The US government is about to buy a hell of a lot of cheese.
The decision by the US Department of Agriculture this week to purchase $20 million of the product is a move designed to prop up the country’s dairy producers, who are struggling with low milk prices and a sluggish export market, both of which have chipped away at their earnings. Over the last two years, dairy farmers have seen revenue drop by 35%, according to the USDA.
The agency says it plans to dole out about 11 million pounds of the cheese it purchases to food banks and federal nutrition programs, which will raise prices and, in turn, boost farm revenues. Data show that in June 2014, US cheese-makers had roughly 655 million pounds of surplus cheese (not being sold to retailers) in cold storage. This year in June, that number was at 759 million pounds.
The government cheese purchase is only a temporary fix for the larger, more unwieldy problems confronting dairy farmers: geopolitical infighting and major shifts in global demand.
The Chinese stockpile
One of the problems for dairy farmers in California—the largest US milk-producing state—is a Chinese slowdown in imports. For years China was a reliable export market for US farmers, thanks to rising milk consumption by China’s growing middle class.
The increase in demand for American milk stemmed from China’s lax domestic food safety regulations and ill-equipped production facilities. But by 2015, demand for foreign milk powder from places including the US and New Zealand had started to slow as China had amassed a sizable stockpile while also ramping up its own production.
Western sanctions and a Russian embargo on US and EU dairy products tied to Russia’s annexation of Ukraine’s Crimean territory haven’t helped. As a result, most US and EU dairy product exports to Russia ceased, and Russia turned to Belarus for dairy, according to the USDA Foreign Agricultural Service.
That only further distorted the global dairy supply, as EU officials kicked up aid to European dairy farmers—to the tune of €500 million ($563 million).
That makes small change of the US government’s $20 million purchase, which is a fraction of the $150 million in cheese the US Milk Producers Federation asked the government to buy. At least the US is putting the extra cheese to some good use. In Russia, not so much.