Dwindling U.S. Dairy Surpluses Squeeze Menus and Boost Costs

By Deborah L. Cohen — March 29, 1989 10 min read

An unusual combination of market forces and federal policies has left school food-service officials across the country scrambling to keep lunch costs down--without sacrificing some of their most popular offerings.

But in some locales, they may be fighting a losing battle--particularly in regard to cheese.

Students in New York City school cafeterias, for example, are having to learn to love “orange” pizza--a variety made with cheddar instead of the standard mozzarella.

And in Utica, Mich., pupils are reluctantly sampling “folded pizza,’' a cost-saver that has pleased few.

In other parts of the country, the more traditional-style pizzas that have long been a staple of school-lunch menus are being served less frequently, as are macaroni and cheese, cheeseburgers, grilled cheese, and other popular entrees.

Officials blame their predicament primarily on a dwindling supply of the surplus cheese that the federal government has been donating to schools for several years as a “bonus” commodity.

Mary Klatko, chairman of the public policy and legislative committee of the American School Food Service Association, estimated last week that about half of the nation’s school systems have large enough inventories of cheese to last until the end of the year.

“The other half have already used their supply and are making adjustments,” she said. “I think all of us will be in the same boat next year.”

And the dearth of dairy products, school officials say, has hit them at a time when vegetable and fruit prices are also skyrocketing as a result of drought conditions.

Officials in districts that have exhausted their supply say having to pay premium prices for cheese and other items on the open market has put a severe strain on budgets already stretched to the limit.

To cover their costs, some school systems are serving cheese less often, choosing products that are less expensive or more available--like the cheddar cheese topping New York City school pizzas--or struggling to come up with nutritious and appealing alternatives.

But some school officials say they may have to raise school-lunch prices if the situation does not improve next year.

“We are basically operating at a bare-bones level,” said Mary Klatko, who is also the director of food services for the Howard County, Md., schools. “I don’t think I can pull anything out of my bag of tricks to do anything else to cut back on my expenses.”

The U.S. Agriculture Department began donating free cheese to schools in the early 1980’s, after the Congress became concerned that existing price-support policies were destabilizing the market by encouraging excess production of dairy products.

To help ease the situation, the u.s.d.a. adopted a policy of buying up surplus cheese, butter, and nonfat milk and allowing states to order those items in unlimited quantities for schools.

“One way the department was coping with the huge inventories was to donate them quite generously,” said Alberta C. Frost, director of the u.s.d.a.'s food-distribution division.

The Congress took additional steps--such as staging a dairy-cow buyout, reducing price-support levels, and selling dairy products abroad--that reduced the surplus.

Those policies--combined with the amount of dairy products being donated by the u.s.d.a. to schools and charitable institutions--"has really dried the supply up,” Ms. Frost said.

“They got the balance down so nicely that there isn’t any more left,” said Anita J. Cashman, food-service director for the Utica, Mich., community schools.

Although the u.s.d.a.'s policy of buying surplus dairy products and donating them to schools was intended to be short-term, Ms. Cashman said, “this went on for such a long period of time that schools started forgeting it was a bonus item and started thinking of it as an integral part of their financing.”

That scenario changed last year, however, when the federal department began setting a cap on the amounts of bonus cheese and nonfat dry milk that states could order. That cap has been reduced by an additional 25 million pounds this year, Ms. Frost said.

Under the policy, she explained, last year no state could receive more bonus cheese than it received the previous year. Because the usda pur4chased less cheese than it had projected for this year, however, it set states’ caps for the whole year at no more than the amount they used in the first three quarters of the previous year.

In a letter sent last month to state education agencies, the u.s.d.a. said that it expected to fill all of its March orders for states that are under their cap, and that it would “try to see that states still below their three-quarter cap are given first priority” if additional cheese becomes available.

But for “April to June of the school year,” the letter stated, “we do not expect to have sufficient quantities available to provide cheese to schools.”

“The anticipation is that if we purchase any dairy products at all it will be between the months of April and June,” Ms. Frost said. “But at this point we really don’t know.”

Some school officials say they are hopeful that the shortage will begin to ease in the years ahead. They cite advances in technology that have enabled cows to produce more milk--as well as the eventual expiration of a five-year holding period that has prohibited farmers whose dairy cattle were bought out by the government from engaging in milk production.

But the outlook for the dairy supply is difficult to forecast, noted Ms. Frost, who said economic and weather conditions, milk and feed prices, and other factors would play a role.

“Agricultural economists are trying to figure this out,” she said.

In the meantime, schools have begun responding to the shortage.

Partly in response to the high prices it has had to pay to purchase cheese on the open market, the Utica, Mich., school system this year increased lunch prices for the first time in five years, Ms. Cashman said. For students who pay the full price for school lunches, the cost rose from 90 cents to $1 in elementary schools and from $1 to $1.25 in high schools.

“For every cent you increase your price, the initial dropoff will be about 1 percent of your participation,” said Ms. Cashman, whose program serves from 5,000 to 8,000 students daily.

The district is trying to head off additional price hikes, she said, by increasing sales in its “a la carte” program, which provides high-school students with a choice of light-lunch items. Other cost-saving strategies--like switching to a supplier who provides “folded pizzas"--have met with mixed success.

“Children in this area think a pizza should be open-faced,” Ms. Cashman said. “If they can’t see it, it’s not as acceptable.”

Food-service officials report that without the bonus cheese, the price of pizza--the number-one seller on many school-cafeterial lines--has become exorbitant.

Many districts had worked out arrangements whereby they supplied the bonus cheese to local pizza processors, who in turn sold them pizza at a reduced price.

“If we don’t have the cheese to give, we’re losing out,” said Dominic Ritardi, chief of food-distribution programs for the New Jersey Department of Agriculture.

“Schools have to buy it from commercial vendors without the govern8ment commodity discount.”

“I always looked at pizza as one of the cheaper menu items,” said Jack F. Hastings, director of food and nutrition services for the Dade County, Fla., schools.

Now, however, a case of cheese pizza that he used to pay $12.50 for costs $27. “I can’t absorb that kind of increase--that’s impossible,” Mr. Hastings said.

Although the Dade County system has covered its operating costs in recent years through “increased participation, economies of operation, and better productivity and menu planning,” Mr. Hastings said, “you run out of rabbits in the hat.”

He said the district has cut back on serving pizza and other cheese entrees, and may have to raise its lunch prices for the first time in four years if its supply does not increase.

Although school officials in other areas say they have not had to increase lunch prices yet and do not anticipate taking such steps, they concede that the waning supply of free cheese has been costly.

“It’s having a major financial impact on my whole system,” said Elizabeth B. Bender, manager of food services for the Dayton, Ohio, board of education. She has coped, she said, by cutting back on the frequency of serving cheeseburgers, grilled cheese, pizza, and other items.

Raising lunch prices in her district--where nearly 70 percent of the students are eligible for free and reduced-priced lunches under the federal school-lunch program--"would not really gain any money in the long run and would create a tremendous amount of ill will,” she said.

The Howard County, Md., schools have adjusted their menus in order to stretch their cheese supply until the end of the year, according to Ms. Klatko. But this year they received about 5 cents less per meal in bonus commodities than last year, she said, which “made a difference in my financial picture.”

And while schools do not rely as heavily on federal-government assistance in underwriting the cost of fruits and vegetables, food-service administrators also reported last week that market prices for green beans, corn, peas, and other vegetables have risen steadily in the last six months.

Those increases have put an extra strain on district’s budgets and forced some to choose lower-grade quality produce or to alter their mix of frozen and canned items.

The pesticide scares of recent weeks have also affected schools’ fruit offerings.

Some areas, however, have not felt the cheese crunch yet.

“We took all the cheese that was offered to us and we haven’t run out yet,” said Anita King, nutrition-services manager for the Los Angeles schools.

“New York City was fortunate in that its supply is adequate,” added Beverly Greenberg, director of food technology for the New York City Board of Education.

Although some schools have had to serve cheddar pizza rather than the more popular mozarella variety, she said, officials have been able to convince pupils that “once they tasted it, it really tasted familiar.”

Winning support for such substiel10ltutions, Ms. Greenberg said, is ''a matter of managers doing some educating right there at the school site.” She has suggested that school officials use their predicament to teach children about the fluctuations of the economy. “It’s a good place to start,” she said.

Others have suggested that cutting back on high-cholesterol dairy items makes sense from a nutritional standpoint.

“Nutritionists have been honing in and criticizing us for even serving” such products, Mr. Hastings offered. “But you can’t just do away with it without replacing it with something,” he said, adding that his district has asked the government to supply low-sodium and low-fat cheese and ground beef.

Concerns about cholesterol are valid “if that is what you were going to stuff children with,” Ms. Bender added. “But we serve all types of foods and control the amounts.”

Ms. Klatko, who serves on a National Advisory Council on Commodities that is providing guidance to the federal government on a commodity-improvement law enacted in 1987, said the group plans at a May meeting to come up with recommendations on how to address the dwindling dairy supply.

“We’re hoping that the u.s.d.a. will be supplying more bonus products--even if that takes a change in the price supports” set by the Congress, she said, which are now well below the market value for dairy products.

But the federal government views the situation from a very different perspective, according to Ms. Frost.

“We think the primary purpose of buying commodities is to stabilize the market,” she said. “If the market does not need stabilizing, we don’t see the reason” for buying them.

Schools, however, “would like to see us buy a predetermined amount, so that we could donate it to them,” said the usda official.

The department’s position, she said, is that “if we deliberately set out to purchase a set amount for schools, we would be ultimately affecting the price for all consumers.”

That stance has posed a dilemma for schools, according to Edward M. Cooney, deputy director of the Food Research and Action Center, a Washington-based advocacy group.

“The theory is that you are supposed to be able to produce a meal within the reimbursement rate” set under the regular school-lunch program, he said, “and that the bonus is in fact an extra. But if you’ve had an extra 10 cents a meal for the last several years and suddenly it’s not there, people do treat that as a loss.”

“Hopefully, the supply will come back,” Mr. Hastings of Dade County said. “I can’t believe they aren’t going to send me any more cheese.”

A version of this article appeared in the March 29, 1989 edition of Education Week as Dwindling U.S. Dairy Surpluses Squeeze Menus and Boost Costs