Experts say cheese markets have permanently changed, for better or worse, due to pandemic
A panel of dairy industry leaders say cheese markets across the US have experienced irrevocable change as a result of the COVID-19 pandemic.
John Umhoefer, executive director of the Wisconsin Cheese Makers Association; Mark Stephenson, director of the Center for Dairy Profitability at University of Wisconsin-Madison; and Bryan Weller, director of sourcing and procurement for dairy cooperative Agri-Mark, were guests on the April 21 Hoard's Dairyman webinar.
With the declaration of a global pandemic last March leading to the almost total shutdown of the food service industry, massive layoffs and slowdown of processor plants due to health concerns, the panel said it's clear that COVID-19 has left a mark on the industry. Some of those marks are good, but others, they say, still haunt the industry.
Umhoefer said many cheese processors had to quickly pivot to new markets if they mostly sold to restaurants and other food services. Some of them began processing cheese for frozen pizza instead, for which sales went up 25% due to many staying at home. Others tried curing cheeses or freezing them for storage.
"There was an opportunity to get into retail," Umhoefer said. "That market has lingered for some of those manufacturers, so that ability to dividend the marketplace was another early finding. What struck me, as I look back at the last year, is how quickly these things happened. We had members talking to us about shifting from one type of cheese to another in March."
In another vein, Umhoefer added that many dairy product manufacturers doubled back on contracts and began requesting product per month rather than per year due to the instability of the market prices as well as demand rising and falling on a dime. Those tight markets with lots of surplus for some items and not enough items to meet demand for others created massive disruptions, Umhoefer said.
Lack of labor is an issue that still continues to plague the dairy industry, Umhoefer said. While it was already a concern before the pandemic began, he said COVID-19 definitely accelerated its effects. The industry's essential workers, especially those working in plants in close proximity, did an "amazing" job this year, Umhoefer said, adding that labor will continue to be a top concern.
"Take COVID out of the picture, say it never happened. Our members' number one issue in the past five years, when we polled them, is labor. Then you put COVID back in the mix, and the need to space people, the need to find people who feel comfortable going into a work environment, just makes it that much worse," Umhoefer said. "We've had anecdotes of companies not being able to find even a single person for a job opening that they've offered – and at a higher price point than they've offered in the past – for an entry level worker, so it's really quite dire."
Umhoefer said that he's starting to see the light at the end of the tunnel though for cheese markets. With vaccinations ramping up and mask mandates being dropped in many parts of the country, including Wisconsin's statewide mandate, restaurants are beginning to open back up in full force, which means a return to little bit of normalcy.
Weller emphasized his coop's focus on giving away expiring product to food banks as well as making a transition to grocery and retail, where sales for cheese and other dairy products boomed. He said that cheese sales are often cyclical throughout the year, with the fall and Christmas season bringing high sales, but they unexpectedly experienced a "second Christmas" after the pandemic hit.
"You see your highest sales in October, November, December of every year. We had come out of that, only to be hit with COVID, and suddenly we had a second Christmas on our hands," Weller said. "February and March are generally tumbleweed months in terms of selling eight ounce bars, but we sold a lot of eight ounce bars."
Agri-Mark has been under just as much stress, if not more, a year out from the start of the pandemic than they were at the beginning of it, Weller said. That's because of the labor shortage, plus a materials shortage in things like plastic and lumber. Their style of business is also being affected by a huge switch to buying online rather than at brick-and-mortar stores, leading to a transition in storage and distribution.
Weller said one of the greatest threats to dairy processors right now is being able to hire enough hands to get product out the door. Distribution and transportation are also tight right now, making it more expensive to truck out large loads, Weller said. However, with the tightness has also come company executives helping out on the floor in order to keep the line going.
"You'll see directors, managers, even (vice presidents) working on our floors hand-in-hand with our production workers. It's to get cheese out the door," Weller said. "That's the kind of effort that we're all putting forth to keep feeding the country and to add value to our members' milk."
Something to think about is the ability to cross-train employees to easily shift them from one part of the building to the other, Weller said. He said companies will become more agile through this labor shortage if they are able to move an employee from the floor to the office with all the proper training.
Stephenson said it's normal to have fluctuations in price and supply, but in 2020 many producers and processors had to scramble to find the right balance. He said coops worked hard to lower milk production, with several farmers having to toss milk they couldn't sell, in order to keep prices as stable as possible. Stephenson also said it wasn't easy having to freeze the cheese they couldn't sell at the time.
"This demand has gone from six- to 12-month planning to a matter of weeks. That's an incredible shift of risk in the marketplace back to plants who were expected to have that product available to ship on short notice," Stephenson said. "I think that's going to be an issue for us going forward. We need to have a little bit better indicators, a little bit more lead time, at some point along the way."
As for the retail side of things, grocery stores have also been buying less varieties of cheese and other dairy products that they otherwise would have on the shelves due to changing sales strategies. That also makes life tough on producers who lose the retail demand for specialty products because orders are made on the spot and need to ship out on short notice.
Stephenson suggested that U.S. dairy plants start thinking about diversifying their product lines. He said plants in other countries tend to process multiple dairy products, like cheese, milk powder, cultured dairy and fluid milk, all in the same building, rather than having one building dedicated to one or two products.
Dairy producers should also sign up for at least the minimum risk amount of Dairy Margin Coverage because the deal is too good to pass up. While it doesn't make you a profit, Stephenson said risk management could prevent the worst.
But despite all the bad, Stephenson said the nation's dairy producers responded quickly, saving themselves from what could have been an even worse situation.
"There's still so much uncertainty right now. People will take as much milk as they think they've got a customer for the product. We're looking forward to growth and being able to provide those kinds of things again," Stephenson said. "We've made it through a year, and we've done much better than I ever expected a year ago. It looked dire back then."