How the Dairy Industry Will Save Milk

The milk industry is suffering but hasn’t gone sour.

January 14, 2020

ALEXANDRIA, Va.—The past few months have been tough for the American milk industry, with both Dean Foods and Borden filling for bankruptcy, but the dairy industry plans to save milk, according to a CNN report.

Cow milk sales have fallen steadily for years. The industry’s volatile pricing is determined by an archaic government system, and other pressures have made it difficult for milk producers and buyers to compete with vertically integrated retailers, such as Kroger, which processes its own milk.

In addition, the alternative milk sector—oat milk, almond milk—is growing. Retail sales of oat milk shot up more than 600% over the 12-month period ended in November 2019, and major coffee chains are adding oat milk lattes to their menus. While those sales pale in comparison to sales of cow milk, they complicate the industry.

U.S. sales of flavored whole milk, for example, jumped 8.9% in the first 10 months of 2019, according to the USDA. During that period, sales of organic whole milk ticked up 4.4%. Nielsen data shows that sales of lactose-reduced or lactose-free milk grew 11% between November 2018 and November 2019, and grass-fed milk sales grew about 51% in that period.

American consumers may have cooled on traditional milk, but lactose-free and grass-feed milk sales are increasing. Coca-Cola's recent acquisition of a young, innovative dairy brand suggests that opportunities for growth remain.

The government has regulated milk prices since the 1930s. Today, most processors must pay a set minimum price for fluid milk, a price set based on various factors, including the prices of butter, cheese, nonfat dry milk and dry whey. Because of the pricing scheme, fluid milk's retail price tag doesn't respond to consumer demand for milk. Instead, it's more closely pegged to consumer demand for dairy products like cheese and butter, among other factors.

"There's an old adage in the dairy industry that only five people in the world know how milk is priced in the U.S., and four of them are dead," said John Newton, chief economist for the Farm Bureau, a lobbying group. "Milk pricing is very, very complex."

Increasingly, retailers like Albertsons, Kroger and Walmart are processing their own milk. Kroger operates 17 dairies, Albertsons had seven milk plants as of February 2019, and Walmart opened a milk-processing plant in Fort Wayne, Indiana, in 2018, CNN reports.

Even though milk consumption has decreased, most Americans still like having milk in the fridge. If grocery stores advertise good deals on milk, they bring consumers in. So, while raw milk prices fluctuate and send shocks through the dairy industry, retail milk prices have remained steady. In November 2019, a gallon of fresh, whole fortified milk cost $3.19 on average. That's up 35 cents from the July 2018 average of $2.84, the lowest price in over a decade.

For more on the alternative milk trend, see “Milk It” in the April 2019 issue of NACS Magazine.