Since 1975, per capita fluid milk sales have dropped from 260 lb. to 200 lb.—or by more than 20%.  

When you’re outcompeted and outinnovated, that is the question

The numbers are downright dismal. And getting worse. "When fluid milk price increases peaked in November 2011 at a national average price of $4.11 per gallon [a 12.6% increase over the previous year], volume declined 5%, or about 11 million gallons, at retail that month," says Tom Gallagher, CEO of Dairy Management Inc. (DMI).

"The problem is that each time this cycle occurs, we see more and more consumers leave the category and buy less milk. Some consumers don’t resume purchasing when the price drops back down," he says.

"So, over time, we essentially teach consumers that they can live without milk."

Last spring was a prime example. By March, inflated national prices had dropped back to $3.89 per gallon. But sales were still down 13 million gallons for the month versus the previous year.

The solution, if one can be found, will have to be systemwide—involving everyone from the dairy farmer to the processor to the retailer. Even then, without pricing and regulatory reform, little can be accomplished.

Mike McCloskey, co-owner of Fair Oaks Farms in Indiana and CEO of Select Milk Producers, says changes to reinvigorate the desirability of milk start at the farm.

Fifty years ago, milk was delivered daily to homes—cold and delicious. "Today, people don’t think of milk as that desirable beverage—we haven’t protected that image," McCloskey says.

Members of Select Milk Producers must deliver milk that has a bacteria count of less than 5,000 per milliliter and somatic cell count of less than 200,000 cells/ml. Plus, the milk must be instantly chilled to 38°F to ensure freshness through processing.

Delivering fresh milk with no off-flavors is just the start. "We’ve commoditized milk, making it a loss leader that is sold at the back of the store with no margins left," McCloskey says. "We have an archaic pricing system with the ‘higher of’ [Class III or IV setting minimum Class I prices] and huge swings in volatility."

The "higher of " system makes it virtually impossible for processors to hedge against price volatility. And the huge swings in price shock consumers and reduce sales.

See Comments