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April 1993, Vol. 116, No. 4
Daniel J. Curtin
B etween 1972 and 1990, the natural and processed cheese industry has been affected by three recessions, changing consumer tastes, and consumers' desire for a healthier diet.1 Yet the industry has maintained a growth rate in productivity of 2.3 percent annually during this 18-year period. Output in the cheese industry advanced at an average annual rate of 4.6 percent and employee hours rose 2.3 percent annually. The use of computers, improvements in mechanized cheese making systems, and a consolidation of the industry have contributed to the industry's rising productivity.2
Six annual downturns in productivity and three declines in output in the industry occurred during the 1972-90 period studied. Productivity trends are divided into two separate periods-1972-79 and 1979-90. As table 1 shows, a period of modest productivity growth in the 1972-79 period was followed by more substantial growth over the 1979-90 period.
Between 1972 and 1979, the industry felt the effects of the 1973-75 recession. While output did not decline during the 1973-75 recession, its rate of growth slowed. During the 1979-90 period, output, hours, and productivity rose.
Output and demand
Three primary markets for cheese products are food service or restaurants, ingredients in other products, and retail grocery stores. Sales to the food service industry have expanded rapidly cause of increasing popularity of fast food outlets. For example, production of mozzarella cheese, one of the main ingredients in pizza, increased more than 400 percent in the past 15 years.3 The use of cheese as an ingredient in other foods has increased rapidly over the 1972-90 period and this trend is expected to continue. In 1986, 251 new products using cheese as an ingredient were introduced to the market. The largest use of cheese as an ingredient is in frozen dinners, sandwiches, and pizzas. Cheese also is becoming more widely used in bakery items such as crackers and garlic bread, as well as in snack foods.4
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1 The Office of Management and Budget has designated the natural, processed, and imitation cheese industry as SIC 2022 in the Standard Industrial Classification manual, 1987. the industry is comprised of establishments engaged primarily in manufacturing natural cheese (except cottage cheese), processed cheese, cheese foods, cheese spreads and cheese analogs (imitations and substitutes). These establishments also produce byproducts such as raw liquid whey.
All average annual rates of change mentioned in the text and tables are based on the compound interest method of computation. The indexes for productivity and related variables are updated annually and published in the Productivity Measures for Selected Industries and Government Services (Bureau of Labor Statistics).
2 The productivity indexes for the natural and processed cheese industry represent change over time in the ratio of the weighted outputs of the industry's products to employee hours. A technical note describing the methods used to develop the indexes is available from the Office of Productivity and Technology Studies.
The weighted output indexes use a deflated value technique. Annual output indexes are benchmarked to more comprehensive data available every 5 years in the Census of Manufactures.
Output is defined as the total industry production in shipments and net changes in inventories of finished goods and work in progress. Data available from the Bureau of Economic Analysis (BEA) and the Census of Manufactures show that large quantities of natural cheese are purchased from establishments classified in the natural and processed cheese industry. This may lead to double counting the output that could distort the output and productivity indexes. Therefore, an estimate of intra-sectoral shipments was calculated for the industry using data from BEA and the Census of Manufactures. These data were used to adjust the final output indexes for the industry. A more complete description of the methodology used to construct these measures is n the appendix.
3 Dairy Products, 1987 Summary (U.S. Department of Agriculture, National Agricultural Statistics Service, Agricultural Statistics Board, May 1988).
4 Jerry Dryer, "New Products and New Uses Give Cheesemakers New Life," Dairy Foods, Vol. 90, January 1989, pp. 66-67.
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