United States of America Export Idea: Artisan Cheese

University of Guelph
28 November 2017
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PRODUCT INFORMATION

In Canada and the United States of America the artisanal cheese market is rapidly

expanding and gaining popularity among the public and industry professionals. Artisan cheese is

a niche product that makes up the largest sector of the speciality food market in North America.

The products are unique and focus on fulfilling the particular needs of the costumer. Currently,

Canadian artisan cheese companies focus on local markets but expansion to the US could be

explored. Keeping up with consumer demand is one of the current issues facing the artisan

cheese market in the USA. Canadian artisanal cheese markers could capitalize on this

opportunity and help American retailers fill the current void by exporting their products to

America. An in depth investigation of the American dairy and cheese market is key to

understand if a realistic opportunity exists for Canadian artisan cheese markers. Further critical

examination of the Canadian industry, export opportunities and challenges, target consumer and

potential benefits to Canada will be evaluated.

Artisan Cheese Description

Artisanal cheese is considered a subsector of the speciality cheese market. The cheese is

produced in a non-industrial, traditional, or unique way that is manufactured on a small scale

with a limited degree of mechanisation (Kupiec and Revell, 1998). There are two main forms of

manufacturing artisan cheese. The first is a traditional method where the milk is transported off

the farm and processed in a processing plant that uses milk from many different dairy farms. The

other method which is gaining popularity is known as farmstead. In farmstead, the milk is

processed into cheese on the farm. Therefore, the farmer usually owns both the dairy and cheese

operation and uses only the milk from the family farm. Therefore, the cheese is not affect by

transportation or by mixing milks of different compositions (Canadian Dairy Information Center,

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2017). This allows the cheese marker to focus on a distinct taste based on the milk produced by

the cows on that farm.

In Canada, all cheeses are classified by the amount of moisture present in the cheese at

the time of sale. The Canadian Dairy Information Center (2017), classifications of cheese are

shown in Table 1 [Below]. The classifications are defined by the moisture content and the

amount of aging that takes place after processing.

Cheese Type Aging Moisture

Fresh None 80% +
Soft Depends on Thickness 67-80%
Semi-Soft Washed in Brine 62-67%
Firm For Months or Years 50-62%
Hard Several Years Less than 50%
Several Months in
Veined Blue Cheese
Humid Room
Table 1: Classifications of Cheese

The focus of artisanal cheese is to market the particular uniqueness and aims to meet the

needs of the individual. Aging different milk types such as cow, goat or sheep, and producing

different flavours such as mature or mild to meet the needs of every customer.

Marketing

Understanding marketing tactics that producers use to expand their consumer base is

important if attempting to connect to the American market. Marketing tactics of artisan cheese

makers in both Canada and USA are identical. Artisanal cheese companies push the uniqueness

of every different type of cheese made. The industry is mainly driven by consumer demands and

by escalating interests in the premium food products. Therefore, the growth of the industry and

or a company is affected by constantly introducing new products with different tastes. Kupiec

and Revell (1998), suggested that marketing artisan cheese should focus on making the consumer

more confident in the product. In a retail store, staff should highlight the distinctive

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characteristics by creating an exclusive image for the products so consumers appreciate the

individualism and unique characteristics of each cheese. Marketing of the cheese should connect

with the consumer by identify who makes it and where the ingredients come from.

DiStefano and Trubek (2015), emphasized the importance that storytelling has on

marketing cheese products. Storytelling explains the people, animals, farm and handcrafted

nature of the cheese. Making connections with consumer can be done through storytelling by

translating the values of producer. If the goal is to reach markets far away from the site of

production, connecting to the consumer and making them feel connected to the product is a way

to increase sales. The greater the connection between producer and consumer the more

influenced they are to buy your product. When exploring expansion to the USA, storytelling can

be a way to inform people where you come from and lead to them supporting a company even

though it may not be local.

Canadian Companies

In Ontario, there are many local artisan cheese makers that strictly sell their products in

local markets. Two companies that have a good foothold in the Ontario market are Stonetown

Artisan Cheese and Gunns Hill Artisan Cheese. Stonetown Cheese is a farmstead operation in

St.Marys Ontario which is owned and operated by Hans and Jolanda Weber. They produce a

high quality cheese that is reminiscent of the renowned Swiss Mountains. Currently they produce

three different kinds of cheese called Homecoming, Wildwood, and Grand Trunk. Homecoming

is a typical cheese from the region where the Webers grew up whereas, Wildwood and Grand

Trunk are named after two iconic land marks in the St.Marys area (Stonetown Artisan Cheese,

2015).

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( Stonetown Artisan Cheese, 2015)

Gunns Hill Artisan Cheese is also a farmstead operation located south of Woodstock

Ontario and owned and operated by Shep Ysselstein and Colleen Bator. Gunns Hill produces 11

kinds of cheese with a Swiss influence from the milk produced a Friesvale farm. Currently they

sell their cheese in over 300 locations in Ontario (Gunns Hill Artisan Cheese, 2017). Both

companies could be involved in exporting their products to the USA based on a strong

establishment in Ontario and producing quality products that American consumers could connect

to.

(Gunn's Hill Artisan Cheese, 2017)

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Cost of Start-up Operation

In Canada and the USA most start-up artisan cheese companies have a per existing dairy

farm at the location but some choose to buy their milk for processing. Durham et al. (2014)

analysed the cost to build an artisan cheese processing facility. They determined that the total

start-up cost is greatly impacted by the amount of cheese the owner desires to make. They

presented four scenarios based on kilograms of cheese processed in which an owner could

choose to implement in year one of production. Although they mentioned that the processing

facility should be built to allow for expansion after year three of approximately 3% per year.

Table 2 [Below] shows the cost of operating a processing facility including the cost of building

during year one. A company wanting to meet local demand would most likely build a facility for

production of 3,402 kg or 6,804 kg of cheese. Whereas a company interested in exporting

products may want to look at the larger facilities to keep up with local demand and international

demand.

Production (kg)
Cost 3,402 6,804 13,608 27,216
Facility 128,700 168,200 219,900 287,400
Aging room 30,400 36,700 49,300 74,500
Equipment 108,148 108,148 112,578 261,974
Year 1 production costs 65,245 107,411 324,315 620,094
Total 332,493 420,459 706,093 1,243,968
Table 2: Year 1 Input Costs (Durham et al., 2014)

Table 3 [Below] examines the four scenarios more in depth based on the cost per

kilogram after 15 years of production (Durham et al. 2014). It considers the expected increase in

production after 3 years in business. Both breakdowns do not include the price of land or

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building of a dairy farm. Although, in most cases these costs would not affect the price because

the owner would already own these assets.

Production
volume (kg) Production facility Aging facility
Cost Cost
Size Cost produced Size Cost produced
Scenario Year 3 Year 15 (m2) ($) ($/kg) (m2) ($) ($/kg)
1 3,401 4,851 79.7 128,700 26.53 21.8 30,400 6.26
2 6,804 9,701 104.2 168,200 17.34 43.7 36,700 3.78
3 13,608 19,401 136.2 219,900 11.33 87.4 49,300 2.54
4 27,216 33,803 178.1 287,400 7.41 174.8 74,500 1.92
Table 3: Breakdown of Cost per Kilogram (Durham et al., 2014)

It is assumed that even if the farm already owns a pre-existing dairy farm that they would

sell the milk to their processing facility for cash flow reasons. Each scenario presented provides a

brief overview of the cost to start-up an artisan cheese processing facility. In general, the overall

cost to build a facility on pre-existing land with ownership of a dairy farm would be anywhere

between $332,500 to $1,250,000. Although as previously discussed a larger facility would be

required if exportation of products was an interest of the owner. It is also important to note that

production of dairy milk is cheaper than goat or sheep, yet artisan cheese from a cow sells for

approximately the same price. This in effect makes the margins smaller for goat and sheep

cheese production (Durham et al., 2014).

Figure 1 [Below] breaks down the cost of operation in a single year. The companys main

input is cost of labour which is usually a cheese maker that is hired and paid $20/hr or about

$45,000/yr. Although production cost would be higher as the labour cost does not include a

salary for the owner.

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Figure 1: Yearly Operating Costs (Durham et al. 2014)

Overall, the profitability of artisan cheese is determined by retail price, cheese type and

the scale of operation (Durham et al. 2014). A smaller facility will break even faster and be able

to sustain themselves locally but a larger facility would be needed to export products to the USA.

The goal of a company should be to break even within three years of operation on a 15-year loan

(Figure 2). Due to the start-up cost a company should focus on being successful locally before

examining the possibilities of exporting to the USA.

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Figure 2: Break Even Point of 4 Scenarios

Benefits to Canada

The major benefits to Canada do not come directly from the creation of a new artisan

cheese processing facility. Locally, very few jobs are created by starting an artisan cheese

company. Also, facilities are located is areas of a high population of dairy farms like Ontario and

Quebec and therefore cannot help disadvantaged rural communities. Although, artisan cheese

can be a leader in promoting the Canadian dairy industry. The importance of storytelling and

connecting the consumer to the product can act to inform the public about the faces behind the

industry. Currently an issue in the agricultural industry is informing the urban public on the truth

behind the industry. Artisan cheese has the potential to introduce consumers to the industry and

educate them on Canadian agriculture. If consumers in the USA feel connected to a Canadian

product this might open more export opportunities for other Canadian agricultural products and

specifically other dairy products. Since Canadian dairy farmers and artisan cheese makers are

traditionally small family run farms, American customers might relate to Canadian products over

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products from larger scale farms in the US. Artisan cheese acts as a promotion tool for the

families behind the Canadian dairy industry and the benefits could be an increase in demand for

Canadian products.

Artisan cheese can also benefit other industries in Canada, including the wine industry. A

common pairing is wine and artisan cheese. Canadian cheese makers could benefit by making a

cheese specifically for a certain wine and exporting the two as a pair. In 2006, a cheese maker in

Quebec designed a cheese to be paired with a previously existing Quebec made wine. The cheese

came from la vache Canadienne, or the Canadian cow. Originally, they were sold to promote

locally made food and drinks, but the pairing was successfully exported (DiStefano and Trubek,

2015). This example both promoted the Canadian agricultural industry both locally and

internationally, plus supported another section of the industry. The benefits to Canada are not

immediate impacts but overtime increase of sales and dairy export potential could be related to a

successful exportation of artisan cheese through connection with the consumer.

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EXPORT POTENTIAL TO THE UNITED STATES

Introduction to the US Market

Traditionally the American cheese market has been dominated by large processed

companies. The 50 largest companies control 96% of the market and therefore only 4% of the

American market is available for artisan cheese markers. Kraft and Borden are the major

producers of branded processed chesses, and Kraft alone controls 45% of the market

(Manchester and Blayney, 1997). Although, since 1990 Kraft has been losing market shares as

Americans move away from processed cheese. Since this time artisan cheese has seen a 7%

annual growth when other dairy products have remained constant (Gould and Huei, 1994). Most

the American artisan cheese facilities are traditionally found in; Minnesota, California, Idaho,

New York, Pennsylvania, New Mexico and Washington. The largest market is Wisconsin where

there is a strong demand for artisan cheese (Manchester and Blayney, 1997). Dana Tanyer of the

Wisconsin milk board noted, it was the hottest food item in Wisconsin (Turcsik, 2003). Artisan

cheese is new to states like Vermont and Maine where small dairy farmers are being encouraged

to add value to their milk by processing it for speciality markets to avoid the collapse of their

farms (Paxson, 2006). Figure 3 shows the states where the majority of artisan cheese facilities

exists compared to the distribution of American dairy farms. In the south east of America very

few dairy farms and artisan cheese manufactures exists which means this area could be of target

as a potential export destination.

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Figure 3: Distribution of Artisan Cheese Facilities and Dairy Farms

Target Customer

Consumers of artisan cheese are generally wealthier individuals that are knowledgeable

and care where their food comes from. They prefer to consume smaller quantities of cheese but

demand a high quality product. Traditionally they will use the cheese for dinner parties, to be

paired with wine or as a luxury food item. The consumers major concern is the quality and taste

of the product and less on price and brand loyalty (Kupiec and Revell, 1998). Therefore, a company

must continue to introduce the consumer to new tastes and maintain a high quality product as it is

easy to loss a customer base. Other customers include high end restaurants and supermarkets. In

an interview with Brian Scheehser, an executive chef at Trellis Restaurant in the Heathman Hotel,

Scheehser explained how more chefs are looking for artisan cheese to match with dinner and wine.

He thought that artisan cheese was one of the top 20 food trends according to other chefs (Levin,

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2015). Turcsik (2003), explained that large supermarket chains are seeking out contracts with

smaller artisan cheese makers to meet the demand of the customer. Customers are pushing out

processed cheese products and looking for naturally made artisanal produce. The biggest issue for

these supermarkets is to meet the demand of the customer.

Benefits to Importing Nation

The greatest benefit to the importing nation is to the American consumer. The artisan

cheese industry is all about variety. Currently America is having difficulty meeting the demands

of the artisan cheese consumer as not enough variety exists in the country. The market is driven

the amount of variety, the more variety the larger consumer base will be present and the more

profitable the market will be. Canada is known for producing good cheese as many artisan cheeses

have won top distinctions in international competition. The reputation of Canadian cheese would

allow it to be an instant seller in international markets (States News Service, 2012). Canada could

offer cheese with different tastes and quality and therefore expand the American consumer base.

Outside Competition

The major competition in both Canada and the USA come from European markets. Cheese

from countries like Italy and France are historically well known and seen as high quality food

items. For an artisan cheese company to be successful internationally they also need to have

success in Canada. In 2013 Canada allowed the European Union to export an increase of 3000

tonnes per year of cheese. This impacted the small artisan cheese markers in Canada and hurt the

Canadian cheese industry (European Report, 2013). Hui (2017), suggested in a Globe and Mail

article that it could lead to the loss of $230 million and up to 400 jobs. America faces the constant

pressure from European products too. Although consumers seem to be choosing locally made

products over imported products. For a Canadian exporter, this is also a problem if Americans are

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more likely to choose an American cheese over a Canadian made cheese. Overall the cheese market

is very competitive as artisan cheese makers must compete with wealthy processed cheese

manufactures and other artisan cheese makers.

Export Challenges

In Canada supply management controls the dairy industry. This allows the Canadian dairy

industry to sustain itself and reinvest in operations to improve productivity in Canada. Although

when investigating to ability to export dairy products, supply management makes it difficult to be

competitive on a global market (Dairy farmers of Canada, 2014). To be profitable when exporting

to the USA, Canadian products are substantially more expensive than American made products.

For example, an artisan cheese made in Canada that is for sale in Buffalo costs $15.29/lb compared

to a similar cheese made in America that sells for $6.10/lb (Campbell, 2011). This means that

Canadian cheese makers are limited in their ability to successfully sell export goods in the US.

Another problem in the American industry is lack of transportation. Currently there is no efficient

transportation system to US markets, which forces artisan cheese to be sent in packages through

UPS or FedEx carriers. This is very expensive and therefore keeps the access down to markets

farther away (Turcsik, 2003). This would limit the ability for a Canadian exporter to access the

open market located in the south east as previously discussed. If they did pursue this market place

it would require the cheese to be more expensive due to transportation costs and the product would

be vulnerable to a cheaper local product.

Another challenge is a limit on subsidized exports on Canadian dairy products. Canada was

found to violate subsidized export rules and therefore were forced to agree to the World Trade

Organization Agreement on Agriculture. Under the WTO Agreement on Agriculture, Canada can

only subsidize about 9000 tonnes of cheese that are exported to the USA (Karunagoda et al, 2015).

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This makes Canadian dairy products exported to the USA less competitive. Which means there is

no real solution to increase artisan cheese exports from what they currently are. Therefore, a new

company cant financially benefit from exporting artisan cheese to the USA.

Currently President Trump is putting the Canadian dairy industry under fire in NAFTA

negotiations. The USA wants larger shares in Canadian imports on dairy products that the supply

management program currently protects Canadian dairy farmers from. If the USA wins this

negotiation the dairy industry could be significantly changed and smaller artisan cheese companies

might be pushed out by cheaper options from American competition. Although, Prime Minister

Justin Trudeau believes in the quota system and is unwilling to budge and allow more American

dairy products into Canada (Smith, 2017). Overall, an artisan cheese company faces a lot of

challenges when exporting to the USA, especially when the Canadian market is safe for small

companies. The Dairy Conference Board noted that exporting can be very rewarding but can be

extremely challenging and risky (Dairy farmers of Canada, 2014).

Canadian Government Support

In 2012, the Harper Government invested $1.3 million to grow agricultural business with

increased market support. In this investment $130,000 was invested directly to artisan cheese

makers to assist with developing a niche market in other countries. A year later the benefits were

seen from this investment as Canada exported $12 million of artisan cheese to the USA (States

News Service, 2012). The government support of the supply management system has allowed

dairy farmers to make strong investments in helping sales of new products and improving

Canadian Dairy to be an innovative world leader (Dairy farmers of Canada, 2014). As previously

discussed the government can subsidize some cheese that is being exported to the USA but a new

company looking to export would be challenged in receiving such money.

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CONCLUSION

The Dairy Conference Boards recommendation was to grow the artisan cheese industry

through exports (Dairy farmers of Canada, 2014). After researching export potential for artisan

cheese to the United States of American it is suggested that a company wanting to export to be

very careful. This endeavor can be very rewarding, and many benefits do exist but it can be a

challenging and risky business. Artisan cheese companies face many challenges in the Canadian

market which makes it hard to be successful at home. Therefore, a small company should avoid

exporting their artisan cheese to the USA and focus on establishing themselves in Canada. If a

company was set on exploring the USA it would be recommended to establish themselves in

Canada first. Currently, the best path into the US market is through a non-subsidized or parallel

marketing system like a restaurant or supermarket contract (Karunagoda et al., 2015) Since

opening a processing facility is very expensive it would be recommended that a company waits

till their debt is paid off before exporting. This would take about 15 years and by then the

business would be well established in Canada.

Overall, the USA has too many factors that could lead to failure in exporting Canadian

Artisan cheese. The inability to be competitive in price to American cheese makes it difficult to

be a successful exporter. Also, very few subsidizes exists from the Canadian government and

they are very difficult to obtain if youre a new company. A poor transportation system also

makes it very expensive to reach the desired American market. The cost inputs required to export

are large and there is little guarantee that a significant amount of product will sell due to a high

price required to make a profit.

In conclusion, it would be highly recommended that a Canadian artisan cheese company

avoid exporting to the USA as the Canadian market alone can lead to economic success.

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