The next decade has the potential to significantly reshape the dairy industry. Changing consumers, transparency, sustainability and technology are four key drivers that are shaping the future. Each of these areas are not independent of each other, but rather concepts that will interconnect and shift the milk market into two buckets: commodity milk and differentiated milk.
As producers become more steeped in precision technologies, commodity milk will reach higher levels of production and components. More emphasis will be placed on the value of fat and protein, and component efficiency will be a key driver of profitability. Those that can’t keep pace with the commodity market will have an opportunity to find profitability in the differentiated milk market, which will be sold and valued differently than commodity milk.
Dairy differentiation got its boom in the yogurt case with the Greek yogurt craze. Today, consumers enjoy an abundance of choice in yogurt styles, like Aussie and Icelandic, as well as production practices like organic or 100% grass fed. All this differentiation brought new life and excitement to the yogurt case, fueling sales. We have begun to see some differentiation in the fluid milk case with brands like FairLife and Horizon, but are only beginning to realize the potential differentiation has to drive consumer consumption.
The consumer that will most value differentiated dairy products is being defined by the millennial generation. This year, millennials will have more spending power than any other age group and they care a great deal about brand story, transparency and sustainability. All of which are key aspects of product differentiation.
Some dairies are embracing these trends and selling their story through branding, increasing transparency with farm tours, and really working to connect with their consumers. Although this greater level of transparency may be uncomfortable and different than many are accustomed, it comes with incentive. Those who take advantage of the opportunity to create trust and build relationships are going to reap greater financial rewards or market opportunities for the milk and dairy products they produce.
Consumer facing dairy brands will look to dairy producers and processors who are proactive and willing to align their dairy supply chain needs to create more specialty products. This will open the door for more differentiation cow-side. As more producers specialize their milk components through genetics, nutrition and environment to meet evolving consumer needs, more of these “new” dairy products will emerge. Logos indicating animal welfare standards, handling practices, and enriched nutrients remain highly untapped areas of opportunity in the U.S.
Sustainable practices and stories will be especially important to brands that closely monitor consumer trends. In a nationwide survey commissioned by the Johns Hopkins Center for a Livable Future, 70 percent of respondents said it was the responsibility of the agriculture industry to produce food in a sustainable way. Clarity is needed to define what this means to dairy, however concepts that are measurable will allow sustainability to come to life.
From an innovation standpoint, there is much to be excited about. These new trends give us an opportunity to highlight many of the advancements we’ve made during the previous five decades, such as reducing dairy’s carbon footprint. It also challenges us to think differently about how we solve problems and engage with consumers in the future.