Jan 17 2020
In part five of our Opportunities and Challenges series, IBISWorld discusses the opportunities and challenges industries face in response to changes in regulation, technology, competition and more. In this article, we’ll discuss the opportunities and challenges facing the dairy industry.
In recent years, the dairy industry has grappled with growing competition from dairy alternatives. Such alternatives are typically plant-based products derived from oat, almond, soy and coconut that mimic the flavor and texture of dairy. While dairy industries are challenged by increasing competition, they are also taking advantage of opportunities to further emphasize the unique nutritional qualities of dairy products.
Dairy farmers are fighting against labeling these plant-based products as “yogurt,” “milk” or “cheese,” because they believe it is misleading consumers into thinking that the products’ nutritional value is similar to that of dairy products, according to The New York Times. Even so, many people consider milk alternatives a healthier option or prefer them for environmental reasons. In response, large coffee and grocery chains have added these alternative products to meet growing consumer demand.
According to the US Department of Agriculture, consumers drink 37.0% less cow’s milk today than in the 1970s. Still, dairy products are considered a staple of the average American diet, which keeps demand volatility relatively low. According to IBISWorld estimates, per capita dairy consumption is expected to decline only 0.5% to 642.4 pounds per person in 2020.
Yogurt and cheese are the primary drivers for growth in dairy consumption since they do not have the same level of strong competition that milk has from milk alternatives. Per capita cheese consumption has increased from 15.0% of total per capita dairy consumption to 18.7% in 2018 (latest data available). Furthermore, consumers view yogurt as a healthy choice due to its high protein content. Moving forward, health and wellness are key considerations operators in the dairy industry will have to factor in during the product development process.
The market for plant-based milk alternatives is growing at a rapid pace. According to the Plant Based Foods Association, sales of nut and plant milks grew 9.0% in 2018 alone. In coming years, dairy farmers will likely have the opportunity to adopt emerging technologies and new practices that facilitate sustainable crop growth and improved cow health. Dairy farmers and dairy product producers will have to focus on the key nutrients they offer consumers to differentiate themselves from alternatives and ensure they remain competitive in an evolving market. Operators that are transparent with consumers with regard to their production processes and corporate values will be able to gain more attention from health-conscious consumers.
Consumer concern about animal welfare and the adverse environmental impact of livestock remains a perennial challenge for the Dairy Farms industry (IBISWorld report 11212), and competitors have taken advantage of this to siphon revenue from traditional dairy producers. Additionally, many consumers perceive cow’s milk as being less healthy than milk alternatives. Current federal dietary guidelines recommend up to three cups of low-fat milk or dairy product consumption each day, as it contains vital nutrients, including protein, vitamin D, calcium and potassium. However, its negative perception has moved consumers to opt for plant-based milks, which typically have fewer calories and lower carbon footprints.
Imbalances in supply and demand have caused large fluctuations in the output of the Dairy Product Production industry (31151). However, volatility in the price of raw (unprocessed) milk is anticipated to stabilize over the next five years due in part to stabilizing input prices. Even though dairy products will continue to be a staple in the American diet, annual dairy consumption is expected to continue declining into 2021, posing a long-term challenge to the industry.
The growing popularity of dairy substitutes and milk alternatives has limited consumer demand for dairy products. Each subsequent generation is drinking less milk than its predecessor. Also, according to the US National Library of Medicine, 65.0% of people are unable or have a difficult time digesting lactose after infancy, which has prompted more consumers to cut back their dairy consumption. Industry operators will have to factor in dairy’s unique nutritional values, sustainability and animal welfare in their daily operations to compete with the growing array of dairy alternatives.
Looking for related articles within our Opportunities and Challenges series? Check out our Analyst Insight discussing the Canadian industry response to streaming services like Netflix and Disney+.
Edited by Sean Egan, Copy Editor
Infographic Design by Alex Valenti, Copy Editor