SIC 2022
NATURAL, PROCESSED AND IMITATION CHEESE



This industry encompasses establishments primarily engaged in manufacturing natural cheese (except cottage cheese), cheese foods, cheese spreads, and cheese analogues (imitations and substitutes). These establishments also produce byproducts, such as raw liquid whey.

NAICS Code(s)

311513 (Cheese Manufacturing)

Industry Snapshot

Cheese is one of the principal product groups in the dairy industry and has become increasingly important to the growth of the entire dairy industry in the United States. Wisconsin has been the leading cheese producer of the 21 major cheese-producing states in the nation; its shipment value was approximately $4.3 billion. California was the number-two cheese producer in the late 1990s, following an aggressive promotional campaign. Annual per capita consumption of cheese increased yearly during the 1990s (to 30 pounds late in the decade), with projections at more than 35 pounds per person by 2005. However, both consumption and production actually declined in the early 2000s. After increasing from $11 billion in the mid-1980s to approximately $22.5 billion in 1998, the total value of industry shipments fell to $19.6 billion in 2000.

The United States has developed very few cheeses of its own. Processors have instead replicated European cheeses and used their European names, except for Roquefort, which is a protected name. Some of the cheeses created in this country are monterey jack, brick, colby, and herkimer. All of these cheeses are firm, ripened cheddar-type cheeses.

Organization and Structure

Kraft, the leading cheese producer, is part of a diversified conglomerate. In 1988, Kraft was purchased by the tobacco producer, Philip Morris Companies Inc., for $12.9 billion. Philip Morris combined Kraft with an 1985 acquisition to form Kraft General Foods, the largest coffee and cheese producer in the United States. Its strongest competition in the cheese area of its operations came from large dairy companies and dairy cooperatives like Beatrice, Sargento, Inc., and Tillamook.

As Americans' cheese palate became more adventurous in the 1990s, there were growing numbers of small, regional cheese makers sending their specialty products to market. U.S. cheese producers obtain the raw milk from which their products are made from thousands of commercial dairy farms. The number of farms has been dwindling steadily for decades, but they have grown larger in size and milk production efficiency has been vastly improved. Many of the farmers are members of one of the several hundred regional dairy co-ops. These co-ops, formed to represent milk producers in price setting, are beginning to take over other dairy operations, including the manufacture and marketing of a broad range of cheese products and ingredients. Large food processors either own their own farms or purchase raw milk from the co-ops and independent farmers. Approximately one-third of the 157,483 million pounds of raw milk produced by the country's 9.4 million dairy cows in 1996 was used to make cheese.

The dairy industry has been heavily regulated by the government. Cheese manufactured in the United States must meet Standards of Identity, which define such product characteristics as content levels of milkfat and manufacturing methods. Either Class I milk or milk of manufacturing grade may be used to make cheese. Class I fluid milk meets stricter standards, which include regular inspections of the herd, herd housing facilities, and dairy equipment and milk storage units to ensure that they satisfy health and sanitation requirements. It is used for human consumption as a beverage or in manufactured products such as cheese. Milk of manufacturing grade meets less stringent standards and may only be used for manufactured products.

The government has regulated milk pricing through the Federal Milk Marketing Orders authorized by the Agricultural Marketing Act of 1937, or the Agricultural Act of 1949, which established the ongoing dairy price support program. The complex pricing system affected all segments of the dairy industry.

Background and Development

Although there is no record of when cheese was first used as a food, its origins have been estimated to date back to 6000-7000 B.C. Its lasting quality made it a source of nourishment both at home and on journeys, and armies often carried cheese among their provisions. The first U.S. cheese plant was built in 1851 in Rome, New York, and the area remained the center of American cheesemaking for the next 50 years. The U.S. cheesemaking industry began shifting westward toward Wisconsin in the early 1900s.

There are hundreds of varieties of cheese worldwide and numerous ways of classifying them, usually according to the coagulating agent (rennet or acid) or texture (very hard, hard, semisoft, soft, or acid). Natural cheeses are made directly from milk (or sometimes whey) by pressing the curd that forms when milk has been coagulated (or curdled), then heated and stirred, and then finally draining off the whey (the remaining liquid part of the milk). Processed cheeses are made from a combination of one or more batches of natural cheeses, heated to pasteurization temperatures. They were developed in the 1920s to extend shelf life, ensure product uniformity, and make slicing easier, while simulating natural cheese. The first U.S. patent for processed cheese was issued to J.L. Kraft in 1916; it described a method of emulsifying the heated cheese mixture using alkaline salts.

Cheese analogues are made without butterfat and are designed to resemble natural or processed cheese in appearance, taste, texture, and nutrition. The cost savings of using less expensive fats, such as vegetable oils instead of butterfat, provided the incentive to produce cheese analogues. Early examples were produced in the early 1900s by skimming butterfat from whole milk, replacing it with another fat, and then following regular cheesemaking procedures. Technology using dried milk protein, hydrogenated vegetable oil, emulsifiers, and other ingredients was developed in the early 1970s to simulate processed american and mozzarella cheeses.

Some of the principal cheese products are: cheddar and swiss (hard); parmesan and romano (very hard); mozzarella, brick, havarti, and blue (semisoft); brie, bel paese, and camembert (soft); powders and blends; and reduced-fat.

The economic health of the cheese industry was varied at the start of the 1990s. Both sales and production of cheese hit record highs in the early 1990s as indicated by the following statistics: $18 billion in sales; 6.1 billion pounds of natural cheese; and 2.2 billion pounds of processed cheese. Overall industry growth, however, was flat, and in 1992, supermarket sales of $5.36 billion had dipped 3.06 percent from 1991. Sales were fairly evenly divided among three major markets: retail, foodservice (restaurants, fast-food outlets, institutions), and industrial (ingredients used by other food processors).

The biggest supermarket sellers were unshredded American and other natural cheeses. The biggest gains, however, were registered in natural (11.28 percent) and processed (72.6 percent) shredded cheeses. Sales of Italian cheeses in particular were projected to continue their upward curve in all areas. Although per capita consumption of cheese had hovered at a fairly steady amount of 11-12 pounds since the mid-1980s, annual Italian cheese consumption had surged by 50 percent, from 6.5 to 9.4 pounds per person in that period. Most of this increase was in mozzarella, with consumption exceeding 7 pounds per capita in 1991.

Pre-sliced, packaged process cheeses represented a healthy chunk of cheese sales, and processors followed up with packaged shredded cheese in such flavored varieties as "taco" and "pizza." Retailers also found that presliced cheeses were popular among consumers at the deli counter as well. Vacuum-packed, pre-sliced cheese allowed deli counter staff to deal with other tasks instead of slicing cheese to order and reduced the time that customers spent waiting in line.

Industrial sales of cheese ingredients continued to grow. They accounted for about 28 percent of the industry's $18 billion sales figure for the early 1990s. Here, too, much of the growth was in Italian-style cheeses, but processed cheeses, powders, and other natural cheeses were also big sellers. Industrial uses of cheese expanded as the country's changing demographics resulted in increased popularity of prepared and frozen foods.

Pizza's continuing popularity contributed to the strength of the foodservice market, which is the third largest market for cheese makers. Italian cheese sales increased approximately 10 percent from 1987 to 1991, a period during which the segment as a whole grew 6.6 percent. The biggest increase was in hospitals and schools. The most significant change during the period was the waning popularity of cheddar compared to processed cheese.

Portions of the cheese industry were suffering in the early 1990s. Declining cheese production in Minnesota was costing the state economy nearly $831 million annually and more than 12,000 jobs, according to a University of Minnesota study. Milk product sales of cheese (and ice cream) were down 10 percent from 1985. As production and sales dropped, so did dairy farm purchases from related industries. The milk production declines were triggered in part by sell-outs due to lower milk pricing and a relatively low per-cow production.

The size of the cheese market was $4 billion in the fiscal year ended September 1996. The wholesale price of cheese was expected to increase in 1996 to $1.34 per pound, one cent above the 1994 level. Retail price averaged $3.09 per pound.

Of the 7.9 billion pounds of cheese produced in 1996, 123 million pounds were sent abroad, while domestic use accounted for 7.5 billion pounds. Per capita consumption in the United States was 27.9 pounds.

Lowfat. Of the 7.5 billion pounds of cheese sold in the United States in 1996, some 15.3 percent consisted of low-fat products, but their flavor and texture could not match that of full-fat standard cheeses. A prime research effort of the cheese industry in the 1990s was to develop ways to improve the flavor of low-fat and fat-free products. Some success was achieved by using new adjunct cultures to enhance flavor. The development of new starter cultures created especially for low-fat cheeses also allowed for greater flavor with lower acidity.

By mid-decade, one of every four dollars consumers spent on cheese went toward the purchase of reduced-fat or no-fat cheeses. Improved technology continued to enhance taste and texture of these products. The Wisconsin Center for Dairy Research patented a manufacturing protocol that used a firmer milk coagulum to increase flavor and moisture of reduced- and no-fat products. It was projected that sales of reduced- and no-fat cheese would represent 50 percent of all cheese purchases after 2000.

Current Conditions

Approximately 524 companies were engaged in the cheese industry in the late 1990s. The total value of shipments fell from $22.3 billion in 1999 to $19.6 billion in 2000. Natural cheese, except cottage cheese accounted for the majority of this total, while processed cheese and related products came in second, cheese substitutes came in third, and raw liquid whey came in fourth. During the 1990s, average per capita annual cheese consumption grew 25 percent to roughly 30 pounds at the turn of the century. However, for the first time since 1998, per capita consumption fell to 28.5 pounds per person in 2001 as sales dropped slightly. Similarly, after sixteen consecutive years of growth, cheese production dropped 1.6 percent in 2001 to 8.1 billion pounds due to declining milk production.

In 2000 the American Dairy Association, the National Dairy Council, and the U.S. Dairy Export Council were working with regional dairy promotion organizations to increase advertising. One successful campaign "Behold … The Power of Cheese" ran a timely spot in January 2000 called "Election," which was about a political candidate who essentially loses the race as soon as he declares that he doesn't like cheese.

Industry Leaders

Kraft, long the country's top cheese producer, held 26.8 percent of the $1.6 billion natural cheese market and 61.3 percent of the processed cheese market in 1995. The cheese giant suffered from the recession of the early 1990s, and consolidated two cheese plants into one in Illinois and closed another in Michigan. Kraft reported 1998 sales of $17.3 billion, a 2.8 percent sales growth over the previous year.

Kraft's Specialty Products Division planned strong promotional activity for its Italian and specialty cheeses in foodservice, in-store deli, and institutional markets. In the industrial market, Kraft Food Ingredients (KFI) sold a wide range of natural and processed cheeses and cheese substitutes to other food processors for use as food ingredients. The company that built its reputation on the pasteurized processed cheese it patented in 1916 continued to add to its consumer product line. "Marketers like Kraft are facing more competition than they ever have before," according to Robert Eckert, of Kraft USA's Retail Division, in Dairy Field magazine.

Some of Kraft's competition was coming from Sargento Cheese Company Inc., which nearly knocked the giant from its number-one-in-the-market perch in the shredded cheese area in the late 1990s. With its $320 million in sales versus Kraft's $2 billion, Wisconsin-based Sargento Cheese Co. wouldn't displace Kraft, but it was a company to watch. Kraft sales had also dropped in the $1.5 billion processed cheese slices section of the dairy case as consumers opted for regional brand names or lower-priced private label brands. ConAgra's Beatrice Cheese unit also planned to do battle with Kraft's longstanding dominance with a line of 30 new fat-free cheeses under its Healthy Choice label.

Co-ops that processed the raw milk from their dairy farm membership were also strong contenders in the competitive cheese industry. Mid-America Dairymen, Inc. (Mid-Am), the country's second-largest dairy co-op in the early 1990s, produced cheese from the milk of its member farms. Mid-Am used both milk of manufacturing grade and Class I (Grade A) milk that was not bottled for beverage use. It was one of the largest manufacturers of natural cheese in the country and also produced a range of specialty cheeses. Its output of mozzarella alone, largely destined for its fresh pizza customers, came to 180 million pounds a year. Under its Mid-America Farms label, it sold its cheese products to consumers, institutional and foodservice markets, and to food manufacturers for use as food ingredients.

Research and Technology

New technologies in the industry focused on product safety, automation, and quality controls. An increasing number of large cheddar cheese plants operate non-stop, seven days a week, using sophisticated computer control systems that are able to pump 50,000 pounds of milk per hour. Many of these systems allow a single operator to oversee the following processes: pasteurizing the milk, adding the starter culture, making the cheese, draining the whey, cheddaring, and milling and salting.

Further Reading

Cheese Facts, 2002. Washington, DC: International Dairy Foods Association. Available from http://www.idfa.org .

Friend, Janin. "Reduced-Fat Cheese Sales Expected to Gain." Supermarket News, 14 October 1996.

Hoover's Company Profiles. Hoover's Online, 2000.

Lazich, Robert S. Market Share Reporter 1997. Detroit: Gale Research, 1997.

Williams, Mina. "Cheese Campaign Expands in Second Year," Supermarket News, 29 July 1996.

United States Census Bureau. "Statistics for Industries and Industry Groups: 2000." Annual Survey of Manufacturers. February 2002. Available from http://www.census.gov .

United States Census Bureau. "Manufacturing-Industry Series." 1997 Economic Census. Washington, D.C.: GPO, 24 June 1999.



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