Move Over Cereal; Coffee is Milk’s New Best Friend

06:41AM Nov 20, 2019
Coffee
The dairy industry is going through major transformation, not just with technology, but how shoppers want to consume milk and why. Statistics show a drop in cereal consumption could be hurting milk demand.
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As dairy producers try to revive their balance sheets after consecutive years of struggling to turn a profit, better milk prices are helping improe outlooks for 2019 and possibly 2020.

“If you look at futures, 2020 isn't great,” says Curt Covington chief credit officer for  Farmer Mac. “It's not bad, but you have to make hay while the sun is shining, and from what we’ve heard, we should be seeing pretty good pricing for at least the next two months.”

Despite the improvement in outlooks, another shakeup hit the dairy industry this month. Dean Foods, the largest milk processor, announced it’s filing for bankruptcy. Brian Rice, of Vault Ag, says signs were showing up for months that the company was in trouble.

“I think this was the most expected outcome,” he said. “In talking with bankers and investment bankers, it was a really difficult company for somebody to buy as it was, and I think the whole marketplace knew that Dairy Farmers of America (DFA) was a backstop.”

Dean Foods is blaming a drop in fluid milk demand as the reason the company filed for bankruptcy. The company says a growing popularity of pop, juices and alternative beverages  - like nut juices -  are all to blame. That may be partially true, but according to Phil Plourd of Blimling and Associations, Inc, the actual culprit of muted milk demand overall is cereal.

“Milk’s best friend got in trouble, as we eat much less cereal today,” he says. “If you were to plot a graph of cereal sales and milk sales, it's the same picture. Cereal sales are down 20% since 2009 by volume, milk sales are down 18%. It’s not much more complicated than that in terms of a big bulk of the loss of sales.”

Dean Foods says it may sell itself to the DFA, the largest marketing cooperative in the country. DFA telling Farm Journal it’s looking at purchasing some assets, not the company itself.

“Dean Foods is our largest customer and our primary focus is on ensuring secure markets for our members milk,” says David Darr, DFA Strategy and Sustainability Officer.

While DFA may be looking to buy portions of Dean Foods’ business, the Dairy co-op made another controversial move this year.

“When we started out, it was more of a purpose driven marketing campaign,” said Doug Dresslaer, DFA Director of Innovation. “We pointed out the products are great for smoothies, in your coffee, but the flavor was so good, that now this is something that you could have as your protein base: your plant based protein, your dairy based protein, plus the added calcium.”

Dresslaer says the bold move hasn’t shifted consumers away from dairy. Instead, he says it’s brought more people back to the dairy aisle.

“I think it's increasing demand,” he said. “It's giving people an option to try different things that that may have steered away from dairy for a while.”

Milk winning back over shoppers is something that can happen, but in Plourd’s view, it has to come in a different form than traditional milk.

“I think coffee is milk’s new best friend; they hang out together a lot,” said Plourd. “Coffee still has a lot of upside. If you look at China, Starbucks is opening a new outlet in China every 15 minutes. Well, there's a lot of milk that goes along with that stuff. Right? I think that coffee is a good friend for traditional milk.”

He says as the industry works to innovate new productions, it boils down to one key factor: convenience.

“I've been studying consumers in one way or another for a number of years,” said Plourd. “One of my rules is that never bet against the laziness of the American consumer. If it's convenient, it's got a chance. If it's asking the consumer to do a lot of work, it's really hard to get traction.”

As consumers taste change, so is the world of dairy.

“I would say the next four to five years, we're going to see huge changes; probably changes we haven't seen in over 1,000 years,” says Aidan Connolly, CEO, Cainthus, President of AgriTech Capital.

Connolly runs an artificial intelligence business focusing on dairy cows.

“We don't really entirely know when we should inseminate a cow,” he says. “All of those things could make as much more accurate and could make us much more sustainable, and I hope all to make us a little bit more profitable.”

He says dairy producers have to start by learning to manage their cows better.

“To answer the questions that consumers, or I love the word ‘procumers’, which means ‘proactive consumers,’” says Connolly. “We want to know what proactive consumers are looking for, and that will help us answer and explain how we treat our animals, how we produce our food sustainably, what our carbon footprint is and all of that stuff. But above all else, to make sure we are doing so in the right way at the right price.”

Tim Taylor is an executive who focuses on technology, helping the dairy sector transform.

“I think with digital transformation, you either are a victim of it - technology roadkill – or you embrace it, and you become self-disruptive, which is transformative,” says Taylor. “I think that not only dairies need to adopt technology in a collaborative sense, but the industry needs to adopt collaboration through technology in order to get more efficient and more factual, so they can reach downstream to consumers.”

He says customers are curious how dairy farms are driving quality and transparency on the farm.

“Consumers want to know, ‘where's my product coming from? How was it made? What are the quality metrics, and they want to see it in transparency,” says Taylor. “This transparency movement is driven by both sustainability and the power of the consumer through social media. That’s the biggest trend in the dairy industry. So even if you're the low-cost producer, if you don't have transparency driven by technology, you won't exist, nobody will buy your product.”

Connolly says if dairies don’t embrace this change, they will become the taxis in the world of Uber, or a move store trying to fight Netflix.

“We're in a tremendous era of disruption,” he says. “To imagine food business will not be disrupted in the same way as every other business is very naïve. If you don't think differently, you will be disrupted. The business will be transformed and you probably will be like the dinosaur is going out of business.”

Disruption that will drive change, as the landscape of dairy continues to transform and innovate.

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2025: How Dairy Farms Will Need to Adapt to Survive

USFR 11/16/19 - FJR