High prices in 2007 and in the first half of 2008 were caused by numerous factors. These included limited supply from some key producing countries: climate change and in particular Australia’s drought and the competition for arable land due to bio fuels.
Other factors included buoyant demand in developing countries due to an increase in per capita consumption and population growth. Pressure on supply and demand globally transferred into higher prices. The era of cheap dairy products, including cheese, looked set to be over. Then the credit crunch changed everything.
Consumers, in an attempt to reduce spending in light of economic difficulty, cut back on consumption, particularly of high-value branded cheese. Branded cheese suffered at the expense of private label, and in some countries, total cheese consumption declined – the first time after many years of sustained year-on-year growth.
However, consumers across the globe didn’t all respond in the same way. There were some marked differences depending on countries and regions. For instance, in mature cheese markets such as west Europe, Australasia and North America, a considerable reduction in cheese consumption was noted through foodservice and retail. Consumers endeavoured to cut back on entertaining, and the purchase of more luxury cheese products. It was apparent that consumers were down-trading; branded to private label and more bulk purchases through larger pack sizes. Cheese is a staple ingredient in many of these westernised diets, so wasn’t affected as much as other consumer products.
Other noticeable differences were in growth in consumption in some developing markets. While growth wasn’t as high as it might have been under more favourable conditions, countries such as China (largely due to the Olympics), South Korea, Saudi Arabia, Brazil and Algeria saw strong growth in consumption.
Global manufacturers of cheese have also suffered, with most reporting a strong increase in turnover for their cheese activities, but reporting low profitability due to the escalation of costs during 2007 and part of 2008. Early in 2008, manufacturers were passing on the higher costs to the consumer.
Some manufacturers reduced pack sizes marginally and maintained the same price per pack in an attempt to disguise the strong price increases. Others heavily promoted, in particular with ‘buy one get one free’ offers. Companies also looked to make key acquisitions in the dairy arena and, in particular, FrieslandCampina’s merger meant that they became a force to be reckoned with on a global scale, propelling the combined companies to be ranked in the top cheese producers.
It’s difficult to predict with certainty what the future may have in store for the global cheese market. Developing countries in South America, the Middle East and Asia will continue to see positive growth in cheese consumption in absolute volumes and in per capita terms (in particular, in processed cheese).
Private label competition will continue to intensify in mature markets. The market will continue to further consolidate as manufacturers look to respond to difficult economic conditions. And as for price, this remains to be seen.
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