Say Cheese - USDA Boosts Prices

Helping out the dairy industry is great, but because pizza sales comprise some 25% of all cheese consumed in the country today, the relationship between the two industries could obviously make rising cheese prices a real threat to restaurant profitability. Pizzerias that struggled with record high cheese prices of over $2.20 per pound in May 2008 got some relief last summer when prices fell by over 50% to about $1 per pound. The USDA plan to add an additional $350 million to the Dairy Products Price Support Program for purchasing excess diary products to help dairy farmers maintain minimum pricing is already causing higher cheese prices. Industry analysts say market prices are likely to rise above $1.60 in the first half of 2010 alone.

The fluctuating dairy product prices mean pizzeria operators will have to keep a close eye on future developments in the cheese market. The large, mega-franchise pizzerias might be able to enjoy the benefits of long-term contacts that lock-in their cheese costs, but the smaller independent operators have fewer options.  Perhaps the best thing the independents could do would be to negotiate directly with the cheese manufacturers to lock-in a fair price in exchange for the commitment to purchase from that source throughout the year. Negotiating a good cheese contract might be a headache today, but it definitely beats the alternatives of reducing on-plate portions and raising menu prices tomorrow.