Good Times

Another year has passed — another 12 months of new product introductions, another 365 days, each with — the industry hopes — at least three servings of dairy consumed by members of households across the nation.
The past year has brought a series of marketing campaigns designed to leverage medical research showing dairy’s important role in maintaining a healthy weight. But despite these efforts, market forces appear to be hindering their progress.
While milk prices reach record highs, market research data shows dollar sales rising but unit sales decreasing across all fluid categories— even flavored, considered the growth engine for improving milk’s standing as a beverage of choice among carbonated, sugar-laden options.
Not that the past year hasn’t offered consumers a choice. On the contrary, there has never been more of a choice of products, especially with the low-carbohydrate craze driving the latest better-for-you growth spurt.
Of the 3-A-Day components — milk, yogurt and cheese — two offer low-carb options, while the third is naturally low in carbohydrates. All three also offer lowfat and fat-free varieties, covering all dairy-eating lifestyles.
Now, reports are beginning to surface indicating the bloom may be off the low-carb rose. Data reported by USA Today shows that while sales of foods labeled as low carb increased more than 280 percent between July 2003 and last month, sales for the 13-week period at the end of that year were up just 20 percent, after increasing 122 percent in the previous 13 weeks. Could this be signaling the eventual abandonment of much-ballyhooed low-carb alternative products for the good old standards?
Turning to industry matters, the outlook seems bright for processors. A bill to make forward contracting permanent is advancing through Congress. President Bush signed changes to federal nutrition policy giving milk a more prominent spot in schools. And farm milk prices have started to fall from their historic highs, offering hope that retail prices might start to drop enough to help shore up plummeting sales. The USDA reported July retail prices for whole and reduced-fat milk were down after spikes in May and June.
Meanwhile, the latest WTO ag talks herald greater opportunities for the U.S. dairy industry on the world stage, as global demand for dairy products continues to grow.
The industry itself continues to get a little smaller. Since Dairy Field published its Top 100 processor ranking in June, No. 6 Schreiber Foods acquired No. 69 Level Valley Creamery, the Green Bay, Wis.-based private label manufacturer’s latest step in growing even larger. Dreyer’s Grand Ice Cream, after merging with Nestlé’s ice cream interests, took over Silhouette, makers of Skinny Cow frozen desserts. And DFA is picking up some of the pieces as Parmalat’s meltdown hits U.S. shores.
But then, DFA could conceivably end up a little smaller as well, depending on the eventual outcome of an antitrust probe of the cooperative launched by the Department of Justice. Federal prosecutors have heard testimony from several Louisiana dairy farmers in connection with allegations that DFA is trying to corner certain regional raw-milk markets.
The investigation will determine whether DFA is flexing its monopolistic muscle or whether it’s all just another page in the ongoing saga of industry-wide consolidation.
True, major processors are getting larger and growing in influence, but it doesn’t seem to be having a negative impact on new product choices offered to consumers. While smaller companies might lack the layers of corporate bureaucracy through which new ideas must burrow, larger companies have pockets deep enough to enrich their R&D endeavors.
But you can judge for yourself how well the industry is serving its consumers. This month, our State of the Industry report breaks it down,  looking at how far things have come in the past year and where they’re going next.
To borrow a phrase from one of our section sponsors, it seems to be a great time to be in dairy. df
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