dairy industry well over the years. And they have, from time to time, been updated to reflect industry changes.

But the industry has changed tremendously since ADPI submitted its UF milk petition back in December of 1999, and since the National Yogurt Association, just a couple of months later, submitted its petition to amend the yogurt standards.

So if FDA is going to basically do nothing in response to requests to amend standards of identity, and the dairy industry feels standards are hampering innovation and need updating, what’s the answer?

Maybe it’s time to think about getting rid of the standards altogether. After all, how useful are they if they are forever stuck in the 20th century? DG

Plenty Of Opportunities To Keep Growing Cheese Consumption

There was some mighty good news out of USDA’s Economic Research Service a few weeks ago: as reported on our front page back on October 2, per capita US cheese consumption reached a record high of 34.17 pounds last year, up more than half a pound from 2013.

This is a particularly welcome development because, in recent years, increases in per capita cheese consumption have not been as impressive as they were back, for example, in the 1970s and 1980s.

Specifically, per capita cheese consumption between 1970 and 1989 increased from 11.37 pounds to 23.79 pounds, or almost 12.5 pounds. From 1995 through 2014, per capita cheese consumption rose from 26.94 pounds to 34.17 pounds, or roughly 7.2 pounds.

Still, increases in per capita consumption are better than the alternative (decreases), and in fact the 1970-89 period and the 1995-2014 period each had just two declines in per capita cheese consumption.

Possibly the best news about last year’s record per capita cheese consumption is that it reminds us both of how much per capita consumption has grown and how much room there still is for further growth in the future.

That first point is obvious: per capita consumption has more than tripled since 1970, from 11.37 pounds to 34.17 pounds. And it has almost doubled since 1980.

The second point is perhaps less obvious, so it’s worth exploring further. And for starters, we’ll mention a point that we’ve mentioned in this space a few previous times: that while per capita cheese consumption in the US has grown impressively for half a century or more, it still trails that of many European countries, and trails a few of those countries by a very significant amount.

Per capita cheese consumption in the 28 countries that currently comprise the European Union was over 39 pounds last year, or roughly five pounds more than US per capita consumption.

But it’s worth noting that per capita consumption in several European countries with strong cheesemaking (and eating) traditions is considerably higher than that figure. Leading the pack, according to figures included in the International Dairy Federation’s recently released World Dairy Situation 2015 report, is France, at almost 59 pounds per person.

Yes, that is correct: the French consume about 25 more pounds of cheese per person than US consumers do.

But the French are hardly the only avid cheese lovers in Europe. Germany, Finland and Denmark all have per capita cheese consumption above 50 pounds per year, which means consumers in those countries consume about one pound of cheese per week (the IDF statistics do not include Greece, where per capita cheese consumption is said to be around 60 pounds per year). And another half-dozen EU countries have per capita cheese consumption above 40 pounds per year.

There are a couple of interesting aspects to this impressive level of EU cheese consumption. For one thing, there is more than a little European influence on the US cheese industry on the production side, so if US cheese production is dominated by European cheese varieties, there’s no reason why, given enough time, US cheese consumption can’t keep rising to more European-type levels.

And second, US consumers are likely to be seeing, and eating, more European cheese imports in the months and years ahead. For one thing, the euro has been weakening against the US dollar, which makes cheese imports from the EU more competitive in the US.

The EU is also likely to have more cheese to export to the US in the months ahead. For one thing, Russia recently extended its ban on dairy product imports from the EU (as well as the US and a few other countries). Also, the EU’s milk production quota program ended earlier this year, creating at least the possibility that some EU countries will be boosting their milk and cheese production in the future. And finally, the EU is seeking greater access to the US cheese market in the ongoing Transatlantic Trade and Investment Partnership negotiations.

So do the ERS per capita cheese consumption figures show where some potential gains might lie?
Perhaps a better question is: Where don’t potential gains lie?

Indeed, it’s noteworthy that per capita Cheddar consumption has been under 10 pounds annually for four straight years, after being above 10 pounds from 2004 through 2010. Obviously there’s room for growth there.

Per capita Mozzarella consumption has had its ups and downs in recent years, and grew by just over three pounds from 1995 through 2014, after growing by more than five pounds between 1970 and 1980. And per capita consumption of other Italian cheeses has actually declined for three straight years, despite steady increases for Parmesan consumption.

What about Swiss cheese? Per capita Swiss consumption peaked at 1.24 pounds back in 2007 and had fallen to 1.01 pounds last year. This is rather astonishing, considering the tremendous quality of some of the Swiss cheese on the market today (a Swiss cheese captured top honors in this year’s US Championship Cheese Contest, and also last year’s World Championship Cheese Contest).

Given the proliferation of Mexican, Tex-Mex and related restaurants in the US, it would seem like there’s plenty of room for further growth in per capita consumption of Hispanic cheeses.

These are just a few of the many examples of where there would seem to be room for growth in per capita cheese consumption. Maybe the US needs a new “40 by 20” program, the goal of which would be to boost per capita cheese consumption to 40 pounds by 2020.

A Few More Thoughts On Trade Pacts And Dairy

Last week in this space, we took a look at the possible impacts that the just-concluded Trans-Pacific Partnership agreement might have on the US dairy industry. We used the Uruguay Round Agreement on Agriculture, which was concluded in late 1993, as the basis for our analysis.

But there are at least a couple of additional ways of examining the potential impacts of the TPP agreement.
The first is by taking a look at the dairy impacts of a couple of other trade agreements that involved the US and other TPP countries.

One of those agreements is the North American Free Trade Agreement, better known as NAFTA, which took effect on January 1, 1994, or a year before Uruguay Round implementation began. NAFTA signees included the US, Mexico and Canada, although US-Canadian dairy trade was excluded from trade liberalization under the agreement.

So what’s happened to US dairy trade since NAFTA implementation began? In a nutshell, it’s increased between both the US and Mexico and between the US and Canada.

US dairy exports to Mexico since NAFTA implementation began have grown from about $182 million in 1994 to over $1.6 billion in 2014. Mexico for the past four years has been a billion-dollar-plus export market for the US dairy industry, and 2015 will undoubtedly be the fifth consecutive year in which US dairy exports to Mexico top $1 billion in value.

To put that in perspective, it’s worth remembering that the entire world wasn’t a billion-dollar export market for the US dairy industry until 2001.

Mexico is also the leading market for several categories of US dairy exports on a volume basis, including cheese and nonfat dry milk. Again to put this in historical perspective, US cheese exports to Mexico last year totaled about 182 million pounds; the US didn’t export that much cheese to the entire world as recently as 2006.

Since NAFTA implementation began, US dairy imports from Mexico have also increased impressively, from under $3 million back in 1994 to almost $111 million last year. So far this year, the leading US dairy import from Mexico (on a value basis) is anhydrous milkfat.

Meanwhile, although US-Canada dairy trade was excluded from NAFTA, US dairy exports to Canada have grown from just $58 million back in 1994 to $592 million last year. Canada last year ranked as the number three US dairy export market on a value basis, trailing only Mexico and China.

Among other products, Canada in recent years has ranked among the top half-dozen or so markets for US cheese exports on a volume basis.

Canada has also increased its dairy exports to the US since NAFTA implementation began, from just $24 million back in 1994 to $163 million last year. Among other products, Canada in recent years has ranked among the top dozen or so sources of US cheese exports on a volume basis.

The US also has a free trade agreement (FTA) with Australia; that agreement entered into force on January 1, 2005. As noted in a 2004 US International Trade Commission report, under that trade agreement pertaining to US dairy imports, 12 separate tariff-rate quotas were established that cover almost all US dairy imports already subject to TRQs.

Under that FTA, quota quantities will increase in the first 17 years in staged amounts, after which they will increase annually based on a compound growth rate.

Although this trade agreement with Australia has not yet been fully implemented, we do know how US-Australia dairy trade has fared over the past decade: US imports of dairy products from Australia have declined in value from $129 million in 2005 to $71 million in 2014, while US dairy exports to Australia have risen in value from just $6.6 million in 2005 to $173 million in 2014.

From these trade agreement outcomes, we can reach a couple of conclusions about what might happen under the TPP. First, US dairy exports to at least some of the countries participating in the TPP will likely increase. For example, under the TPP, Canada will eliminate its tariff on milk protein substances upon entry into force.

And second, US dairy imports from at least some of the countries participating in the TPP will also likely increase. For example, the US will eliminate its tariffs on artisanal cheeses from Canada.

Another way to examine the potential impacts of the TPP agreement is by looking at New Zealand’s reaction. That’s significant, because New Zealand is the world’s largest dairy exporter and some of the countries involved in the TPP are some of the world’s largest dairy importers (this would include Japan, Mexico and the US, among others).

New Zealand’s dairy industry greeted the TPP with, well, basically with a yawn. And that’s probably a good thing; if New Zealand’s dairy industry was celebrating the agreement, it would probably mean that most if not all TPP countries could expect to see more dairy imports from New Zealand (they probably can anyway, just not as much as New Zealand would have liked).

For what it’s worth, since Uruguay Round implementation began in 1995, US dairy exports to New Zealand have grown from less than half a million dollars in 1995 to $122 million last year (about two-thirds of that total was lactose), while US dairy imports from New Zealand have grown from $175 million in 1995 to $748 million last year.

All of this reminds us that opening doors for US dairy exports also requires opening US doors for dairy imports. Recent experience illustrates how this works.

Pondering The Dairy Impacts Of The Trans-Pacific Partnership

After several years of grueling negotiations, ministers of the 12 Trans-Pacific Partnership (TPP) countries late last Sunday announced that they had concluded their negotiations. Because dairy was one of the last major hold-ups in these talks, it’s safe to say the TPP agreement will impact the US dairy industry, at least to some extent.

Figuring out the extent of those impacts is pretty much impossible, but there is one way to cast at least a little light on that subject: by looking at some of the dairy-related impacts of the last major US trade agreement.

That would be the Uruguay Round Agreement on Agriculture, which was concluded in late 1993 and phased in through the year 2000. That agreement impacted both US dairy imports and US dairy exports to varying degrees, as the statistics would indicate.

On the import side, under the Uruguay Round agreement, the US replaced Section 22 import quotas for dairy products with tariff equivalents, which were reduced by the minimum required 15 percent in equal annual installments over six years beginning in 1995.

So what was the impact of that increased access to the US dairy market? For starters, US cheese imports increased from 335 million pounds in 1994, the year before Uruguay Round implementation began, to 416 million pounds in 2000, when Uruguay Round implementation was completed, then reached 475.6 million pounds in 2002, or about 141 million pounds higher than back in 1994.

But then there was an interesting twist: cheese imports actually started to decline. Indeed, after reaching 475.6 million pounds in 2002, US cheese imports declined for eight consecutive years, bottoming out at 305.5 million pounds in 2010, their lowest level since 1992, when they totaled 285.9 million pounds.

US cheese imports last year totaled about 363 million pounds, their highest level since 2008 but down about 113 million pounds from their peak in 2002. Oh, and only about 28 million pounds higher than back in 1994, the year before Uruguay Round implementation got underway.

US dairy imports also generated quite a bit of controversy in the years after the Uruguay Round agreement was reached. Specifically, US imports of milk protein concentrate (MPC) drew considerable concern and criticism from various US dairy organizations. These imports were also the focus of studies from, among others, the US General Accounting Office (GAO, now the Government Accountability Office) and the US International Trade Commission.

In its 2001 report, for example, the GAO noted that MPC imports “grew rapidly” from 1990 to 1999, from 805 to 44,878 metric tons (1.8 to 99 million pounds). And the US back then produced absolutely no MPCs.

Today, the US still imports quite a bit of milk protein concentrate — about 106 million pounds last year, to be exact. But the US is now also a producer of MPCs; US MPC production last year totaled 126 million pounds, up from zero pounds at the turn of the century. There were a total of 12 US plants producing MPCs last year, again up from zero at the turn of the century.

On the export side, there were concerns when the Uruguay Round agreement was concluded that the US would be forced to reduce the quantity of dairy exports it subsidized under the Dairy Export Incentive Program (DEIP). The largest of these reductions (on a volume basis) was for nonfat dry milk; the DEIP ceiling for NDM was reduced from about 239 million pounds in 1995 to about 150 million pounds by 2000. DEIP ceilings for both cheese and butter/butteroil were also reduced.

So what was the impact of those DEIP reductions? Well, US exports of nonfat dry milk actually increased from 108 million pounds in 1994 to about 186 million pounds in 2000, although that 2000 total was down more than 125 million pounds from 1999.

After that, US exports of nonfat dry milk continued to increase, topping 510 million pounds by 2004, a record 1.224 billion pounds in 2013 and 1.2 billion pounds last year. And the DEIP grew to be so irrelevant in US NDM and other export sales that it was terminated under the 2014 farm bill.

Also on the US dairy export side, US cheese exports grew from under 50 million pounds back in 1994 to around 105 million pounds in 2000, then kept rising, reaching a record 810 million pounds last year.

Finally, when examining the dairy trade impacts of new trade agreements, the focus tends to turn to the bottom line, so what about the Uruguay Round’s impact on prices? From a cheese price perspective, before Uruguay Round implementation started in 1995, the record-high price (market opinion) for 40-pound Cheddar blocks on the old National Cheese Exchange was $1.5450 per pound.

Since 2000, the block Cheddar price on the CME cash market has topped $2.00 per pound in 2004, 2007, 2008, 2011, 2012, 2013 and 2014.

At the other extreme, from 1980 through 1994, the 40-pound Cheddar block price bottomed out at $1.0850 per pound (in January of 1991), and since 2000 reached a low of 98.0 cents per pound (in November of 2000).

From all of this, we can reach at least a couple of general conclusions. First, trade agreements might affect dairy trade somewhat, but not as much as other factors, such as exchange rates, weather, embargoes and so on. And second, as US dairy trade has become more significant, price volatility has become greater.

These points should be remembered when analyzing the potential dairy impacts of the new TPP. DG


California Dreamin’ (or Nightmarin’)

published September 25, 2015

There’s an old observation that trends in the US start in California and then make their way east, but the dairy industry is now witnessing a reverse version of that: California is seeking to join most of the rest of the US dairy industry in the federal milk marketing order program, which has been around since the late 1930s.

As reported on our front page last week, USDA’s public hearing to consider the creation of a federal order for California got underway on September 22 in Clovis, CA, and is expected to last for several weeks, if not months.

For long-time industry observers, the possibility that California might become the 11th federal order is a rather remarkable development, for many reasons. For example, it’s remarkable that California would scrap its state milk order, which appears to have worked fairly well for the state over the years, for the unknowns of joining the federal order system.

California has operated its own state milk order program since 1969. And how has that worked out for California?

Well, California’s milk production has grown from 8.9 billion pounds in 1969 to 42.3 billion pounds in 2014, which is pretty impressive by almost any measure.

By comparison, from 1969 through 2014, among some major dairy states that are part of the federal order program, Wisconsin’s milk production grew from 18.1 billion pounds to 27.8 billion pounds, New York’s milk output grew from 10.4 billion pounds to 13.7 billion pounds, and Minnesota’s milk production actually declined, from 9.7 billion pounds to 9.1 billion pounds.

Meanwhile, California’s cheese production has grown from just 13.7 million pounds back in 1969 to 2.444 billion pounds in 2014, an increase of some 2.43 billion pounds. For what it’s worth, Wisconsin’s cheese production during that same period increased by 2.044 billion pounds.

Also during that period, California moved up the cheese production rankings, from 22nd nationally to second only to Wisconsin.

And California’s butter production increased from 60.8 million pounds back in 1969 to almost 613 million pounds in 2014.

So with these statistics in mind, it’s safe to reach a couple of conclusions. First, since its state order was implemented, California’s dairy industry has grown tremendously. And second, most of that growth (at least in milk and cheese production) occurred before the state added a whey factor to its Class 4b pricing formula (the whey factor was first added to the 4b formula in 2003).

How would California’s dairy industry fare as part of the federal order system? Nobody knows for sure, but we might start to find out in a year or so.

In addition to the expansion that’s occurred since California’s state order was implemented, California will also, if it joins the federal order program, be giving up its relatively streamlined process for amending pricing formulas for a federal order process that’s, well, pretty much the opposite of streamlined.

A couple of points help illustrate this. First, it may be recalled that it was back in early February when California’s three main dairy cooperatives — California Dairies, Inc., Dairy Farmers of America, and Land O’Lakes — petitioned USDA to establish a federal order to regulate the handling of milk in California.
Six months later, USDA announced that it would hold a public hearing on that proposal, starting on Tuesday, September 22, and lasting until whenever.

By comparison, and in stark contrast, the California Department of Food and Agriculture announced on Friday, May 1, that a public hearing would be held to consider amendments to the Class 4b pricing formula.
That hearing took place on Wednesday, June 3 (it lasted just one day!), the CDFA announced its decision on July 17th, and changes to the whey factor value in the Class 4b formula became effective on August 1, 2015.

So California’s entire price formula amendment process, from hearing notice to those changes becoming effective, took place in less than half the time it took for USDA to just call a hearing after receiving a petition.

Those changes to the Class 4b formula are supposed to be in effect for one year, or until July 31, 2016. It’s a pretty safe bet that California’s 4b formula will revert to what it was prior to August 1, 2015, before a California federal order becomes a reality.

There is also a huge cost factor involved here. The California dairy industry has obviously never before experienced anything close to the expenses it will incur during this federal order proceeding. Indeed, California’s dairy industry will probably spend more time attending the ongoing federal order hearing then it has spent attending milk price hearings over the past 10 or 15 years combined.

That’s not to say California’s current hearing process is perfect; there’s no such thing as a perfect hearing process (a perfect pricing system would be one that didn’t include any hearings; that would be something resembling a free market). But there’s no doubt that California’s hearing process is far, far faster than the federal order process, and it’s also a heck of a lot less expensive.

California has had opportunities to join the federal order program in the past, and we know how the state’s dairy industry has fared because it opted not to do so.

What we don’t know is how California’s dairy industry will fare if it decides to join the federal order system. If nothing else, California would be giving up control over its own fate, control that has helped propel unbelievable growth over the past 46 years. DG

More Unwelcome Attention For Raw Milk

published September 25, 2015

There has recently been some good news and some bad news on the raw milk front. The bad news is that a bipartisan group of US House members has reintroduced legislation that would, among other things, prohibit the federal government from interfering with trade of unpasteurized (raw) milk or milk products between states where the distribution or sale of such products is already legal.

The good news is that this legislation was introduced last Friday, when most people stop paying attention to the theatrics going on in Washington and start paying attention to more important things, such as football.
So perhaps these raw milk bills won’t garner all that much attention, or at least as much attention as they might have if they had been introduced, say, on a Monday during a slow news week.

As reported on page 11 of this week’s issue, two bills were introduced last Friday that would loosen current restrictions on raw drinking milk. It should be noted that these bills are aimed at raw drinking milk (or, technically, all raw milk products), rather than raw milk cheese, which is legal at the federal level as long as it’s been aged for at least 60 days.

The first bill, the Milk Freedom Act of 2015, would prohibit the federal government from interfering with the interstate traffic of raw milk products. The second bill, the Interstate Milk Freedom Act of 2015, would prevent the federal government from interfering with the trade of unpasteurized milk or milk products between states where distribution or sale of such products is already legal.

Both bills have multiple original co-sponsors. And in this era of hyper-partisanship, it’s noteworthy that both bills have original co-sponsors from both parties (the Milk Freedom Act’s original co-sponsors include nine Republicans and two Democrats, while the Interstate Milk Freedom Act’s original co-sponsors include 12 Republicans and four Democrats). The sponsor of both bills is listed as US Rep. Thomas Massie, a Kentucky Republican.

So, perhaps to its credit, the controversial issue of raw milk can be credited with bringing both parties together. That applies both to the approximately dozen and a half House members who are co-sponsoring one or both of these bills and to the roughly 417 House members who are not co-sponsoring either of these bills.

And, for what it’s worth, lawmakers from four of the top 10 milk-producing states (California, Idaho, Texas, and Michigan) are included as original co-sponsors of at least one of the two bills.
Or, to put a different “spin” on that last point, not a single lawmaker from six of the top 10 milk-producing states has chosen to become an original co-sponsor of one of these bills.

The introduction of these raw milk bills comes just a few weeks after Dr. John Lucey, director of the Wisconsin Center for Dairy Research and a University of Wisconsin-Madison food science professor, noted in a study published in the scientific journal Nutrition Today that raw milk “is not inherently safe and carries a significant food poisoning risk,” and that recent scientific reviews have concluded that there is “no reliable scientific evidence” to support any of the suggested health benefits that could hypothetically be derived from consuming raw milk (for more details, please see the story that appeared on page 5 of our August 28th issue).

No provision of either bill would preempt or otherwise interfere with any state law, sponsors pointed out.
That’s an interesting point made in Massie’s press release announcing the introduction of the two bills, because in the same release Massie is quoted as follows: “The federal government should not punish farmers for providing customers the foods they want, and states should be free to set their own laws regulating food safety.”

Well, states are already free to set their own laws regulating food safety, at least as it pertains to raw milk.
And so somewhere around 30 states allow the sale of raw milk, mostly on the farm and in small amounts. Several other states have debated bills to legalize some form of raw milk sales, but have thus far not approved such legislation.

What all of this adds up to is a lot of headaches for the dairy industry. For example, although several states have opted not to pass raw milk bills this year, the debates in those states have provided a fair amount of publicity for the dairy industry. They say there’s no such thing as bad publicity, but when it comes to the raw milk issue, well, we’re not convinced.

Meanwhile, raw milk also continues to garner a fair amount of publicity in the states where it’s currently a legal product. This publicity comes in the form of product recalls. Yes, dairy products made from pasteurized milk are also the subject of recalls, but, as one study put it, the relative risk of illness is almost 150 times greater per unit of nonpasteurized dairy product, compared to pasteurized.

The further bad news about this new legislation introduced in the House last Friday is that it adds yet another potential area of unwanted publicity for the dairy industry. Already there are 50 different state approaches to regulating raw milk. Congress getting involved means there is now a 51st potential approach (federal).

The further good news is that these bills are likely to go nowhere, either now or before the current Congress finishes its work in late 2016. Massie introduced both the Milk Freedom Act and the Interstate Milk Freedom Act in March of 2014, and that’s about as far as either bill got.

While it’s unlikely these bills will progress, the dairy industry doesn’t really need this extra attention devoted to raw milk.

New York City’s Sodium Warning Label Lunacy

Beginning in just a few short months, diners in New York City will be able to see something new on menus: warning labels next to items that are high in sodium. This is a truly idiotic idea, and an idea that is potentially harmful to the cheese industry.

As we reported last week (in a story that appeared on page 11), the New York City Board of Health has approved a proposal that requires restaurants with 15 or more locations in New York City to post warning labels next to menu items that contain high levels of sodium. Restaurants are required to start posting these warning labels starting December 1, 2015.

As if that’s not bad enough, restaurants will also be required to post a message, at the point of purchase, letting their customers know that the warning (a salt shaker icon) “indicates that the sodium (salt) content of this item is higher than the total daily recommended limit (2,300 mg). High sodium intake can increase blood pressure and risk of heart disease and stroke.”

There are at least four problems with this new sodium labeling mandate in New York City. First and foremost, it’s a pretty anti-cheese proposal.

That’s interesting in and of itself, because New York (the state) ranks fourth in the US in cheese production and has set new cheese production records for three consecutive years now. Why would New York (the city) do something so negative to something that’s so important economically to New York (the state)?

New York City is obviously known for many foods, and one of them is pizza. We can’t help but wonder how many of New York’s famous pizzerias are now going to have to start putting warnings on their menus next to certain pizzas that have what the Board of Health has deemed to be too much salt. We’re thinking a lot of pizzas with extra cheese and maybe sausage and/or pepperoni will have to include a warning label.

This new warning label also negatively impacts a couple of trends that have been quite favorable for cheese sales in recent years: grilled cheese sandwiches and macaroni and cheese. In both categories, it’s pretty easy to come up with menu items that would trigger a sodium warning, including grilled cheese sandwiches with several different cheese varieties plus bacon and/or ham and mac and cheese made with several different cheeses along with bacon.

New York City is trying to take all the pleasure out of dining out.

Yet another problem with this sodium warning mandate is that it continues a foolish trend in the nutrition world: it singles out certain foods as “bad,” rather than trying to help people improve their overall diets.

To help put this in perspective, here’s what Michael Jacobson, president of the Center for Science in the Public Interest, had to say, in part, about New York City’s new sodium warning label mandate: “Someone craving California Pizza Kitchen’s Meat Craver’s pizza, for example, might not have his or her health at top of mind, but seeing a little saltshaker next to that item on the menu might be enough to get some to reconsider. That particular meal happens to have more than 4,000 milligrams of sodium, or almost two days’ worth.”

But that pizza still represents just one meal. It completely ignores what the restaurant customer might have had to eat earlier in the day. Certainly, consuming that particularly pizza three times a day every day for a year isn’t the best approach to a well-balanced diet, but do consumers really need to be warned about something they might eat once a month, or less frequently?

Yet another negative aspect of this sodium warning mandate is that it ignores some of the recent research that’s questioning the need to cut back too extensively on sodium consumption. Over the past several years, a number of studies have cast doubt on recommendations to cut sodium consumption too much, and there’s even been some criticism about how the entire sodium-reduction war got started and gained momentum.

For example, in August of 2014, a study published in the New England Journal of Medicine concluded that sodium intake between three grams per day and six grams per day “was associated with a lower risk of death and cardiovascular events than was either a higher or lower estimated level of intake.”

And earlier in 2014, a study published in the American Journal of Hypertension concluded that both low sodium intakes and high sodium intakes are associated with increased mortality. That study identified a specific range of sodium intake (2,645–4,945 milligrams) associated with the most favorable health outcomes.

So New York City is requiring warnings on foods that fall below the recommended range for the healthiest sodium intakes? That’s ridiculous, and unhealthy.

Yet another troubling aspect of this sodium warning label is the possibility, albeit slim, that it could go national. That’s what CSPI is hoping for, but we’re guessing that this idea never makes it beyond New York City.

Finally, we have to agree with the National Restaurant Association that New York City’s mandate is “overly onerous” and places an “undue burden” on restaurants that are currently working to comply with the federal menu labeling law. That law requires calorie data on menus and also requires restaurants to offer sodium and other nutrition information in writing to customers on request. A sodium warning label on top of that federal law is overkill.

New York City’s sodium warning label on menus seems likely to raise blood pressure more than a little bit of salt possibly could.

Reasons For Optimism On Fluid Milk Sales

Let’s face it, it isn’t easy being optimistic about fluid milk sales these days. As we reported last week, US beverage milk sales in 2014, at 50.659 billion pounds, were at their lowest level since at least the late 1960s. And for what it’s worth, there are almost 120 million more potential milk drinkers in the US today than there were back then.

Reflecting that fact, per capita fluid milk consumption last year, at 159 pounds, was down 88 pounds from 1975 and likely down more than 100 pounds from the late 1960s. (Comparisons going back that far aren’t easy; USDA statistics show that, for example, per capita consumption of fluid milk and cream in 1965 totaled 292 pounds, but the category back then included not only fluid milk, but also cream, sour cream and dips, eggnog and yogurt.)

Despite these gloomy long-term trends, we’re becoming at least a little optimistic about the future of fluid milk sales. This mild optimism is based on several recent developments.

First, USDA’s statistics for 2014 did reveal one rarity: whole milk sales actually increased compared to 2013. Yes, it was just an increase of 48 million pounds (from 13.936 billion pounds in 2013 to 13.984 billion pounds in 2014), but it did represent the first rise in whole milk sales since 2000.

Why is that significant? Because, while some nutritionists may disagree, whole milk is the fluid milk category’s best product, simply because its fat content gives it some actual flavor (as compared, especially, to skim milk).

As the nutrition community begins to scale back its criticism of milkfat, and even begins to find some health benefits to it, consumers will begin to take a new look at whole milk, and our guess is that they’ll like what they see — and also what they taste.

Our guess is that last year’s increase in whole milk sales won’t be the last one over the next several years.
Another reason for some optimism about fluid milk sales is that the number of fluid milk plants is actually on the increase, according to USDA statistics.

Specifically, as we report in a story on page 15 in this week’s paper, there were 440 fluid milk plants in the US last year, 26 more than in 2013 and 52 more than in 2011. And the average product volume per plant has declined for three straight years.

These two trends represent reversals of two very long-term trends. By about 2005, there were almost 5,000 fewer fluid milk plants in the US than there were back in 1960. Meanwhile, the average volume processed per plant increased from 8.8 million pounds in 1960 to a record 194.4 million pounds in 2008.

How will this potentially help boost fluid milk sales? It seems that, with more consumer interest in local foods, the rising number of small fluid milk plants will make it easier for consumers to find locally produced drinking milk.

Some of these smaller fluid milk plants are farmstead operations, meaning consumers can not only buy milk bottled locally, but they know exactly where that milk was produced and bottled. So, for example, here in Wisconsin, a decade ago consumers might have had two or three gallon milk choices at their local supermarket, one of which was a store brand and another of which was a regional milk brand.

Today, consumers in both Wisconsin and northern Illinois can buy milk from Sassy Cow Creamery, located in Columbus, WI (about 15 miles from Madison), which bottles both conventional and organic milks (it has two distinct herds). Milk bottlers like Sassy Cow may never grow beyond the “niche market” stage, but they’re filling a niche that wasn’t being filled to a great degree a decade or two ago. And every niche helps.

The flip side of farmstead milk bottlers is the national fluid milk brand that was launched earlier this year by
Dean Foods Company, the nation’s largest milk processor and direct-to-store distributor of fluid milk. The company’s DairyPure is available in dairy cases at grocery stores around the US.

Gregg Tanner, chief executive officer of Dean Foods, said the company believes that, over the long term, DairyPure “will provide incremental benefits to consumers, our category, our customers and our company.” While it’s too soon to tell if DairyPure will be successful, a national brand in the fluid milk category certainly can’t hurt.

Also generating interest, as well as sales, for the fluid milk category are relatively new products like fairlife, which is produced and marketed by fairlife, LLC, a partnership between Select Milk Producers and the Coca-Cola Company.

Like DairyPure from Dean Foods, it’s too soon to tell if fairlife will be successful, but it’s difficult to understate the significance of having a company like the Coca-Cola Company involved in the marketing and distribution of a product. The company has a pretty deep understanding of the beverage business, to put it mildly.

Finally, while products like soy “milk” and almond “milk” have been taking sales away from traditional milk for a number of years now, the pendulum may eventually start to swing the other way. For one thing, as the Sacramento Bee reported recently, several lawsuits have been filed in recent months against Blue
Diamond and WhiteWave Foods, alleging false advertising and deceptive marketing of their almond milk products.

Second, these aren’t exactly “clean-label” foods, especially when compared to plain white milk.

Fluid milk sales may never approach their record highs again, but some recent developments indicate that sales could at least begin to stabilize, and maybe even rise, in the not-too-distant future. DG


So Much For Cheese Price Volatility, At Least For Now

Volatility. It’s been one of the buzzwords in the dairy industry for the last quarter-century or so. Indeed, when the Coffee, Sugar & Cocoa Exchange launched Cheddar cheese and nonfat dry milk futures and options contracts back in 1993, it explained that dairy price volatility had become significant enough to indicate that those futures and options markets were needed.

Cheese prices were in fact pretty volatile back then, at least when compared to most years in the 1980s. Back in the 1980s, when the National Cheese Exchange was still meeting every Friday morning in Green Bay, WI, there were years when there were very few price changes for an entire year.

In 1983, for example, there were exactly four price (technically, “market opinion”) changes at the NCE, and the Cheddar block price ranged from a high of $1.3675 per pound at the beginning of the year to $1.3100 per pound in December. The Cheddar block price stayed at $1.3600 per pound from January 14 through September 9, 1983, then “jumped” to $1.3650 for a couple of months before “nosediving” to $1.3100 in early December and then rebounding to $1.3150 later in December.

Volatility at the NCE increased noticeably by the beginning of the 1990s, as the dairy price support program became less relevant and market forces increasingly influenced price levels. In 1990, there were 33 Cheddar block price changes at the NCE, and prices ranged from a low of $1.0875 to a high of $1.4675, a range of 38 cents.

That was nothing compared to what the dairy industry experienced after the introduction of futures and options contracts. In 1996, the last full year of operation for the NCE, the Cheddar block price ranged from a low of $1.1875 to a high of $1.6950, a range of 50.75 cents.

Three years later, during the first full year of the daily cash cheese market at the Chicago Mercantile Exchange, the block price ranged from a high of $1.9725 to a low of $1.1000, an eye-opening range of 87.25 cents per pound.

Thus, at the turn of the century, it appeared that extreme cheese price volatility was here to stay. And indeed it was, with block prices ranging from 98 cents to $1.3350 per pound in 2000, $1.0675 to $1.7800 per pound in 2001, $1.0175 to $1.3900 per pound in 2002, 99.25 cents to $1.6000 per pound in 2003 and $1.3000 to $2.2000 per pound in 2004.

Even in the historically low-price year of 2009, cheese prices were extremely volatile, ranging from a low of $1.0400 per pound in January to a high of $1.7200 per pound in December.

But here in 2015, cheese prices have been, by 21st-century standards, relatively calm. The CME Cheddar block price “bottomed out” back in January at $1.4700 per pound, and peaked at $1.7800 per pound back in June. That range of 31 cents is pretty mild compared to, for example, the last full year of the old NCE and its weekly trading session.

This year’s block price range is even narrower when looking just at monthly averages. Through the first eight months of 2015, the monthly block price average ranged from a low of $1.5218 a pound in January to a high of $1.7111 per pound in June, or a range of less than 19 cents per pound.

There are a couple of additional observations that can be made about dairy price volatility now and in the recent past.

First, cheese appears to be a bit of an anomaly in the lack-of-volatility department here in 2015. By contrast — make that extreme contrast — the CME price for Grade AA butter thus far in 2015 has ranged from a low of $1.54 back in January to a high, just today, of $2.4525.

It may be remembered (should be remembered) that CME butter prices set a dairy industry record for volatility last year when they ranged from a low of $1.5400 per pound at the beginning of 2014 to a high $3.0600 per pound in September.

Nonfat dry milk prices have also been pretty volatile this year, with the CME cash price ranging from a high of $1.20 back in February to a low of 69 cents in August.

Second, what happens during the first half or so of any given year isn’t always an indication of what’s going to happen before that particular year ends. To illustrate this point, look no further than 2014, when cheese prices were above $2.00 a pound for almost the entire first 10 months of the year before falling under $1.50 briefly in late December.

In 2013, the block price during the first nine months of the year ranged from a low of $1.55 per pound in early March to a high of $1.9150 per pound in early May, and was generally in a fairly narrow range between $1.60 and $1.80 per pound during most of that period. Volatility wasn’t all that extreme.

But prices started to increase in October and November, and the block price eventually reached $2.00 a pound on December 20.

And during the first seven months of 2012, the CME block price ranged from $1.46 per pound in early March to a high of $1.72 a pound in mid-July, then started to escalate and reached $2.00 a pound on September 21 before peaking at $2.10 in October.

From all of this we can reach a couple of conclusions. First, it shouldn’t be too much of a shock if block prices reach $2.00 a pound before the end of the year. The last time blocks didn’t reach $2.00 was in 2010.
What happens during the first six to nine months of a year isn’t necessarily an indication of what the final few months will hold.

And second, volatility is alive and well when it comes to cheese prices. It just becomes less extreme at certain times. DG


US Becoming Dumping Ground For Global Dairy Surpluses

In recent years, the US has emerged as one of the world’s leading dairy exporters, but at the same time, the US has also remained a major dairy importer, particularly for cheese but also for products ranging from casein to milk protein concentrate.

US dairy imports have been mixed in recent years, but this year they’ve increased pretty impressively, both on a value and a volume basis. And what appears to be happening, at least to some extent, is that the US is becoming a dumping ground for some of the world’s dairy surpluses.

A few very recent import figures help illustrate this point. In July, licensed US Cheddar imports totaled 5.7 million pounds, up some 4.3 million pounds from July of 2014. That represented more than 20 percent of the total annual US tariff-rate quota for Cheddar (27.3 million pounds).

Meanwhile, the US has been importing a pretty high level of butterfat products thus far in 2015. Licensed butter imports during the first seven months of this year totaled 11.2 million pounds, or almost three-quarters of the annual tariff-rate quota (15.3 million pounds). Licensed imports of butter substitutes during the first seven months of 2015, at 7.2 million pounds, are up 5.4 million pounds from the first seven months of 2014.

Also, imports of high-tier butter during the first seven months of 2015 totaled 9.1 million pounds, up an eye-opening 8.6 million pounds from the first seven months of 2014.

And one more import statistic: licensed US imports of dried whole milk during the first seven months of 2015 totaled 4.3 million pounds, up 3.3 million pounds from the first seven months of 2014.

What these higher imports represent, in part, is the fact that domestic dairy commodity prices in the US are higher, sometimes quite a bit higher, than are global commodity prices. This is especially the case for butter. In July, according to USDA’s Dairy Market News, Oceania butter prices averaged under $1.50 per pound, while the CME cash market price for Grade AA butter averaged over $1.90 per pound.

What these higher imports don’t represent, for the most part, is lower domestic production (which would usually necessitate higher imports). Cheddar production through the first six months of this year was running 2 percent above the first six months of last year, although butter production was running 1.4 percent below year-ago levels through June.

And US production of dry whole milk during the first half of 2015 was up more than 30 percent from the first half of 2014.

Because these imports aren’t necessarily needed for immediate use, what we’re seeing is some build-up in US stocks of some dairy products. For example, stocks of American-type cheese at the end of July were up 6 percent from a year earlier and up 2 percent from a month earlier, while butter stocks were up 41 percent from a year earlier (but down 1 percent from a month earlier).
And manufacturers’ stocks of dry whole milk at the end of June were up 74 percent from a year earlier (but down 10 percent from a month earlier).

What these rising US dairy product imports illustrate, to some extent, is the problem some of the world’s leading dairy exporters are currently experiencing. New Zealand is the world’s leading dairy exporter, and New Zealand’s leading export market is China, followed by the US. China is also New Zealand’s leading market for whole milk powder and butter/anhydrous milkfat/cream products, according to figures from the New Zealand government.

But China isn’t buying as many dairy products as it has in the recent past, so New Zealand is looking around for other markets. US government figures indicate that New Zealand has found a market for at least some additional dairy products in the US.

For example, during the January-July 2015 period, licensed US butter imports from New Zealand totaled 2.6 million pounds, up more than 2 million pounds from the same period in 2014.

During the same period, licensed US imports of butter substitutes from New Zealand totaled 6.4 million pounds, up 5.3 million pounds from a year earlier; and licensed Cheddar imports from New Zealand totaled 8.6 million pounds, up more than 7 million pounds from a year earlier.
Meanwhile, the European Union is also facing some dairy export problems, specifically the Russian ban on dairy imports from the EU as well as several other countries, including the US.

Like New Zealand, the EU also seems to have found a home for at least a little more cheese in the US.
During the first seven months of 2015, licensed US imports of other cheese-nspf from the EU totaled 36.4 million pounds, up about 5.5 million pounds from the first seven months of 2014.

Another issue impacting US dairy imports is exchange rates. As USDA’s Economic Research Service puts it, exchange rates “are, arguably, the single most important price for any economy with significant trade.”
From October 2014 to March 2015, the dollar appreciated 8 percent from the preceding six months, which helped boost US import demand, ERS noted.

All of this should be put into the context of the current US balance of dairy trade. That is, among other things, the US remains a net exporter of dairy products, and a net exporter of cheese. And US imports of cheese, while rising impressively, aren’t close to their peak of more than a decade ago.

But it’s a bit troubling to see that, when times get tough for the world’s leading dairy exporters, they tend to look to the US to absorb some of their surplus products. DG

What If The US Still Had A Dairy Price Support Program?

Back on July 10th, the price of Grade A nonfat dry milk on the Chicago Mercantile Exchange’s cash market fell to 79.5 cents per pound.

This was a significant price for at least one key reason: it marked the first time that the price of a commodity traded on the CME cash dairy markets fell below the “old” Commodity Credit Corporation (CCC) purchase price since the Dairy Product Price Support Program was terminated last year.

And so it’s been interesting to see what’s happened, or hasn’t happened, since then. In 2014, in the months after the support program was terminated, CCC purchase prices were truly “out of sight, out of mind,” since market prices were, at least at times, more than twice the level of those old CCC purchase prices.

But dairy commodity prices have softened somewhat this year, particularly nonfat dry milk prices, to the point where, as noted above, the NDM price at the CME is now below the old CCC purchase price of 80 cents per pound. And this raises the question: what would have transpired after July 10th if the price support program was still in operation?

First, a bit of history. The dairy price support program was around for many years, but the program wasn’t really operating during its final years, so to industry newcomers, the dairy price support program is something they’ll never have to deal with. Lucky them.

But for those who have been involved in the dairy industry for a few decades, well, it’s hard to describe how important this program was at various times.

The dairy price support program was established on October 1, 1949, by the Agricultural Act of 1949, and was finally relegated to the scrap heap of dairy policy history last year, when President Obama signed the 2014 farm bill into law. So the price support program was 64 years old when it was terminated.

Over the years, the price support program ebbed and flowed in its importance to the dairy industry in general and to dairy markets (prices) specifically. Under the price support program, the CCC purchased surplus Cheddar cheese (40-pound blocks and 500-pound barrels), butter and nonfat dry milk at pre-announced prices; these purchases enabled processors to pay dairy farmers the mandated support price for their milk.

During its history, the support price ranged from a low of $3.06 per hundredweight to a high of $13.49 per hundred. Under the 1977 farm bill, the support price for milk was set at 80 percent of parity, and it had to be adjusted (raised) every six months (on April 1 and again on October 1) to reflect changes in prices paid by dairy farmers for production inputs.

In 1976, the CCC purchased around 235 million pounds of surplus dairy products, primarily nonfat dry milk.
By 1981, CCC purchases had climbed to 351.5 million pounds of butter, 563 million pounds of cheese and 851 million pounds of nonfat dry milk. CCC purchases of cheese and nonfat dry milk peaked in 1983, at 833 million pounds and 1.061 billion pounds, respectively, while CCC butter purchases reached 413 million pounds that year but peaked at 444.9 million pounds in 1992.

By 1990, the support price had been reduced to $10.10 per hundredweight, and the CCC became a less important buyer of dairy products, starting with cheese and nonfat dry milk, and later, butter.

Since then, CCC purchases have ranged from fairly low to non-existent. The most recent year in which the CCC bought any surplus dairy products was in the low-price year of 2009, when the CCC purchased about 182 million pounds of nonfat dry milk, 15 million pounds of cheese and 23 million pounds of butter (these are net USDA removals).

That brings us back to our original question: What would have happened over the last several weeks if the price support program was still operating? Our guess: at least four things in the short term.

First, it would seem likely that some dairy processors would have started selling nonfat dry milk to the CCC.
Back in 2009, when NDM prices were slightly above 80 cents per pound, the CCC was buying millions of pounds of surplus powder every week. Our guess is that the CCC would have started buying surplus powder a few weeks ago and would still be buying surplus powder today.

Second, nonfat dry milk prices would have stopped falling. Again back in 2009, NDM prices at the CME fell to the low 80s, but never below 80 cents per pound. This year, without the CCC as a buyer of last resort, the CME price for Grade A NDM has actually dropped below 70 cents a pound a few times.

Third, US exports of NDM probably would have declined. Less than a week after the CME NDM price fell below 80 cents, the average winning price on the Global Dairy Trade auction also fell below 80 cents per pound.

US dairy export statistics for July won’t be released for a few more weeks, but it seems that the US is in a better position to compete globally, because the domestic NDM price can fall below 80 cents, than it would have been had the CCC purchase price effectively floored the domestic price well above the world (GDT) price.

And fourth, sometime in the near future, USDA would have started trying to figure out ways to get rid of its surplus NDM stocks.

If the support program was still operating, milk prices might be a bit higher (at least the federal order Class IV and California 4a prices), but exports would likely be lower, and the market would have millions of pounds of surplus CCC-owned powder hanging over it.

Bottom line: the US dairy industry is better off without the dairy price support program. DG

A California Federal Order And Its Nationwide Impacts

While pretty much every step in the process has been based in California, the prospect of a California federal milk marketing order certainly will have implications far beyond that state’s borders. And that makes the California federal order hearing that begins next month worth watching for everyone involved in the US dairy industry.

As reported on our front page last week, the US Department of Agriculture announced that a public hearing will be held beginning on Tuesday, September 22, 2015, in Clovis, CA, to consider and take evidence on a proposal to establish a federal order to regulate the handling of milk in California. If still ongoing (as expected), the hearing will be held on October 22 and 23 in Fresno, CA.

As noted above, everything about this hearing, up until now, has been California-based. It was more than two years ago when California’s three largest dairy cooperatives — California Dairies, Inc., Dairy Farmers of America and Land O’Lakes — announced that the findings of a five-month study they commissioned indicated that a properly written federal order for California would provide a regulatory structure that could potentially result in higher farmgate milk prices.

About a year and a half after they announced those study findings, the three co-ops petitioned USDA to conduct a hearing on a possible California federal order. Three California entities submitted alternative proposals, information meetings were held in California, and in a little over a month, this long-anticipated hearing will begin in California.

But while a California federal order would have profound and lasting implications for California’s dairy industry, its potential implications on the dairy industry beyond its borders cannot be understated. This point becomes obvious when reading through USDA’s preliminary regulatory impact analysis of the co-ops’ proposal, as well as other proposals.

Notably, the co-ops’ 2013 study findings appear to have been confirmed by USDA. Specifically, the agency’s preliminary impact analysis forecasts that adoption of the co-ops’ proposal would increase total California producer revenue by an average of $700 million per year across the 2017 to 2024 forecast period, and would also increase the California all milk price by $1.03 per hundredweight and boost California milk production by 540 million pounds per year.

So USDA’s study agrees with the study conducted two years ago on behalf of the co-ops: a properly written California federal order would provide a regulatory structure that could potentially result in higher farmgate milk prices in California. Quite a bit higher, as it turns out.

But while a California federal order (established as the co-ops have proposed) would have a positive financial impact on California dairy producers, it would have a negative financial impact on dairy producers outside the Golden State, USDA’s analysis shows.

Specifically, the increase in California’s milk production would lead to lower uniform prices, lower all-milk prices, and lower producer revenues across most of the rest of the US, with the exception being the current unregulated areas of the former Western federal order, where “modest increases” in producer revenue and increases to the all-milk price would be similar to those observed in California, USDA said.

This raises a couple of interesting points. First, because two of the three co-ops behind this California federal order proposal — DFA and LOL — are based outside California, how thrilled are the co-ops’ non-California members going to be when they find out this proposal will potentially reduce their milk prices?

And second, since USDA’s analysis indicates that milk prices in currently unregulated areas of the former Western order would increase under the co-ops’ proposal, might we see, if a California federal order becomes a reality, more producers push to terminate their orders in order to boost milk prices?

Taken to the extreme, we could see a highly improbable situation, a few years down the road, in which the federal order system includes just one order, the new California order, and all other orders have been terminated. Yes, that’s highly improbable, but many observers have said for many years that it was highly improbable that California would join the federal order system.

At the plant level, the co-ops’ proposal would, according to USDA, reduce national prices for Cheddar cheese, butter, nonfat dry milk, and dry whey for the period of 2017 through 2024, which would also reduce federal order class prices. In California, the California Class I price would decline, while other class prices would increase, including the California Class III price, which would rise by $1.84 per hundredweight.

This latter point reminds us again of the talk, at the 1989 Midwest Milk Marketing Conference, by Bill Blakeslee of Mid-America Dairymen (now part of DFA). Blakeslee talked about California’s Class 4b price being so much lower than the federal order cheesemilk price (then the M-W price) that California cheese could “go from the West Coast to the East Coast and have a competitive advantage over the Midwest.”

That “competitive advantage” that California has had for all these years would basically disappear if a California federal order becomes a reality. And at the same time, more milk would go into Class III and Class IV products in California.

And that’s a key reason why a California federal order has such enormous implications for the US dairy industry.

FDA Needs To Hear From Industry On Raw Milk Cheese

Well, that didn’t take long. Just a week after we called on the US Food and Drug Administration (FDA) to “move ahead on changing its raw milk cheese regulations,” the agency did just, sort of. It’s a small step, granted, but at least FDA is finally taking the initiative on the raw milk cheese issue.

As reported on our front page last week, FDA is requesting comments and scientific data and information that will help the agency in identifying and evaluating intervention measures that might have an effect on the presence of pathogens in cheeses made from raw milk. Electronic or written comments and data may be submitted through November 2, 2015.

FDA’s Federal Register notice inviting public comments is pretty brief, but also pretty telling. The agency noted that a 2012 review of foodborne illness outbreaks that occurred between 1993 and 2006 that were attributed to dairy products determined that more than 50 percent of the outbreaks reviewed in the study involved cheese, and that 42 percent of the 65 cheese-associated outbreaks were attributable to products manufactured from raw milk.

The 60-day aging period for cheese made from raw milk was “presumed to act as a control measure to reduce the risk that pathogens would be present when the cheese was consumed,” but the “available data and information raise questions about the safety of cheese” made from raw milk, “even when aged,” FDA stated.

Also last Friday, FDA released the “Joint Food and Drug Administration/Health Canada—Sante Canada Quantitative Assessment of the Risk of Listeriosis From Soft-Ripened Cheese Consumption in the United States and Canada,” which concluded, among other things, that there is, “approximately, a 50- to 160-fold increase in the risk of listeriosis from a serving of soft-ripened cheese made from raw-milk, compared with soft-ripened cheese made from pasteurized milk” (this observation is from the 10-page “Interpretive Summary,” rather than from the 192-page report itself).

In its request for comments, FDA said it is “continuing to evaluate the safety of processes for the manufacture of cheese, particularly processes for the manufacture of cheese from unpasteurized milk,” but it’s pretty obvious that the agency has already concluded (and likely reached this conclusion back in the late 1990s) that it considers the 60-day aging period for raw milk cheese to be inadequate.

Indeed, it points out that results from the FDA-Health Canada Quantitative Risk Assessment on listeriosis “suggest that the 60-day aging period for soft-ripened cheese may increase the risk of listeriosis” by allowing more time for L. monocytogenes, if present, to multiply (rather than decrease) as the cheese ages.

So, if nothing else, FDA’s request for comments and data can realistically be considered the beginning of the end of the 60-day aging rule for raw milk cheese.

FDA said it is specifically requesting comments and scientific data and other information to, among other things, understand current practices to reduce the potential for foodborne illness during the manufacture of cheese from raw milk. For example, to what extent do raw milk cheese producers solely rely on an aging period to significantly minimize pathogens that may be present in unpasteurized cheese? And what are those other control measures?

The agency also wants to know whether, for pathogens other than Listeria monocytogenes, a 60-day aging period is effective in adequately reducing a broad spectrum of pathogens that could be in cheese made from raw milk.

And FDA wants to understand the prevalence of testing during manufacture (for example, testing for pathogens of each lot of cheese manufactured from unpasteurized milk and of bulk shipments of raw milk), how practical such testing would be, and how much it would cost.

The FDA-Health Canada risk assessment provides some interesting perspective on testing. Here’s what that report says: “For raw-milk cheeses, testing milk is less efficient than testing cheese lots.” It would appear that any future FDA regulation of raw milk cheese will include some sort of final product testing requirement.

It will be mighty interesting to see how many comments FDA receives in the next three months, and also how diverse those comments are. FDA received a total of 96 comments on its draft risk assessment of listeriosis in soft-ripened cheese; those responses came from organizations such as the International
Dairy Foods Association and American Cheese Society, as well as a number of cheese makers and others.

And that was just a draft risk assessment. Now, FDA is interested in comments and data on various issues related to the manufacture of raw milk cheese, with the obvious outcome eventually being changes to the current 60-day aging requirement.

So the clock has started ticking. FDA has established a comment deadline of November 2, 2015.

Our guess is that the agency will hear from entities around the world, not just in the US. After all the US imports more than 300 million pounds of cheese every year, and a fair amount of that cheese is made from raw milk. Any changes to FDA’s raw milk regulations could have a significant impact on cheese makers around the world who export to the US, as well as US companies that have long imported those cheeses.
No doubt some people would like the US to be able to import more raw milk cheeses.

Comments can be submitted electronically at: www.regulations.gov. The docket number is FDA-2015-N-2596.

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