Cheese Manufacturing in Australia

Definition and Terminology: (source: http://en.wikipedia.org/wiki/Cheese)

• Cheese is milk based food product, consists of proteins and fat from milk and produced by coagulation of the milk protein casein. However, cheese is more compact and has a longer shelf life than milk,
• Their styles, textures and flavors depend on the origin of the milk (including the animal's diet), whether they have been pasteurized, the butterfat content, the bacteria and mold, the processing, and aging.
• Cheese is valued for its portability, long life, and high content of fat, protein, calcium, and phosphorus. 
• A specialist seller of cheese is sometimes known as a cheesemonger. To become an expert in this field, like wine or cooking, requires some formal education and years of tasting and hands-on experience.

Australia's Cheese Industry (source: IBIS Australia Industry Report 2012)

• Key external drive: 
• Fluctuations in exchange rate: substantial impact as high % revenue from export.
• Demand from supermarket and other grocery stores: downstream demand trends, cheese manufacturer experience hyper competitive to win supply contract w/ major retailers.
• Level of annual rain : large impact of seasonal conditions which affected milk production (pasture and water: milk yield and herd size).
• Level of consumption : consumer attitude about health and nutrition, concern about obesity and heart disease. 

• Industry Performance:
• As one of the largest producers and exporters of dairy products, Australia plays an important role in global dairy trade, with close to 60% of all domestic cheese production destined for overseas markets. 
• The majority of exports are sold to Asian markets. Japan is the largest destination for Australian cheese products, with Singapore and China following not far behind.
• Imports have risen strongly due to drought conditions in Australia, higher feed costs and an appreciation of the Australian dollar. New Zealand (55% of total import) is expected to remain the largest source of cheese imports, given its strong dairy activity and its geographical proximity to Australia.
• The industry is also facing a long-term threat of increased competition from up-and-coming cheese exporting nations such as Argentina and the Ukraine.
• Prices will also face upwards pressure from higher feed and oil prices, low world stock levels and population growth. Growth in world dairy consumption is projected to strengthen relative to production. Profitability for the industry is expected to remain relatively static.
• Consumer demand has shifted away from cheddar cheese and towards premium and specialty types such as hard grating, fresh and blue vein cheeses. As a result, total cheddar production falling to 44.8% of industry revenue. Further, products that address the trends of health and convenience, such as low-fat, organic and natural cheese slices that may be consumed ‘on the go’ have performed strongly over the past five years.
• Merger & acquisition: Kirin’s purchase of National Foods, and the purchase of the Kraft Foods cheese business by Bega Cheese in 2008, the purchase of Tatura Milk Industries by Bega Cheese in 2007.
• Product and service segmentation: 44.8% cheddar cheese; 24.4% fresh cheese; 19.2% semi-hard and stretch cheese; 5.8% hard grating cheese; 3.2% eye cheese; 2.6% mould-ripened cheese.
• Cheese processors have continued to introduce new products to attract health-conscious consumers. For example: 
• Dairy Farmers launched different ranges of Coon cheese, including Coon Light and Tasty, which contains 25% less fat and 30% more calcium; Coon Extra Light, which contains 50% less fat; and Coon Smooth and Mild, which is suitable for kids.
• Bega has recently launched cheese in a can for export markets in the Middle East.

• Competitive Landscape:
• Market share concentration: top four major players accounted for 85.4% of industry revenue.
• Cost Structure: Raw milk (biggest expense), Labour (wages: 8.3% of revenue); SGA and Marketing costs (3.4% of revenue), other costs (9.9% of revenue).
• Basis for competition: High competition environment: players pursue for lower production costs and product differentiation and innovation. But, consumers tend to willing to pay more for speciality cheese. 
• Producers are differentiating their products through ingredients and branding.
• Ingredients: industry participants are making their cheese low-fat, low-carbohydrate or natural and organic. Others are focusing on specific nutritional content such as calcium, protein, vitamins A and C. 
• Branding: Kraft cheese is listed within Australia’s top 20 brands, whilst Bega cheese is in the top 25.
• Barriers to Entry: Strong. Dominancy of major players, such popular brands include Bega, Fonterra’s Mainland, and Dairy Farmer’s Cracker Barrel, Coon and Mil Lel. 
• Industry Globalisation: Globalisation in the industry is increasing with international trade increasing rapidly, such as:
• The major players Murray Goulburn Co-operative Limited and Bega Cheese Limited are Australian-owned companies. 
• Fonterra Australia is owned by the New Zealand company, Fonterra Co-operative Group Limited. The Japanese company Kirin Foods Holdings Pty Ltd owns Lion Nathan National Foods.
• National Foods owned half of Dairy Farmers’ cheese business, which was previously owned by Australian dairy farmers. However, there has also been some movement towards increased nationalisation with the purchase of Kraft’s cheese business by Bega Cheese Limited.
• Market share: Murray Goulburn Co-operative Co (34.7%); Lion Pty Ltd (26.3%); Bega Cheese Limited (16.9%); Fonterra Co-operative Group Limited (7.5%); Warrnambool Cheese and Butter Factory Company Holdings Ltd (less than 5%).

• Technology & Systems:
• Significant changes in cheese-making processes, include: membrane technology, especially ultra-filtration and reverse osmosis. The development and introduction of APV Siro Curd technology resulted in increased cheese yields from milk, and facilitated continuous automation with improved control over process variables.
• Another development has been the production of genetically engineered chymosin (used as a coagulant in cheese making). This reduces production costs and is suitable for the production of special-purpose cheese such as halal, kosher and vegan.
• Bega has installed a new state-of- the-art Alfomatic cheddaring machine, which includes in-line milk standardisation and upgraded milk- separator capacity, which will allow the production of high volumes of high- quality cheese. They also use speedy natural cheese-slicing technology with flexible packaging capabilities. Bega has recently introduced a new Bega/Arabic processed cheese in a can for specific export to Middle Eastern markets.
• Dairy Australia invests about $10 million per year on research and development in dairy manufacturing. Current research projects are looking at ultra-high temperature products and shelf life, cheese and starter cultures, milk components and their interactions, bioactivity, and human nutrition and health issues.

• Regulation & Policy:
• In July 2000, the Australian dairy sector was deregulated, the most significant change being the removal of price regulations on milk sold for consumption. Milk prices are now more transparent, which has stimulated intense price competition at the farmgate level for raw milk.
• Deregulation means that Australian dairy farmers receive a low price for milk by world standards and therefore they have to run very efficient production systems.
• The only government involvement in the industry is in relation to food standards and food safety assurance systems. On 20 December 2002, the Food Standards Code became the uniform law governing both Australia and New Zealand.