Sep 22nd 2021

Financial PerspectivesIndustries

3 Trends That Will Change the Dairy Industry as We Know It

Dairy production and consumption are on the rise. But so are consumer appetites for plant-based alternatives.

Sep 22nd 2021

After a rocky decade for dairy—and a pandemic year with massive milk dumps followed by sales hitting their highest point in years—the outlook is improving. However, what’s in the consumer’s refrigerator is changing when it comes to dairy.

Three trends are shaping the dairy industry’s future:

  • A shifting product mix;
  • The rise of plant-based dairy alternatives;
  • Dairy’s sustainability challenges.

Dairy’s Shifting Product Mix

In the past decade, per capita demand for all dairy products combined increased about 8 percent. Within that positive trend, however, US consumer tastes for fluid beverage milk, the industry’s cornerstone, have slipped.

After some tough years, dairy’s future is looking brighter—but the view in consumer fridges is distinctly different than it has been in previous years.

US consumption of fluid beverage milk—spanning whole to nonfat—fell 20 percent in the decade ending with 2019. Falling milk consumption coupled with aggressive milk pricing by new private-label producers such as Walmart and Kroger squeezed America’s largest milk producer into bankruptcy protection in late 2019. Others followed.

Yet, as these events concerning fluid milk unfolded, per capita US dairy consumption reached an all-time high in 2019. It’s not that Americans don’t want dairy. They just want it in different forms.

USDA figures through 2019 reflect this shift in product mix. Since 2010, per capita butter consumption has increased nearly 27 percent to the highest since 1975. Per capita consumption is also up 17 percent for natural cheese (hello, mozzarella!), and yogurt is holding steady. Cheese was the star of spring 2021 exports, too, with year-over-year growth of 51 percent. That strength is expected to hold.

The Rise of Plant-Based Dairy Alternatives

As consumption preferences shift, changes outside the dairy industry exert additional pressure on it. Most notable is the rising popularity of plant-based dairy alternatives, from beverages to butters and ice cream. The animal protein industry has also seen plant-based alternatives sway demand. Even dairy producers are joining in with non-dairy options as competition for retail dairy dollars heats up.

Consumer appreciation for plant-based dairy alternatives isn’t new. Alternative milk sales by volume rose 36 percent in the five years ending in 2017. Plant-based milk currently accounts for 15 percent of all dollar sales of retail milk. Nearly 40 percent of US households regularly have plant-based milk on their shopping list. Dollar-based sales of plant-based milk grew 20 percent in 2020 alone.

But focusing on milk overlooks much of the challenge to dairy dominance. As with conventional dairy, some of the greatest growth in plant-based alternatives comes from non-beverage products. Plant-based cheese was up 42 percent in 2020 dollar sales. Plant-based butter rose 36 percent for the year. And plant-based ice cream and frozen novelties—the largest category in retail dollars sales—also grew significantly.

Another factor conventional dairy can’t ignore is a shift in plant-based dairy’s target. Historically, product innovations like Miyoko’s Creamery’s dairy-free butters and cheeses have aimed at vegan palates.

But recent innovations aim to replicate and replace cow’s milk for milk lovers, much like some plant-based meat producers have set their sights on appeasing devoted carnivores. Chilean startup NotCo’s NotMilk promises to taste, cook, and blend like the real thing. An unconventional ingredient list that includes pineapple and cabbage juices along with pea protein may help them achieve that goal.

But even with the rise of compelling alternatives, about 90 percent of all plant-based dairy consumers still buy conventional dairy—and that isn’t expected to change.

Dairy’s Sustainability Challenge

As demand for plant-based food grows, preferences for vegan diets, health-conscious foods, and animal welfare retain importance. But informed consumers are focusing on sustainability. And conventional dairy is an easy target where greenhouse gas emissions are concerned.

By now, many people are aware of the link between cows and climate change. Cattle, including dairy cows, account for roughly 40 percent of all greenhouse gas emissions from agriculture. Add in manure management—an increasingly volatile issue in regions with large commercial dairies and liquid manure pits—and that figure is higher. But bovine belching and manure aren’t the only emissions under fire.

About 90 percent of all consumers who purchase plant-based dairy alternatives still buy conventional dairy—and that isn’t expected to change.

Consumers are discovering that production practices for many plant-based dairy alternatives have significant environmental impacts, including extensive water and pesticide use. Health-minded consumers are also taking a fresh look at nutritional labels on plant-based dairy alternatives and discovering surprising numbers, especially where protein, sugar, and calcium are concerned.

With plant-based companies like NotCo baring internal audits comparing their production processes to conventional dairy, consumers can expect dairy to follow suit. Sustainable innovations are happening: Concerned dairy farmers are taking dramatic steps in manure management, providing a glimpse of sustainable dairy’s future. Cargill, Inc. is even partnering on methane-absorbing masks for dairy cows—and so far, they seem to work.

With COVID-19 still a factor in dairy demand and supply, it may be a while before the lasting impact of these trends is clear. For most consumers, dairy vs. plant-based is not an all-or-nothing game. With consumption up in both segments and exports on the rise, dairy’s future still looks bright.

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