Dairy 2.0: adapting the dairy industry to the changing market

The dairy market has been taking hits in recent years, due to both a variety of economic upsets and consumers' increasing shift towards milk alternatives. In order to recover, the sector needs to be able to adapt and innovate. Callum Tyndall finds out what shape the dairy industry’s future may take.

Dairy milk has a serious contender to its throne. In fact, it seems to have a bevy of them and the competition appears to be growing in number by the day. The $400bn dairy industry, with more than 274 million cows worldwide, has seen the popularity of milk rapidly dropping in the last few years as consumer demand for alternative milks (or ‘mylk’, if subject to EU law dictating that ‘milk’ can only be used for product produced by a lactating mammal) has soared. According to research from Mintel, non-dairy milk sales grew by 61% from 2012-17 in the US, while traditional milk sales dropped by 15%.

Meanwhile, efforts to use up surplus milk by turning it into (previously) ever-popular cheese are also coming up against the reality of dairy demand declining as a whole. Combine this with ongoing trade disputes between the US and countries such as China, and reporting in late December 2018 showed that the stockpile of cheese had hit its highest number since recording began a century ago. With consumer demand shifting so significantly, and economic factors putting a dent in other avenues, it would appear that the dairy industry is staring down the barrel of a rough few years.

So, what may lie ahead for the industry?

The competition: plant-based milks eat into dairy’s consumer base

One reality that the industry must contend with is that dairy milk consumption, and narratives around it, are largely Western-centric. While we are naturally (on the whole) able to break down lactose at birth due to the lactase enzyme, production of that enzyme declines in the majority of humans after weaning. The mutation that allows Northern Europeans (along with a handful of smaller groups) to continue digesting lactose into adulthood is comparatively rare on a global scale; in fact, two-thirds of all adults worldwide are considered lactose intolerant. Even before considering the rise of brands such as Oatly, Alpro and the like, dairy milk producers are placed at the disadvantage of several regional markets having already invested in plant milks, such as soya, for centuries.

Oatly, probably the most notable oat milk brand, announced last year that it was increasing production by 1,250% from the same time last year; in spring of 2018 the entire US, along with the UK and Sweden, suffered shortages of the brand as consumer demand rapidly outstripped production capability.

Meanwhile, Mintel found that although the UK has seen plant-based milk sales rise by a third from 2015-17, the sale of traditional milk had only increased by 5%. Increasingly popular among younger consumers, non-dairy brands offer a product that has potentially broader health appeal (in that it can be enjoyed by consumers both lactose-tolerant and intolerant alike) and is disassociated from the detrimental environmental impact of the traditional dairy industry.

The shifting allegiance of younger consumers away from traditional milk has previously been referred to by the former chairman of Dairy UK, David Dobbin, as “a demographic time bomb”. Put simply, plant-based milks represent an existential crisis for traditional dairy; younger consumers look set to continue the move away from dairy milk and thus create a future in which their loyalty to plant-alternatives is propagated while dairy loyalists fade away. The question is, what can the dairy industry do to renovate their image and win over both transitioning and new customers alike?

Exploring new markets: Chinese dairy is on the rise

Perhaps surprisingly, one of the answers may come from looking to regions that may not typically be considered big dairy consumers. Consider for example that - although the recent trade war between China and the US has put some dent in this - China is one of the top importers of US milk and cheese products. According to ResearchandMarkets, the internal dairy production of the country has remained somewhat sluggish despite a growing economy leading to increased per capita consumption of dairy products; as such, the research predicts that Chinese dairy imports will be worth $10.65bn by 2023.

However, as Li Shengli, a professor at China Agricultural University, told state press agency Xinhua, "leading Chinese dairy firms Yili Group and Mengniu Dairy Co are expected to increase their sales each by ¥30bn (about $4.35bn) to ¥50bn in the next five years, and they are hopeful of joining the top five global dairy producers."

For now, exporters have the advantage on Chinese companies purely in terms of production capacity and success in the Chinese market could well be a broader signal to diversify outside of the traditionally successful dairy regions.

There are notes of caution to consider however; not only are Chinese companies themselves looking to beef up their production capacity, but Stockhead has highlighted that Chinese authorities may be looking to cut into imports (at least of dairy formula) in order to help drive the growth of national companies. Such competition could prove tough to beat, but remains indicative of markets growing outside of the more established regions.

Digital dairy: evolving the industry with the help of smart technology

One of dairy’s other areas for evolution in the future is more predictable: digitalisation and smart technology. Certain elements aren’t exactly new, robotic milking equipment for example will likely be iterative rather than transformative going forward, but developing technologies could open up whole new approaches for the dairy industry. Some of these measures will likely be more along the lines of improvements to efficiency than industry-wide evolution; considering drones as an example, they are unlikely to revolutionise dairy but will vastly improve farmers’ ability to survey pasture areas and respond to emergencies.

More likely to provide a shock to the system is the possibility of 3D printing dairy products. One of the principal negatives of the current form of the dairy industry is its impact on the environment. However, while it would certainly entail a dramatic shift, the dairy industry’s long-term future could lie in replacing their cows with 3D printers.

Perfect Day is a brand that uses 3D printers to place cow DNA into yeast microflora to ultimately produce dairy proteins identical to those found in regular cow’s milk. Although 3D printing at cheap commercial scale is still somewhat nascent, and shifting away from cows entirely would likely meet opposition, the possibility remains for the industry to stick to ‘real’ milk while moving towards the future.

Perhaps more in the near-term is the industry adopting the power of machine learning and big data on a wider scale. As is happening across industries, dairy manufacturers are getting to grips with the possibilities offered by the ever increasingly digitalisation of the world and our ability to process the data that is produced as a result. With proper implementation however, big data technologies could allow dairy manufacturers to monitor herd health to a far more granular degree, as well as tracking herd location in real time and improving production based off a variety of data points. The industry still has large challenges ahead, and important decisions to make, but an ever expanding range of digital tools could prove to be what is required for the next stage of dairy.

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