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Dairy Economy Plunges as Industry Struggles to Sell Billion-Pound Cheese Surplus

Dairy Economy Plunges as Industry Struggles to Sell Billion-Pound Cheese Surplus

The overproduction of milk and dairy continue to lower in prices for the fourth year in a row.

Currently, 1.4 billion pounds of cheese is being stored in refrigerated warehouses around the US. Despite the fact that each American consumes an average of 35 pounds annually, there is no way they can balance out this surplus with their eating habits.

In contrast to other agricultural products, such as wheat and grain, which can sit in storage for years, cheese and meat have a limited shelf life which means producers and retailers must sell these products quickly. In order to clear the cheese surplus from warehouses, consumers can expect to see cheese in the grocery store being sold for less. This year alone, the price of cheese has dropped 25 percent from 2014.

The dairy farming industry has been suffering on and off for years with fluctuating production of dairy products. According to farmaid.org, local dairy farmers have dropped by more than 93 percent since the 1970s, leaving only 40,000 workers in the industry today in comparison to their previous number of 640,000. This is due in part to the growth of factory farming which further heightens mass production of dairy products like cheese.

In 2016, American dairy farmers were hit with a cheese glut of roughly 11.8 billion pounds due to a record-breaking production of milk. This was on top of an additional 1.19 billion pounds of cheese already in storage. The oversupply in 2016 stemmed from an American farming draught in 2011 and 2012, which led to the prices of meat and dairy to reach an all-time high. This caused farmers to rapidly expand their production to create lower-priced cheese for US consumers. Making matters worse, the US dollar also rapidly increased in value during this time period, making American cheese too expensive to purchase for international markets, further creating a backlog in the States.

The overproduction of milk and dairy have now lowered prices for these goods for the fourth year in a row, which is leading dairy farmers to make little profit for their production, In 2018, the US has still been suffering to get rid of the cheese surplus with the retail price of milk dropping by 40 percent and the state of Wisconsin suffering a loss of more than six hundred dairy farms.

Another factor which contributed to the cheese surplus was an unexpected rise in milk consumption in China in 2014. This was due to an increase in China’s middle class, allowing their population to spend more money on groceries, including milk. This led America’s international dairy profits to reach an all-time high, further incentivizing US dairy farmers to expand their dairy production in order to satisfy international exports.

However, this global demand for US milk came to an end as the Chinese economy took a downturn favoring a more domestic-based infrastructure. In addition, the EU’s milk quota ended after 31 years in 2015, allowing their internal dairy economy to increase again. Russia also followed by implementing sanctions on US dairy in order to sustain their own agricultural growth and retaliate against previous Western sanctions.

President Trump’s trading policies have also created anxiety among an already vulnerable dairy farming industry. Countries like Mexico are slapping the US with retaliating tariffs of 15 to 25 percent, which includes products like cheese, further contributing to America’s biggest cheese surplus in history.

China has also threatened to impose a tariff of 25 percent on American wheat and other exports such as soybeans, which could have devastating effects on the US farming community. China purchased 60 percent of US soybeans from 2016 to 2017, but they’re now looking at other countries to purchase from, like Brazil.

The cheese surplus is one of the few food surpluses the US has, making it a vulnerable target for global markets to take advantage of in a future of potential trade wars. The US government is trying to compensate by purchasing cheese to rebalance the market and stabilize the income of the dairy farming industry, but that cannot be sustained as a long-lasting strategy.

Furthermore, the Trump administration is currently drafting a potentially new US trade policy, The United States Fair and Reciprocal Tariff Act (FART), which would go against the World Trade Organization’s fundamental trade regulations, allowing the US to override global trade rules in regard to tariffs. Despite the government’s $12 million dollar funding for farm welfare, this could further contribute to the dairy sector being a vulnerable target for foreign markets to retaliate against.

Another leading factor to the growing cheese surplus in the US is the rise of plant-based nutrition, leading almond milk and other nut and plant-based beverages to become more desirable to the mainstream consumer base. This has caused milk prices to plummet and dairy farmers are compensating by fermenting milk into cheese.

Furthermore, the cheese surplus has caused fast food companies to create cheesier menu items, such as cheese-stuffed pizza crust at Pizza Hut and the cheese-infused Quesalupa at Taco Bell. With a billion-pound cheese glut and rising unpredictability in global trade, it’s safe to say that American consumers are going to get used to eating a lot more cheese for less.