All the Cheese in China? Israeli Dairy Giant Tnuva Goes Global

Don’t worry, says CEO Arik Schor. Exports of yellow cheese will begin next year, but the company remains committed to the Israeli market.

Tnuva cottage cheese on display in a minimarket fridge.
Tali Mayer

Nine months after it was acquired by China’s Bright Food, Israel’s biggest dairy product maker, Tnuva, is expanding production capacity and gearing up to start exports of its yellow cheese to China.

“I expect that sometime during 2016 we will export our first yellow cheese to China. It’s natural that as a result of the change in ownership at Tnuva, we see China as an export destination for our products – in addition to yellow cheese, other products with long shelf lives like our Sunfrost and Maadanot,” said its CEO, Arik Schor, referring to the company’s line of frozen food products during an interview with TheMarker.

He spoke as the company opened a new, 350 million-shekel (nearly $90 million) facility in Tel Yosef, that will expand yellow cheese production by 15%. The dairy is designed so that capacity at each production line can be expanded by another 30% at a cost of just 60 million shekels.

All that extra capacity isn’t for the Israeli market, which isn’t growing fast nearly fast enough, especially as Tnuva has lost some market share over the past year, as have Israel’s other big food makers.

But Schor is quick to assure consumers that the company isn’t abandoning the Israeli consumer in favor of serving a market with some 1.2 billion mouths to feed. “Our base is in Israel and we’ll continue developing the Israeli market,” he said, adding that the new dairy would be sourcing most of its inputs like packaging materials from Israel, too.

The Bright Food acquisition raised fears in Israel about foreign ownership and jobs being moved to China among concerns. For that reason, Tnuva has been especially careful to demonstrate its continued connection with Israel. “Tnuva’s investment in the new dairy confirms its commitment to the economy and Israeli agriculture,” a promotional film shown to the media noted.

Schor compared Tnuva’s commitment to Israel as an element of national security, helping to ensure a domestic supply fo food, just as having a flagship airline ensures international air links. “We won’t surrender to passing fashions that tell us imports will save the State of Israel and that all the solutions to the problems of the high cost of living can be found from imported products,” he said.

Nevertheless, for Tnuva to increase its sales it has to look overseas, as have other here big Israeli food makers, Strauss Group and Osem.

“It’s true that Tnuva’s market share is declining somewhat, but we have grown in some categories and so a small drop in our market share doesn’t bother me. What does concern me is that we keep growing. Market share isn’t our god,” Schor said.

Tnuva’s overseas ambitions extend to the United States, where it hopes to find a market for its famed cottage cheese. The cottage cheese category in the U.S. is sleepy. We’re working on developing a cottage cheese similar to Tnuva’s with a local dairy in the U.S. that will act as a subcontractor,” said Schor.

He said it hoped to reach an agreement with a U.S. subcontractor in time to begin sales in the second quarter of next year. “We don’t have any experience there, so we will be starting cautiously and in a measured way, but we nevertheless see the U.S. as a target because in Israel we have fewer options.”

He hesitates to say how much of Tnuva’s sales will come from overseas since the expansion is just beginning, but the company’s hope is that about a third will be outside of Israel six or seven years from now.

Plans for the new dairy began three years ago, before Bright Food entered the picture, but the facility attests to the high-tech style of Tnuva’s operations even though it is a company making decidedly low-tech products, The dairy is a state-of-the-art operation where product coming down the production line barely comes into contact with human hands, thereby ensuring a very high level of quality and safety.

Forklifts make their way around the factory floor without drivers. An eight-handed robot called the Octopus is cutting, sorting and packaging. There are far fewer staff to be found here compared to the company’s other dairies, including the one adjacent to it that produces butter and specialty cheeses.

There will 7% to 8% fewer workers at the new dairy, which Schor said did not involve any firings. “We’ve been planning this for four years so that when workers left we didn’t hire any in their place. If we hired someone new, we explain that the job was for a year or two,” he said.

The new plant marks a big change for Tnuva, which had been making yellow cheese from the same facility since 1936, expanding and upgrading it all the time. “The time came for something completely new at the cutting edge of technology and enabling us to expand capacity,” Schor said