Glanbia chases organic cheese cost potential

By Neil Merrett

- Last updated on GMT

Related tags Milk Cheese Organic farming

Dairy and ingredients firm Glanbia is stepping up production of
organic cheeses to offset declining profitability for its
conventional products.

The decision reflects the increasing pressure on dairy processors to look to new markets and higher value production to offset increasing commodity costs. Group president Jeff Williams told that the company was increasing its focus in organic production after witnessing annual growth of about 20 per cent for such products in the US market alone, especially for milk and yoghurt. He added that the category grew while non-organic cheese production continues to be hurt by increased prices for milk. "As a commodity cheese manufacturer in theUS, we continue to see margin erosion in our core product offering as customers are reluctant to accept price increases,"​ Williams stated. "However, the inflation engine in the business continues to negatively impact costs."​ Glanbia has been manufacturing the product at its Twin Falls plant, Idaho since the end of August this year to better meet demand for the cheese. A local contract manufacturer originally produced the group's organic cheeses, the company said. Williams added that although the group was currently producing only relatively small amounts of organic cheeses for its US consumers, it would consider a larger investment when consumer demand and its own product portfolio matured. "A lot of effort has gone into the logistics of keeping this product separate from our conventional milk and cheese,"​ he stated. "Once we build our organic product line up to a significant scale, then we can think about a separate production facility."​ Williams added that the company was also benefiting from "keener interest" amongst local Idaho farmers for producing organic milk. In taking the decision to step up processing of the product though, Glanbia will boost its presence in the increasingly lucrative organic food and beverage market. US sales of organic food and beverages have grown to nearly $17bn (€12.6bn) by 2006from $1bn (€744m) in 1990 , according to figures from the Agricultural Marketing Service (AMS) and the USDA. By 2010, organic sales are projected to reach $23.8bn (€17bn), according to the same figures. The organic industry is the country's fastest growing agricultural sector, representing nearly 3 per cent of overall food and beverage sales, according to US government statistics. Since 1990, organic retail sales have historically demonstrated a growth rate between 20 to 24 per cent each year including a 22 per cent increase in 2006. However, not everyone in the dairy industry is benefiting from switching towards organic dairy processing. Dean Foods, a leading US food manufacturer, said earlier this month that it was to cut between 600 and 700 jobs as increasing prices passed on from the supply chain had hit sales volumes in its dairy segment hard. Though the company said that it had seen growth in sales volumes through its Horizon Organic branded goods, an oversupply of the milk had negatively hit its results.

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