The U.S. dairy industry combats the non-milk products industry and trade tensions.
Over the years, the dairy industry in the United States has taken a hit from a number of non-milk products looking to gain the edge in the consumer market. New York lost 1,200 dairy farms in the last decade as it was fighting low prices, decreased demand, and competition from non-dairy milk brands, according to recent article from Modern Farmer. U.S. farms and the dairy industry are having to pull out all the stops to remain top-of-mind for consumers.
The Latest on Milk Substitutes vs. The Dairy Industry
A recent study published in June 2018 by CoBank Knowledge Exchange reveals that milk substitutes, especially plant-based milks, are the result of decades worth of lifestyle changes and cultural shifts in America’s dairy consuming habits. Here are some of the key points from the study:
- Sales of plant-based milk substitutes have surged in recent years.
- Sales of non-dairy milk brands and plant-based milk alternatives should continue to grow by 15 to 25 percent by 2022. But, given the small size of the market, further expansion of plant-based milk sales will only play a minor role in the decrease in fluid dairy milk consumption.
- New value-added and niche dairy products are slowing the rate of decline in milk
sales in a highly competitive beverage market.
- As cow’s milk differentiates itself into a variety of premium products, supply chains
will be challenged to handle smaller volumes of a wider selection of products.
- Plant-based and other alternatives to dairy milk will hasten change in the dairy industry as marketing costs and slotting fees increase across the dairy case and further pressure the already low-margin gallon-jug business.
Interestingly, the study revealed that of all the plant-based alternatives to dairy milk, almond milk had 64 percent of the non-dairy milk market share in 2017. The report also points out that these lactose-free milk products, while still expected to grow 15 to 25 percent over the next five years, make up only a small share of the total beverage market. This leaves the dairy industry with great opportunity to continue to differentiate the way dairy milk bottlers market and do business.
Other Challenges for the Dairy Industry Besides Competition from Non-Milk Products
Besides the classic milk bottle and jug part of the dairy industry, U.S. dairy farms make 196 billion pounds of milk products per year. This includes cheese, cottage cheese, butter, and ice cream. According to the 2012 Census of Agriculture there are 9.3 million dairy cows on U.S. farms.
In response to the existing U.S. trade environment, Mexico, the dairy industry’s biggest foreign customer, is threatening retaliatory tariffs on cheese, among other agricultural products that could damage the industry. U.S. cheese makers are highly dependent on these exports, especially with our NAFTA partners to the north and south. Mexico receives 25 percent of the U.S. dairy exports.
Dairy exports lead to economic growth in rural communities. For every dollar of sales associated with dairy exports to Mexico, $2.50 is supported elsewhere in the United States economy. The dairy industry is not the only entity in this tug of war on trade, but turmoil in this industry could cause a disruption in everyday life.
In a recent press release from the National Milk Producers Federation, American dairy farmers and cheese makers asked President Trump to suspend tariffs on Mexican products as we are in the thick of negotiations for a new North American Free Trade Agreement (NAFTA).
America’s dairy products industry is so large, it has a ripple effect that brings in $24.9 billion in state and local business tax revenues and $39.5 billion in federal business tax revenues. It supports nearly 3 million workers, generates more than $39 billion in direct wages, and has an overall economic impact of more than $628 billion. So, when challenges like the war on dairy milk products and threats to export business rear their ugly heads, agricultural stakeholders and policy makers must take note and look to solutions for the dairy industry.
AgAmerica Lending is a proud supporter of dairy farmers across the country and we are watching these developments very closely so that we can best serve our clients with land lending solutions to help grow and diversify their dairy operations. For more information about how we can help, contact us or try out our farm loan calculator.