Dairy Talk: You Might Not Believe This

September 29, 2013 08:43 PM
Dickrell 2013 Blue

I must admit it. I could not believe what I was reading. The latest report from USDA on the effectiveness of dairy checkoff and processor promotions on fluid milk sales is strongly positive. More positive than checkoff nickels and dimes spent on cheese and butter promotion.

According to the analysis done by Texas A&M, fluid milk sales were 5.8% higher between 1995 and 2011 than they would have been without the promotion programs. Cheese sales were 2.8% higher; butter, 1.4% higher.

The Texas A&M analysis suggests that for every $1 spent on fluid milk advertising, dairy farmers see a $3.95 return for fluid milk advertising.

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The dairy industry is spending more than $100 million annually on fluid milk advertising through MilkPEP and qualified state promotional programs such as California’s "got milk?" campaign.

What raises skepticism, mine and dairy farmers, is that fluid milk per capita sales continue to decline precipitously. Sales have dropped from about 24 gal. per person in 2006 to just more than 23 gal. in 2011. That’s a loss of 2.5 billion pounds of milk sales annually.

"The reality is that milk sales would be falling off the table dramatically without generic promotion," says Oral Capps Jr., an executive professor with Texas A&M’s Economic Research Center. His team, using sophisticated economic modeling, conducted the analysis.

"Fluid milk consumption decline is like a big boulder coming down a hill. Generic promotion is slowing it down a little bit," Capps says. "Consumption would fall off the cliff without it."

The next obvious question, then, is how many advertising dollars would it take to flatten the hill and stop the boulder from rolling? Capps won’t speculate because he hasn’t done the math, but "it would probably have to be a whole lot, a notable amount," he says.

And then there’s the problem of diminishing returns. As you advertise more, the incremental effect of each additional dollar isn’t as great as the previous dollar spent.

There also might be (and likely are) smarter ways to spend the dollars that are available. Capps and his team are now segmenting fluid sales out among whole milk, 2%, 1% and fat free. There may be different advertising/demand elasticities for each market segment.

Whole milk, for example, might be a lost cause. But fat free or 1% milk might be more target-rich environments. Perhaps.

The broader solution, I believe, is that direction of the entire category must be rethought.

Price volatility is a killer. When milk prices peaked two years ago, volumes declined 11 million gallons per month at retail. When prices declined, sales bounced back, but never to previous levels. "Over time, we essentially teach consumers that they can live without milk," says Tom Gallagher, Dairy Management, Inc.’s CEO.

The solution must be system-wide, he says, and I agree. Pricing, packaging, product innovation and dairy regulations must all be brought into the fight. Dairy farmers and milk processors don’t have the billion dollars—or whatever it would take—to advertise their way out of this mess.

jim dickrell, editor




Jim Dickrell, Editor

JIM DICKRELL is the Editor of Dairy Today. You can contact him at dairytoday@farmjournal.com.

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