Risk Success

by James Dudlicek

New IDFA chief issues challenge to the industry.

Connie Tipton has outlined a bold vision for the future of the dairy industry. Her message came at the 2004 Dairy Forum last month during Tipton’s first keynote address as the new president and chief executive officer of the International Dairy Foods Association (IDFA).
“What really bugs me more than just about anything is missed opportunity,” she told the audience gathered for an awards breakfast at the forum in Boca Raton, Fla. “The truth is, the dairy industry doesn’t really like to take risks. It’s not in our nature. … But we are alone among major industries in paying so much attention to production and not enough attention to marketing and brand development. Individually, many of you are ‘risk takers’ but collectively we are ‘risk avoiders.’”
Noting that government programs were created to take risk out of the dairy business, Tipton stressed that risk “is part of our reality,” because of the changes in farming, processing, consumers and the marketplace over the years. For example, she pointed out the enormous sales of bottled water among dairy’s competitors.
“It’s not just about production volume anymore,” Tipton said. “Our success comes from building demand, and that means having to go out on a limb now and then, to reap the greater rewards of risk.”
Rather than bracing for failure, she said, “I challenge us to change our mindset as an industry and risk success. In the competitive marketplace today, we must be bolder and more positive to grow our industry.”
Doing this first requires recognizing the changes in the world, Tipton said, such as competition from New Age foods and beverages, an increase in eating out and diet crazes like Atkins and South Beach.

‘Policies Haven’t Kept Pace’
Tipton commended processors who have innovated with products like single-serve milk in a wide variety of flavors and cheeses in more convenient packaging. “But there is a heavy burden of regulations that increase costs and stifle innovation,” she said. “The world has changed and the industry has changed, but many of our policies haven’t kept pace. In fact, they are holding us back.”
Tipton pointed to the Federal Milk Marketing Orders, created in the 1930s to regulate Class I fluid milk in the days before advances in refrigeration, transportation and telecommunications. And while the amount of milk that goes into Class I beverage use has shrunk to about one-third of all milk produced, federal and state marketing orders have grown to cover about 90 percent of total production. As such, the federal order system as it stands “actually undermines our industry, pitting one farmer against another,” she said.
“The purpose of our regulations has not been to build a strong, competitive industry. They have been to level the playing field among milk producers and processors — and to take out the risk,” Tipton said. “It’s a stifling influence on creativity and innovation.”
Meanwhile, dairy’s competitors have boosted marketing spending while milk’s share of total beverage marketing spending has dropped from 11 percent to less than 8 percent, though actual spending hasn’t decreased. “Bottled water is about to surpass milk in per capita consumption in this country,” Tipton said. “That’s an amazing and sobering fact.”

‘Keep the Upper Hand’
With 60 percent of all fluid milk sales in private label with little marketing support, competition is tough against highly promoted branded beverages. But investing in brand building isn’t as risky as one might think, Tipton said.
“According to Beverage Marketing Corporation, one of the country’s leading beverage consulting firms, milk companies actually have some advantages over soft-drink marketers when it comes to certain key growth opportunities,” she said.
Chief among these is health. While soft drink companies search for a “good for you” replacement for their carbonated drinks that are being evicted from schools across the country, “nothing beats milk in the realm of healthy beverages,” Tipton said. Plus, milk processors possess production and distribution advantages that can allow line extensions to traditional milk products, she said.
“But what was the initial reaction by the milk industry to these new milk products? To ask the Department of Agriculture to consider broadening Class I regulations to make sure more would be paid for any dairy ingredients going into these new products,” Tipton said.
The executive committee of IDFA constituent group Milk Industry Foundation (MIF) opposes this move, which Tipton said would restrain the industry’s efforts to expand this category. “If we take risks and push forward, we can keep the upper hand when it comes to milk and milk drinks, and beat out soft drinks in reaching teens with a healthy beverage,” she said. “That’s a risk worth untold millions of dollars in potential market share and category growth.”
To leverage recent research linking increased dairy calcium intake with weight control, IDFA is working with Dairy Management Inc. (DMI) to issue licenses to processors seeking to make this health claim in product labeling and advertising. DMI has exclusive rights to the license for the research, patented by the University of Tennessee. This follows up the “Healthy Weight with Dairy” promotion already under way.
Products qualifying for IDFA licenses include most standardized dairy products (excluding frozen desserts), non-standardized products and all fluid milk products that provide at least 10 percent of the daily value of calcium, if at least 66 percent of the calcium and protein is derived from dairy ingredients (50 percent for cottage cheese).
“There’s no question this could boost dairy sales,” Tipton said, noting the positive sales impact red wine and cranberry juice experienced when they were pegged to health benefits. “Dairy has a huge, incredible opportunity here, and we need to aggressively take advantage of it.”
More information about applying for licenses is available at www.idfa.org and www.MilkPEP.org.

‘Provide More Flexibility’
Holding back innovation further, Tipton charged, are rigid standards of identity governing dairy products. “It makes sense for these standards to evolve, to allow for the use of ingredients and technologies that are already well known and in many cases used in many parts of the world,” she said. “In fact, this has happened in other food categories, but because of the politics of dairy, we are the only category where changing the standards requires formal rulemaking, a much more burdensome and political process.”
IDFA is supporting a petition to the FDA to remove restrictions on using dairy proteins in ice cream. And the debate over milk protein concentrates (MPCs), casein and caseinates is really an issue of the failure of federal dairy price supports, Tipton said.
The federal government in the last fiscal year spent more than $600 million to purchase surplus nonfat dry milk, Tipton noted. “Now, with a billion pounds in storage, they’re devising all sorts of programs to get rid of the surplus, but these inevitably lead to disruption of existing markets, and simply set up a revolving door of surplus going out, sales being displaced and a resulting new surplus coming right back in,” she said. “Imports of MPC continue to represent only about 1 percent of the total milk protein supply in this country. The impact from MPC imports is tiny compared to the greater risk of losing untold food opportunities in the global marketplace.”

‘A Smart Start’
Greater opportunities also can be found in school milk sales, Tipton said, citing DMI research showing a boost in school sales when children were offered milk served ice cold in interesting packaging and new flavors.
IDFA and the National Milk Producers Federation (NMPF) are working together to further legislation that would provide incentives to schools to increase milk consumption, amid competing efforts to get soy milk inserted as an alternative to dairy in reimbursable school meals.
Meanwhile, MilkPEP and DMI are cooperating on a school milk marketing education program that’s expected to “drive quality, consumption and profits,” Tipton said.
“This is a start — a smart start,” she said. “Remember, this battle is not just about getting more for dairy in schools — it is about keeping what we have and improving it.”
In closing, Tipton challenged the audience to take a fresh look at the industry. “See its many strengths — our products, our people, our skills and innovations. And when you look at the weaknesses, imagine that we can work together to change them,” she said.
“Everything we do for the industry should be to make ourselves more competitive and to increase demand for dairy products. We must focus on listening to the marketplace and building demand. That is how we can all succeed.” df