Bloomberg News

Say Cheese. Now Explain How to Price It

August 14, 2013

A Pile Of Aged Bread, Meat And Cheese On Parchment Paper

Photographer: Michael Crichton

There's no polite way to put it: Cheese is rotting milk. Rotting milk that tastes great, but rotting milk.

So why are some cheeses dramatically more expensive than others?

Forget the difference between a Sudtirolean Bergkaese and a Berthot Epoisses -- that involves questions of tariffs and transportation and currency conversion. What about two cheeses that come from the exact same farm?

We spoke to Allison Hooper, who with her business partner Bob Reese owns and runs Vermont Creamery, which makes a series of cow and goat cheese sold in Whole Foods, Trader Joe's and other large retailers. With such a large operation, we figured she'd have a clear understanding of how and why cheese prices vary so much.

First, it's a question of labor, she says. "Fresh cheese has less labor than, say, a cheese you're putting into an aging-room, which you turn every day," she says. "Every time you touch that cheese, you're adding labor."

Then there's the composition of the cheese. "If you have a cheese that has very high moisture, you've got more whey in the cheese curd, so your actual yield from the milk is considerably higher than if you were to take that same milk and put it in a hard cheese with low moisture," she says. "When your yield is low, your cost is high."

You have to factor in the fluctuating cost of materials. "The price of milk changes according to the Milk Marketing Order," Hooper says, "which is a fixed cost mandated by the government that changes based on the commodities exchange in Chicago." Because Vermont Creamery sells to large retailers, it needs to keep the cost of each cheese fixed throughout the year, which means it has to price its cheese to account for a volatile market. "When you sell to the retail market, the retail store doesn't want to change their prices every week," Hooper says.

Then there's the high cost of small production runs. "If you go to Murray's cheese shop and you buy some nice cheese, they're typically very expensive. A lot of that has to do with scale -- they're coming from small production farms," Hooper says.

So Loot spoke to Murray's Cheese president Rob Kaufelt to see if Hooper's assessment of the retail end of the production process was correct.

"It would be no surprise to any of us to know that artisan or hand-made cheese would be more expensive than cheeses made in large production," Kaufelt says. But he cites another factor: "It's about the ability of the producer or consortium to control the product line. Parmigiano Reggiano, for example, keeps a tight control on supply/demand pricing, like oil companies."

And there you have it: Cheese is pure economics.

"Our business is extremely old-fashioned, in the capitalist sense of the word," says Kaufelt. You get what you pay for. Even if, at the end of the day, it's still just rotting milk.

James Tarmy reports on arts and culture for Bloomberg Muse, the arts and leisure section of Bloomberg News.

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