Dick Groves
Editor, Cheese Reporter

 

 

 

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Cheese Consumption Drop A Pandemic-Related Anomaly

They say that all good things must come to an end, and so it is with the all-but-guaranteed annual increases in per capita cheese consumption. As reported on our front page last week, per capita cheese consumption in 2020, at 38.35 pounds, was down from 2019’s 38.58 pounds, marking the first decline in per capita cheese consumption since 2008.

With the coronavirus pandemic upending life starting in March 2020, it probably isn’t too shocking that per capita cheese consumption declined a bit, especially given that over one-third of all cheese is consumed in food service outlets and most of those outlets were either shuttered or operating at reduced capacity (i.e., delivery or carryout only) during a good chunk of the year.

Looking over the past quarter-century of cheese consumption statistics, it becomes clear that only major economic upheavals can disrupt cheese consumption increases. As noted, the last decline in per capita cheese consumption occurred in 2008, during the Great Recession, which technically began in December 2007 and didn’t end until June 2009, according to the National Bureau of Economic Research’s Business Cycle Dating Committee.

The statistics released by USDA’s Economic Research Service date back to 1995 (an earlier set of figures covers 1970 through 1994), and, notably and impressively, prior to last year, the only drop in per capita cheese consumption was in 2008. That alone indicates how infrequent cheese consumption declines really are.

It’s worth noting that that 2008 drop in per capita cheese consumption was pretty spectacular; specifically, per capita consumption fell from 32.94 pounds in 2007 to 32.39 pounds in 2008, a decline of 0.55 pound.

Some additional perspective on that 2008 drop in per capita cheese consumption can been found in looking at per capita statistics spanning several years, in addition to just 2007 and 2008. That is, per capita cheese consumption reached yet another record high in 2007, at 32.94 pounds, up more than half a pound from 2006.

After falling in 2008, per capita consumption resumed its long-term upward trend, but it did so slowly. In fact, it wasn’t until 2011 that the 2007 per capita consumption record was finally broken. Looked at another way, per capita cheese consumption in 2009, at 32.48 pounds was up only 0.05 pound from 2006, thanks to that big 2008 drop.

There are both similarities and differences between the 2008 drop in per capita cheese consumption and the 2020 drop. As already noted, one major difference is the severity of the declines: over half a pound in 2008 compared to just under one-fourth of a pound last year. That difference alone means per capita consumption could resume setting new records as soon as this year.

Among the similarities: both declines were led by drops in Mozzarella consumption, which is notable for at least two reasons. First, Mozzarella consumption doesn’t decline very often; from 1970 to 2020, it declined just seven times, although four of those declines have occurred since 2000.

And second, Mozzarella has ranked first among all cheese varieties for a decade now, having first topped Cheddar back in 2010. Mozzarella accounts for almost a third of total per capita cheese consumption, so when Mozzarella consumption declines, it raises the likelihood that overall per capita consumption will decline.

That’s what happened in 2008, when per capita Mozzarella consumption of 10.10 pounds was down by more than half a pound from 2007. In fact, the 0.56-pound drop in Mozzarella consumption in 2008 was greater than the overall drop in cheese consumption.

Last year, per capita Mozzarella consumption fell by 0.19 pound, and accounted for the majority of the total decline in per capita consumption.

Another similarity with the 2008 and 2020 declines in per capita consumption is that per capita Cheddar consumption actually increased in both years. That’s all the more remarkable because Cheddar consumption increases aren’t as reliable as Mozzarella consumption increases; since 1995, per capita Cheddar consumption has actually declined eight times, but not in either 2008 or in 2020.

One other interesting similarly between the 2008 and 2020 cheese consumption declines: per capita consumption of “other” cheeses declined in both years, as did consumption of imported cheese made from other than cows’ milk. This helps illustrate what is already fairly obvious: consumption of specialty cheeses falls when the economy tanks.

Finally, it’s worth keeping in mind that per capita increases in cheese consumption are perhaps a little less important now than they were in the past. That’s due to the rising importance of cheese exports.

Back in 2008, when per capita cheese consumption fell by more than half a pound, cheese exports reached a then-record high of 288.6 million pounds. That was the equivalent of less than one pound per capita (the US population at that time was around 303 million). Also, cheese exports dropped by 50 million pounds in 2009.

Last year, US cheese exports totaled about 782 million pounds, which was actually down about 2.4 million pounds from 2019 but still the third-highest total ever. And exports were the equivalent of more than two pounds per capita.

Declines in per capita cheese consumption don’t happen very often. With that in mind, the cheese industry can probably look forward to many years of growth.

Shifting Dairy Board Seats Reflect Geographic Shifts In US Dairy

USDA’s Agricultural Marketing Service is proposing changes in two of the 12 US regions of the National Dairy Promotion and Research Board, and these proposed modifications got us thinking about how much the geographic footprint of the US dairy industry, and the allocation of NDB seats, has changed since the National Dairy Board was established back in the 1980s. And the answer to that question is: quite a bit.

As reported in last week’s issue, AMS is, at the request of the NDB, proposing to increase the number of NDB members from two to three for Region 8, which is the state of Idaho, and reduce the number of NDB members from two to one for Region 10, which includes Alabama, District of Columbia, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, Puerto Rico, South Carolina, Tennessee and Virginia.

Back in 1984, when it was first established, the National Dairy Board actually had 13 geographic regions; today it has 12 geographic regions, plus one member representing dairy importers. Also back in 1984, among other things, Wisconsin was still the number one milk-producing state, followed by, in order, California, New York, Minnesota, Pennsylvania, Michigan, Ohio, Texas, Iowa and Washington.

For what it’s worth, US milk production back in 1984 totaled 135.4 billion pounds, or almost 88 billion pounds less than US milk production totaled in 2020.

So, how did the 13 NDB regions back in 1984 compare with the 12 NDB regions of today? Region 1 originally consisted of Washington and Oregon, and now includes those two states as well as Alaska. Today, Region 1 has two seats on the National Dairy Board; it originally only had one seat.

Region 2 originally included just the state of California; today, it includes both California and Hawaii. Back in 1984, Region 2 had a total of four seats on the National Dairy Board; today, it has seven seats.

The original Region 3 consisted of seven western states — Arizona, Colorado, Idaho, Montana, Nevada, Utah, and Wyoming — and had two seats on the NDB. Today, Region 3 consists of all of those states except for Idaho (which, as noted earlier, is now Region 8), and still has two seats.

Region 4 today consists of the same states as it did back in 1984: Texas, New Mexico, Kansas, Oklahoma and Arkansas. But it now has four members on the National Dairy Board, compared to two members originally.

Region 5 also consists of the same states as it did back in 1984: Minnesota, South Dakota and North Dakota. However, Region 5 today has just two National Dairy Board members, compared to four members originally.

Both in 1984 and now, Wisconsin is the only state in Region 6. When the NDB was originally formed, Wisconsin had six members; today, it has five members.

Region 7 consisted of Illinois, Iowa, Missouri and Nebraska back in 1984, and still consists of those four states today. Originally, Region 7 had three NDB seats; today, it has two seats.

Back in 1984, the original Region 8 included the states of Alabama, Kentucky, Louisiana, Mississippi and Tennessee, and it had two NDB members. Today, Region 8 includes just the state of Idaho, and while it has two NDB members right now, it looks like it will have three NDB members in the not-too-distant future.

Region 9 originally consisted of the states of Indiana, Michigan, Ohio and West Virginia, and had three members on the NDB. Today, Region 9 consists of those same four states, and also still has three members on the NDB.

Thus, Region 9 holds the distinction of being the only NDB region that includes the same states and the same number of NDB seats in 2021 as it did back in 1984.

Region 10 originally included the states of Florida, Georgia, North Carolina, South Carolina and Virginia, and had two NDB members. Today, Region 10 includes those states as well as the states that originally comprised Region 8, plus the District of Columbia and Puerto Rico. Region 10 currently has two NDB members, but will have just one in the not-too-distant future.

Pennsylvania, New Jersey, Maryland and Delaware comprised the original Region 11, and those states still comprise Region 11. However, the region now has two NDB seats, as opposed to three seats originally.

Back in 1984, Region 12 consisted of just one state: New York, which had three NDB members. Today, Region 12 includes not only New York but also the New England states of Vermont, Maine, New Hampshire, Massachusetts, Rhode Island and Connecticut. Region 12 still has three NDB members.

Finally, back in 1984 there was a Region 13, which included the six New England states that are now part of Region 12. Region 13 originally had one NDB member.

Over the NDB’s history, changes in regions and NDB members have been prompted both by changes in milk production as well as the legislation (the 2002 and 2008 farm bills) that added importers to the NDB (that legislation is why Alaska, Hawaii, Puerto Rico and the District of Columbia are now included in various NDB regions).

The National Dairy Board is required to review the geographic distribution of milk production at least every five years, which prompts the question: what changes might be in store for NDB seats in the future?

Given that Texas has more than doubled its milk production since 2006, it seems possible that Texas could become its own region, with three NDB members, by 2026
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Reforming Dysfunctional Federal Order System Won’t Be Easy

The Senate Agriculture Committee held a rare public hearing on the federal milk marketing order system last week and, based on the testimony at that hearing, we’ve concluded that: the federal order system really, really needs reforming; and such an undertaking will likely leave everyone in the industry at least somewhat unhappy.

As reported on our front page last week, the hearing included six witnesses, including three dairy farmers, as well as representatives of a dairy cooperative and a cheese company, plus an ag economist.

In a nutshell, none of these witnesses was anywhere near satisfied with the federal order system as it currently exists. Criticisms were aimed at, among other things, the current Class I mover, make allowances, depooling, and negative producer price differentials.

Bob Wills, owner of Cedar Grove Cheese in Plain, WI, and Clock Shadow Creamery in Milwaukee, WI, was the only witness who questioned the overall need for federal orders. Wills leveled a number of criticisms at the federal order system, and perhaps summed up the situation from his perspective with this observation: “The survival of the dairy industry may depend on eliminating the rigidities of the market order system as soon as possible.”

Unfortunately, we don’t see that happening any time soon. Way back in April of 1995, we wrote an editorial with the following headline: “Time To Terminate The Federal Order Program.” Since then, we’ve become more and more pessimistic that this will happen, especially since the California federal order was established and federal orders basically became more entrenched than ever.

This became even more obvious during last week’s hearing. Jim Davenport, a New York dairy farmer, stated that completely eliminating the federal order “would be suicide. There would be chaos in the marketplace.” Christina Zuiderveen, an Iowa dairy farmer, said the current federal order system “is necessary and provides a safeguard against the market power of large milk buyers.”

And Catherine H. de Ronde, vice president, economics and legislative affairs, Agri-Mark Dairy Cooperative, said the federal order system “provides significant value and safeguards to dairy farmers, cooperatives and processors.”

With all of this in mind, what’s the best path forward for reforming federal orders? Agri-Mark’s de Ronde suggested that changes to federal orders “should be made through the formal rulemaking process to ensure that a comprehensive approach is taken. The formal hearing process allows for producer, processor and consumer voices and perspectives to be heard and considered.”

Her observation got us wondering what such a formal rulemaking process would actually look like. In fact, the dairy industry has pretty limited experience with national federal order hearings in recent years. There was a national producer-handler proceeding that took place in 2009 and 2010 that dealt with a specific type of Class I handler; the hearing took place over 12 days in May of 2009, with a final decision released the following March.

Prior to that proceeding, there was a make allowance proceeding, which was launched when Agri-Mark petitioned USDA in September 2005 to update make allowances in federal order pricing formulas. The initial hearing in that proceeding took place over four days in January 2006; it was reconvened in September 2006 and that reconvened hearing took place over two days.

A tentative final decision in the make allowance proceeding was released in November 2006. Three months later, USDA called a national hearing to consider proposals seeking to amend the Class III and Class IV product price formulas, including make allowances and yield factors.

Hearings for that proceeding took place over 13 days starting in February 2007 and finally ending in July 2007. Some 11 months later, a tentative partial final decision was released; that decision, which changed make allowances and the butterfat yield factor in the Class III and Class IV pricing formulas, became effective on Oct. 1, 2008.

One other federal order proceeding is worth mentioning here: the proceeding to establish a California federal order. That proceeding was launched in February 2015, after USDA was petitioned by three dairy cooperatives to establish a California order. The hearing took place over 40 days in September, October and November 2015, and the new California order became effective on Nov. 1, 2018.

From this we can conclude that any sort of national order hearing addressing issues ranging from make allowances to the Class I mover will: take at least a couple of years from when initial proposals are submitted until a final decision is rendered; be extremely costly and time-consuming for the industry; and arguably won’t help the actual marketing of dairy products.

A second alternative would be another round of federal order reforms, mandated by Congress. The previous round of federal order reforms was mandated in the 1996 farm bill, and included a proposed rule released in January 1998 and a final decision issued in March 1999 (and released in early April 1999). Those reforms became effective Jan. 1, 2000.

From this brief review, we can conclude that federal order regulations aren’t going to change anytime soon. And when they do change, the dairy industry will still be stuck with a system that, as described last week by US Sen. Kirsten Gillibrand, is, among other things, “convoluted,” “inadequate” and “out of date.”

 

Dairy Producers Certainly Responded To Higher Butterfat Prices

Last year, for the first time since 2014, protein was the most valuable component on the Upper Midwest federal milk marketing order (as we reported in a story appearing on page 9 of last week’s issue), ending a five-year run during which butterfat was the more valuable component on the order.

This got us wondering what, if any, impact those higher butterfat prices over the 2015-2019 period had on dairy producers. More specifically, did dairy producers respond to those higher butterfat prices by boosting the fat content of their herds’ milk?

The answer would appear to be a resounding yes. It seems that dairy producers not only in the Upper Midwest federal order but nationwide have responded to higher butterfat prices by boosting the fat content of the milk being produced by their cows.

From a national perspective, going back four decades, there wasn’t a whole lot of change in the average milkfat content of cow’s milk for a number of years; indeed, between 1980 and 2010, it never got lower than 3.64 percent nor higher than 3.69 percent.

Interestingly, back when there was still a dairy price support program, USDA would routinely state that the support price was at a certain price per hundredweight “for manufacturing grade milk with an annual average milkfat content of 3.67 percent,” which was, as a 1989 USDA price support press release put it, the “national average” (and it was the national average in 1988). Milkfat content reliably fell within a very narrow range for years.

Things started to change in 2011, when the national average milkfat content “jumped” to 3.71 percent, up from 3.66 percent in 2010. From 2011 through 2015, the average milkfat content varied from that 2011 low to a high of 3.76 percent in 2013.

And then fat content started to increase steadily if not spectacularly, setting new record highs of 3.79 percent in 2016, 3.84 percent in 2017, 3.89 percent in 2018, 3.92 percent in 2019 and 3.95 percent in 2020.
Suffice it to say the days of stable milkfat contents under 3.7 percent are behind us.

What about at the state level? What about the fat content of milk in states that pool considerable volumes of milk on the Upper Midwest order, the subject of our story last week (and the subject of a study published every year)?

Wisconsin is by far the leading source of pooled milk on the Upper Midwest order; last year, more than three-quarters of the milk pooled on that order came from Wisconsin, and Wisconsin has been source of over 70 percent of the milk pooled on the order every year since 2014 (when it was the source of 68.4 percent of the order’s pooled milk).

Since federal order reforms were implemented starting in 2000, Wisconsin cows have generally been above the national average when it comes to milkfat content. Specifically, from 2000 through 2016, the milkfat content of Wisconsin milk ranged from 3.70 percent to 3.78 percent, with the notable exception of 2010, when it dropped to 3.65 percent.

Paralleling what was happening nationally, the milkfat content of Wisconsin’s milk then rose to 3.82 percent in 2017, 3.89 percent in 2018, 3.90 percent in 2019 and 3.92 percent in 2020. So during the period when butterfat was the most valuable component on the Upper Midwest order, the milkfat content of Wisconsin’s milk rose from 3.76 percent to 3.90 percent.

In neighboring Minnesota, average milkfat content has also historically been above the national average, and remains so today. Specifically, the milkfat content of Minnesota’s milk ranged from 3.70 percent to 3.76 percent between 2000 and 2011, then rose to 3.81 percent in 2012, first reached 3.90 percent in 2016 and has actually topped 4.0 percent over the last two years (4.05 percent in 2019 and 4.09 percent in 2020).

Minnesota’s milkfat content during the five years in which milkfat was the most valuable component on the Upper Midwest order rose from 3.86 percent in 2015 to 4.05 percent in 2019.

To more fully illustrate this pattern, we checked on the Mideast federal order, where milkfat was also the most valuable component from 2015 through 2019. We specifically checked Michigan and Ohio, the leading sources of milk pooled on the Mideast order.

Since 2000, the milkfat content of Michigan’s milk has generally been slightly below the national average, running between 3.59 percent and 3.70 percent every year through 2016. But after averaging 3.67 percent in 2016, it rose to 3.72 percent in 2017, 3.82 percent in 2018, and 3.83 percent in both 2019 and 2020.

Over the 2000-2015 period, Ohio’s average milkfat content varied within a fairly narrow range of 3.70 percent to 3.79 percent, with the exception of 2013, when it reached 3.84 percent. But after averaging 3.76 percent in 2015, it rose to 3.81 percent in 2016, 3.86 percent in 2017, 3.89 percent in 2018, 3.92 percent in 2019 and 3.91 percent in 2020.

This limited analysis does seem to confirm the fact the dairy producers responded to milkfat prices that exceeded protein prices by boosting the milkfat content of their cows’ production. This in turn begs the question:
What happens now, with milkfat less valuable than protein?

The answer appears to be: average milkfat content continues to increase.
During the first seven months of 2021, average national milkfat content was higher than a year earlier every month.

Producers know milkfat is still extremely valuable, and are responding accordingly
.

Airbus Tariffs Clearly Impacted US Cheese Imports From EU

US cheese imports through the first seven months of 2021 are running well ahead of the same period in 2020, prompting us to wonder if the tariffs imposed almost two years ago on cheese and other dairy product imports from the European Union, and halted earlier this year, had some impacts on US cheese imports. And our initial review does indicate that they did indeed.

It may be recalled that the US began imposing additional tariffs of 25 percent on those EU dairy imports on Oct. 18, 2019, in a long-running dispute over EU subsidies to Airbus. Those additional tariffs, as well as tariffs being imposed by the EU due to a long-running dispute over US subsidies to Boeing, were suspended for four months back in March of this year, and then in June were suspended for five years.

Overall US cheese imports during the first seven months of 2021 totaled 224.2 million pounds, up 18 percent from the first seven months of 2020.
And, notably, US cheese imports from the EU during the first seven months of this year totaled 157 million pounds, up 19 percent, or 24.6 million pounds, from the first seven months of 2020.

The first seven months of 2021 included roughly two months in which the additional 25 percent tariffs were being applied, and slightly less than five months after those tariffs were suspended.

Looking over trade statistics dating back roughly two years, it seems that the impact of these 25 percent tariffs on US cheese imports from the EU can be divided into three periods.

The first period is the period leading up to when the tariffs were initially imposed. The Office of the US Trade Representative had begun its process under Section 301 of the Trade Act of 1974 to identify EU products to which additional duties may be applied until the EU removes its Airbus subsidies back in April of 2019, or about six months before those tariffs were actually imposed. The USTR held hearings in both early July and early August of 2019 on the proposed tariffs, and announced in early October 2019 that the tariffs would be imposed starting later that month.

So what happened over that six-month period in 2019, leading up to when the US imposed the tariffs on cheese imports from the EU? Well, in anticipation of the tariffs, US imports from the EU surged, particularly in August and September of 2019, when they were about 4 million pounds and 10.5 million pounds higher, respectively, than the corresponding month in 2018.

And even in October, when the tariffs were being imposed during the last two weeks of the month, cheese imports from the EU were almost 1 million pounds higher than in October 2018.

Overall, US cheese imports from the EU during the April-October 2019 period totaled 193 million pounds, up 11 percent, or 18.2 million pounds, from the same period in 2018. In fact, US cheese imports from the EU during that six-month period in 2019 were higher than during that same six-month period every year this century.

What about the period during which those 25 percent additional tariffs were being imposed; that is, the period of November 2019 through February 2021? Here, comparisons can get a bit tricky, for at least three reasons.

First, comparisons between the April-October 2020 period with the April-October 2019 period will of course include the surge in cheese imports during 2019, particularly in September, when US cheese imports from the EU rose from 22.2 million pounds in 2018 to 32.7 million pounds in 2019 and then fell back to 23 million pounds in 2020.

Second, cheese import statistics starting in around March of 2020 reflect imports that took place during a global pandemic, so it’s not necessarily easy differentiating between a decline in imports due to tariffs and a decline in imports due to the pandemic and its supply-chain-related problems.

And third, February of 2020 included an extra day due to leap year. In the overall scheme of things, that’s perhaps not all that significant, but it is notable in light of the fact that US imports of cheese from the EU in February 2020 totaled 26.5 million pounds, up more than 6 million pounds from February 2019 and the only time during the first 10 months of 2020 in which cheese imports were higher than the same month in 2019. Cheese imports from the EU in November and December 2020 were higher than during the same months in 2019.

So what has happened since March, when the Airbus tariffs were suspended? Quite simply, US imports of cheese from the EU have surged.

Specifically, over the April-July 2021 period, US cheese imports from the EU totaled 100.6 million pounds, up an eye-opening 43.7 percent, or 30.6 million pounds, from the same period in 2020. In addition, cheese imports from the EU during June, at 30.5 million pounds, were the highest ever for that month, according to figures from USDA’s Foreign Agricultural Service that date back to 1989, while imports during July, at 25.4 million pounds, were the second-highest ever for the month, trailing only 2001’s 25.6 million pounds.

From these (albeit limited) statistics, we can conclude that US cheese imports from the EU have increased significantly since the 25 percent additional tariffs were terminated back in March.

And, more broadly, we can conclude that tariffs do impact trade, including the periods before the tariffs are imposed or increased, during the period when they are in effect, and after they are terminated or reduced. No wonder tariffs are almost always controversial.

 

Even A Pandemic Can’t Help Fluid Milk Sales

The coronavirus pandemic upended a lot of trends in 2020, and continues to do so here in 2021, but one trend it didn’t upend was the long-term decline in fluid milk sales.

As reported on our front page this week, beverage milk sales in 2020 totaled 46.36 billion pounds, down 0.1 percent, or 51 million pounds from 2019 and the 11th straight year in which fluid milk sales declined. At 46.36 billion pounds, fluid milk sales in 2020 were at their lowest level since 1958, according to figures from USDA’s Economic Research Service.

For what it’s worth, the US population back then was around 175 million, or roughly 156 million less than what it was in 2020. So it’s not just sales of fluid milk that are declining; it’s also per capita consumption.

Certainly the pandemic had a positive impact on fluid milk sales in the short run, as did leap year, for that matter. Specifically, according to fluid milk sales figures from USDA’s Agricultural Marketing Service, sales of conventional (as opposed to organic) fluid milk products in February 2020 totaled just under 3.5 billion pounds, up 40 million pounds from February 2019, which had one less day.

The pandemic’s impact, specifically the stocking-up on staples by consumers, can really be seen in March 2020 fluid milk sales, which totaled just under 4.0 billion pounds, up an eye-opening 280 million pounds from March 2019. But it was back to some semblance of “normal” by April 2020, when fluid milk sales of 3.6 billion pounds were down 51 million pounds from April 2019.

So the bottom line here is that fluid milk isn’t a growing market for the US dairy industry, and fluid milk products continue to use a smaller and smaller share of total US milk production.

But as easy as it is to find negatives in these fluid milk sales statistics, it also isn’t all that difficult to find some positives. For starters, it’s worth noting that 2020 fluid milk sales were only down 51 million pounds from 2019.

That’s by far the smallest decline in fluid milk sales in the 2010-2020 period. Indeed, over that period, fluid milk sales dropped by more than 1.0 billion pounds in 2013, 2014, 2017 and 2018. In fact, there wasn’t a decline of less than 299 million pounds during that entire period, so last year’s drop of only 51 million pounds doesn’t look all that bad.

Whole milk remains a true bright spot for the fluid milk business. Last year, whole milk sales totaled 16.65 billion pounds, up an impressive 530 million pounds from 2019 and the highest level since 2005.

Whole milk sales have now increased every year since 2013, when they bottomed out at 13.78 billion pounds. Last year’s increase of 530 million pounds was the largest since 2016’s growth of 791 million pounds.

And it’s not like whole milk sales are likely to “run out of gas” anytime soon, since they are still more than 20 billion pounds lower than they were back in 1975.

Posting an even more impressive sales gain in 2020 was reduced-fat (2 percent) milk, sales of which totaled 15.8 billion pounds, up 554 million pounds from 2019. Prior to last year’s increase, reduced-fat milk sales had declined for nine straight years, after reaching a 21st-century high of 19.1 billion pounds in 2010.

Beyond those increases, plus a small increase in eggnog sales, fluid milk product sales were down in the other categories broken out by ERS. That includes declines of 259 million pounds for lowfat (1 percent) milk, 474 million pounds for skim milk, 15 million pounds for flavored whole milk, 869 million pounds for flavored milk other than whole, and 25 million pounds for buttermilk.

From these statistics, we can perhaps reach a couple of conclusions. First, consumers no longer fear fat. The two fluid milk categories that posted sales increases happen to be the categories with the highest fat contents.
And sales in one of those categories, whole milk, have now risen for seven straight years.

The last time skim milk sales posted that many consecutive increases was in the 1990s, but skim milk sales last year were less than a third of what they were when they reached a record 9.2 billion pounds back in 1998.

Second, it appears that consumers might be backing away from products with high levels of added sugars. Keep in mind that the Nutrition Facts panel just started including a line for added sugars a year or two ago, so this information is still relatively new to consumers.

But the fact that sales of both flavored whole milk and flavored milk other than whole fell by almost 900 million pounds last year might be an indication that fluid milk products with lots of added sugar will be facing some sales headwinds in the future.

There are at least a couple more positive notes in the data released by ERS this week. First, ERS has been tracking sales of “miscellaneous” fluid milk products since 2000, when they totaled just 88 million pounds.

In 2020, sales of miscellaneous fluid milk products totaled 803 million pounds. Thus, it would appear that sales of these non-traditional fluid milk products are becoming a more important market for the dairy industry.

Finally, in addition to fluid milk sales statistics, ERS this week also released statistics on the number and average volume of US fluid milk plants, and they show that the US added eight fluid milk plants last year, an interesting achievement considering that fluid milk giants Dean Foods and Borden Dairy were both going through bankruptcy proceedings.

 

Celebrate World Plant Milk Day? No, Thanks

Last week, a company called Better Than Milk® put out a news release inviting consumers to join the company in celebrating World Plant Milk Day (which was Sunday, Aug. 22). Folks were invited to celebrate World Plant Milk Day by joining Better Than Milk’s “7-Day Better Than Milk Plant-Based Challenge.”

We did not, in fact, celebrate World Plant Milk Day, which, according to its website (worldplantmilkday.com), is “an international day that celebrates plant-based alternatives to dairy milk.”

But we did take a little time to learn more about Better Than Milk, the company that invited consumers to celebrate World Plant Milk Day.

For starters, the company’s name is certainly intriguing, from a dairy perspective. After all, milk for years has been touted as nature’s most perfect food. Do Better Than Milk’s products actually improve on milk’s perfection?

According to Better Than Milk’s website (drinkbetterthanmilk.com), Better Than Milk plant-based beverages don’t contain any of the following: dairy, lactose, gluten, soy, sulfites, artificial flavors, carrageenan, or cholesterol.

So, what do these plant-based beverages contain? The company’s Organic Almond Drink contains the following ingredients: spring water, organic ground almonds, organic cane sugar, and organic locust bean gum. And Better Than Milk’s Organic Rice Drink + Calcium contains spring water, organic rice, organic sunflower oil, organic safflower oil, seaweed, and sea salt.

Interestingly, the spring water is Italian, and the company’s entire product line (consisting of Organic Almond Drink, Organic Oat Drink, Unsweetened Organic Almond Drink, Organic Rice Drink + Calcium, and Organic Rice Drink Hazelnut) is produced in Italy.

So when it comes to ingredients, it would appear that cow’s milk has the advantage; whole milk’s ingredients include nothing more than milk and Vitamin D3.

What about from a nutritional standpoint? What do Better Than Milk’s products have to offer in that department?

That varies somewhat from product to product. Starting at the top of the list on Better Than Milk’s website, Organic Almond Drink contains 80 calories per eight-ounce serving, while the unsweetened Organic Almond Drink contains 50 calories per serving, the Organic Rice Drink + Calcium contains 150 calories per serving, and the Organic Rice Drink Hazelnut contains 180 calories per serving.

Whole milk contains 150 calories, while milks with less or no fat contain less calories. So for consumers really trying to count calories, Better Than Milk has a couple of products with less calories than regular milk, a couple of products with similar calories, and one with more calories.

Scrolling down the Nutrition Facts panel, we couldn’t help but notice that at least one of the Better Than Milk products contains zero grams of protein per serving (that’s the Organic Rice Drink + Calcium), while the product line’s protein content peaks at two grams per serving.
Regular cow’s milk, meanwhile, contains eight or nine grams of protein per eight-ounce serving.

Thus, consumers who meet the Dietary Guidelines recommendation of three servings of dairy per day could get a minimum of 24 grams of protein from three eight-ounce glasses of milk, but could end up with as little as zero grams of protein or as much as six grams of protein by consuming three eight-ounce glasses of Better Than Milk’s products.

As noted, one of Better Than Milk’s products is called Rice Drink + Calcium, and as the name implies, this product contains 290 milligrams of calcium per serving, or 20 percent of the Daily Value. The Unsweetened Organic Almond Drink contains 30 milligrams of calcium per serving (2 percent of the Daily Value), while the other three products contain no calcium at all.

Meanwhile, depending on the brand, regular cow’s milk contains 290 or more milligrams of calcium per serving, providing 20 to 25 percent of the Daily Value.

Potassium has emerged as a nutrient of concern in recent years, and none of the Better Than Milk products contains any potassium. Cow’s milk contains over 300 milligrams of potassium per serving, or 8 percent of the Daily Value.

So that’s a limited look at Better Than Milk’s product lineup from a nutritional perspective, and frankly, it’s difficult if not impossible to figure out how these beverages are better than milk. Granted, they don’t contain any cholesterol, but most experts no longer consider cholesterol to be a nutrient of concern for overconsumption.

And yes, Better Than Milk’s products don’t contain any saturated fat (with the exception of the Organic Oat Drink, which contains one gram per serving), but recent research is finding some interesting nutritional benefits with certain saturated fats, including those in milkfat.

Better Than Milk says it cares a lot about our planet, which is why the brand is heavily promoting World Plant Milk Day alongside Instagram influencer Heather Montane in a seven-day Better Than Milk Plant-Based Challenge. By joining the challenge, the company said fans “will help raise national awareness about the benefits of switching from a dairy-based milk to a plant-based milk, both from an environmental and nutrition perspective.”

Just from a nutritional perspective, we’re hard-pressed to figure out what those benefits are.

 

Front-Of-Pack Food Labeling System Is A Terrible Idea

The Food Labeling Modernization Act is an intriguing and far-reaching piece of legislation that covers issues ranging from standards of identity and caffeine content to health and nutrient content claims. In short, while it’s not as sweeping as the Food Safety Modernization Act, the FLMA’s impact would be felt by pretty much every food and beverage product manufacturer and marketer.

The legislation (detailed in a front-page story in our Aug. 6th issue) does have some interesting provisions that deserve further consideration. For example, the bill’s section on standards of identity would provide for the use of salt substitutes such as potassium chloride in cheese.

While there are various problems associated with replacing most of the sodium chloride with potassium chloride in cheese and other dairy products, at least this amendment would open the door to partial replacement, which is currently not allowed under FDA’s standards of identity.

But while there are some provisions of this legislation that may be worth pursuing, there’s one provision that shouldn’t be pursued any further: front-of-packaging labeling for foods. The bill specifically directs FDA to establish some sort of standardized symbol system that displays calorie information and information related to the content of saturated and trans fats, sodium, added sugars, and any other nutrients that the agency determines are strongly associated with public health concerns.

This system would have to employ an approach that clearly distinguishes between products of greater or lesser nutritional value. The system would include a warning symbol or symbols for products high in saturated or trans fats, sodium, added sugars, and any other nutrients the consumption of which should be limited or discouraged; and a stop-light, points, star, or other commonly recognized signaling system to scale or rank foods according to their overall health value.

There are several problems with this front-of-package labeling system, starting with the fact that there’s already plenty of detailed information available to consumers who are interested in finding such information.

This isn’t the early 1990s, when FDA was promulgating the rules for the Nutrition Facts label, which provided information that wasn’t necessarily available previously. Nor is it a time when ingredient information isn’t available on food and beverage products.

Today, a consumer who actually cares about this information can go online with a 50-item grocery list and find nutrition and ingredient information about pretty much every item on that list, without even entering a store (assuming they don’t just do all their shopping online and never visit a store).

If consumers lack internet access, or find new products of interest once they get to the store, they can simply look at the back or side of the product and see if it contains ingredients or nutrients they’re trying to avoid. If nothing else, putting a simplistic symbol on the front of a package is going to prompt at least some consumers to ignore the “big picture” regarding the nutritional content of foods.

And that’s another big problem with this front-of-package symbol idea. Obviously, cheese is not going to fare well if this symbol ever becomes mandatory, because the vast majority of cheese products on the market today would likely be considered high in saturated fats and sodium, so they would probably have to bear a warning symbol or symbols.

So imagine how this would work, from a nutritional perspective. Consumers are warned, when they glance at the front of a cheese package, that cheese is a bad choice because it’s high in saturated fat and sodium. So they instead choose, for example, some sort of plant-based alternative that happens to be relatively low (compared to traditional cheese) in saturated fat. If this alternative product doesn’t have to bear a warning symbol, because it’s only high in one nutrient of concern (sodium), maybe the hurried consumer grabs it because it appears nutritionally superior, from the perspective of the front of the package, compared to regular cheese.

But what about the “big picture,” nutritionally speaking? For starters, many if not most of these plant-based cheese alternatives contain little or no protein. They may also be lacking some of the other nutrients contained in cheese, ranging from vitamin B12 to zinc.

Perhaps even more important is the cheese matrix. As noted in a paper submitted to FDA back in 2017 (as part of that agency’s “healthy” food definition proceeding) by Dr. John Lucey and Rebekah McBride of the Wisconsin Center for Dairy Research, “science is now finding that the chemistry of cheese, or the cheese matrix, is a unique type of food product and an excellent vessel for important nutrients.”

While nutrition science long focused on individual components (fat, protein, carbohydrates, etc.) and judged foods only based on the concentrations of these nutrients, researchers are now discovering that “the structure of complex foods like cheese, as well as the specific combination of components, can impact digestion, absorption and ultimately human health,” Lucey and McBride pointed out.

With this in mind, it seems ridiculous, even counter-productive, to even think about some sort of front-of-package warning label that would basically suggest that the consumption of cheese should be limited or discouraged because it’s high in saturated fat and sodium. Consumers deserve better than this simplistic approach.

Climate Change Increasingly Likely To Change Ag Forever

The Intergovernmental Panel on Climate Change released its latest report on Monday, and the lengthy report is kind of an eye-opener, both from a general perspective and also from the perspective of agriculture, including the dairy industry. Indeed, looking over this report’s conclusions, it’s difficult if not impossible to come up with ways in which the entire food supply chain won’t be transformed in the coming decades.

As reported in our paper this week (please see), the IPCC report provides new estimates of the chances of crossing the global warming level of 1.5 degrees Celsius in the next decades, and finds that, unless there are immediate, rapid and large-scale reductions in greenhouse gas emissions, limiting warming to close to 1.5 degrees C or even 2 degrees C will be beyond reach.

By way of brief background, the IPCC is the United Nations body for assessing the science related to climate change. It was established by the UN Environment Program and the World Meteorological Organization in 1988 to provide political leaders with periodic scientific assessments concerning climate change, its implications and risks, as well as to put forward adaptation and mitigation strategies. The IPCC has 195 member states (countries).

To briefly summarize the latest report, well, the report can’t really be briefly summarized. Earlier, we referred to this report as “lengthy,” but this report puts previous reports described using that term to shame. In fact, the IPCC’s report runs a grand total of 3,949 pages.

Agriculture is mentioned numerous times throughout the report, and not necessarily in positive ways. Indeed, “agriculture” is mentioned close to 175 times in the report, while “agricultural” is mentioned around 400 times. For better or worse, dairy isn’t mentioned at all.

And what’s the context of these ag mentions? As one example, the report notes that, at 1.5 degrees C global warming, more frequent and/or severe agricultural droughts are projected in a few regions in all continents except Asia compared to 1850-1900.

Also, the report notes a resumption of methane concentration growth since 2007, and states that this growth has been “largely driven” by emissions from the fossil fuels and agriculture (dominated by livestock) sectors.

The IPCC report notes that, in the agriculture and waste sectors, livestock production is the largest emission source of methane, dominated by enteric fermentation. Methane is formed during the storage of manure, and emissions from enteric fermentation and manure have increased gradually since 1990, mainly due to the increase in global total animal numbers.

Methane production in livestock rumens (cattle, goats, sheep, water buffalo) are affected by the type, amount and quality of feeds, energy consumption, animal size, health and growth, meat and milk production rate, and temperature, the IPCC report explained.

So what does this mean for the dairy industry? For starters, it would appear to mean that dairy farming will get more difficult, and more complicated, in the future. Among other things, feed production will become more challenging, at least in some regions; and what is fed to dairy cows will be changing as efforts to reduce methane emissions from cows accelerate.

Here’s just one example of what we’re talking about: according to a recent announcement, a new $5 million grant will support the efforts of Bigelow Laboratory scientists to reduce methane emissions by cattle. The researchers are leading a team of partners from throughout the Northeast US that hopes to use algae-based feed supplements to reduce cattle’s environmental impact.

Also at the farm level, it seems logical to expect to see more concentration of milk, before it’s hauled to the plant, in order to reduce the volume of milk (which is about 87 percent water) being trucked around the countryside.

Once it leaves the farm, our guess is that the milk tanker will be electric (or use some other alternative form of energy), rather than gas-powered, in the not-too-distant future. Indeed, it’s difficult not to expect milk to move all the way from the farm to the consumer in vehicles powered by something other than fossil fuels at some point in the future.

And when they’re moving from the dairy plant to the consumer, chances are dairy products in the future will be packaged in something other than today’s fossil-fuel-derived plastics.

There is at least one somewhat encouraging aspect to this report, from a dairy perspective: it mentions “net zero,” as in net zero emissions, no less than 150 times. Among other things, the report assesses the climate response to five illustrative scenarios that cover the range of possible future development of anthropogenic drivers of climate change, including scenarios with very low and low greenhouse gas emissions and carbon declining to net zero around or after 2050.

Here, it would appear that the dairy industry is off to a pretty good start.
Last October, the Innovation Center for US Dairy unveiled the Net Zero Initiative, a critical component of US dairy’s environmental stewardship goals, endorsed by dairy industry leaders and farmers, to achieve carbon neutrality, optimized water usage and improved water quality by 2050.

While it remains to be seen how the IPCC report is translated into new legislative or regulatory mandates (if any), US dairy’s Net Zero Initiative will only grow in importance in the years ahead, in wake of the IPCC report’s findings.

 

Dairy Consumers Should Appreciate Current Bargain Prices

Looking over the latest “Food Price Outlook” report from USDA’s Economic Research Service, it appears that dairy products are not only currently a great bargain for consumers, but they’re likely to remain a great bargain for consumers for the foreseeable future.

At ERS, work on the Consumer Price Index (CPI) for food consists of several activities, the report explained. ERS analyzes the current index level for food, examines changes in the CPI for food, and also constructs forecasts of the CPI for food for the next 12 to 18 months.

Forecasting the CPI for food has become increasingly important due to the changing structure of food and agricultural economies and the important signals the forecasts provide to farmers, processors, wholesalers, consumers, and policymakers, ERS explained.

Looking over the latest ERS report, or more specifically the tables accompanying the ERS report, there are at least three ways to illustrate why dairy products are such a great and ongoing bargain.

First, dairy stands out when looking over the 20-year average historical percent CPI change. That is, the dairy CPI has averaged a 1.8-percent increase every year for the past 20 years, which is the lowest average increase of all the animal-based products broken out by ERS for this report.

Indeed, the 20-year average increase for the overall CPI for food at home is 2.0 percent, and dairy is the only animal-based product below that average. The 20-year average percent change for meats, poultry and fish is 2.9 percent, with beef and veal coming in at 4.4 percent, poultry at 2.1 percent and fish and seafood at 2.5 percent. And eggs posted an average annual increase of 3.1 percent over the past 20 years.

For 2021, ERS is forecasting that the dairy CPI will increase between 0.5 and 1.5 percent. This is notable for at least three reasons.

First, the projected increase in the dairy CPI is below the historical average of 1.8 percent. That’s actually in line with recent trends; after the dairy CPI increased 3.6 percent in 2014, it actually declined three times, increased by just 0.1 percent once and rose by 1 percent once.

Only in 2020, when it increased 4.4 percent, has the dairy CPI increased by more than its historical 1.8-percent average since 2014. And that 2020 increase was the largest since 2011.

Second, the latest “Food Price Outlook” forecasts included increases for several food categories, compared to the June report. Among other things, the CPI projection for meats, poultry and fish was increased, as was the forecast for eggs. But the dairy forecast wasn’t changed.

And third, the dairy CPI forecast range for 2021 is below numerous other categories, including the forecast for food at home (2.0 to 3.0 percent increase), the forecast for beef and veal (3.0 to 4.0 percent increase), the forecast for pork (4.0 to 5.0 percent increase), the forecast for poultry (2.5 percent to 3.5 percent increase) and the forecast for both fish and seafood and for eggs (2.0 percent to 3.0 percent increase).

In other words, we can expect to hear concerns throughout the remainder of 2021 about rising retail prices for a wide variety of animal-based products, but not for dairy. That’s especially noteworthy considering that average retail prices for products such as Cheddar cheese and whole milk are generally below what they were back during the 2011-2014 period.

Finally, the latest ERS “Food Price Outlook” includes forecast ranges for food categories for 2022, and once again dairy appears to be standing alone as a great bargain.

Specifically, ERS is forecasting that the change in the dairy CPI next year will range from negative 0.5 percent to positive 0.5 percent. The midpoint of that forecast, of course, is no change in the dairy CPI, which would be roughly in line with several recent years.

Meanwhile, the forecast range for the CPI for food at home is an increase of 1.5 to 2.5 percent, down from the 2021 forecast range of 2.0 to 3.0 percent. Within the animal products sector, only eggs match dairy’s forecast of a negative 0.5 percent to a positive 0.5 percent change next year.

While many other categories are projected to post lower CPI increases in 2022 than they’re projected to post in 2021, they are still projected to post increases such as 2.0 to 3.0 percent for beef and veal as well as pork, 1.5 to 2.5 percent for fish and seafood and 1.0 to 2.0 percent for poultry.

In short, inflation in 2022 will remain a concern in many food product categories, including categories that compete with dairy for protein-conscious consumers, but it won’t be a concern for dairy.

There are at least two points to keep in mind with this forecast. First, CPI forecasts are based in part on forecasts for producer prices. And USDA’s latest milk price forecasts are for Class III prices in both 2021 and 2022 to average below what they averaged in 2020, and for the all milk price in 2021 and 2022 to average just slightly more than what it averaged in 2020. In other words, while this year and next year look good for dairy consumers, they don’t look all that great for dairy farmers.

Second, these forecasts don’t necessarily account for major “shocks” to agriculture in general or dairy specifically. These shocks, as recent experience has demonstrated, can range from pandemics and droughts to supply-chain constraints and trade wars.

But as things stand right now, dairy products appear poised to remain a nice bargain for consumers for the foreseeable future.

 

US Milk Supply Growing Impressively, And Reliably

During the first half of this year, US milk production totaled just under 115 billion pounds, up an impressive 2.4 percent from the first half of last year. We use the word “impressive” here because, pretty much no matter how you look at it, the reliable gains in US milk production, year after year, are mighty impressive.

The gain in US milk production during the first half of 2021 comes despite the fact that the first half of 2020 actually had one extra day, due to leap year. But that’s how reliable milk production increases have become in recent years; through low-price troughs, pandemics, leap years, and numerous other calamities, US milk production just continues to grow and grow.

Just how reliable US milk production growth is can be seen from the first-half milk production total of just under 115 billion pounds. Once upon a time, the US actually produced 115 billion pounds of milk during an entire year.

That time was actually not all that long ago: as recently as 1975, US milk production totaled 115.4 billion pounds. And in fact that level of output was the end of a long period of stagnation and decline for US milk production — a period that is barely recognizable today, given the all-but-guaranteed increases in milk production every year.

That 1975 milk production total of 115.4 billion pounds was actually the third straight year in which US milk output totaled around 115 billion pounds, and was the lowest of those three years; production in 1974 had totaled 115.6 billion pounds, while production in 1973 had totaled 115.5 billion pounds.

Those three years were the lowest levels of US milk production since 1952, when output was 114.7 billion pounds. Therein lies one heck of an interesting contrast to today’s US milk production gains: from 1952 to 1975, US milk production increased by less than 1 billion pounds. Yes, in the intervening years, milk production did grow, reaching a record 127 billion pounds in 1964. But milk production fell after that, dropping below 120 billion pounds by 1966 and remaining below 120 billion pounds until 1976.

And that 1964 milk production record didn’t get broken until 1980.
The 1951-52 period also represented a “trough” in US milk production.
Prior to that, milk production had expanded impressively, from 101.2 billion pounds in 1935 to a record 119.8 billion pounds in 1945, before dropping under 115 billion pounds not only in 1952 and 1951 but also in 1948, when output bottomed out at 112.7 billion pounds, the lowest level since 1940.

In short, there was a lengthy period in the history of the US dairy industry when milk production records were an exception, rather than a rule. That era pretty much ended at the end of the 1970s.

As noted, milk production in 1980, at 128.4 billion pounds, set a new record, topping the previous record that was set way back in 1964, or more than a decade and a half earlier.

So, what has happened since then with milk production records? In a nutshell, they’ve fallen with far greater frequency than ever before.

That wasn’t necessarily the case in the 1980s, when milk production did set records for four straight years, reaching 139.6 billion pounds in 1983, but that decade also saw some notable production declines, and no records set in 1984, 1987 and 1989.

The 1990s also saw some ups and downs when it came to milk production. Specifically, after reaching a record 147.7 billion pounds in 1990, milk production declined three times, matching the number of times milk production fell in the 1980s.

In the first decade of the 21st century, US milk production declined twice: in 2001 and then again in 2009. Production increased every other year, although it’s notable that 2004’s output, 170.8 billion pounds, was up just 769 million pounds from 2002’s production.

And that’s it, as far as US milk production declines are concerned. Output in 2009 totaled 189.2 billion pounds, down 776 million pounds from 2008, but production has risen every year, and set new records every year, since then, hitting 223.2 billion pounds in 2020.

Another interesting point about US milk production is that, during each of the first two quarters of 2021, milk production per cow averaged above 6,000 pounds.

How impressive is that output per cow? Back in 1956, when US milk production reached a record high of 124.9 billion pounds, production per cow topped 6,000 pounds for the first time ever. That’s 6,000 pounds per cow for an entire year. Today, the average dairy cow produces as much every three months as it did in an entire year 65 years ago.

USDA’s most recent agricultural baseline, released back in February, indicates that the two trends detailed here will continue over the next decade. That is, US milk production will set new records every year and reach 248 billion pounds by 2030; and milk per cow will also increase every year and reach 26,295 pounds in 2030.

It should be kept in mind that USDA’s baselines are based on specific assumptions, including a consensus macroeconomic scenario, existing US policy, and current international agreements. But as the US dairy industry has learned again and again, there’s no such thing as the status quo when it comes to macroeconomic scenarios, dairy policy, or trade.

So, assumptions aside, the US will have plenty of milk to market, domestically and globally, over the next decade
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UK’s Proposed Tax On Salt Is Both Idiotic And Dangerous

A “National Food Strategy” for the United Kingdom was released last week, and the independent review of the UK’s food system includes a proposal that’s both idiotic and potentially dangerous. That proposal is for a salt reformulation tax.

The review specifically calls for a tax on both sugar and salt for use in processed foods or in restaurants and catering businesses. The tax on salt would actually be twice as high as the tax on sugar; because salt is used in much smaller quantities than sugar, the rate needs to be higher in order to achieve an impact, the review explained.

The rationale for the proposed tax is that people in the UK “eat too much sugar and salt,” according to the review. A tax on the amount of sugar and salt used in processed and prepared foods “will create a significant incentive for companies to reformulate their products so as to avoid having to put the price up, which would be damaging to their business in the UK’s highly competitive and price-sensitive food market,” the review stated.

Suffice it to say that the review has nothing positive to say about salt, or sugar. Eating too much salt “is strongly linked to high blood pressure, which can cause strokes and cardiovascular disease,” the review noted.
Declines in salt consumption “have been associated with substantial improvements” in people’s health.

The problem with this is that salt offers some clear benefits to some food manufacturers, including cheese makers. In a country that’s world famous for Cheddar, Stilton and other cheeses, we have a hard time believing that some sort of blanket tax on salt used in food manufacturing will be a good thing.

Interestingly, the UK review doesn’t spend a lot of “ink” detailing the problems with eating too much salt, other than stating that eating too much salt “is strongly linked to high blood pressure, which can cause strokes and cardiovascular disease.”

Eating too much sugar and salt is also “bad for the nation’s finances,” the review states. It mentions the costs associated with obesity and type 2 diabetes, both of which are tied to high sugar intake but neither of which is tied to high salt intake.

It’s also interesting that the review points out that UK adults on average eat 8.4 grams of salt per day, 40 percent more than the recommended six grams a day. But per capita cheese consumption in the UK is only around 26 pounds per year, or roughly half a pound a week, which would seem to indicate that the salt in cheese is not one of the major contributors to the country’s high salt intake.

So taxing the salt that is used in cheesemaking would seem to be a recipe for disaster, in part because reducing the amount of salt used in cheese would have a very small impact on total population-wide salt intake.

It would also be a recipe for disaster due to all the benefits of using salt in cheesemaking. It may be recalled that, several years ago, the US Food and Drug Administration asked for input on its proposed short-term voluntary sodium reduction goals, and the agency received considerable input (criticism) from cheese and dairy industry organizations and companies.

“Salt plays a crucial role in the manufacture and ripening of natural and processed cheeses and impacts overall product functionality, safety and quality,” the National Dairy Council reminded FDA. Sodium reduction in cheese is “particularly problematic” due to the crucial role that salt plays in quality, safety and taste.

The National Milk Producers Federation and International Dairy Foods Association reminded FDA that sodium contributes to the overall characteristics of cheese by: controlling the fermentation by starter culture organisms; controlling the non-starter organisms that are known as non-starter lactic acid bacteria; controlling the lysis of starter cultures and subsequent enzymatic activity; drawing moisture from the curd; and impacting functional characteristics of both melted and unmelted cheese like body and texture.

Salt is also a “significant factor” in minimizing spoilage and preventing the growth of pathogens, like Listeria monocytogenes in natural cheeses and Clostridium botulinum in processed cheeses, IDFA and NMPF pointed out. Salt also influences the growth of undesirable microorganisms. Thus, “it is challenging to reduce sodium in cheese.”

“Reducing sodium in cheesemaking poses many technological challenges, and in most cases is neither feasible nor practical in achieving a desired end product,” the American Cheese Society told FDA. Cheese makers use only as much salt as is needed to produce the desired outcome, and shifting this balance to achieve FDA’s proposed sodium reduction goals “could do more harm than good.”

The UK review notes that the proposed tax on salt will incentivize further innovation and reformulation, such as the use of potassium chloride, “which is less harmful to health than conventional salt.”

This raises at least a couple of questions. First, do UK food standards regulations even allow the substitution of potassium chloride for sodium chloride in cheese?

And second, how exactly are cheeses covered by geographical indications, such as White Stilton/Blue Stilton and West Country Farmhouse Cheddar, supposed to make this switch? It would seem that using potassium chloride would contradict the historic traditions of these protected cheeses.

A tax on salt, as proposed in the UK’s National Food Strategy, seems like an ill-conceived idea that shouldn’t receive serious consideration
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Standards Of Identity: Help Or Hindrance?

Standards of identity for dairy products have been around for so long that they’re sometimes taken for granted by the dairy industry. But every once in a while something happens that brings standards-related issues to the forefront, and prompts some thoughts about whether standards are actually helping or hindering the industry.

At the Wisconsin Dairy Products Association’s 2021 Dairy Symposium in Egg Harbor, WI, this week, Paul Ziemnisky of Dairy Management, Inc., noted that one advantage dairy’s competitors have is less government oversight; that is, these competitors are less regulated than are dairy products. Ziemnisky specifically mentioned product naming and standards of identity, along with nutrition claims, advertising claims, and sustainability claims.

It was his specific mention of standards of identity that got us thinking about whether standards for dairy products have outlived their usefulness, and are doing more harm than good, especially considering the aggressiveness and success of dairy’s new competitors.

There are at least a couple of reasons why the usefulness of dairy standards should be evaluated from time to time. The first reason is simply because they’ve been around for so long.

Indeed, federal standards of identity for some dairy products, especially cheese, date back many decades. As such, some of these standards might be a bit on the dated side. It is, after all, not all that easy to change federal standards of identity, as the dairy industry has learned over the past 21-plus years while a petition to amend the yogurt standard made its way, agonizingly slowly, through the US Food and Drug Administration’s standards revision process.

The bottom line regarding standards of identity for dairy products is that they’ve been around for a long time, haven’t changed much if at all for decades, and are probably somewhat outdated in at least some respects.

The second reason why the usefulness of dairy standards should be evaluated from time to time is because there’s mounting evidence that industries that don’t have to comply with standards are doing quite well without them.

Take, for instance, plant-based dairy alternatives. According to data released earlier this year by the Plant Based Foods Association and The Good Food Institute, sales of plant-based “cheese” grew 42 percent in 2020, to $270 million, while sales of plant-based “yogurt” grew 20 percent, to $343 million, and sales of plant-based “butter” increased 35.5 percent, to $275 million.

These plant-based products, of course, aren’t regulated by standards of identity. So, for example, Dairy-Free Cheddar from Follow Your Heart has as its main ingredients the following: filtered water, organic palm fruit oil, modified corn and potato starches and natural flavors. Also, this product contains zero grams of protein.

Meanwhile, Cutting Board Cheddar Style Shreds from Daiya have as their main ingredients the following: filtered water, tapioca flour, coconut oil, expeller pressed canola and/or safflower oil, vegan natural flavors, chickpea protein, and salt. Daiya’s Cutting Board Cheddar Style Shreds also contain zero grams of protein.

So the bottom line with at least some of these dairy-free cheese alternatives is that they are made from a variety (and lengthy list) of different ingredients, and they don’t contain any protein. Oh, and sales of these products are increasing at a pretty impressive pace.

All of which prompts the question of whether standards are actually holding back sales of cheese and other dairy products, while plant-based dairy-free alternatives are seeing their sales skyrocket.

But it’s worth keeping in mind that the plant-based dairy alternatives business is still in its infancy. Sales increases look impressive, but they are starting from a relatively low base.

It’s also worth keeping in mind that per capita cheese consumption reached a record high of 38.6 pounds in 2019 (the most recent year for which figures are available), has set new records for nine straight years, and has more than doubled since 1980.

With those points in mind, it could be argued that cheese sales and consumption keep rising because of standards of identity, not despite standards of identity. Standards of identity are intended, as FDA points out, to promote honesty and fair dealing in the interest of consumers.
Consumers buying Cheddar cheese can be reasonably certain of what they are getting, from the standpoints of ingredients, nutrition and flavor.
Consumers of plant-based Cheddar alternatives don’t really have those same assurances. And at some point in the future, consumers might start to balk at the lack of consistency from product to product, at least when it comes to the aforementioned ingredients, nutrition and flavor.

As the National Milk Producers Federation pointed out to FDA a year ago (in comments submitted on food standards modernization), standards of identity “are central to consumers’ perception of products, ensuring the product has the ingredients and nutrition they expect.”

But NMPF also noted that, if FDA sincerely believes the employment of general standards principles is a “sound and logical approach, the agency needs to acknowledge that the marketing of plant-based imitation dairy products utilizing standardized dairy terms is inconsistent with virtually every one of the principles.”

It would seem that properly enforced standards of identity help, rather than hinder, consumers as well as industry. But they currently aren’t being properly enforced.

 

Despite Aircraft Truce, US-EU Dairy Trade Still Dysfunctional

While it was certainly good news that the United States and European Union recently reached a truce in their longstanding aircraft dispute, the dairy trade relationship between the two economic giants remains highly dysfunctional. And it’s possible things will get worse, from a US perspective, before they get better.

As reported on our front page two weeks ago, the US and EU agreed that the tariffs that have been imposed by both sides over the past two years are being suspended for five years. The US had been applying 25 percent tariffs on a number of cheese and other dairy imports from the EU since October 2019, while the EU had been applying 25 percent tariffs on imports of several dairy products from the US since November 2020.

There are a number of ways to illustrate the dysfunctional nature of the US-EU dairy relationship, starting with the fact that it tends to be a bit one-sided. Specifically, over the past decade, US dairy exports to the EU have ranged in value from $82.1 million in 2012 to $128 million in 2013, while US dairy imports from the EU have ranged in value from $1.16 billion in 2011 to $1.7 billion in 2019.

It’s also worth noting that, at about the same time the US and the EU were reaching a truce in their aircraft dispute, the EU was being criticized, both externally and internally, for its new entry certificate requirements for US dairy exports.

More specifically, Eucolait (the European Association for Dairy Trade) recently highlighted what it called a “serious sanitary barrier” to imports of dairy products into the EU, created by requirements in a new import health certificate and differences between the EU and third country regulatory frameworks for animal health and food safety.

The EU, Eucolait pointed out, is a “relatively minor” dairy importer, due to its “considerable surplus” of milk and “high tariffs on dairy products from most origins.” US authorities have indicated they won’t be able to attest conformity of US dairy products and ingredients with the new EU provisions, “which would result in a non-tariff barrier to dairy imports from the United States,” Eucolait said.

Shortly after Eucolait voiced its concerns over the EU’s new dairy import certificates, four members of the US House voiced similar concerns in a letter to Stavros Lambrinidis, EU ambassador to the US.

A third way to illustrate the dysfunctional nature of the US-EU dairy trade relationship is to read through some recent reports from the Office of the US Trade Representative. The EU’s dairy trade barriers seem to have an outsized presence in these reports.

For example, back in late March, US Trade Representative Katherine Tai released the 2021 National Trade Estimate (NTE) Report, which details foreign trade barriers limiting US exports of dairy and other products.
This 574-page report is pretty detailed, to say the least, and covers trade barriers being imposed by US trading partners ranging from Algeria to Vietnam.

The report’s chapters tend to be fairly short; for example, just over four pages are devoted to Algeria, while Vietnam gets 11 pages.

There are some other chapters that tend to be quite lengthy. For example, the chapter on China runs about 36 pages, while the chapter on India runs about 23 pages (dairy trade barriers are mentioned in both of these chapters).

But these chapters pale in comparison to the chapter on the European Union, which runs some 50 pages and includes several mentions of dairy trade barriers, including the aforementioned import certificates as well as somatic cell counts and geographical indications.

Speaking of GIs, several weeks after it released the annual NTE report, the USTR released its annual Special 301 Report on the adequacy and effectiveness of US trading partners’ protection and enforcement of intellectual property rights, including in the area of geographical indications.

The majority of that 90-page report is devoted to countries on the “priority watch list” or “watch list.” The EU isn’t on either of those lists.
However, the first section of the report (before the individual country chapters) covers developments in intellectual property rights, protection, enforcement and related market access. That section runs about 27 pages, almost three of which are devoted to the EU’s GI agenda, which the report describes as “highly concerning.”

Lest it appear that we’re picking on the EU and ignoring US trade barriers here, it’s safe to say the US is far from perfect in the trade barriers arena, whether you’re talking dairy trade or pretty much any other trade category.

But when EU dairy exports to the US rise from under $1.2 billion in 2012 to $1.7 billion in 2019, it seems logical to conclude that these trade barriers aren’t insurmountable. Thanks to the US tariffs imposed starting in late 2019, however, it is possible for the US to put a damper on EU dairy imports, which fell last year in value by 8 percent from 2019 (but still totaled $1.57 billion).

What’s the future look like for the US-EU dairy trade relationship? Our expectation is that the relationship will continue to be dysfunctional, and one-sided.

While the aircraft dispute tariffs have been suspended for five years, some of the EU’s other dairy trade initiatives continue to threaten US exporters, probably most importantly in the area of geographical indications. Just looking at EU and US trade figures doesn’t reveal the full impact of this EU policy..

More States Producing A Billion Pounds Of Milk Every Month

When glancing at the monthly “Milk Production” report from USDA’s National Ag Statistics Service, we’ve noticed some interesting changes in recent years regarding the number of states producing over 1 billion pounds of milk every month. Today, a total of six states — California, Wisconsin, Idaho, Texas, New York and Michigan — produce over 1 billion pounds of milk every month (or almost every month).

This got us wondering about the history of state milk production topping 1 billion pounds every month, and how the list of states hitting that milestone has changed, and grown, over the years.

Let’s start with Wisconsin, which led the US in milk production for many years until being overtaken by California in 1993. Wisconsin first produced over 1 billion pounds of milk in a single month back in May of 1933, when output reached a then-record 1.16 billion pounds (the NASS online database only includes monthly milk production statistics dating back to 1933, so it’s possible Wisconsin topped 1 billion pounds in a single month prior to that year).

December of 1951 was the last month in which Wisconsin’s milk production didn’t exceed 1 billion pounds. In another milestone, the state’s monthly milk production first topped 2 billion pounds in May 1977.

Coincidentally, it was exactly a year before Wisconsin’s monthly milk production first topped 2 billion pounds when California’s milk production first topped 1 billion pounds. Specifically, California’s milk production in May 1976 totaled 1.035 billion pounds.

California reached another milestone in January 1994, when its milk production topped 2 billion pounds for the first time ever. That helps illustrate how quickly California’s milk production was growing back then: it took California less than 20 years to boost its monthly milk production from 1 billion pounds to 2 billion pounds, while it took Wisconsin some 44 years to accomplish the same feat.

Today, California is the only state to produce more than 3 billion pounds of milk every month. The state first reached that milestone back in May of 2002.

New York reached the monthly 1-billion-pound milestone in March 1983, when its production reached 1.014 billion pounds. Also, in 1999, New York became just the third state to average more than 1 billion pounds of milk per month, when its annual milk production reached 12.08 billion pounds.

California, Wisconsin and New York are the only states to top 1 billion pounds of monthly milk production in the 20th century and remain above that level here in 2021. However, one other state topped 1 billion pounds of monthly milk production in the 1980s but has been below that level ever since.

That state is Minnesota, which produced more than 1 billion pounds of milk in March, May and June of 1983, and also in May of 1985 and May of 1986, but hasn’t been above that level since then. In an interesting illustration of how Minnesota’s milk production has fluctuated over the years, the state’s monthly output has only topped 900 million pounds four times since 1990: in March and May of 1990, and then in March and May of this year.

This century, Pennsylvania became the fifth state to produce 1 billion pounds of milk in a single month when its production reached 1.001 billion pounds in March of 2000. That remains a monthly record for the state.

Idaho became the sixth state, and the fifth state this century, to produce 1 billion pounds of milk in a single month, reaching that milestone in July of 2007, when its output reached 1.017 billion pounds. A year later, Idaho became the fourth state to average more than 1 billion pounds of milk per month, when its annual milk production reached 12.3 billion pounds.

Texas became the seventh state, and the sixth this century, to produce more than 1 billion pounds of milk in a single month in March 2017, when its output reached 1.07 billion pounds. Texas in 2017 became the fifth state to average more than 1 billion pounds of milk production every month, when its annual output reached 12.05 billion pounds.

Finally, Michigan became the eighth state, and the seventh this century, to produce more than 1 billion pounds of milk in a single month in January of this year, when its output reached 1.02 billion pounds.

So, four times in the last five months, the NASS “Milk Production” report has had something it’s never had before: six states topping 1 billion pounds of milk in a single month (Michigan dipped below that mark in February).

All of this leads to at least a couple of questions. First, what state might be next in joining the billion-pounds-of-milk-per-month club?

Well, the aforementioned state of Minnesota is currently the closest, with March and May milk production topping 900 million pounds, not to mention the fact that Minnesota in May had 19,000 more milk cows than it had a year earlier. Pennsylvania fell just short of 900 million pounds of milk in May, but it had 8,000 fewer milk cows than a year earlier.

Second, does milk production at the state level matter as much as milk production at the regional level? For example, in the Midwest, the states of Wisconsin, Minnesota, Iowa, Indiana, Ohio, Michigan and South Dakota combined in May had 110,000 more milk cows than in May of 2020. Texas, New Mexico, Kansas and Colorado had 51,000 more cows.

State milestones aside, some regions will be producing much larger milk volumes in the future.

 

Revising Yogurt Standard Of Identity Took Waaaaay Too Long

Last week, the US Food and Drug Administration finally issued a final rule amending the federal standard of identity for yogurt. While it’s nice to see the yogurt standard finally modernized, it’s frustrating and disheartening to look back at just how long this entire process has taken.

As noted in our front-page story last week (scan the QR Code above to locate last week’s CR), the effort to amend the yogurt standard dates all the way back to the turn of the century. It was in February 2000 that the National Yogurt Association petitioned FDA to amend the standard of identity for yogurt.

Notably, the process of amending the yogurt standard actually outlasted the original petitioner: the National Yogurt Association became part of the IDFA more than two years ago.

Since the NYA submitted its petition more than 21 years ago, the process of amending the yogurt standard has been painstakingly slow. More than three years after that petition was submitted to FDA, the agency, in an “advance notice of proposed rulemaking,” announced that “a petition has been filed” requesting that the agency, among other things, amend the standard of identity for yogurt in numerous respects.

In that ANPR, which was published in the Federal Register on July 3, 2003, FDA requested comment on whether the actions requested by the petition would promote honesty and fair dealing in the interest of consumers. The original 90-day comment period was later extended by 60 days, so comments had to be submitted by Jan. 27, 2004.

Almost exactly five years later, on Jan. 14, 2009, FDA published a proposed rule to amend the yogurt standard. The comment period on that proposed rule ended Apr. 29, 2009, meaning that it’s now been more than 12 years since interested parties submitted comments on the proposed rule.

After that comment period closed, the yogurt standard amendment process entered what might be considered a “dead period.” That is, nothing actually happened for over a decade.

But that wasn’t necessarily due to a lack of effort by stakeholders. For example, in a February 2015 letter, IDFA urged FDA to “move forward with finalizing the 2009 proposed rule” to update the yogurt standard, pointing out that the yogurt standard of identity “is in great need of modernization,” and that existing standards for yogurt, nonfat yogurt and lowfat yogurt “are outdated and need modernization to reflect and accommodate new processing methods and technologies for food ingredients, as well as current consumer preferences and marketing trends.”

IDFA’s 2015 letter to FDA helps illustrate how long and dragged out the process to amend the yogurt standard has really been. In that letter, IDFA noted that, since 2009 (when the proposed rule was issued), there have been “many newcomers” to the US yogurt market, and that the dairy industry “is rapidly developing new dairy ingredients and processing technologies that should be accommodated in an updated yogurt standard.”

Therein lies one of the big problems with this process being dragged out for so long. IDFA’s letter was written roughly halfway between when FDA released its proposed rule and when the agency released its final rule.

So the comments made by IDFA six-plus years ago could have been amended say, a few weeks ago (before the final rule was issued) to remind FDA that the yogurt standard is in really, really great need of modernization, and that the existing standards are really, really outdated and desperately need modernization.

In recent years, the federal government has hinted that a final rule to amend the yogurt standard was forthcoming.

Specifically, the Trump administration’s spring 2019 Unified Agenda of Federal Regulatory and Deregulatory Actions listed final action (the final rule) on the yogurt standard would be released in September 2019; its fall 2019 Unified Agenda listed final action on the yogurt standard would take place in May 2020; its spring 2020 Unified Agenda had a final rule being released in August 2020; and its fall 2020 Unified Agenda had a final rule being released in November 2020.

The bad news is that the Biden administration didn’t release its spring 2021 Unified Agenda until last Friday; the good news is that the final rule amending the yogurt standard was no longer listed on the agenda, having been issued earlier in the week.

So what’s the solution to the glacial pace of standards changes at FDA? In response to the agency releasing its final yogurt standards rule last week, Michael Dykes, IDFA’s president and CEO, noted that FDA “has still not progressed on another long-overdue request from the food industry, filed in 2006, that requests a novel, horizontal approach to modernize all food standards developed and regulated by the agency.”

That 2006 request, in the form of a citizen petition, helps illustrate the problem with standards changes. The petition was submitted in 2006 in response to a 2005 FDA proposed rule that would have instituted a process to modernize FDA standards of identity. That 2005 proposed rule, in turn, stemmed from a ANPR published by FDA and USDA’s Food Safety and Inspection Service in 1995.

Last year, FDA reopened the comment period on that 2005 proposed rule, which indicates that this process is going nowhere fast. Indeed, the Unified Agenda released last week indicates that a proposed rule on food standards modernization won’t be released until April 2022

Hispanic Cheese Category Showing Consistent Growth

It would be a major understatement to observe that, over the years and decades, various cheese categories have seen their ups and downs, even as overall cheese production just continues to go up, up and up.

For example, as noted in our Dairy Production Extra supplement last week, in 2020, production of Mozzarella actually declined (for the first time since 2008), as did production of Swiss cheese, Provolone, Muenster, Blue/Gorgonzola, Gouda, Romano and Brick cheese.

Meanwhile, Cheddar cheese production reached a new record high last year, but Cheddar output had actually declined in 2019. And Cream and Neufchatel production also reached a new record high last year, but output had declined as recently as 2018.

When it comes to consistent growth, arguably the cheese category that tops all others is Hispanic cheese, production of which reached a record 347.4 million pounds last year. There are a couple of points that help illustrate the consistent growth of Hispanic cheese production over the years.

First, in the 25 years that USDA’s National Ag Statistics Service has been tracking Hispanic cheese output, production has declined exactly once: in 2012, when production of 223.9 million pounds was down about half a million pounds from 2011.

But production rebounded to a record 241.4 million pounds in 2013, and new records have continued to be set every year since then. In fact, as the numbers illustrate, Hispanic cheese production increased by more than 100 million pounds from 2013 through 2020. And output has grown by over 200 million pounds since 2004.

It should be noted that, when NASS started reporting Hispanic cheese production back in 1996, output totaled 67.4 million pounds, or less than 1 percent (0.9 percent, to be exact) of total US cheese production.

Last year, Hispanic cheese accounted for 2.6 percent of US cheese production, so the Hispanic cheese category is becoming more and more important to the overall US cheese industry.

Also worth noting is that, in 2020, there were 60 plants producing Hispanic cheese in the US. Yes, that’s actually down from a peak of 66 plants back in 2011, but it’s still more than twice as many plants as there were back in 1996 (28).

The second point that helps illustrate the growth of Hispanic cheese production is that last year, for the first time ever, the US produced more Hispanic cheese than Swiss cheese. This might not be as monumental as, say, when Mozzarella production first topped Cheddar output (way back in 2001), but it’s still significant.

It’s worth remembering that the US has been producing Swiss cheese since at least the late 1800s, but Hispanic cheese production dates back only a few decades. Swiss cheese production figures are available from NASS starting in 1940, when output totaled 48.7 million pounds.

Interestingly, Swiss cheese production in 1947 totaled 71.6 million pounds, which is more than Hispanic cheese production totaled back in 1996, when NASS first started tracking its production. And in 1996, when Hispanic cheese production “debuted” at 67.4 million pounds, Swiss cheese production totaled 219 million pounds — a gap of over 150 million pounds.

But Swiss cheese production has been notoriously volatile over the years. For example, since first topping 300 million pounds back in 2005, Swiss cheese production has recorded almost as many decreases (seven) as increases (eight).

Hispanic cheese production, by comparison, has been about as consistent as it can get, rising all but once in the last 25 years.
With all of these figures in mind, what’s the future look like for Hispanic cheese production? Well, the simple answer would have to be: new production records every year, and growing importance for the overall cheese industry.

Hispanic cheese production has grown by more than 150 million pounds since 2008, so if this trend continues, Hispanic cheese production could top half a billion pounds by around 2030. And it’s not unreasonable to conclude that, within the next 10 to 15 years, Hispanic cheese will account for somewhere around 5 percent of total US cheese production.

But there are certainly no guarantees of continued growth in the dairy industry these days. For proof of this point, we need look no further than another fairly recent addition to NASS dairy production statistics, namely, yogurt.

NASS yogurt production statistics date back to 1989, when production totaled 912.4 million pounds. Over the next 25 years, yogurt production declined just twice, in 1996 and again in 1997, but increased by more than 3.8 billion pounds, reaching a record 4.76 billion pounds in 2014.

But then yogurt production stopped growing, for the most part, for several years. Specifically, yogurt output fell in 2015 and 2016, rose just slightly in 2017, then fell again in 2018 and 2019. Yogurt output in 2019, at 4.38 billion pounds, was at its lowest level since 2011’s 4.27 billion pounds.

Yogurt production did increase significantly last year, to 4.52 billion pounds, its highest level since 2015, but that production record set back in 2014 still stands.

What this tells us is that no dairy category, cheese or otherwise, is guaranteed to just keep growing and growing. But Hispanic cheese has been on a nice roll for a quarter of a century now, and the trendline (and Cacique’s plans for a new $88 million plant in Texas, as reported on our front page this week) certainly indicates further growth in the years ahead.

 

The Pandemic’s Impact On Dairy Product Output

The impact of the coronavirus pandemic really started to be felt by the dairy industry in the second half of March 2020, and continues to reverberate to this day, albeit not as severely as it did initially. USDA’s Dairy Products 2020 Summary helps illustrate some of those impacts, as does the annual Dairy Production Extra section of this week’s issue.

Before touching on a few of those pandemic-related impacts, it’s worth noting at least a couple of “non-impacts”: cheese production set yet another new record last year, and butter production also set a new all-time record.

Those points aside, one area where the pandemic appears to have had an impact is cheese plant numbers. Specifically, the number of plants producing cheese in the US last year, 543, was down 14 from 2019.

That was actually the second year in a row that cheese plant numbers declined, although the drop in 2019 was only eight plants. And it’s worth remembering that, historically, cheese plant numbers have declined far more times than they’ve increased; for example, between 1968 and 1990, the number of US cheese plants declined every year, falling from 1,051 to 516 during that period.

But after bottoming out at 398 in both 1998 and 1999, cheese plant numbers began to rebound, reaching 565 in both 2017 and 2018, their highest level since the late 1980s.

Cheese plant numbers might now be trending downward, with the trend accelerated by the pandemic. We shall see.

Meanwhile, the pandemic appears to have had several effects on cheese production by variety. Among other things, Cheddar production thrived, rising 2.4 percent from 2019 to a record 3.83 billion pounds. Cheddar, of course, can be stored for months and years, so it made sense, and cents, to shift to Cheddar production whenever possible in the pandemic’s early days as food service outlets closed and retail sales skyrocketed.

Meanwhile, the long-time “star” of cheese production, Mozzarella, experienced a very rare production decline last year, falling 1.0 percent, or 44 million pounds, from 2019. That was, in fact, just the second time this century that Mozzarella production declined; the other decrease was in 2008, at the start of the Great Recession.

The Cheddar-Mozzarella difference is nicely illustrated by comparing April and May production in 2019 and 2020 (keeping in mind that April 2020 was the first full month of the pandemic’s impact). In 2019, Cheddar production from March to April declined by 8.7 million pounds, while Mozz output fell by 18.5 million pounds.

In 2020, Cheddar production from March to April increased by 16.0 million pounds, while Mozz output dropped by 33.4 million pounds.
Meanwhile, production of several cheese varieties associated with at-home consumption increased last year, most notably Cream and Neufchatel cheese, production of which rose 8.2 percent from 2019 to a record 1.01 billion pounds.

More broadly, it’s notable that total cheese production in April 2020 did decline somewhat from April 2019; specifically, output of 1.05 billion pounds was down 3 percent, or 32.8 million pounds, from April 2019.

By contrast, butter production rose sharply last April, to 227.2 million pounds, up an astonishing 31.8 percent, or 54.8 million pounds, from April 2019. This wasn’t just a significant jump in butter production; it was the most butter ever produced in a single month in the entire 102-year history of NASS butter production statistics (that’s a total of more than 1,200 months’ worth of butter production figures).

The previous monthly record for butter production wasn’t just set way back in 1941, it was also set in May of that year, which had one more day than did April of 2020. And that previous record, 214.2 million pounds, was almost 13 million pounds lower than the new record. That’s not just breaking a record, it’s shattering it.

One other point about monthly butter production in 2020: it was far more volatile during the early months of the pandemic than it had been during those same months in 2019. Specifically, in 2019, butter production fell from 172.4 million pounds in April to 154.9 million pounds in June, a decline of 17.5 million pounds.

In 2020, butter production dropped from 227.2 million pounds in April to 149.1 million pounds in June, a drop of 78.1 million pounds.

As far as nonfat dry milk is concerned, while March 2020 production was 11.8 million pounds higher than in March 2019, April 2020 output was 34.9 million pounds higher than in March 2019, but then May 2020 production was actually 16.4 million pounds lower than in May 2019.

Among some other dairy products, yogurt is generally consumed at home as opposed to away from home, which helps explains why yogurt production last year, at 4.5 billion pounds, was up an impressive 3.2 percent from 2019 to its highest level since 2015.

Finally, there’s nothing like a pandemic to fuel consumption of indulgent foods, and that’s reflected in the fact that production of regular ice cream last year, at 913.6 million gallons, was up 3.9 percent from 2019 to its highest level since 2010.

The dairy industry will hopefully never again see the likes of the coronavirus pandemic, and its numerous impacts, as illustrated both by annual and monthly production gyrations in response to closings, hoarding and other rational and irrational consumer and business behavior
.

 

High Dry Whey Prices Remain Problematic

Dry whey prices have been at relatively high levels for a couple of months now (or longer, depending on how you define “relatively high”), and that serves as a reminder of the longstanding controversy surrounding the use of dry whey prices in the federal order Class III pricing formula.
Specifically, high dry whey prices serve as a reminder that the dry whey issue should definitely be addressed if and when federal orders undergo substantial reforms again.

To briefly summarize the problem: dry whey prices have been above 60 cents per pound on the CME cash market since Mar. 17, and even touched 70 cents a pound once. Meanwhile, in the weekly National Dairy Products Sales Report released by USDA’s Agricultural Marketing Service, dry whey prices have been above 60 cents a pound since early April; USDA-reported prices have been used in the federal order Class III formula since 2000.

The “rule of thumb” regarding dry whey prices is that every one-cent increase in the price of dry whey adds six cents to the Class III price. This isn’t a huge problem when dry whey prices are relatively low, but when they get above a certain level, it starts to add real money to Class III prices — money most cheese makers aren’t seeing in the marketplace.

In the “modern era” (since federal order reforms were implemented in 2000), dry whey prices first reached 70 cents a pound in 2007. In his column that appeared in the Mar. 2, 2007, issue of this newspaper, John Umhoefer, executive director of the Wisconsin Cheese Makers Association, noted that a majority of cheese manufacturing plants “are negatively impacted by this record high dry whey price, and there is concern that the Class III milk price is now and will continue to be higher than the value of cheese and whey.”

Certainly things have changed since that 2007 run-up in dry whey and Class III prices. For one thing, dry whey production has declined (even as cheese production has set new records every year): in 2007, there were 36 plants producing dry whey, human, in the US, and production totaled almost 1.1 billion pounds; in 2020, there were 27 plants producing dry whey, human, in the US, and production totaled 932 million pounds.

This production decline is reflected in the NDPSR reports (and its predecessor report, Dairy Products Prices). Back in June of 2007, when dry whey prices were averaging above 70 cents a pound, weekly dry whey sales volume averaged over 10 million pounds a week for four straight weeks.

More recently, for the five weeks ending Apr. 10 through May 8 (when dry whey prices were averaging above 60 cents a pound), weekly dry whey sales volume averaged around 4.9 million pounds per week. In other words, what was a relatively thin market back in 2007 has gotten considerably thinner since then.

Also since 2007, more and more cheese plants are depooling their milk and not being forced to pay Class III prices that are artificially inflated by high dry whey prices.

During the first six months of 2007, the total volume of milk pooled on the Upper Midwest federal order ranged from almost 2.7 billion pounds in January to just under 1.9 billion pounds in May, while Class III volume ranged from just over 2 billion pounds in January to 1.3 billion pounds in May.

During the first four months of 2021, the total volume of milk pooled on the Upper Midwest order was just over 1 billion pounds in January and averaged about 930 million pounds per month over the next three months, while Class III volume averaged a little under 370 million pounds per month.

These declines are not, of course, due to declining milk production in the Upper Midwest order; in 2018, the last year in which there wasn’t massive depooling in multiple months, the volume of milk pooled on the Upper Midwest order averaged almost 2.8 billion pounds a month during the first half of the year, and Class III volume averaged around 2.2 billion pounds a month during that same period.

One other notable change since 2007: California is now part of the federal order system. And in fact it was the different approach to valuing dry whey in the Class III formula compared to the Class 4b pricing formula in the old California State Order that led, at least in part, to the creation of the California federal order.

Specifically, when three dairy cooperatives (California Dairies, Inc., Land O’Lakes, and Dairy Farmers of America) petitioned USDA to establish a California federal order back in early 2015, they noted that, since 2007, the California Department of Food and Agriculture had changed the whey component factor in the 4b formula three different times.

The last change (effective August 2012) capped the whey value contribution to the Class 4b price at 75 cents per hundredweight. In their petition, the co-ops noted that dry whey’s market prices “have been at high levels since 2012, and the imposed ceiling has, in effect, vastly undervalued the Class 4b price in relation to the Class III price.”

So California is now part of the federal order system, but USDA opted to allow voluntary depooling (the co-ops wanted no depooling in any milk class). As a result, almost no milk is pooled in Class III on the California order, minimizing the impact of high dry whey prices on the state’s cheese makers.

Thanks to depooling, the impact of high dry whey prices may not be as bad as it used to be, but the use of those prices in the Class III formula still serves as a reminder that federal order pricing desperately needs reform.

 

Class I Pricing Issues Seem Irresolvable

Depending on how things play out over the next several months, more changes may or may not be coming to federal order Class I pricing.
Regardless of what those changes are, or if any changes are even made, it seems like the dairy industry might be stuck in a situation where Class I pricing problems facing the industry here in 2021 and beyond are simply irresolvable.

As reported on our front page two weeks ago, both the National Milk Producers Federation and a group of four midwestern dairy organizations are proposing changes to the Class I price formula in federal orders.

It’s been two years since the Class I pricing formula was last changed. That change, which was mandated by the 2018 farm bill, cost dairy farmers over $725 million in lost income last year, according to NMPF. NMPF’s proposal would modify the current Class I mover, which adds 74 cents per hundredweight to the monthly average of Classes III and IV, by adjusting this amount every two years based on conditions over the prior 24 months.

Meanwhile, the Dairy Business Association, Edge Dairy Farmer Cooperative, Minnesota Milk and Nebraska State Dairy Association announced a Class III Plus pricing proposal under which the Class I skim milk price would be calculated as the Class III skim milk price plus the Class I skim milk price adjuster. The Class I skim milk price adjuster would be equal to the average of the monthly differences between the higher of Class III and Class IV skim milk prices, and the Class III skim milk price during the prior 36 months of August-July.

Beyond this disagreement over how exactly to alter the Class I pricing formula, there lies a more philosophical reason why Class I pricing problems may be irresolvable. To understand that reason, we went back to USDA’s final decision, released in the spring of 1999, to reform the federal milk marketing order program.

One of the key areas of reform in that final decision was adopting a new Class I pricing structure. In evaluating the final Class I pricing options, nine performance criteria, based upon regulatory objectives and requirements of the Agricultural Marketing Agreement Act of 1937, were used.

The first of those nine objective criteria was as follows: “Ensure an adequate supply of milk for fluid use. Class I price levels need to provide a sufficient price signal to maintain an adequate supply of milk for fluid use. This supply level can be achieved through either the movement of milk to where it is needed, increased production, or some combination of both.”

This brings to mind several points, starting with the fact that the criteria used by USDA are based on objectives and requirements of a 1937 law. That was back in the era in which, among other things, somewhere around 70 percent of all milk was used for fluid purposes; and US butter production was more than double cheese production (in 1937, butter production totaled 1.66 billion pounds, while cheese output totaled 653 million pounds).

Today, considerably less than one-third of the US milk supply is used for fluid purposes. The percentage used in Class I was around 32 percent last year, but that percentage was elevated due to the large volumes of milk depooled from Class III during a majority of months. Further, overall beverage milk sales last year likely totaled somewhere around 46 billion pounds, while milk production totaled 223.2 billion pounds, indicating that less than one-quarter of the US milk supply ends up being used for fluid purposes.

Thus, it’s probably safe to conclude that the US dairy industry has been doing a pretty good job in recent years of ensuring an adequate supply of milk for fluid use.

Regarding the need for Class I price levels to provide a sufficient price signal to maintain an adequate supply of milk for fluid use, with Class I use hovering around 20 percent, shouldn’t the marketplace be able to provide sufficient price signals to maintain an adequate supply of milk for fluid use?

As the 1999 final rule states, based on the AMAA of 1937, this supply level can be achieved through either the movement of milk to where it is needed, increased production, or some combination of both.

Keep in mind just how much the “movement of milk” has changed not only since that the AMAA was signed into law, but also since the 1999 final order reform rule was published (when Class I use was still above 40 percent).

Among other things, the US has proven pretty adept at moving large volumes of milk around the world in recent years. So we can’t help but wonder, if the US dairy industry can figure out how to export dairy products to countries ranging from Algeria to the United Arab Emirates, shouldn’t it also be able to figure out how to get milk from surplus areas to deficit areas?

Granted, the US exports storable products as opposed to fresh fluid milk products, but the old adage applies no matter what: Money moves milk, and more money moves more milk.

USDA’s 1999 final order reform decision provided for four classes of use for milk. Comments filed regarding the number of classes of utilization for the proposed merged orders varied from supporters of one class, which would eliminate all manufacturing classes, to supporters of five classes of milk. A “large majority” of comments supported four classes of utilization, as proposed by USDA.

Those comments would have been received by USDA in 1998. Maybe it’s time to revisit the need for four classes, and the corresponding Class I controversies.

The Meteoric Rise Of Texas Milk Production

While much has changed in the US dairy industry since 2000, at least one thing has stayed the same: the top 10 milk-producing states remained the same in 2020 as they did in 2000. Those 10 states, in order of their 2000 milk production, are as follows: California, Wisconsin, New York, Pennsylvania, Minnesota, Idaho, Texas, Michigan, Washington and New Mexico.

There have been several changes within that list, including, among others, the rise of Idaho to the number three spot and the fall of Pennsylvania to seventh. But one of the more intriguing recent changes is the rise of Texas to fifth, with further moves up the rankings likely in the very near future.

Indeed, Texas made just such a move, albeit just for one month (so far) in March, when it moved past New York into fourth place in milk production.
Granted, Texas topped New York in March milk production by just 9 million pounds, but the states produced the same amount of milk in February and Texas outproduced New York by 25 million pounds during the first quarter, after falling short of New York by just 13 million pounds in the fourth quarter of 2020.

So it seems likely that Texas will end the year in fourth place in US milk production, dropping New York into fifth place.

One of the more notable aspects of this climb up the milk-production rankings is that it isn’t the first time this has happened with Texas. Back in 1994, Texas set a new milk production record of 6.2 billion pounds, up more than a billion pounds from 1989 and good enough to move Texas into the number six spot in milk production, trailing California, Wisconsin, New York, Pennsylvania and Minnesota (the top 10 milk-producing states that year also included Michigan, Washington, Ohio and Iowa).

But then the bottom fell out of Texas’s milk production, which dropped by more than a billion pounds in less than a decade, to 5.1 billion pounds in 2001. That was the state’s lowest level of milk production since 1988’s 4.9 billion pounds.

Since then, Texas has been on a milk production tear. There are at least three ways to illustrate this point.

First, following that 2001 production low, it took Texas just four years to break its 1994 record; the state’s milk production reached 6.44 billion pounds in 2005, up more than 1.3 billion pounds from 2001 and up 219 million pounds from that 1994 record.

Second, since 2001, milk production in Texas has declined just two times, and in both instances the declines were miniscule: 2010 milk production was down 12 million pounds from 2009, and 2015 milk production was down 9 million pounds from 2014.

Third, and most impressive, Texas hasn’t just increased its milk production almost every year since 2001, it has posted some mighty eye-opening increases since then. For example, the state’s 2008 milk production was up more than a billion pounds from 2007.

But it is what has happened with milk production in Texas just in the past four years that is really impressive. In 2016, the state’s milk production totaled 10.8 billion pounds. Production increases over the next four years were as follows: 2017, 1.28 billion pounds; 2018, 806 million pounds; 2019, 990 million pounds; and 2020, 981 million pounds.

In other words, Texas since 2016 has increased its milk production by an average of more than 1 billion pounds per year. And the state went from seventh to fifth place in milk production, passing both Pennsylvania and Michigan.

A milk production increase of this magnitude leads to several questions. First, why exactly is milk production in Texas rising so rapidly?

There are probably numerous reasons why milk production is expanding rapidly in Texas, but we’ll mention one factor that likely isn’t playing a role: milk prices. Simply put, mailbox milk prices in western Texas (the region reported by USDA in its mailbox milk price series) have been lower than the average for all federal orders in four of the last five years; the exception was in 2020, when the mailbox price averaged slightly above the average for all federal orders.

A second question is: where is all of this additional Texas milk going? Here again, the answer is pretty complicated. One place this additional Texas milk doesn’t appear to be going is into Class I products; in 2020, a total of 4.16 billion pounds of milk in the Southwest federal order (basically Texas and New Mexico) was used in Class I, down from 4.35 billion pounds in 2010.

Instead, it’s going into Class II (utilization grew from 725 million pounds in 2010 to 1.45 billion pounds in 2020) and Class IV (utilization grew from 1.1 billion pounds in 2010 to 5.25 billion pounds in 2020). The volume of milk used in cheese also likely grew significantly over the past decade, but most of that Class III milk was depooled over the last couple of years and so it doesn’t show up in official federal order statistics.

A final question regarding milk production in Texas is: where to from here? At least in the short run, Texas milk production is going to keep growing; the state’s milk cow numbers in March were up 27,000 head from a year earlier and up 2,000 head from a month earlier. Even with small declines in per-cow output, Texas milk production will keep growing, and it seems likely that, maybe by 2022, Texas will become the number three milk-producing state.

The bottom did fall out of Texas milk production in the late 1990s, but right now it looks like the sky’s the limit for the Lone Star State
.

 

High Butter Stocks Seem Appropriate For Strong Disappearance

No doubt about it, US butter stocks are at pretty high levels, and these high butter stocks are at least partly responsible for CME cash market butter prices being under $2.00 per pound since Dec. 31, 2019 (with the exception of June 4, 2020, when the CME butter price hit $2.0150, only to fall to $1.9250 the following day).

But while butter stocks are certainly high, historically speaking, they have grown significantly in recent years at least in part because commercial disappearance has also grown significantly. And we can’t help but think today’s relatively high levels of butter stocks reflect higher commercial disappearance and are therefore closer to appropriate rather than what’s sometimes referred to as burdensome.

From a historical perspective, trying to analyze butter stocks is a bit complicated, because the government was buying and storing large volumes of butter for a number of years before seeing its butter holdings drop to almost nothing by 1996. That was also the first year in a long time that government butter purchases also fell to zero.

Prior to that point, USDA was buying up massive volumes of butter, and government stocks of that butter were pretty easy to describe as “burdensome.” For example, the most recent “Cold Storage” report from USDA’s National Agricultural Statistics Service, reporting dairy product stocks for the end of March, noted that the record high for end-of-March butter stocks was 645.3 million pounds, in 1992.

Digging up some old USDA statistics, we found that commercial butter stocks at the end of March 1992 totaled just 28.9 million pounds, meaning that almost all of the butter in storage back then was owned by the government.

A few additional points are worth keeping in mind about that era. First, in 1992, the CME cash market price for Grade AA butter averaged just over 84 cents per pound. Second, per capita butter consumption stood at 4.3 pounds per year. Third, and perhaps most important, commercial disappearance of butter averaged about 79 million pounds per month, including about 72 million pounds per month during each month of the first quarter.

By the year 2000, USDA had pretty much gotten out of the butter business, with the exception of some removals (about 9 million pounds) under the Dairy Export Incentive Program (DEIP). USDA didn’t buy any butter under the price support program from 1996 through 2000 (and beyond), and so, by 2000, government butter stocks were almost nothing.

Also in 2000, commercial butter disappearance had risen to an average of about 107 million pounds per month, per capita butter consumption had risen to 4.5 pounds, and the CME cash market price for butter averaged just under $1.18 per pound. Commercial butter stocks at the end of March 2000 totaled 113.7 million pounds.

Fast-forward to today, and things have changed considerably in the butter business. Among other things, per capita butter consumption reached 6.2 pounds in 2019 (the most recent year for which statistics are available), and CME cash market butter prices averaged above $2.00 per pound for six straight years before falling to an average of just under $1.58 per pound last year.

And what about butter stocks and butter disappearance? Well, they’ve both increased considerably in recent years.

For example, commercial butter disappearance topped 2 billion pounds every year from 2018 through 2020, reaching 2.1 billion pounds last year.

On a monthly basis, commercial disappearance is still highly seasonal; in 2020, for example, it was under 140 million pounds in both January and February and above 200 million pounds in both October and November (reaching 215.9 million pounds and 224.7 million pounds, respectively). Commercial butter disappearance averaged just over 176 million pounds per month last year.

Commercial butter stocks, meanwhile, ended 2020 at 273.8 million pounds, far higher than at the end of any previous year. Indeed, as recently as 2010, commercial butter stocks ended the year under 100 million pounds, specifically, at 81.7 million pounds.

One of the interesting points about butter stocks and disappearance in recent years is how the gap between the two has varied from month to month, particularly compared to a commodity such as American-type cheese.

For American-type cheese, back in 2014, when the CME cash market price for 40-pound Cheddar blocks averaged a record-high $2.11 per pound for the year, there was always a significant gap between monthly commercial disappearance and end-of-month stocks. Disappearance peaked at about 411 million pounds in December of that year, while stocks ended 2014 at about 628 million pounds, representing around a month and a half of disappearance.

For butter, in 2019, the last year in which the CME price averaged above $2.00 per pound for the year, there were times when stocks were more than twice as high as disappearance, but there was also one instance when disappearance was higher than end-of-month stocks (November disappearance totaled about 220 million pounds, and butter stocks at the end of that month totaled about 181 million pounds).

Last year was the third straight year in which commercial butter disappearance topped 200 million pounds in both October and November, but the first time in that period that end-of-month butter stocks were higher than disappearance in both of those months.
In light of strong disappearance, high butter stocks seem logical and appropriate.

The Short, Impactful Life Of USDA’s Food Box Program

USDA’s Farmers to Families Food Box Program had a very short life, especially in the context of some previous long-term dairy programs, but it’s difficult if not impossible to come up with any dairy or related program that had more of a short-term impact on the dairy industry. And considering at least three records that were established during the Food Box Program’s short life, the program will also have some long-term legacies.

As reported on our front page last week, USDA will be extending the Food Box Program through May to use remaining temporary funds intended for the program, and then the program will end, to be replaced by other nutrition and commodity purchase programs, according to a USDA spokesperson.

So the life of the Food Box Program spanned just over a year. Indeed, the program didn’t initially even have an official name. On Apr. 17, 2020, then-US Ag Secretary Sonny Perdue announced the Coronavirus Food Assistance Program (CFAP), a new USDA program that was going to take several actions to help farmers, ranchers and consumers in response to the COVID-19 national emergency.

Among those programs noted in a press release dated Apr. 17 2020: a USDA purchase and distribution program, under which USDA would partner with regional and local distributors to purchase $3 billion in dairy, meat and fresh produce. Under this program, distributors and wholesalers would provide a “pre-approved box of fresh produce, dairy, and meat products” to food banks and other non-profits serving Americans in need.

Two days later, USDA announced that it would issue a solicitation in the next two weeks to invite proposals from offerors to supply commodity boxes to non-profit organizations, identified by the offeror, on a mutually agreeable, recurring schedule. And then on Apr. 27, 2020, USDA’s Agricultural Marketing Service provided additional details, in the form of Frequently Asked Questions, about the Farmers to Families Food Box Program. So at least from a news release standpoint, that appears to be the first actual reference to the program as it came to be known.

On May 8, 2020, USDA announced that it had approved $1.2 billion in contracts under the Food Box Program. That first round of purchases occurred from May 15 through June 30, 2020, and saw more than 35.5 million boxes delivered in the first 45 days.

Four more rounds of purchases have been made under the program, and as of Thursday, USDA contractors had delivered 160,271,947 boxes of fresh produce, milk, dairy and meats to disadvantaged Americans across the US.

With this timeline in mind, it’s pretty easy to see the program’s impact from the dairy industry perspective. On Apr. 15, 2020, or two days before Perdue announced the Coronavirus Food Assistance Program, under which USDA would be buying $100 million per month of a variety of dairy products as part of a food purchase and distribution program, the CME Block Cheddar price fell to $1.00 per pound, down 87.25 cents from a month earlier (the block price had reached $1.8725 per pound on Mar. 13, 2020, and stayed there until Mar. 19), and the lowest block price since Feb. 28, 2003, when it hit 99.25 cents per pound.

Between Apr. 17, when the CME Block Cheddar price was $1.0125 a pound, and May 8, when USDA announced that it had approved $1.2 billion in Food Box Program contracts, the block price rose by almost 30 cents, to $1.3050 a pound. And, as it turned out, cheese price increases were just getting started.

On June 4, Perdue announced that the Food Box Program had distributed more than 5 million food boxes. That was on a Thursday; the CME block price actually set three new record highs that week, including $2.5250 on June 4 and then $2.5525 the following day.

Less than two weeks later, on June 17, USDA announced that it would be extending the contracts of select vendors from the first round of the Food Box Program. By then, the CME Block Cheddar price has backed off a bit, to $2.5000 per pound.

The following week, on June 23, Perdue announced that USDA had distributed more than 20 million food boxes under the Food Box Program. By then, the CME Block Cheddar price had risen to a then-record $2.8100 per pound.

During that first round of the Food Box Program, which ended June 30, 35.5 million food boxes were delivered. And then on July 1, USDA announced the approval of up to $1.27 billion in 189 extended contracts and up to $218 million in 17 new contracts.

And the CME Block Cheddar price, which had fallen to $2.5750 a pound on June 25 and stayed there the following day, started to climb again on June 29 and didn’t stop until it reached a record $3.00 per pound on July 13.

So therein lies at least part of the Farmers to Families Food Box Program. It helped contribute to three price records: the $3.00 per pound Block Cheddar price, the $2.5300 per pound Barrel price, and the $2.00 spread between the low and high Block Cheddar price during 2020 (and, more accurately and more amazingly, in a roughly three-month period).

And now the Farmers to Families Food Box Program is being retired. It’s safe to say the dairy industry has never before experienced a more impactful short-term program.

Given all the fallout from the Food Box Program — including the record price volatility and the federal order depooling, to mention just two — let’s hope we never see anything like this again.

 

Processed, Ultra-Processed And Value-Added Foods

Ultra-processed foods have been making some headlines in recent years, mainly for negative reasons. But possibly the most important thing to remember when it comes to these foods is that there’s still a fair amount of disagreement over just what ultra-processed foods actually are, and how bad they are.

As we reported last week (in a story that appeared on page 5 of that issue), higher consumption of so-called ultra-processed foods is associated with an increased risk of cardiovascular disease incidence and mortality, and each additional serving further increases risk, according to a study published in the Journal of the American College of Cardiology.

For the study, researchers used a modified version of something called the NOVA framework, which classifies foods according to the extent and purpose of the industrial process they undergo.

From a dairy industry perspective, NOVA group one includes unprocessed foods altered by industrial processes, such as pasteurization. None of these processes add salt, sugar, oils, or fats or other food substances to the original food. Fluid milk falls into this category.

NOVA group two includes processed culinary ingredients obtained directly from group one foods or from nature, like oils and fats, sugar and salt.

NOVA group three is of “processed foods,” which are “industrial products” made by adding salt, sugar or other substances found in group two to group one foods, using preservation methods such as, in the case of cheese, non-alcoholic fermentation, it was explained in a “Commentary” published two years ago in the journal Public Health Nutrition.

So therein lies at least one problem with this approach to foods, including the processing and “ultra”-processing of foods: cheese is considered a “processed food.” And, interestingly, the study that found an association between ultra-processed foods and heart disease specifically stated that “processed foods” include “artisanal cheeses,” while the “Commentary” that details the NOVA groups simply mentioned “cheeses.”

The “Commentary” explains that food processing in the NOVA group three aims to increase the durability of group one foods and make them more enjoyable by modifying or enhancing their sensory qualities.
But this point overlooks the fact that, according to a growing body of evidence, preservation methods such as non-alcoholic fermentation actually seem to offer health benefits beyond what the unprocessed products offer.

This controversy reminds of comments submitted to the US Food and Drug Administration a few years ago, on the use of the term “healthy” in food labeling, by Prof. John Lucey and Rebekah McBride of the Wisconsin Center for Dairy Research. They noted that cheese “shines through as a protein rich, fermented food that offers consumers many highly bioavailable essential nutrients, a plethora of vitamins and no added sugar...”

Further, “science is now finding that the chemistry of cheese, or the cheese matrix, is a unique type of food product and an excellent vessel for important nutrients,” Lucey and McBride pointed out. Researchers “are discovering that the structure of complex foods like cheese, as well as the specific combination of components, can impact digestion, absorption and ultimately human health.”

So while food processing in the case of cheese enhances the durability of group one foods and makes them more enjoyable by modifying or enhancing their sensory qualities, it also appears, in some cases, to make them even more healthful.

Ultra-processed foods, or NOVA group four, are formulations of ingredients, mostly of exclusive industrial use, that result from a series of industrial processes, the 2019 “Commentary” explained. Processes enabling the manufacture of ultra-processed foods involve several steps and different industries. It starts with the fractioning of whole foods into substances that include sugars, oils and fats, proteins, starches and fiber.

Cheesemaking and yogurt production would seem to fall into this category, and indeed the “Commentary” states that ingredients that are characteristic of ultra-processed foods include varieties of sugar such as lactose, and protein sources such as casein and whey protein. And then ultra-processed foods include such foods as ice cream and pre-prepared pizza dishes.

If nothing else, this analysis ignores the history of whey processing, which took a product that for years was regarded as little more than a costly nuisance and turned it into a nutrient-dense ingredient consumed around the world. Whey proteins seem to be less “ultra-processed” and more “value-added.”

This analysis also got us thinking about dairy’s new competitors, including plant-based dairy alternatives and animal-free dairy ingredients, to mention a couple of examples. So if milk is considered a minimally processed food, what are plant-based milk alternatives considered? And if cheese is considered a processed food, what are plant-based cheese alternatives considered?

Then there are the animal-free dairy ingredients, such as Perfect Day’s dairy protein. Perfect Day notes that it “invented the world’s first real milk proteins made without animals,” using fermentation. Are these proteins processed or ultra-processed foods?

Food classification decisions are probably best left to the consumer. And while many consumers may cringe at the long ingredient lists on “ultra-processed” foods, they still appreciate the added value.

Trade Barriers Aren’t Going Away Anytime Soon

New US Trade Representative Katherine Tai last Wednesday released the 2021 National Trade Estimate Report and, as reported on our front page last week, the report concluded that US dairy and other exporters face numerous barriers in various shapes and forms in countries ranging from Algeria to Vietnam.

What’s kind of depressing about this report, and also kind of predictable, is how little has changed in the general area of trade barriers over the years. Keep in mind that this latest report was released more than a quarter-century after the World Trade Organization was established.

As noted on its website, the WTO “is the only global international organization dealing with the rules of trade between nations. At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal is to ensure that trade flows as smoothly, predictably and freely as possible.”

Well, if the USTR’s annual NTE reports are any indication, global trade actually appears to be flowing less smoothly, predictably and freely than it was, say a decade or so ago.

We arrived at that conclusion by looking, initially, at just one simple fact: the number of pages in the USTR’s NTE reports have been slowly rising over the years. The 2009 report, for example, ran a grand total of 547 pages, while the latest report runs an impressive 574 pages.

It is worth noting that at least a couple of recent reports have dipped below 500 pages (for example, the 2017 report ran 492 pages), but it certainly appears that the long-term trend is for more trade barriers to be erected, and few if any to be dismantled.

Another way to look at how trade barriers don’t seem to be decreasing is to check out how many countries or regions (such as the European Union or Southern African Customs Union) are covered by these USTR reports.
The 2009 report included 63 countries, ranging from Angola to Vietnam, while the 2021 report includes 65 countries, ranging from Algeria to Vietnam.

Yet another interesting way to look at the lack of progress in reducing trade barriers is to compare what was said a decade or more ago with what is being said today. What follows are two quotes, one from the 2009 NTE report and the other from the 2021 report. We’ll run the old quote first, but frankly, it almost seems like these observations are interchangeable, and frustratingly consistent.

Here’s the observation from 2009: “Despite the generally positive character of the US-EU trade and investment relationship, US exporters and investors in some sectors face chronic barriers to entering or expanding their presence in the EU market. A number of these barriers have been highlighted in this report for many years, persisting despite repeated efforts to resolve them through bilateral consultations or, in some cases, the dispute settlement provisions of the WTO.”

And here’s the observation from this year’s report: “US exporters and investors nonetheless face persistent barriers to entering, maintaining, or expanding their presence in certain sectors of the EU market. This report highlights some of the most significant barriers that have endured despite repeated efforts at resolution through bilateral consultations or World Trade organization dispute settlement. Certain barriers have been highlighted in this report for many years.”

One notable change between the 2009 and 2021 NTE reports, at least when it comes to issues with the EU, is how many more dairy-specific barriers there are now compared to back in 2009.

In the 2009 NTE report, the chapter on EU trade barriers runs some 33 pages, including almost 10 pages devoted to agricultural issues ranging from beef to bananas, but dairy issues specifically aren’t mentioned.
About the closest the report comes to mentioning dairy is a paragraph about geographical indications, in the section on intellectual property rights.

How much have things changed as far as EU trade barriers since that 2009 NTE report? For one thing, the chapter on EU trade barriers in the 2021 report runs 50 pages, or almost 20 pages more than the 2009 report.

Also, dairy products are specifically mentioned in at least two sections in the EU chapter, one on how EU certification requirements are limiting US agricultural exports such as dairy products, the other on how the EU’s somatic cell count requirements add unnecessary costs for US dairy exporters without apparent scientific justification.

Maybe the biggest difference between the 2009 report and the 2021 report is the section on EU geographical indications. As noted earlier, the 2009 report devotes a single paragraph to GIs, and that paragraph isn’t all that specific.

The 2021 report, by comparison, devotes about a page and a half to GIs, and specifically mentions that the EU has granted GI protection to Havarti and Danbo, both of which are “widely traded cheeses” covered by international Codex standards. In fact, the US situation vis-a-vis the EU’s GI agenda has worsened considerably over the past decade or so, as was reflected in the new NTE report and will be reflected in future NTE reports for years to come.

If nothing else, these annual NTE reports serve as reminders that the US has faced numerous dairy export barriers for many years, and will continue to do so in the future. The nature of these barriers may change, but the goal remains the same: make life more difficult for US dairy exporters..

Impact Of 1996 NCE Study Still Being Felt

It’s now been 25 years (as noted in our “Archives” column last week) since the University of Wisconsin-Madison and the Wisconsin Department of Agriculture, Trade and Consumer Protection released a major study of the Green Bay-based National Cheese Exchange. It’s safe to say that the impact of that study is still being felt by the cheese and dairy industries today.

Regardless of the study’s conclusions, there can be no doubt that this was an extremely detailed study. As noted in the introduction, the study “sought to ascertain whether the NCE was an efficient market, that is, one that discovers prices for cheese that accurately reflect national supply and demand conditions. And if this were not the case, whether there exist possible unfair trade practices or methods of competition in the pricing of cheese.”

To achieve this objective, the study examined, among other things, the overall trading activity on the NCE from 1974 to 1993 and a detailed analysis of the trading of leading sellers and leading buyers during 1988-1993. Also, beginning in early 1992, the DATCP sent Demands for Sworn Statements and Production of Documents to the NCE and to over 20 cheese companies (manufacturers, marketers and traders) that had been active on the NCE in recent years.

As noted in last week’s “Archives” item, the study concluded that the NCE “appears to facilitate market manipulation,” and “was not an effectively competitive price discovery mechanism during 1988-1993.” However, the study’s authors “found no evidence of collusion among cheese companies.”

Almost exactly a year after that study of the NCE was released, the executive committee of the National Cheese Institute and the board of directors of the National Cheese Exchange announced that they had accepted a proposal from the Chicago Mercantile Exchange to create a new cheese cash market at the CME. NCI and NCE based their decision on the recommendation of a special cheese industry committee with broad industry representation, including producer cooperatives cheese manufacturers and marketers, and members of NCI and of the NCE board.

The last day of trading at the NCE took place on Friday, Apr. 25, 1997, in Green Bay, WI. For what it’s worth, the “market opinion” for 40-pound Cheddar blocks that day declined two cents, to $1.1800 per pound, while 500-pound barrels were unchanged, at $1.1700 per pound.

What was described in this newspaper a week later as a “new era in cheese pricing” actually got underway on Thursday afternoon, May 1, 1997, when the CME launched its new cash cheese market. So there were two major changes in the cheese industry’s cash market right there: trading moved from the NCE in Green Bay to the CME in Chicago; and trading shifted from Friday mornings to Thursday afternoons.

And again, for what it’s worth, in the first CME cash cheese trading session, both block and barrel prices declined to $1.1500 per pound.

The Thursday afternoon CME cash cheese market was short-lived; in September 1998, cash cheese trading at the CME switched to daily trading every weekday morning. And that, of course, is where it remains today.

The period in which these changes in the cheese industry’s cash markets took place might be referred to as the “golden era” of dairy industry pricing changes. For one thing, the 1996 farm bill required USDA to reform the federal milk marketing order program.

Work on that federal order reform process was well underway in 1997; for example, roughly two weeks before NCI and the NCE recommended moving the cheese industry’s cash market to Chicago USDA released three reports that addressed key issues relevant to federal order reform: the Class I price structure, classification of milk, and identical federal order provisions. And in April 1997, just a week before the NCE’s final trading session, USDA’s Basic Formula Price committee identified four BFP options for further discussion and debate.

Meanwhile, when it launched the cash cheese market, the CME was already offering cash butter trading, as well as butter and fluid milk futures and options contracts. And the New York-based Coffee, Sugar & Cocoa Exchange, which had also submitted a proposal to host the cheese industry’s cash market, was offering Cheddar cheese, nonfat dry milk and milk futures and options contracts.

Today, the CME hosts daily cash markets for block and barrel cheese, butter, nonfat dry milk and dry whey, and also offers futures and options contracts for cheese, butter, nonfat dry milk, dry whey, and Class III and Class IV milk.

Also as a result of that 1996 NCE study, USDA’s National Ag Statistics Service began conducting a voluntary weekly survey of Cheddar cheese transaction prices in 1997. That survey price replaced the NCE price in the BFP formula starting on June 5, 1997.

Today, USDA is still conducting a dairy product price survey, with at least three changes since 1997: the survey has been expanded to include butter, nonfat dry milk and dry whey (and all prices are used to calculate federal order prices); the survey is now mandatory rather than voluntary; and USDA’s Agricultural Marketing Service now administers the survey, rather than NASS.

Twenty-five years ago, the dairy industry was roiled by the NCE study. Today, much has changed in the dairy pricing arena, but two things haven’t: volatility remains and has worsened; and dairy pricing remains highly controversial.

US Needs An Independent Food Safety Agency

President Biden has been in office for a little over two months now, and in that time most of his cabinet nominees have been confirmed by the US Senate, including, among others, Tom Vilsack for secretary of agriculture, Katherine Tai as US trade representative and Xavier Becerra for secretary of health and human services.

Although not a cabinet post, there’s one key position for which Biden has not yet even named a nominee: commissioner of the US Food and Drug Administration. And that got us wondering if there would be more of a sense of urgency to name a new FDA chief if this position were actually something like administrator of the Food Safety Administration.

Such an agency doesn’t exist, of course, but that’s not because the creation of a Food Safety Administration hasn’t been recommended in the past. As John W. Harman of the US General Accounting Office (now the Government Accountability Office) testified at a House hearing back in 1993, the concept of consolidating federal food safety activities is “not a new concept”; the concept was debated in 1972 in connection with a proposed bill to transfer FDA’s responsibilities, including its food safety activities, to a new independent agency, called the Consumer Safety Agency.

More recently, in June of 2016, with the assistance of the National Academies of Sciences, Engineering, and Medicine, the GAO convened a meeting of food safety and government performance experts to discuss fragmentation in the US federal food safety oversight system and suggest actions to improve that system.

The list of participants in that meeting helps illustrate the fragmentation of federal food safety oversight. Among others, participants included Frank Yiannas, who at the time was vice president of food safety for Wal-Mart and who is now deputy FDA commissioner for food policy and response; and Sandra Eskin, who was then director of food safety for Pew Charitable Trusts and just last week was named deputy under secretary for food safety at USDA.

Recommendations for a single food safety agency haven’t gone unnoticed in Congress. In October of 2019, bills introduced in both the House and Senate would have, among other things, established a new Food Safety Administration as an independent agency to administer and enforce food safety laws.

Under those bills, the new FSA would have included, among others, several agencies currently housed within FDA, including the Center for Food Safety and Applied Nutrition (which deals with standards and labeling in addition to food safety) as well as the Center for Veterinary Medicine; and all or parts of several USDA agencies, including the Food Safety and Inspection Service. Also under that legislation, the FSA would have been headed by an administrator of food safety, who would be appointed by the president and confirmed by the Senate.

That brings us back to the current situation; that is, the lack of a commissioner at FDA. As it turns out, nominating an FDA commissioner isn’t exactly a high priority for new presidents; former President Donald J. Trump didn’t nominate Scott Gottlieb as commissioner until Mar. 10, 2017, or almost two months into his administration. And Gottlieb didn’t officially become FDA chief until May 11, 2017.

But therein lies one problem with taking so long to get a new commissioner in place at FDA: their tenure doesn’t always last all that long. Gottlieb, for example, left his post in April of 2019, after less than two years as FDA commissioner. And his successor, Stephen Hahn, ended up serving for just over a year, taking the position in December of 2019 and sticking around until Jan. 20, 2021.

Looking over a list of recent FDA commissioners, it’s worth noting that just one served in that post for more than three years since the turn of the century: Margaret Hamburg, who was appointed by former President Barack Obama and served from May of 2009 until April of 2015.

Earlier this month, six former FDA commissioners, including those who served under both Republican and Democratic presidents, urged Biden to prioritize securing FDA’s leadership team, including through seeking the formal nomination and confirmation of an FDA commissioner.

That letter from former FDA commissioners focused on issues such as the US response to the coronavirus pandemic, but also mentioned that FDA is implementing new food safety provisions. And that’s really just the beginning of what FDA is, or at least should be, working on from a food industry perspective.

For example, in a June 2019 letter to state agriculture commissioners, secretaries, and directors, Yiannas noted that FDA’s Center for Food Safety and Applied Nutrition is leading the Nutrition Innovation Strategy for FDA, and in doing so, “it continues its work on modernizing standards of identity and addressing naming issues for certain products.”

Among other things, the dairy industry continues to await a final rule regarding the use of ultrafiltered milk in standardized cheeses, in a proceeding that dates back to 1999; continues to await a final rule amending the standard of identity for yogurt, in a proceeding that dates back to 2000; and continues to await regulatory action on the use of dairy names on plant-based products marketed as dairy alternatives.

Maybe these efforts would be elevated at a new Food Safety Administration, and progress would already be underway with a new FSA administrator.

 

 

Some Dairy States Underrepresented On Ag Committees

Both the House and Senate Agriculture Committees have finalized their rosters for the 117th Congress, and the members of these important committees are certainly geographically representative of the entire country, ranging from Maine to California and from Florida to Washington.

But there’s something missing here. Wisconsin and Idaho, two of the largest dairy states in the US, don’t have a single member on either the House or Senate Ag Committee. Whether that makes any difference policy-wise remains to be seen, but at least symbolically, it would seem that these two key dairy states should have at least one member of Congress sitting on an ag committee.

Keep in mind how important Wisconsin and Idaho are in the US dairy industry: the former ranks first in cheese production and second in milk production, while the latter ranks third in both cheese production and milk production. In 2020, the two states accounted for 21 percent of total US milk production, and in 2019 (the most recent year for which statistics are available), they accounted for about one-third of total US cheese production.

To get an idea of how difficult, or not difficult, it might be to land a seat on one of the ag committees, it’s worth looking at the makeup of the panels.
The House Ag Committee has a total of 50 members (which technically means there should be one member from each state), including 27 Democrats and 23 Republicans.

The Senate Ag Committee has 22 members, evenly split, like the Senate as a whole, between Democrats and Republicans. So it would seem that, since each state has two US senators, three states couldn’t be represented on the Senate Ag Committee.

From a state perspective, Idaho’s odds of not having representation on an agriculture committee are better than are Wisconsin’s. That’s because Idaho has just two House members to go along with its two senators. Meanwhile, Wisconsin has eight House members along with its two senators.

Keeping in mind that there are 100 US senators and 435 House members, Wisconsin and Idaho members combined account for 4 percent of the US Senate and about 2.3 percent of the House.

Given the fact that there’s nobody from Wisconsin or Idaho on the agriculture committees, we thought it would be worth checking out how other major dairy states are represented on these panels. And the simple and obvious answer is: better than Wisconsin and Idaho.

Let’s start with California, which ranks first in milk production and second in cheese production. Neither of California’s two US senators sit on the ag committee, but the state is almost overrepresented (if that’s possible), with seven members on the 50-member panel, including six Democrats and one Republican. This includes US Rep. Jim Costa, who chairs the livestock and foreign agriculture subcommittee, which has jurisdiction over dairy policy.

It should be noted that, if any state should be overrepresented on an agriculture committee, it should be California, since the state in 2019 accounted for 12.7 percent of the gross receipts of all US farms. The number two state in gross receipts was Iowa, at 7.5 percent.

In other words, California agriculture is larger than any other state, by a considerable margin. And its share of seats on the House Ag Committee (14 percent) isn’t all that much greater than its share of gross farm receipts.

Meanwhile, the state of New York ranks fourth in milk production and fifth in cheese production, and has one senator and three House members on the agriculture committees. Texas ranks fifth in milk production, and has no senators but two House members on the House Ag Committee.

As far as the states that rank sixth through 10th in milk production are concerned: Michigan has one senator (Debbie Stabenow, the chair) and no House members on the ag committees; Pennsylvania has no senators but one House member (Glenn “GT” Thompson, the panel’s top Republican) on the ag committees; Minnesota has both of its senators and three House members on the ag committees; New Mexico has one senator but no House members on the ag committees; and Washington has no senators but one House member on the ag committees.

There are a few other points worth keeping in mind when looking at the makeup of the House and Senate ag committees. First, while Wisconsin and Idaho are both major dairy states, they are also major overall ag states, with Wisconsin ranking ninth and Idaho 18th in gross farm receipts in 2019. So it’s not just the dairy industry in these states that lacks a voice on the ag committees.

Second, the ag committees tackle more than just agriculture. Indeed, the formal name of the Senate ag committee is the Senate Committee on Agriculture, Nutrition and Forestry, and House Agriculture subcommittees oversee everything from nutrition and commodity exchanges to biotechnology (at least ag-related) and USDA operations.

Third, while Wisconsin has no representation on the ag committees, one of its senators, Tammy Baldwin, chairs the Senate Appropriations subcommittee on agriculture, rural development, Food and Drug Administration, and related agencies, which has considerable clout when it comes to USDA and FDA budgets.

Wisconsin and Idaho, and their dairy industries, would likely benefit from representation on the ag committees as work on the 2023 farm bill gets underway.

Tone Of US Trade Policy Seems Different

If first impressions matter — and there’s a fair amount of agreement that they do — the new Biden administration’s trade policy seems to be taking on a different tone than did trade policy in the early weeks of the Trump administration.

Time will tell how this plays out, and how much it matters for US dairy trade, but at least the initial impression is that the Biden administration’s trade policy won’t be as antagonistic as the previous administration’s trade policy was.

It may be recalled that President Trump, less than a week after he was inaugurated, made a major trade policy decision, withdrawing the US from the Trans-Pacific Partnership agreement. The TPP included the US along with Australia, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and Brunei.

If it had been implemented with the US included, the TPP would have been the largest plurilateral free trade agreement by value of trade, encompassing roughly 40 percent of world GDP, and could have served further to integrate the US in the dynamic Asia-Pacific region, according to a 2016 Congressional Research Service report.

And the TPP looked like a positive deal for the US dairy industry. According to a 2016 report from the US International Trade Commission, the TPP agreement would have had “a positive effect on US dairy exports and a positive but more limited impact on US dairy imports.”

Both of those reports, as noted, came out in 2016, which was the last full year of the Obama administration. For what it’s worth, US involvement in TPP talks actually predated the Obama era; President George W. Bush notified Congress of his intention to negotiate with the existing P-4 members (New Zealand, Singapore, Chile and Brunei) in September 2008, along with Australia, Peru, and Vietnam in December 2008. President Obama recommitted to the TPP negotiations in November 2009.

After Trump withdrew the US from the TPP, the remaining countries went ahead and finalized the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which has been in effect for a little over two years now.

Meanwhile, the Trump administration continued to pursue what might be described as a confrontational trade policy. As John Murphy, senior vice president for international policy at the US Chamber of Commerce, put it:
“The administration of President Trump, a self-described ‘tariff man,’ championed tariffs and other limits on imports as a tonic for a wide range of economic ills.”

The US during the Trump administration wielded tariffs more readily than in any other period in the post-World War II era, Murphy pointed out. These included US Section 301 tariffs on goods from China, and Section 232 tariffs on steel and aluminum from Mexico, Canada and the European Union, which were imposed in 2018.

Finally, the US in 2019 received a favorable ruling from the World Trade Organization on civil aircraft subsidies being provided by the European Union, and imposed 25 percent tariffs on a variety of cheese and other dairy imports from the EU starting in October 2019. For its part, the EU received a favorable ruling in 2020 in a case involving Boeing, and started imposing its own tariffs on some imports from the US late last year.

Related to those aircraft-related tariffs, over the past week and less than two months into the new Biden administration, the US and the EU have agreed on the mutual suspension for four months of the tariffs related to the aircraft disputes. This suspension “will allow the EU and the US to ease the burden on their industries and workers and focus efforts towards resolving these long running disputes at the WTO,” the US and the EU said in a joint statement.

That announcement actually came one day after the US and the United Kingdom (which was a member of the EU when these aircraft disputes started, but isn’t a member of the EU today)announced a four-month tariff suspension in the aircraft dispute.

Also last week (as reported in a story on page 5 of last week’s issue), the Office of the US Trade Representative delivered Biden’s 2021 Trade Agenda and 2020 Annual Report to Congress. Opening markets and reducing trade barriers are “fundamental” to any trade agenda, and will be a priority for the Biden administration, the report stated.

But it doesn’t look like there will be any new trade agreements being hammered out between the US and other countries in the near future. Instead, it looks like US trade policy will pursue something resembling a return to “normal,” whatever that is.

For example, the report notes that America’s agricultural communities have been “burdened” in recent years by “erratic trade actions that were taken without a broader strategy,” and that these actions “triggered retaliation by our trading partners, leading to billions of dollars in lost exports and precipitating unprecedented mitigation payments.”

The Biden administration will pursue “smarter trade policies that are inclusive and work for all producers,” and its trade agenda “will seek to expand global market opportunities” for agriculture.

The report also stresses that Biden will “make it a priority to work with friends and allies” on trade enforcement, and “seek to repair partnerships and alliances and restore US leadership around the world,” among other things.

How US dairy trade fares under Biden’s trade policies remains to be seen, but at least initially, these policies are notably different from Trump’s, if nothing else.

 

FDA’s Traceability Proposal Needs To Be Rewritten

The deadline for submitting comments on the US Food and Drug Administration’s proposed rule to establish additional traceability recordkeeping requirements for numerous cheeses and other food products ended early last week, meaning that the next step in this regulatory process could be a final rule. Let’s hope FDA takes comments submitted on behalf of the cheese industry into consideration when it issues a final rule.

As reported on our front page last week, FDA received several comments, some of which were extremely detailed, from cheese and dairy organizations urging the agency to, among other things, rethink the list of cheeses included in its traceability proposal.

Reading over some of these comments, it certainly appears that FDA overreached when it proposed that all cheeses, other than hard cheeses, be included on its Food Traceability List. In its proposed rule, the description for these cheeses on the FTL includes all soft ripened or semi-soft cheeses, and fresh soft cheeses that are made with pasteurized or unpasteurized milk.

Back in mid-January, FDA made what it called “clarifying edits” to the FTL.
This clarification included some specific examples of the cheeses for which the proposed additional traceability recordkeeping requirements would apply.

And these specific examples help illustrate a major problem with FDA’s proposal. For example, Mozzarella is included on the list; in 2019 (the most recent year for which annual production figures are available), US Mozzarella production totaled 4.5 billion pounds, and accounted for over a third of total US cheese output.

Some of the other cheese varieties on FDA’s FTL, with 2019 production, include: Feta, 130 million pounds; Cream, 935 million pounds; Muenster, 196.9 million pounds; Blue (including Gorgonzola), 94.7 million pounds; Ricotta, 244.7 million pounds; other American (FDA lists Monterey Jack, but Colby would also be covered), 1.5 billion pounds; Hispanic (FDA lists four types of Hispanic cheese), 333 million pounds; and Brick, 2 million pounds.

Production of these cheeses in 2019 totaled almost 8 billion pounds, and accounted for over 60 percent of total US cheese production. So it’s safe to say FDA’s proposed rule would have a heck of a big impact on a large number of companies if finalized as is.

USDA’s National Ag Statistics Service doesn’t include Cottage cheese in its cheese production statistics (they are reported separately), but in 2019 output of creamed cottage cheese totaled about 358 million pounds and production of lowfat cottage cheese totaled about 328 million pounds.

Further, as the International Dairy Foods Association pointed out, FDA’s proposed rule would apply not only to cheeses on the FTL, but also to foods that contain a food on the FTL as an ingredient. Looking over the list of cheeses on the FTL — certainly starting with Mozzarella but also including everything from Blue to Ricotta —it’s obvious that an awful lot of cheese users will also be subject to FDA’s recordkeeping requirements.

Notably, and almost frighteningly, the section of FDA’s proposed rule devoted to the Food Traceability List covers all of about one page of the 55-page Federal Register document. Half a dozen pages of the proposed rule are devoted solely to definitions for everything from critical tracking events and key data elements to kill step and reference record number.

It’s probably safe to say that any proposal with that many definitions is probably a pretty complicated regulation that will come with some costs to industry. In its economic analysis of the proposed rule, FDA acknowledges that the proposal is an “economically significant regulatory action” and that it will have a “significant economic impact” on a substantial number of small entities. Annualized costs could reach over $3 billion per year.

FDA also provides an estimate of the burden for reading and understanding the proposed regulations (422,145 respondents requiring an average of 3.3 hours), as well as some firms incurring a one-time burden of establishing traceability program records (130,063 firms needing 0.03 hours to establish each of an average of 1,000, for an estimated one-time burden of 3,901,890 hours; and some companies will incur burden associated with training employees in procedures for properly documenting key data elements (96,644 firms will need to conduct an average of two hours of training).

Cumulatively, this results in a total of 5,874,833 one-time burden hours for respondents, FDA said.

Of course, there are also benefits to the proposed rule. It would allow FDA and industry to more rapidly and effectively trace food products that cause illnesses back through the food supply system to the source and forward to determine recipients of the contaminated product. This may result in public health benefits if foodborne illnesses directly related to those outbreaks are averted.

In its economic analysis, FDA notes that the rule would only apply to foods FDA has designated for inclusion on the Food Traceability List. But IDFA understands that FDA’s goal is that the proposed recordkeeping system will be “adopted broadly” by industry.

Not moving forward with this rule is not an option, since the rule is required under the Food Safety Modernization Act. What FDA really needs to do is get the final rule right.

And for starters, the agency needs to take a hard look at the cheeses on its FTL, and reduce the number of those cheeses to recognize where the real risks lie.

History Provides Context For US Dairy Trade Statistics

Year-end US dairy trade statistics were released earlier this month by USDA’s Foreign Agricultural Service, and as reported on our front page on both Feb. 5th and Feb. 12th, 2020 saw increases in the values of both US dairy exports and dairy imports, and at least a few records or near-records.

Those trade statistics also illustrate that history can be important for providing context to dairy export and import statistics. And not just very recent history, but also history dating back several years, and even decades.

In the dairy export arena, for example, US dairy exports in 2020 were valued at $6.5 billion, up 9 percent from 2019. The value of dairy exports was up almost $2 billion from just two years earlier.

But the value of US dairy exports last year still trailed two other years, 2014’s record $7.1 billion as well as 2013’s $6.7 billion.
Interestingly, last year was the first time ever that US dairy exports exceeded $500 million in value every month of the year; in both 2014 and 2013, they dipped below that level three times. But last year was also the sixth straight year in which dairy exports failed to reach $600 million in a single month; in both 2013 and 2014, dairy exports topped $600 million in multiple months.

What that illustrates, if nothing else, is that US dairy export values showed less volatility last year than in some previous years.

Among the leading US dairy export markets, US dairy exports to China last year were valued at $539.1 million, up an impressive 45 percent, or $167 million, from 2019. But exports to China remain well below their record level of $706.2 million, set in 2013, as well as their 2014 level of $695.2 million.

Thanks in part to that big increase in exports to China, US dairy exports topped $500 million in value to three countries last year: Mexico ($1.4 billion), Canada ($676 million), and China. In both 2018 and 2019, US dairy exports topped $500 million in value to only two countries, Mexico and Canada.

But exports did top $500 million in value to three countries in 2017, and also in 2013 and 2014. Mexico and Canada are the constants here, with exports to China fluctuating wildly, no doubt at least in part due to US trade policies.

US cheese exports declined slightly in 2020, dropping about 750,000 pounds from 2019. Still, last year marked the fourth straight year in which the US exported more than 700 million pounds of cheese, which is pretty impressive, considering that, prior to 2000, US cheese exports had never topped 100 million pounds, and prior to 2012, had never exceeded 500 million pounds in a single year.

But as impressive as US cheese exports have been in recent years, they haven’t broken the record high of 810 million pounds, set back in 2014.

Last year saw an impressive increase in dry whey exports, up 40 percent from 2019, to 472.2 million pounds. But dry whey exports were higher than that as recently as two years ago, at 487.4 million pounds, and topped half a billion pounds as recently as 2014, when they reached 504.5 million pounds.

And that 2014 level ranks only fifth as far as US dry whey exports are concerned, trailing 2013’s 521.5 million pounds, 2011’s 550.6 million pounds, 2010’s 557 million pounds and 2007’s record 582.8 million pounds.

On the import side, US cheese imports last year totaled 365.6 million pounds, down 7 percent from 2019 and their lowest level since 2014.

With cheese imports, the 21st century can be split into two categories: years in which imports topped 400 million pounds, which includes every year from 2000 through 2007, as well as 2015 through 2017; and years in which imports fell below 400 million pounds, which includes 10 of the last 13 years.

As far as cheese imports from individual countries are concerned, there are numerous noteworthy trends that require some historical context.

As far as import declines are concerned, US cheese imports from Italy last year were at their lowest level since 2014; imports from France were at their lowest level since 2010; and imports from Spain, Germany and the United Kingdom were at their lowest level since 2013.

But when it comes to cheese import declines, Denmark and Norway really stood out last year. Imports from Norway, at 10.6 million pounds, were at their lowest level since...well, since at least the 1980s. The online FAS import database only goes back to 1989, and since then, the lowest level of cheese imports from Norway was 13.6 million pounds, in 2002 and again in 2015.

Similarly, cheese imports from Denmark last year, at 12.1 million pounds, were also at their lowest level since at least the 1980s. In a way, this is more noteworthy than the decline in imports from Norway, since imports from Denmark topped 30 million pounds several times, including a high of 33 million pounds in 2003. Imports from Norway, by comparison, have never topped 20 million pounds (at least not since 1989).

Meanwhile, cheese imports from a few countries reached new highs last year, including Switzerland, Nicaragua, Canada and Greece.

Volatility is usually discussed in the context of prices, particularly in 2020 with cheese and milk prices fluctuating wildly. But US dairy trade trends are also quite volatile, both in value terms and also in volume terms.
As with price volatility, we expect this dairy trade volatility to continue here in 2021 and in the years ahead.

 

US Butter Production Finally Reaches 2 Billion Pounds

While cheese production records and milestones are pretty much guaranteed year in and year out (as noted in this space last week), butter production records and milestones are relative rarities. Until the last three years, that is.

Butter production in 2018 reached a record high of 1.97 billion pounds, then rose to a record 1.99 billion pounds in 2019 and broke the 2-billion-pound mark in 2020, reaching 2.1 billion pounds.

Yes, 2 billion pounds is quite a milestone for butter production. And after looking over historical butter production statistics, we’re reminded of a line from the Grateful Dead song “Truckin’”: “What a long, strange trip it’s been.”

That’s due in part to the fact that the butter production record broken in 2018 was actually established way back in 1941, when butter output reached a record 1.87 billion pounds. That figure was almost exactly double the level of production in 1919, the first year for which butter production figures are available from USDA’s National Ag Statistics Service. In 1919, the US produced 939.1 million pounds of butter.

Back in the 1920s and 1930s, as well as in 1940 and 1941, new butter production records were pretty common. In fact, there were more than a dozen new butter production records set between 1920 and 1941. US butter production first topped 1.8 billion pounds in 1940, then approached 1.9 billion pounds in 1941, when it hit the aforementioned record of 1.87 billion pounds.

And then butter production stopped setting new records. In fact, what butter production really did was hit some downward milestones. In 1944, for example, butter production fell below 1.5 billion pounds for the first time since 1925.

As a side note, butter production statistics in the 1942-1945 period should probably be accompanied by an asterisk, as World War II took place during that period and significantly altered dairy production.
Besides butter, cheese production fell in 1942 and didn’t top its 1941 level until 1945, and milk production fell by more than 1.5 billion pounds in 1943 alone.

But unlike cheese and milk production, butter output didn’t recover as World War II came to a close. Indeed, in 1946, butter production fell to 1.17 billion pounds, its lowest level since 1920.
Butter production did rebound somewhat after that, topping 1.4 billion pounds in 1953 and then topping 1.5 billion pounds in 1962. But it never approached the record set back in 1941.

Indeed, after reaching 1.5 billion pounds in 1962, butter production fell pretty steadily, bottoming out at 918.6 million pounds in 1973, below even the levels of 1919 (939.1 million pounds) and 1920 (937.2 million pounds). The 1970s were particularly dismal for butter production, which fell below 1 billion pounds a total of six times, including in 1973, 1974, 1975, 1976, 1977 and 1979.

Butter production hasn’t been below 1 billion pounds since 1979, but it has been pretty close. It totaled just over 1.1 billion pounds in both 1984 and 1987, and was still under 1.2 billion pounds as recently as 1998.

But butter production has grown here in the 21st century, albeit with a few bumps along the way. In 2007, it reached 1.5 billion pounds for the first time since 1962, and it hasn’t been below that mark since.

More recently, butter production in 2011 reached 1.8 billion pounds for the first time since 1941. However, unlike back then, 1.8 billion pounds appears to be a new “floor” for butter production, since it hasn’t been below that level since 2010.

And last year, the US finally reached 2 billion pounds of butter production, a milestone that’s obviously taken many years to achieve.

Another way to look at the evolution of butter production is to compare it to cheese production. The most obvious way to do this is to simply point out again that US cheese production seems to set new a new record every year, and hasn’t declined since 1991.

Butter production has grown impressively since reaching a 21st century low of 1.23 billion pounds in 2001, but it has also declined six times since then, including three straight years (2014-16) right after butter output in 2013, at 1.863 billion pounds, came within 10 million pounds of breaking the 1941 record.

What’s largely forgotten about butter versus cheese is that, for many years, the US actually produced far more butter than cheese. US cheese production first reached 1 billion pounds in 1942, while butter production first topped 1 billion pounds in 1921.

Indeed, while butter production was roaring back in the 1920s — setting a new record almost every year, and ending the decade at 1.64 billion pounds in 1929 — cheese output was floundering, topping 500 million pounds just once (at 501.1 million pounds in 1925) and ending the decade at 498.8 million pounds.

Both butter and cheese production grew in the 1930s, to 1.78 billion pounds and 710.2 million pounds, respectively. In 1940, butter production (1.84 billion pounds) was still more than double cheese output (785.5 million pounds).

A very different milestone was reached in 1958, when cheese production topped butter output for the first time. And the gap in production between cheese and butter has grown significantly since then, to understate things a bit.

Last year, 99 years after first topping 1 billion pounds, US butter production finally topped 2 billion pounds. Our guess is that it will take less than 99 more years to hit 3 billion pounds.

 

US Cheese Production Remains On An Impressive Roll

Well, it happened again: the US set yet another new cheese production record. While these records happen so regularly that they’re almost taken for granted these days, it’s still worth providing some perspective on this latest record.

As reported on our front page last week, US cheese production in 2020 reached a record high of 13.19 billion pounds, up 0.4 percent, or 53.3 million pounds, from 2019.

It’s now been almost three decades since US cheese production declined, and in fact cheese production has more than doubled since that last decline. And of course last year was the first cheese production increase that occurred amidst a global pandemic.

There are any number of ways to look at this latest cheese production record, but we’ll mention just a few. For one thing, it’s notable that the US now produces over a billion pounds of cheese every single month. Last year was actually the second straight year in which the US produced more than a billion pounds of cheese every month.

Speaking of billions, US cheese production first topped a billion pounds for an entire year back in 1942, fell below that level in 1943, then rose back above 1 billion pounds in 1944 and has been above that level ever since.

Interestingly, after first reaching 1 billion pounds in 1942, US cheese production didn’t reach 2 billion pounds until 1970. By comparison, during the same number of years most recently (1992-2020), US cheese production increased by about 6.7 billion pounds.

It’s also noteworthy that US cheese production has managed to increase even in years in which milk production declines. As noted in this space two weeks ago, milk production has declined twice this century, in 2001 and in 2009, but cheese production increased in both of those years (although the increase was less than 3 million pounds in 2001).

Also, milk production declined three times in the 1990s: in 1991, 1993 and 1996. Cheese production declined in just one of those years, 1991, and then only by less than 5 million pounds.

Also notable about 2020’s cheese production record is that it was achieved despite a drop in Mozzarella production. Specifically, while total cheese production increased by 53.3 million pounds compared to 2019, Mozzarella output fell by 76 million pounds.

So, how often does total cheese production increase when Mozzarella output declines? Not very often, as it turns out. There are a couple of ways to measure this.

First, going back 40 years, US cheese production in 1980 fell just shy of 4 billion pounds, meaning that cheese output has risen by a little over 9 billion pounds since then. Mozzarella production increased from 689 million pounds in 1980 to 4.42 billion pounds in 2020, or about 3.7 billion pounds.

In other words, the Mozzarella production increases over the past 40 years have accounted for somewhere around 40 percent of the total cheese production increase during that time.

By comparison, Cheddar production rose from 1.75 billion pounds in 1980 to 3.8 billion pounds in 2020, or just over 2 billion pounds, and thus accounted for less than a quarter of the total cheese production increase over that period.

Another way to look at how important Mozzarella production increases are to overall cheese production increases is to look at how frequently they occur at the same time. And the answer is: pretty frequently.

Specifically, going back to 1990, cheese production has declined just once, in 1991, while Mozzarella production has decreased four times: in 2020, 2008, 1997 and 1993. It increased in 1991, the last year in which overall cheese production declined.

By comparison, since 1990, US Cheddar production has declined a total of nine times.

Taking this back another decade, from 1980 through 1989, total US cheese production declined once, in 1984; Mozzarella production also declined once, in 1981; and Cheddar production declined four times, in 1984, 1986, 1988 and 1989.

With all of these statistics in mind, what might US cheese production look like here in 2021? At this point, there are at least a couple of factors supporting another year of record cheese output.

First, it looks like there’s going to be an awful lot of milk produced in the US this year. USDA is now projecting that US milk production this year will reach a record high of 227.4 billion pounds, up 4.3 billion pounds from 2020’s record output.

Keeping in mind that the last four times US milk production declined, cheese production still increased (in 2009, 2001, 1996 and 1993), it would seem logical to conclude that cheese production will have to grow to keep up with milk production growth.

Second, MWC, a $470 million cheese and whey plant in St. Johns, MI, began receiving milk last October from local dairy farmers, and when fully operational, the plant will produce more than 300 million pounds of cheese every year.

Notably, milk cow numbers in December 2020 in Michigan, Indiana and Ohio — the three states likely to supply most of the milk to that plant — were up a combined 33,000 head from a year earlier, pointing to higher milk production in the months ahead. It would seem that the new MWC plant will be absorbing a fair amount of the additional available milk.
There are few guarantees in the dairy industry these days, but it seems pretty likely that US cheese production will set yet another new record here in 2021.

 

EU Seems Pretty Adept At This Trade Deal Thing

Over the years, and decades for that matter, the European Union’s trade policies have generated plenty of controversy around the globe. This is especially true in the dairy sector, where the EU tends to run healthy dairy trade surpluses with many countries, most notably the US.

There are, from a dairy industry perspective, a couple of reasons why the EU’s dairy trade policies generate controversy around the globe: because they help boost EU dairy exports, and because they help limit EU dairy imports. These points were illustrated in a study released last week by the European Commission.

The study, as reported on our front page last week, considers free trade agreements recently concluded or implemented by the EU, including those with Canada, Japan, Mercosur, and Vietnam, the modernization of an agreement with Mexico, as well as trade agreements under negotiation with Australia, New Zealand, Malaysia, the Philippines and Thailand.

There were several aspects of the EU’s study that grabbed our attention. For example, there’s this observation: “The EU dairy sector is very competitive and enjoys a substantial tariff protection, which leads to limited imports.”

That’s an interesting observation for at least one major reason. That is, the EU is regularly criticized for its policies that limit dairy imports; these policies include tariffs but go far beyond that.

Maybe the best way to put this in perspective is to look over comments submitted to the Office of the US Trade Representative last October by the US Dairy Export Council and National Milk Producers Federation. The USTR was seeking input to assist in preparation of its annual National Trade Estimate report.

The comments submitted by USDEC and NMPF ran some 37 pages, covering countries ranging from Australia to Vietnam, as well as regions such as Central America and global organizations such as Codex.

Some of the comments submitted by USDEC and NMPF run all of one paragraph, while others run roughly one page. But the section on the EU runs an impressive nine pages, and delves into issues ranging from import licensing procedures and somatic cell counts to dairy certificate requirements and geographical indications.

What all these issues result in, according to USDEC and NMPF, is that the US ran a “remarkable” $1.5 billion dairy trade deficit with the EU in 2019, despite the fact that the US itself is a “major dairy exporter.”
Meanwhile, close to one-third of the comments submitted to the USTR by the International Dairy Foods Association dealt with non-tariff barriers that are limiting US dairy exports to the EU.

US dairy organizations aren’t the only ones noting some issues with the
EU’s policies that limit dairy imports. Last July, the World Trade Organization released a “Trade Policy Review” of the EU.

According to that WTO report, the EU agricultural sector “stands out in the tariff analysis, due to significantly higher rates, wide tariff range, use of non-ad valorem rates, and use of tariff quotas.” The highest tariff rates in agriculture are concentrated in the animal and animal products, dairy, and sugar and confectionary sectors. The dairy sector “continues to be one with the highest levels of protection, with high tariffs that are all non-ad valorem duties and no duty-free lines.”

With these points in mind, we had to chuckle at a couple of quotes included in the European Commission’s press release regarding the release of its study on trade agreements.

“The EU has always stood for open and fair trade, which has enormously benefitted our economy, including agricultural producers,” said Valdis Dombrovskis, the EU’s trade commissioner.

Well, it doesn’t really appear that the EU currently stands for “open and fair trade,” nor has that been the case “always.” For example, in 1973, a report from USDA’s Foreign Agricultural Service noted that the European Community’s Common Agricultural Policy “has affected the United States primarily because the surpluses generated have been exported with a disruptive effect on world markets including the American market.”
Dombrovskis continued: “This study shows that we have been able to strike the right balance between offering more export opportunities to EU farmers, while protecting them from potential harmful effects of increased imports.”

That quote reminded us of criticism levied on the EU last June by the Dairy Companies Association of New Zealand, which said a reported EU offer, comprised of miniscule quota volumes and high in-quota tariffs, could never credibly form part of a free trade agreement between the EU and New Zealand.

“This falls short of even paying lip-serve to free trade. It is unashamed protectionism from the world’s largest dairy exporter,” said Malcolm Bailey, DCANZ chairman.

The frustrating things here are that the EU study not only looks at trade agreements that have been recently concluded or implemented, but also trade agreements under negotiation; and that some of these agreements, such as deals with Canada, Japan and Vietnam, are being gradually phased in.

In other words, the EU dairy trade balance will continue to benefit from these trade agreements in the coming decade, even as complaints about EU trade policy continue and quite possibly even increase. Much to the frustration of its competitors, the EU appears to be pretty adept at negotiating favorable trade agreements
.

US Dairy Farmers Can Really Crank Out The Milk

US dairy farmers are, to understate things a bit, a mighty productive group. As it turns out, this is the case in both good times and bad. And their productivity seems to pretty much guarantee that the future will continue to include both good times and bad.

As reported on our front page this week, US milk production in 2020 reached a record high of 223.1 billion pounds, up 2 percent, or 4.7 billion pounds, from 2019’s record output.

US milk production has now increased every year since 2009, when output of 189.2 billion pounds was down 0.4 percent, or 776 million pounds, from 2008.

That point is noteworthy because it helps illustrate that declines in US milk production appear to be getting more and more rare. Prior to that decline in 2009, the previous drop in US milk production occurred in 2001, when output of 165.3 billion pounds was down about 2.1 billion pounds from 2000.

And that’s been it for milk production declines here in the 21st century. To put this in some historical context, in the last decade of the 1990s, US milk production actually declined three times: in 1991, in 1993 and in 1996.

There were also multiple years in the 1980s when milk production declined, but at least two of those declines come with an asterisk because of government policies. Specifically, Congress passed legislation in 1983 that created the Milk Diversion Program, which was aimed at encouraging dairy farmers to reduce production from a historical base. The program ran for all of 1984 and the first part of 1985, and apparently achieved its goal, as 1984 milk production dropped 4.2 billion pounds from 1983.

Then, the 1985 farm bill included the Dairy Termination Program, better known as the whole herd buyout program, which bought entire dairy herds from farmers. That program ran for parts of 1986 and 1987, and as a result milk production in 1987 was down 415 million pounds from 1986.

From this brief history, we can conclude that declines in milk production are occurring less frequently early in the 21st century than they did in the late 20th century.

One other interesting note about US milk production: it first topped 120 billion pounds back in 1953, at 120.2 billion pounds, and 25 years later, in 1978, it had actually increased by just 1.3 billion pounds, to 121.5 billion pounds. Milk production over the past 25 years increased from 155.3 billion pounds in 1995 to 223.1 billion pounds in 2020, an increase of 67.8 billion pounds.

It’s safe to conclude that the US dairy industry has been in growth mode for the past quarter-century or so.

Getting back to 2020, there are a couple of points worth noting about the milk production increase. First, at 4.7 billion pounds, that increase was the largest, on a volume basis, since 2014’s 4.8-billion-pound rise. In fact, on a volume basis, it was the second-largest over the past decade, topped only by that 2014 increase.

Second, that impressive increase in milk production occurred during a pandemic. And it’s safe to say nobody in the dairy industry had any previous experience in managing milk production during a pandemic.

The pandemic’s impact on milk production was at least twofold. First, once lockdowns were initiated starting last March, a number of milk buyers started instituting programs to incentivize their producers to reduce milk production. And second, milk prices crashed during the second quarter of 2020, with the Class III price dropping from $17.00 per hundredweight in February to $12.14 per hundred in May and the average mailbox milk price in federal order areas dropping from $18.87 per hundred in January to $12.90 per hundred in May.

These two factors had quite an impact on US milk production. After rising by 3.1 percent in the first quarter of 2020 (which included an extra day due to leap year), US milk production increased by just 0.5 percent in the second quarter. That included a 0.5-percent drop in May milk production.

Also, milk cow numbers for the entire US fell by 10,000 head in April, 15,000 head in May and 10,000 head in June.

But pretty much everything rebounded after that. For starters, the Class III milk price rebounded from $12.14 per hundred in May to $24.54 per hundred in July — just six cents shy of the record high, set back in September 2014.

As milk prices bounced back, so too did milk cow numbers, rising by an eye-opening 93,000 head during the second half of 2020. More than half of that increase came during the fourth quarter.

And milk production increased impressively during the second half of 2020, especially during the fourth quarter, which saw milk production for the entire US increase 2.4 percent in October, 3.4 percent in November and 3.1 percent in December.

Those last two increases were the largest percentage increases of the entire year (February’s 5.4-percent was actually 2 percent when adjusted for the extra day).

US dairy producers proved to be remarkably resilient and productive in 2020. Milk production has considerable momentum here in the first month of 2021, meaning that there could be a fair amount of milk looking for a home in the next few months.

And that likely means relatively low milk prices for the next several months. That in turn could put some downward pressure on production, but 2021 will still in all likelihood see a new record.

 

Even In A Pandemic, Dairy Products Are A Great Bargain

In 2020, the Consumer Price Index for dairy and related products increased by 4.4 percent, its largest percentage increase since 2011. And December’s dairy CPI was a record-high 231.74 (1982-84=100).

So do these figures mean that dairy products are no longer a bargain for consumers?

Hardly. Indeed, it’s safe to say that, here in early 2021, dairy products remain a great bargain for consumers. Some dairy CPI history and some current CPI data will help put this in perspective.

For starters, while the dairy CPI in 2020 posted its largest percentage increase in almost a decade, it’s worth noting that the dairy CPI has actually been relatively flat in recent years.

Indeed, following a 6.8-percent rise in the dairy CPI back in 2011, the dairy CPI actually declined three times (in 2015, 2016 and 2018) and increased by just 0.1 percent in two other years (2013 and 2017). Only in 2012 (2.1 percent) and in 2014 (3.6 percent) did the dairy CPI rise by more than 1 percent.

Yes, the dairy CPI did reach a record high in December 2020, and actually set three new records last year, initially reaching 230.2 in May, then hitting 231.2 in August and finally reaching 231.74 in December. But before hitting 230.2 in May 2020, the record high for the dairy CPI, 229.9, was actually set back in December 2014.

That means, obviously, that the dairy CPI failed, for more than five years, to break the record high set at the end of 2014. In fact, from February 2016 to September 2019, the dairy CPI never even got above 220, meaning that not only did the dairy CPI not set any new record highs during that period, it didn’t even come close.

At 231.74 in December, the dairy CPI remained well below numerous food-related price indices. December’s CPI for food stood at 270.0, while the CPI for food at home was 251.3, the CPI for cereals and bakery products was 283.7, and the CPI for fruits and vegetables was 306.5.

The federal government includes meats, poultry, fish and eggs in a “protein foods” group, along with beans, peas, and lentils; and nuts, seeds, and soy products. The CPI for meats, poultry, fish, and eggs stood at 264.5 in December, meaning that dairy products would seem to be a better protein value than some other animal-derived foods.

Another way to look at what a great bargain dairy products are for consumers is to look at average price data which, along with the CPI, is also collected and reported by the US Bureau of Labor Statistics. In December, the average retail price for a pound of Cheddar cheese was $5.54, the eighth straight month in which the average retail Cheddar price topped $5.50 a pound.

That $5.54 average was also the highest retail Cheddar price for the month of December since 2012, when it was $5.87 a pound.

Yes, retail Cheddar prices were relatively high in 2020, but comparisons can be deceiving because retail Cheddar prices were relatively low for several years before 2020. For example, back in 2014, the average retail Cheddar price was above $5.50 a pound for nine straight months, including a high of $5.73 in April.

But, after October 2014, when they averaged $5.57 a pound, average retail Cheddar prices didn’t make it back to the $5.50 per pound mark again until May of 2020. In fact, they actually were below $5.00 a pound for the final two months of 2016 and all but three months in 2017.

So from the perspective of the past decade, retail Cheddar prices in 2020 were still a bargain.

Meanwhile, the average price for a gallon of whole milk in December was $3.54, up almost 35 cents from a year earlier and the highest average retail whole milk price for the month of December since 2014, when retail whole milk prices averaged $3.82 per gallon.

As was also the case with Cheddar cheese, 2020 retail whole milk prices look high in comparison to recent years, but fall well short of where they were if you go back to 2015 or earlier. While January 2015 was the last time retail whole milk prices averaged above $3.50 a gallon until December 2020, prior to January 2015, whole milk prices were above that level quite often.

Specifically, retail whole milk prices averaged above $3.50 per gallon every month in 2014, including a record high of $3.86 a gallon in November 2014, and were above $3.50 a gallon for at least two months in 2011, 2012 and 2013. Indeed, in both 2011 and 2012, the average retail price for a gallon of whole milk peaked at a level higher than it did in 2020 ($3.72 and $3.58 a gallon, respectively).

Finally, it’s worth remembering that, whatever the price, dairy products offer consumers an impressive “bang for the buck” from a nutritional standpoint. Many if not most dairy products are nutrient-dense foods, meaning they deliver not only great flavor but also protein, fat and a variety of vitamins and minerals.

Here’s how the National Dairy Council put it, in comments submitted last August on the Dietary Guidelines Advisory Committee’s report: “Dairy foods are the lowest cost sources of dietary calcium and vitamin D in the US diet and are among the lowest cost sources of potassium, magnesium, vitamin A, riboflavin (B2) and vitamin B12 as well.”

Consumers abandoning dairy in favor of plant-based alternatives might want to consider how much nutrition they’re getting for the price before making the switch.

Inflation returned to the dairy case last year, but dairy products remain a nutritional and flavor bargain for consumers.

10 Years With The Food Safety Modernization Act

It’s now been 10 years since President Obama signed the Food Safety Modernization Act into law, and if there’s one thing we’ve learned since then, it’s that the FSMA is one of the more consequential laws the food industry has had to deal with in the past 75-plus years. And FDA still isn’t finished rolling out all the industry regulations required under the law.

By way of very brief background, Congress spent several years working on major food safety legislation before finally passing the FSMA in December 2010. For example, in April of 2008, a discussion draft of something called the Food and Drug Administration Globalization Act of 2008 was released by the House Energy and Commerce Committee; that discussion draft contained language that would have, among other things, required domestic and foreign food facilities to have safety plans in place to identify and mitigate hazards.

One Congress (that discussion draft was released during the second year of the 110th Congress; the FSMA was introduced in the early weeks of the 111th Congress and passed in the final weeks of that Congress) and numerous drafts and rewrites later, the FSMA was signed into law.

What Congress passed and President Obama signed was a bill that ran 242 pages total and included four titles; those titles dealt with improving the capacity to prevent food safety problems; improving capacity to detect and respond to food safety problems; improving the safety of imported food; and miscellaneous provisions.

While it took several years for Congress to finalize the FSMA, the length of time it will take the US Food and Drug Administration to implement that law is yet to be determined.

Certainly, FDA has accomplished quite a bit since the FSMA became law. A glance at the sections just in the law’s first title reminds us of all the proposed rules, final rules, guidance documents and implementation dates that have been issued for, among other things, hazard analysis and risk-based preventive controls, inspections of records, and the sanitary transportation of food.

And these accomplishments have been spread out over the past decade. Indeed, it was on May 5, 2011, when FDA issued an interim final rule on the administrative detention of food (part of the FSMA’s second title); that IFR became effective on July 3, 2011. A final rule on administrative detention became effective on Feb. 5, 2013.

Since then, FDA has issued proposed rules and then final rules for a number of other sections of the FSMA, but there are at least two reasons why FDA’s work in implementing the FSMA is far from finished.

The first of those reasons, and the most obvious, is that there are still three proposed FSMA rules that have yet to be finalized. The comment period on two of those, including the proposed rule on laboratory accreditation, have closed, while FDA recently extended the comment period on the third, which deals with food traceability.

Suffice it to say that it will be a year or two before a final rule is issued on the traceability proposal, and probably at least another year or two before that final rule becomes effective. So the “finish line” for FSMA rulemaking is still several years away.

Second, past experience with major food-related undertakings indicate that FDA is never really “finished” with implementation. It may be recalled that Congress passed the Nutrition Labeling and Education Act in 1990 and issued final rules in early 1993. By 1995, most foods included the NLEA-mandated Nutrition Facts label.

But that was hardly the end of the NLEA rulemaking. Before the end of 1995, FDA amended its regulations to update the Daily Values, and in 2003 the agency updated its regulations to address the declaration of trans fats. And, from 2003 through 2007, FDA also issued three advance notices of proposed rulemaking seeking public comment on issues relevant to updating the Nutrition Facts label.

Also, between 1993 and 2013, FDA received 12 citizen petitions asking for various changes to the Nutrition Facts and Supplement Facts labels. And then, in 2014, FDA proposed a significant overhaul of the Nutrition Facts label. A final rule updating the label was released in 2016.

The point here is that, even if FDA decides to stand pat after releasing its final FSMA regulation, chances are there will be ongoing efforts to prod the agency to do more to ensure food safety, by tweaking FSMA rules or by implementing new rules.

All of this leads to one final question: Ten years after President Obama signed the FSMA into law, is the US food supply safer?

Not necessarily. The US Centers for Disease Control and Prevention reported last spring that the incidence of enteric infections caused by eight pathogens (including Campylobacter, Listeria, Salmonella, Shiga toxin-producing E. coli, Shigella, vibrio, Yersinia and Cyclospora) reported by FoodNet sites in 2019 “continued to increase or remained unchanged, indicating progress in controlling major foodborne pathogens in the United States has stalled.”

Even after all the FSMA regulations are finalized, the law is not about to fade away: FDA’s “New Era of Smarter Food Safety Blueprint,” which was announced last summer, builds on work that FDA has done to implement the FSMA.

That Blueprint also contains, as its fourth Core Element, the real key to improving food safety: promoting food safety culture throughout the food system. Simply put, the food safety culture matters more than regulations..

New Dietary Guidelines As Anti-Milkfat As Ever

The federal government released the latest edition of the Dietary Guidelines for Americans last week, and when it comes to dairy-specific recommendations, the government is sticking with the same outdated advice it’s been touting for 40 years: consume mostly fat-free or lowfat dairy products.

Unfortunately, that advice ignores a growing body of evidence that concludes just the opposite: that the milkfat in dairy products actually offers, potentially, a variety of health benefits.

Back in 1980, the Dietary Guidelines advised consumers to avoid too much fat, saturated fat and cholesterol by, among other things, limiting their intake of butter, cream and “foods made from such products.”

In 2020, for the food category dairy and fortified soy alternatives (part of the guideline to meet food group needs with nutrient-dense foods and beverages from five food groups), most choices “should be fat-free or low-fat,” the Dietary Guidelines advise.

Just in case consumers didn’t get that message, the fourth and final guideline is to limit foods and beverages higher in saturated fat, sodium and added sugars. Intake of saturated fat should be limited to less than 10 percent of calories per day by replacing them with unsaturated fats, particularly polyunsaturated fats.

Top sources of saturated fat include higher fat milk and yogurt, 6 percent; cheese, 4 percent; pizza, 5 percent; spreads, 3 percent; desserts and sweet snacks (including ice cream and frozen dairy desserts), 11 percent; and sandwiches, 19 percent.

Interestingly, while being highly critical of milkfat specifically and saturated fats more generally, the Dietary Guidelines actually has some nice things to say about oils, which “are important to consider as part of a healthy dietary pattern as they provide essential fatty acids.” Commonly consumed oils include canola, corn, olive, peanut, safflower, soybean, and sunflower oils. Also, the government used to advise consumers to limit their intake of “hydrogenated margarines”, but as of June 2018, partially hydrogenated oils are no longer generally recognized as safe (GRAS).

So obviously the government’s view of dietary fat has changed over the past four decades, from avoiding too much fat and saturated fat to just avoiding saturated fat specifically.

But this dietary fat advice is still misguided, as a number of studies help illustrate. Just to cite one example: back in 2016, an editorial in The BMJ noted that a new study published in that journal “adds to the doubts around the health benefits of replacing saturated fat with polyunsaturated fats,” and notes that the benefits of choosing polyunsaturated fat over saturated fat “seem a little less certain than we thought.”

More recently, a group of US and international nutrition scientists, including three former members of different Dietary Guidelines Advisory Committees (which examines the evidence on specific nutrition and public health topics and provides independent, science-based advice to the federal government as it develops the Dietary Guidelines) last August asked key congressional leaders to encourage the US Departments of Agriculture and Health and Human Services to give “serious and immediate consideration” to lifting the limits placed on saturated fat intake for the next edition of the Dietary Guidelines.

These nutrition scientists noted that a “critically important consideration” is the growing recognition that the effect of saturated fats on health “cannot be considered in isolation but instead must be analyzed as part of the larger food matrix” in which these fats exist.

And they concluded that “there is no strong scientific evidence that the current population-wide upper limits on commonly consumed saturated fats in the US will prevent cardiovascular disease or reduce mortality. A continued limit on these fats is therefore not justified.”

Unfortunately, USDA and HHS stuck with tradition, and recommended primarily lowfat and fat-free dairy products as well as limits on saturated fat intake.

Another frustrating point about the continuing emphasis on lowfat and fat-free dairy products is that these products are touted as being more nutrient-dense than their full-fat counterparts. The Dietary Guidelines document provides examples of calories in food choices that are not nutrient dense and calories in nutrient-dense forms of these foods.

In the case of fluid milk, one cup of fat-free milk has 83 calories, while the milkfat in whole milk adds 63 calories, so a cup of whole milk has 146 total calories.

But skim milk isn’t really as nutrient-dense as whole milk, since it contains about 3 percent more water and no fat compared to about 3.25 percent fat. Dietary fat is in fact essential; therefore, replacing fat with water would seem to make a food less nutrient-dense, not more.

When it comes to saturated fat and lowfat and fat-free dairy products, the dairy industry seems to be stuck in a five-year cycle. For five years, we read and hear about new, promising health benefits from milkfat, and then we anxiously and optimistically await the next edition of the Dietary Guidelines.

And every five years, we’re disappointed because the federal government continues to peddle the same advice: consume mostly lowfat and fat-free dairy products, and limit your saturated fat intake to 10 percent or less of total calories.

And now it looks like it will be 2025 at the earliest before the Dietary Guidelines reflect the truth about full-fat dairy.

A Few Things Dairy Can Expect In 2021

If there’s one thing the dairy industry, and pretty much every other industry, learned in 2020, it’s this: expect the unexpected.

A year ago, as everybody pondered what to expect in 2020, few folks knew what a coronavirus was, let alone what COVID-19 was. In fact, it was on Dec. 31, 2019, when the World Health Organization’s Country Office in the People’s Republic of China picked up a media statement by the Wuhan Municipal Health Commission from their website on cases of “viral pneumonia” in Wuhan, China.

And the rest, as they say, is history. While the rise and spread of the coronavirus was the main story in 2020, thanks to vaccines now being rolled out across the US and around the world, 2021 will hopefully see the decline of COVID-19 cases and government responses to those outbreaks, and something resembling a return to normal.

What might that mean for the dairy industry? For starters, maybe the industry will see somewhat less price volatility in 2021.

That seems like a pretty safe prediction for the simple reason that it’s hard to imagine price volatility getting any more severe in 2021 than it was in 2020. After all, 2020 saw the CME cash market price for 40-pound Cheddar blocks drop to $1.00 a pound in April and reach a record high of $3.00 a pound in July, and the federal order Class III price range from a high of $24.54 per hundredweight in July (six cents shy of the all-time record, set in September 2014) to a low of $12.14 per hundred in May.

Although less spectacular, butter prices also rode the roller-coaster in 2020, with almost a $1.00 per pound difference between the high for the year ($2.0150 on June 4) and the low ($1.1000 per pound on Apr. 23).

And Class IV prices were also quite volatile in 2020, with a low of $10.67 per hundred in May and a high of $16.65 per hundred in January. To put that in some recent historical perspective, in 2019 the Class IV price ranged from a low of $15.48 per hundred in January to a high of $16.90 per hundred in July.

All of the 2020 price volatility has resulted in very large volumes of milk being depooled from federal orders, which will in all likelihood result in heightened discussions of federal order reforms in 2021. The last round of federal order reforms took place in the 1990s, and it’s safe to say 2020 exposed some problems with the way federal orders currently function.

Of course, the last round of federal order reforms was launched after being mandated by Congress in the 1996 farm bill, and took roughly three years to complete (from passage of the 1996 farm bill, which was signed into law by President Clinton on Apr. 4, 1996, to release of the final order, which was issued on Mar. 12, 1999).

With this timeline in mind, it’s unlikely that the dairy industry will see any significant changes in federal order policies in 2021, but there will undoubtedly be plenty of discussion of such changes.

Among the many difficult things to predict is the future level of government involvement in the dairy industry. In recent years, we’ve seen USDA purchase dairy products under various authorities, including Section 32, trade mitigation and the Families to Farmers Food Box Program. The latter undoubtedly contributed to the rapid recovery in cheese and milk prices after they bottomed out last spring.

So what will 2021 bring in this area? There is at one key point to keep in mind: Congress passed and President Trump in late December signed into law a pandemic relief bill that includes a considerable amount of money that could be used to purchase dairy products.

That pandemic relief bill includes, among many other things, at least $1.5 billion to purchase food and agricultural products; $400 million to pay for milk and other dairy products under a dairy donation program; $400 million for the Emergency Food Assistance Program; and $13 million for the Commodity Supplemental Food Program. At least some of this money has to be spent by Sept. 30, 2021.

According to the National Restaurant Association, the pandemic relief bill also includes several items that will benefit restaurants, which leads us to wonder what food service sales will look like in 2021, especially during the latter half of the year as more and more people get vaccinated, COVID-19 infection rates hopefully decline and state and local restrictions begin to be eased.

Our guess is that food service sales will start to boom in the latter half of 2021, as consumers who have been hunkering down since last spring start to patronize restaurants once again (at least those restaurants that managed to survive the pandemic). One thing to watch will be the National Restaurant Association’s Restaurant Performance Index, which has been in negative territory since the pandemic began but could improve significantly as lockdowns wind down and consumers once again start to dine out regularly.

Finally, 2021 will see President Trump leave office and Joe Biden become president, meaning that, among many other things, US trade policy will likely see some significant changes. Under Trump, the US withdrew from the Trans-Pacific Partnership agreement, got involved in trade wars with various countries and regions, and spent billions of dollars compensating dairy and other industries for the trade damage these trade wars wrought, among other things.

Biden’s trade policy remains to be seen; suffice it to say it will be different than Trump’s.

All in all, 2021 will be as difficult to predict as any other year, but probably won’t be as unpredictable as 2020 proved to be.

 

An Unprecedented Year For The Dairy Industry

Dictionary.com, which bills itself as “the world’s leading digital dictionary,” recently announced that its 2020 Word of the Year is Pandemic, because the word “kept running through the profound and manifold ways our lives have been upended—and our language so rapidly transformed—in this unprecedented year.”

To put this in a little perspective, the word “pandemic” has appeared at least once in every edition of this newspaper dating back to early May, and several issues in February, March and April as well. There is no mention of the word “pandemic” in any of our January issues, which we fondly recall as “the good old days.”

For what it’s worth, there were no mentions whatsoever of the word “pandemic” in any of the issues of this newspaper in 2019, 2018, 2017, 2016 and 2015. And probably plenty of years prior to that as well, if we had taken the time to check.

Dictionary.com also tallied the thousands of responses it received for its People’s Choice 2020 Word of the Year, and the top submission was the word unprecedented. And that word helps sum up what the dairy industry (and the entire food industry) experienced this year.

Arguably the biggest area where use of the word “unprecedented” was common was in the area of dairy prices. And that was just during the first half of the year; the second half was also unprecedented, in some ways.

During the first half of 2020, the CME cash market price for 40-pound Cheddar blocks plunged from $2.0025 per pound on Jan. 23 to $1.00 per pound less than three months later (on Apr. 15, to be exact). That price drop was unprecedented. As noted in this space back on June 12th, the block price first rose above $2.00 per pound back in 2004 (rising above that level would essentially be necessary, at least during the dairy product price support program era, for a $1.00 drop in price), and also topped $2.00 per pound in 2007, 2008, 2011, 2012, 2013, 2014 and 2019 (prior to 2020).

The range between the low and high block price exceeded $1.00 in only one of those years: in 2008, when the block price reached a then-record $2.2850 per pound in late May and bottomed out at $1.1325 a pound at the end of the year. So while that price drop was greater than what was experienced earlier this year, it was spread out over a much longer period of time.

As it turned out, that was just the beginning of unprecedented cheese price records being shattered this year. Less than two months after blocks bottomed out at $1.00 a pound, they skyrocketed to a new record high of $2.5850 a pound.

Obviously, the block price had never experienced an increase of such magnitude in such a short period of time, although it’s worth remembering that the CME’s cash cheese market has only been trading daily since September of 1998. Prior to that, the cheese industry’s cash market traded only once a week, and in all the years the National Cheese Exchange and its predecessor, the Wisconsin Cheese Exchange, were in business, the block market never topped $1.70 per pound (it reached $1.6950 a pound in September 1996).

But even that unprecedented block price movement wasn’t the end of the story in this unprecedented year. After falling to $2.50 a pound in mid-June, the block price started to rise again, reaching a record high of $3.00 per pound on July 13th.

That brought about various other examples of “unprecedented” prices and price movements (although blocks weren’t the first dairy commodity to reach $3.00 a pound; that distinction belongs to butter, which reached $3.06 a pound in September of 2014 and then reached $3.1350 a pound a year later).

Among other things, after reaching $3.00 a pound on July 13, blocks dropped to $1.65 a pound on August 21st, wiping out the record set by that “unprecedented” price drop that occurred earlier this year. That decline was later topped when, over the course of less than half a year (July 13th to Dec. 2nd), the block price dropped by some $1.4225 a pound.

And of course blocks became the first dairy commodity to experience a $2.00 per pound price increase — not just in a single year, but in a period of less than three months.

Related to the unprecedented cheese price volatility, federal order statistics will also see unprecedented volatility this year. More specifically, among other things, depooling will result in what will likely be an unprecedented drop in Class III use.

In 2019, despite significant volumes of milk being depooled from Class III during the last four months of the year, Class III volume totaled 64.2 billion pounds and Class III utilization was 41 percent. Through November of this year, Class III volume was under 32 billion pounds (meaning it will probably end up under 34 billion pounds) and Class III utilization is under 25 percent.

This year also has seen an unprecedented number of industry events either cancelled outright or switched to virtual formats. Meeting virtually certainly has its merits, but a major downside is that, in an industry where lots of business is still done on a handshake, well, it’s safe to say this year saw an unprecedented decline in handshakes.

Last but not least, this year also saw something resembling an unprecedented increase in new terms and phrases, from PPE (personal protective equipment) and social distancing to pivoting (from food service to retail).

Another year like 2020 would certainly be unprecedented.

 

Potential, And Potential Limits, To Southeast Asia Dairy Imports

Last week, USDA’s Economic Research Service released a report that examined the potential for US dairy exports to increase to Southeast Asia (SEA). The report concluded (as reported in a story on page 9 of last week’s issue) that the US does indeed have the potential to expand exports of several different dairy products to at least some of these countries.

Coincidentally, that ERS study was released about a week after Eat Just, Inc., announced that its cultured chicken has been approved for sale in Singapore as an ingredient in chicken bites.

So what does cultured chicken have to do with exporting dairy products? Potentially, quite a bit, as we will try to explain.

First, a bit of background. Eat Just, Inc., describes itself as a company that applies cutting-edge science and technology to create healthier, more sustainable foods.

The company stated that, over the course of many months, its team of scientists, product developers and regulatory experts have prepared “extensive documentation” on the characterization of its cultured chicken and the process to produce it. Eat Just included details on the purity, identity and stability of chicken cells during the manufacturing process, as well as a detailed description of the manufacturing process.

“Safety and quality validations demonstrated that harvested cultured chicken met the standards of poultry meat, with extremely low and significantly cleaner microbiological content than conventional chicken,” Eat Just stated in a news release. “The analysis also demonstrated that cultured chicken contains a high protein content, diversified amino acid composition, high relative content in healthy monounsaturated fats and is a rich source of minerals.”

Also, Eat Just referred to this as a “first-in-the-world regulatory allowance of real, high-quality meat created directly from animal cells for safe human consumption.” The regulatory achievement involved a safety review by the Singapore Food Agency, and the company said its cultured chicken was confirmed to be safe and nutritious for human consumption by an outside panel of international scientific authorities in Singapore and the US, with expertise in medicine, toxicology, allergenicity, cell biology and food safety.

Finally, the ERS report points out that most Southeast Asian countries produce only small milk quantities. Singapore specifically is described by the US government as an island city-state, about 3.5 times the size of Washington, DC. Only about 1 percent of Singapore’s land is devoted to agriculture, so it’s safe to say that Singapore is a net food importer in general and net dairy importer specifically.

Even though local farmers produce less than 10 percent of the Singapore’s nutritional needs at the moment, the Singapore Food Agency is aiming to increase this to 30 percent by 2030. But the country is obviously limited by its size, as well as its climate (tropical, which isn’t exactly conducive to milk production).

All of that background brings us back to Eat Just, Inc., and its cultured chicken. We can’t help but think that one reason Singapore became the first country in the world (at least according to Eat Just) to approve meat created directly from animal cells is because, if its food can’t be produced in traditional ways (on farms, with animals), it can be produced in new, non-traditional ways (in labs, without animals or land).

As it turns out, Eat Just isn’t just working on cultured chicken. A couple of months ago, the company announced a partnership with a consortium led by Proterra Investment Partners Asia Pte. Ltd., an investment management firm focused on the food and agribusiness sectors, to build and operate a plant protein production facility in Singapore to meet demand for Eat Just’s plant-based JUST Egg products across Asia. That is, not just in Singapore, with a population of 6.2 million, but across Asia, where close to 60 percent of the entire world population lives.

That brings us to TurtleTree Labs, which describes itself as a food technology venture “addressing a multi-billion dollar global dairy market opportunity with the capability to create enormous financial and social value by providing accessible nourishment while staving off the threats of food, economic, and socio-political insecurities.”

TurtleTree Labs is a Singapore-based startup “addressing the value gap created by an insufficient and unsustainable animal-based dairy industry.”
The company said its acellular technology works by culturing mammary cells in-vitro and inducing their natural ability to produce all components of milk. The first step involves obtaining stem cells from sources such as milk. They are then transferred into an environment where they convert into mammary gland cells. The mammary gland cells interact with a special formula which causes the cells to lactate. The end product, milk, is obtained through a filtration process.

TurtleTree Labs said it is “advantaged by committed support from the various Singapore government agencies, in alignment with Singapore’s goals to produce 30% of its own nutritional needs by 2030.”

The bottom line here is that, in addition to competing with the likes of the European Union, New Zealand and Australia in Southeast Asia, the US dairy industry (as well as its traditional animal-based dairy competitors) will have to compete with the likes of TurtleTree Labs for a share of Southeast Asia’s growing dairy market. Yes, there’s some nice potential there, but also some emerging competition from companies and technologies that didn’t exist 10 years ago.

 

 

Cheese Export Subsidy Updates Seem Unnecessary, Irrelevant

Back on Nov. 5, the US Department of Commerce’s International Trade Administration published in the Federal Register its quarterly update to the annual listing of foreign government subsidies on articles of cheese subject to an in-quota rate of duty covering the period Apr. 1 through June 30, 2020.

This quarterly update included exactly one “subsidy” program: Canada provides export assistance of 47 cents per pound on certain types of cheese.

And this leads us to wonder why the federal government continues to require this quarterly update, which is published pursuant to section 702(h) of the Trade Agreements Act of 1979 (as amended).

More specifically, that 1979 law requires the “administering authority” to determine whether any foreign government is providing a subsidy with respect to any article of quota cheese, and publish a list of the type and the amount of each such subsidy which is determined to exist.

And some subsidies definitely existed back then. For example, in 1980 (the first year in which the subsidy list was published), among many others, Italy was providing EC (European Community) restitution payments of 72.6 cents per pound, while Finland was providing an export subsidy of 62.6 cents per pound plus an indirect subsidy of 21.7 cents per pound, or more than 84 cents per pound total.

So obviously things in the cheese subsidy arena have changed significantly over the past four decades, which leads us to conclude that this update of cheese subsidy programs isn’t necessary anymore, for several reasons.

First, as noted above, these days there is exactly one subsidy program identified in the notice, namely Canada’s export assistance of 47 cents per pound on certain types of cheese, compared to 40 years ago, when export subsidies ranged from about 24 cents per pound provided by Norway to Finland’s 84.3 cents per pound.

To put this in some additional, and more recent, historical perspective, we went back to 2002 and found the notice of subsidy programs on cheese subject to an in-quota rate of duty during the Apr. 1-June 30, 2002 period. And in fact there were still quite a few of those cheese subsidies during that period.

For example, 13 countries were providing European Union restitution payments (there were 15 EU member countries at the time) ranging from two cents per pound for Belgium to 12 cents per pound for Finland. Greece wasn’t providing any subsidies, and Sweden isn’t listed in the notice.

Also listed in that 2002 notice were the following subsidies: Canada, 22 cents per pound in export assistance on certain types of cheese; Switzerland, five cents per pound in deficiency payments; and Norway, 29 cents per pound in indirect (milk) subsidy plus 13 cents per pound in consumer subsidy, for a total of 42 cents per pound.

It may be recalled that the EU suspended its export subsidies more than a decade ago, then revived them starting in 2009, during the Great Recession. But in 2010, the quarterly updates weren’t listing any EU restitution payments. And so to this day, the EU restitution payments are still listed as zero.

Related to this point, the reason we went back to 2002 to check on these cheese subsidy programs is because that’s the year US cheese imports set a record that still stands today, 474.6 million pounds. The US has imported less than 400 million pounds of cheese in each of the last two years, and it’s likely that cheese imports in 2020 will also fall well short of 400 million pounds.

Meanwhile, US cheese production has increased from about 8.5 billion pounds in 2002 to 13.1 billion pounds in 2019, meaning that imports are filling a declining portion of the US cheese market.

By contrast, back in 1979, when the Trade Agreements Act was passed by Congress and signed into law by President Jimmy Carter, US cheese production totaled 3.7 billion pounds and cheese imports totaled about 248 million pounds. Back then, cheese imports had a much larger, and more important, share of the US cheese market in 1979 than they do in 2020.

Further, as noted, the only current subsidy listed by the ITA is Canada’s export assistance on certain types of cheese. For what it’s worth, Canada’s exports of cheese to the US in recent years have ranged from about 10.3 million pounds in 2019 to 12.4 million pounds in 2018. In other words, the only country currently providing any sort of export assistance, according to the ITA’s quarterly update, accounts for less than 3 percent of total US cheese imports.

Third, and perhaps most important, if there’s one thing we’ve learned about dairy trade over the years, it’s that countries have a lot more “weapons” in their ag and trade policy portfolios than just subsidies.
These might not technically be government export “subsidies,” but they certainly help illustrate how dairy trade is not now, never has been and probably never will be truly free or fair.

For example, the EU budgeted about $200 million for the promotion of EU agri-food products at home and abroad for 2020. More than half of that is allocated to promotion programs outside the EU, including in the US.

Meanwhile, the US Department of Agriculture last year awarded $300 million to various organizations under the Agricultural Trade Promotion Program, including about $7.8 million to the US Dairy Export Council.
Export subsidies still exist, they just don’t exist in forms that show up in the ITA’s report, rendering that report largely irrelevant.

Economics, Agriculture, Trade And A Pandemic

On Monday, President-elect Joe Biden announced key members of his economic team, including Janet Yellen, treasury secretary; Neera Tanden, director of the Office of Management and Budget; Wally Adeyemo, deputy treasury secretary; Cecilia Rouse, chair of the Council of Economic Advisers; and Jared Bernstein and Heather Boushey, members of the Council of Economic Advisers.

This announcement led us to wonder why the secretary of agriculture and the US Trade Representative aren’t also considered key members of the incoming Biden administration’s economic team. After all, agriculture and trade are pretty important to the overall health of the economy, to understate the situation a bit.

To put this “economic team” and other key administration posts in perspective, we went back and checked on when previous presidents-elect announced their nominees for agriculture secretary and USTR. And it seems that these aren’t necessarily “top-of-mind” when it comes to new administrations building their teams (economic or otherwise).

Four years ago, for example, President-elect Donald Trump waited until the day before he took office (he was sworn in on Jan. 20, 2017) to nominate Sonny Perdue to be his secretary of agriculture. Perdue wasn’t sworn in as the country’s 31st agriculture secretary until Apr. 25, 2017, one day after he was confirmed by the US Senate.

Earlier in January 2017, or about two months after he won the 2016 election, Trump had announced his intention to nominate Robert Lighthizer to be the US Trade Representative.

More than eight years earlier, on Dec. 17, 2008, President-elect Barack Obama nominated former Iowa Gov. Tom Vilsack to be his secretary of agriculture. That was about six weeks after Obama was elected president.

The same week that Vilsack was announced as Obama’s choice to head up USDA, Ron Kirk was nominated as the new US Trade Representative.
Going back eight more years, nominees for agriculture secretary and US Trade Representative aren’t really comparable, since President-elect George W. Bush wasn’t announced as the winner of the election until Dec. 12, 2000, or about five weeks after the election.

Despite that late start, however, President-elect Bush nominated Ann Veneman to be his secretary of agriculture on Dec. 20, 2000, or a little more than one week after he was declared the election winner. That appears to be some sort of modern-day record for nominating a secretary of agriculture after winning an election.

By comparison, it wasn’t until Jan. 11, 2001, or less than two weeks before inauguration day, that Bush nominated Robert Zoellick to be his US Trade Representative.

Going back a few more presidents (or, more accurately, presidents-elect), and focusing just on agriculture secretaries, Bill Clinton nominated Mike Espy to be secretary of agriculture on Dec. 24, 1992. Four years earlier, President-elect George H. W. Bush nominated Clayton Yeutter to be his secretary of agriculture on Dec. 14, 1988.

Eight years before that, President-elect Ronald Reagan nominated John Block to be his agriculture secretary on roughly Dec. 23, 1980. And four years before that, President-elect Jimmy Carter nominated Bob Bergland to be his secretary of agriculture on roughly Dec. 21, 1976.

From this brief history, we can reach several conclusions. First, President-elect Donald Trump four years ago set some sort of modern-day record by waiting until Jan. 19, 2017, to announce Sonny Perdue as his nominee for secretary of agriculture.

No other president-elect in recent decades has even waited until the new year (which is less than three weeks before inauguration day) to announce an ag secretary nominee, including George W. Bush, who wasn’t even declared the winner of the 2000 election until Dec. 12, 2000, but still managed to nominate Ann Veneman before Christmas.

Second, it doesn’t appear that nominating someone for secretary of agriculture is exactly a top priority for presidents-elect. Indeed, just to cite one example, Espy was the final cabinet pick announced by Clinton back in late 1992. This is despite the fact that the food and agriculture business is one of the largest, and most important, in the US.

Finally, while it would appear that agriculture and trade are being somewhat taken for granted as Biden announces his economic team and other cabinet officials, it’s probably safe to say that every cabinet position is important when it comes to the economy.

But this year, thanks to the coronavirus pandemic, there’s one federal agency that arguably stands out as the most important when it comes to economic recovery. That agency is the US Department of Health and Human Services.

That’s because, housed within HHS are the two key agencies in the ongoing battle against the coronavirus, namely the Food and Drug Administration, which as soon as next week could approve the first coronavirus vaccine; and the Centers for Disease Control and Prevention, which, among many other things, will decide who gets the vaccine when.

In this context, naming an ag secretary and US Trade Representative can maybe wait a bit longer. And even if Biden doesn’t announce those officials for a couple more weeks, he’ll still be roughly in line with the timelines followed by most of his recent predecessors.

 

Pfizer’s Vaccine Breakthrough, And Its Dairy History

Earlier this month, Pfizer and BioNTech announced that their vaccine candidate against COVID-19 has an efficacy rate above 90 percent at seven days after the second dose.

Last Friday, the companies submitted a request to the US Food and Drug Administration for Emergency Use Authorization of that vaccine candidate, which they said would potentially enable use of the vaccine in high-risk populations before the end of 2020.

That is certainly great news for the entire world, as it looks like FDA’s approval of the Pfizer-BioNTech and other vaccines will bring about some sort of normalcy, or maybe a “new normal,” to the world in general and the food and agriculture industry specifically maybe by the middle of 2021.

The Pfizer-BioNTech announcements also brought back some memories of Pfizer’s long involvement in the dairy business, and its breakthrough on chymosin more than 30 years ago. What follows is a brief look at Pfizer’s dairy and food industry history.

What was originally known as Charles Pfizer & Company was founded way back in 1849 in Brooklyn, NY. From the timeline provided on the company’s website, we can’t tell exactly when Pfizer got involved in the food industry, although, in 1919, the company pioneered the mass production of citric acid from sugar through mold fermentation.

Also from that company timeline, it’s unclear when Pfizer became involved in the dairy business. We do recall that it was back in the early 1960s when Pfizer acquired the old Paul-Lewis Laboratories, which was based in Milwaukee, WI.

One part of Pfizer’s cheese industry legacy also dates back to the 1960s. It was in 1963 that Chas. Pfizer & Co., Inc., published the first of its “Cheese Monograph” series. That first book, Italian Cheese Varieties, was written by Dr. George W. Reinbold of Iowa State University.

Subsequent books in the Pfizer Monograph series dealt with American cheese varieties, Swiss cheese varieties, Blue-veined cheeses, ripened semi-soft cheeses, cottage cheese and other cultured milk products, and lactic starter culture technology.

Arguably Pfizer’s biggest contribution (biggest because it’s still contributing today) to the cheese industry occurred in the 1980s and early 1990s. Back in late 1987, Pfizer announced that the first food additive petition involving a fermentation process using a genetically engineered microorganism had been accepted by FDA.

The petition submitted by Pfizer covered chymosin, the active component of calf rennet. The new fermentation process would provide the chymosin enzyme economically in a consistent, stable and highly pure form, Pfizer reported at the time.

Then, in March of 1990, FDA affirmed that the use of chymosin derived by fermentation is generally recognized as safe (GRAS). CHY-MAX was Pfizer’s trademark for chymosin produced by this new process, and the product was to be marketed worldwide by Pfizer Specialty Chemicals Group through its dairy products unit headquartered in Milwaukee.

About two and a half years later, Pfizer cut the ribbon officially opening its renovated dairy ingredients division headquarters in Milwaukee and said further major capital investments were going to be made to strengthen its role as a leading supplier to the cheese and dairy industries. The additional funds were used to expand production of CHY-MAX.

Less than four years later, in early 1996, Pfizer’s involvement in the food industry largely ended, when it sold its Food Science Group to Finnish company Cultor Ltd. However, Pfizer’s CHY-MAX business was not part of that divestiture; that business was retained by Pfizer.

Later in 1996, two other related announcements were made. First, Chr. Hansen acquired Pfizer’s CHY-MAX business, which brought an end to Pfizer’s long-time involvement in the dairy industry. Chr. Hansen, meanwhile, continues to produce and market a variety of CHY-MAX products.

A short time after that, the Cultor dairy ingredients business was acquired by Gist-brocades of the Netherlands. Gist-brocades was then acquired, about 20 years ago, by DSM.

From this brief, and admittedly incomplete, history, we can reach at least a couple of conclusions. First, the dairy ingredient business has undergone a heck of a lot of change over the years, so much change that some of the names of the companies involved, such as Paul-Lewis Laboratories and Cultor, have been pretty much lost except in company (and the Cheese Reporter’s) archives.

Second, while Pfizer ended its involvement in the dairy industry more than 24 years ago, its work on a COVID-19 vaccine promises to have a pretty significant impact on the dairy industry in the next year or two. This is particularly good news right now, as COVID-19 cases worldwide continue to rise, and partial shutdowns also continue to spread from coast to coast and around the world, impacting supply chains for dairy and other food products.

On its website, Pfizer describes its “Focus Areas” as internal medicine, inflammation and immunology, oncology, rare disease, vaccines, and anti-infectives. There’s no mention of the food or dairy industries.

But it’s safe to say that Pfizer’s ongoing vaccine efforts, along with the efforts of numerous other companies, will be felt by the dairy and food industries in the months ahead as things slowly but surely return to normal.