The pandemic couldn’t have come at a worse time for the dairy business. Even before the economic collapse, this bedrock American industry faced strong headwinds.
Less than two decades ago, dairy enjoyed an estimated 90% share of the protein ingredients market. Today, alternative proteins have whittled away this market share to less than 55%, according to the American Dairy Products Institute. And although more than two-thirds of American consumers want more proteins, the dairy sector has so far failed to take advantage of this persistent demand.
A Perfect Storm
Then the pandemic hit, upending an already volatile market. A new report published by the Institute for New Economic Thinking called it a perfect storm.
“The COVID-19 pandemic led to the collapse in commercial demand as restaurants, caterers, schools, and other institutional customers were forced to close,” the report explained. “Dairy plants serving supermarkets and grocery stores were already operating at close to full capacity when the coronavirus struck. Capital equipment specialized to produce for commercial customers were incapable of producing for consumers served by supermarkets or food banks. Some farmers had no choice but to dump milk.”
So, while grocery stores rationed milk products, dairy farmers made headlines for dumping milk while consumers faces shortages – all the result of a depressed commercial market.
“Commercial customers account for the consumption of about half of all dairy products,” the researchers wrote. “Half of the cheese produced in the United States and 60% of the butter goes to restaurants, while 7% of milk goes to schools. Pizzerias alone consume a quarter of U.S. cheese production.”
The loss of commercial business devastated producers. In Wisconsin, half the milk at some dairies had no place to go as commercial clients remained shuttered. One of the state’s dairies, Darlington Ridge, dumped about 50% of the milk it produced from March to early April. That amounted to 15,000 gallons, or $20,000, of lost product every day. In Pennsylvania, some dairies discarded 40% of their milk.
A New Day for Dairy?
While the New York City-based nonprofit think tank blames industry consolidation – driven by technology, falling raw milk prices, and public policy – for dairy’s problems, changing consumer tastes isn’t helping dairy producers. But this shift in demand presents as many opportunities as it does challenges.
Yogurt: Product innovation, along with a rise in consumer demand for functional foods, has made yogurt more popular than ever. Research firm Technavio estimates the market will grow at an annual compounded rate of more than 5% over the next three years, with major players such as Chobani, Danone, FAGE International, General Mills, and Nestlé set to reap the benefits.
Other Functional Products: The growing call for functional products during the pandemic has helped drive sales of dairy products with benefits such as extra protein, pre and probiotics, as well as added nutrients. These “good for you” products can include butter, cheese, and creams.
Plant-based Dairy: While the meat products get all the attention, consumers are clamoring for plant-based dairy products in record numbers. Global Market Insights Inc. expects the market to hit $21 billion by 2026.
These are just a handful of avenues dairy producers can pursue to expand their operations beyond traditional milk products and succeed in such an unpredictable marketplace. Whether it’s tweaking existing product lineups to meet consumer demand or developing new products entirely, dairy companies have to look outside their comfort zone.
Getting products to market faster demands speed and efficiency at every stage of new product development. With one location for all supply chain information and documentation, teams can bring new products to market faster. Find out how TraceGains can jump-start your company’s new product development here.