Jim Dickrell is the editor of Dairy Herd Management and is based in Monticello, Minn.
Actually, Dairy Promotion Does Work
Jun 02, 2014
Without advertising, sales would decline. But here’s what the dairy industry really needs.
Despite record (or near record) milk prices, I continue to hear frustration with the dairy checkoff programs. I heard it at a veterinary conference last Wednesday here in Minneapolis from a dairy farmer friend of mine, and our own Robin Schmahl voiced his frustration last Tuesday in his AgDairy Market Update.
But the fact of the matter is that dairy promotion does work. In his Report to Congress on generic dairy promotion, Oral Capps, an economist with Texas A&M, shows that for every dollar invested in dairy promotion, consumers spend $3.05 more on dairy products. It varies by product, with fluid milk seeing the lowest benefit-to-cost ratio (BCR) of $2.14. The cheese BCR is $4.26, export promotion, $5.12, and butter, $9.63.
Yet fluid milk per capita sales, despite the Milk Processor Education Promotion (MilkPEP) budget of $95 million, continues to decline. (MilkPEP is funded by a 20¢/cwt. assessment added to the Class I price.) Over the last 10 years, fluid per capita sales have fallen between 15% and 20%. What gives?
Capps says it’s a combination of factors:
• "Consumer demand is generally affected more by [retail milk] prices and incomes than demand enhancing activities.
• "Dairy markets are becoming less responsive to demand-enhancing expenditures over time."
Consequently, dairy promotion spending on fluid milk only reduces the rate of decline, he says. According to Capps’ estimates, fluid milk consumption would be 197 lb. per person without MilkPEP ads, or 10 lb. less than they currently are. So simple math suggests the U.S. would consume 3.2 billion pounds less milk—roughly equivalent to Colorado’s annual output--without the MilkPEP ads.
To its credit, MilkPEP has done extensive research on its marketing program. It has dumped the ‘got milk?’ and milk mustache campaigns in favor of its Breakfast Project last year and Milk Life, launched in February. The Breakfast Project is predicated on the fact that breakfast is the largest milk consumption meal of the day, and fewer families are eating breakfast.
Dairy Today associate editor Wyatt Bechtel did a deep dive into the Milk Life campaign for our June/July issue. The campaign is designed to re-energize fluid milk advertising, using double entendre that "milk is life" and consumers should "milk life" for all its worth. Hopefully, the ads will jump start sales.
But go back to Oral Capps’ two bullet points above. Retail prices and income have more to do with milk purchases than advertising—and advertising is becoming less effective over time.
Jerry Dryer, in his June/July Market Watch Diary column, says the dairy industry must focus more of its effort on innovative fluid milk products, packaging and milk pricing. The Innovation Center for U.S. Dairy agrees, and launched its fluid milk initiative several years ago.
All of this will take energy, commitment, people and, of course, money. The industry really doesn’t have a choice. We can promote fluid milk all we want. But if we don’t have innovative milk products placed in attractive, easy-to-use packages in places where consumers can readily buy them at competitive prices, we’ll continue to see milk sales decline.
Read Oral Capps "Report to Congress" on 2012 generic dairy promotion and research here.