A burgeoning interest in healthy eating … school districts booting out soft drink machines … consumers catching on to findings regarding dairy consumption and weight loss … the demand for organic milk outpacing organic milk supplies.

On the surface, things just seem to keep getting better and better for milk.

“This is the first time in a long time that we’ve had the light shining so brightly on milk,” says Miriam Erickson Brown, president and chief executive officer, Anderson Erickson Dairy Co., Des Moines, Iowa. “We’re at the beginning of a bright spot for milk and dairy in general. It’s a wonderful place to be.”

In citing milk’s recent successes, Brown points to the growing impact of the “3-A-Day of Dairy” weight loss campaign, sponsored by the Washington, D.C.-based Milk Processor Education Program (MilkPEP). At a recent MilkPEP meeting, she was astounded to learn that 75 percent of women surveyed indicated they were aware of the connection between milk and weight loss. Even more encouraging was the finding that a large portion of those women report buying more milk as a result of the campaign.

TOP 10 INDIVIDUAL WHOLE MILK BRANDS*
	$ Sales (In Millions)	% Change vs. Year Ago	Dollar Share	Unit Sales (In Millions)	% Change vs. Year Ago
Total Category	$3,040.7	-7.9%	100.0%	1,164.4	-6.5%
Private Label	1,918.1	-9.6	63.1	739.3	-7.5
Borden Milk Products LP	48.2	-5.2	1.6	16.7	-6.6
Horizon Organic	46.2	16.7	1.5	11.6	6.7
Lactaid 100	32.6	6.4	1.1	9.0	3.4
Garelick Farms	31.1	-4.8	1.0	13.9	-3.4
Pet	30.3	3.4	1.0	11.1	2.9
Prairie Farms	29.3	-0.9	1.0	12.3	3.0
Mayfield	26.7	-1.2	0.9	7.9	-3.1
Tuscan Farms	26.5	-21.3	0.9	11.1	-18.7
Dean’s	24.9	-6.4	0.8	11.1	-4.6
* Total sales in supermarkets, drug stores and mass merchandisers, excluding Wal-Mart, for the 52-week period ending June 18, 2006. SOURCE: Information Resources Inc.

“People who are aware of the campaign and trying to lose weight are certainly purchasing milk at higher levels,” says Tom Nagle, senior vice president of marketing, International Dairy Foods Association (IDFA), Washington, D.C. “The share of adult women who report they’re drinking more milk than they were six months ago has been rising every quarter for well over a year.”

Nagle is especially excited by consumption trends among women age 25 to 49, a key age group with regard to their own habits and their status as mom of the household. Citing them as the “primary target of the campaign,” Nagle proudly reports a reversal in per capita consumption among these key consumers. These findings are particularly noteworthy because they represent the reversal of a long downward trend in consumption.

When it comes to the industry’s other key focus — schools — the news is somewhat mixed. On the one hand, a number of school districts have taken to banning soda machines, in the hopes of pushing students toward healthier beverage choices. That doesn’t mean milk processors have been handed the golden goose, however. In the interest of students’ health, some districts — including the New York City public school district, the nation’s largest — have banned whole milk and most flavored milks, citing their high fat and sugar content.

While he admits that the industry has encountered “some pushback on a number of products,” Rick Naczi, executive vice president of U.S. sales and marketing, Dairy Management Inc. (DMI), Rosemont, Ill., stresses that progress most definitely outweighs setbacks with regard to school milk.

“It’s just a matter of time before we reverse most of that activity because the majority of people in the dietetic community are very positive about flavored milk and milks in schools,” Naczi says. “They know that the milk you want to serve a kid of the milk they’ll drink. It doesn’t do any good to give a kid plain nonfat milk if they are not going to consume it.”

TOP 10 INDIVIDUAL FLAVORED MILK/EGGNOG/BUTTERMILK BRANDS*
	$ Sales (In Millions)	% Change vs. Year Ago	Dollar Share	Unit Sales (In Millions)	% Change vs. Year Ago
Total Category	$719.3	-1.4%	100.0%	382.1	-3.4%
Private Label	216.5	1.0	30.1	116.2	-0.9
Nestlé Nesquik	98.2	-3.2	13.6	54.9	-7.4
Dean’s	28.3	-3.7	3.9	15.6	-5.3
Kemps	16.5	-5.3	2.3	8.4	-3.3
Mayfield	13.6	3.5	1.9	6.2	0.8
Prairie Farms	13.4	9.0	1.9	7.5	8.2
Borden Milk Products LP	11.9	-0.2	1.6	5.2	-3.8
Garelick Farms	11.3	-1.8	1.6	5.3	-7.1
Land O’Lakes	11.2	-3.8	1.6	5.7	-4.6
Hiland	10.8	8.8	1.5	6.2	9.0
* Total sales in supermarkets, drug stores and mass merchandisers, excluding Wal-Mart,for the 52-week period ending June 18, 2006. SOURCE: Information Resources Inc.

That concept is clearly illustrated in findings from last year’s St. Louis School Milk Test, undertaken by MilkPEP in cooperation with Prairie Farms Dairy Inc. Seeking to determine which packaging and flavors proved most popular with school-age children, MilkPEP experimented with multi-colored paperboard packaging and improved flavor formulations, serving them to about 165,000 students at nearly 300 St. Louis public schools. The result was an overall average increase in milk consumption of more than 12 percent per school.

Likewise, the producer-funded New Look of School Milk program has more than doubled the number of schools offering milk in plastic, resealable bottles, with more than 3,700 schools participating during the 2005-06 school year, compared to 1,500 during the 2004-05 school year. According to Tom Gallagher, DMI’s chief executive officer, such progress bodes well for the long-term future of milk. “Without a doubt, building life-long dairy consumption starts with kids,” he says. “We have a captive, impressionable audience (in schools), and we must provide milk the way they want it.”

Gallagher reports that a packaging preference study conducted last fall revealed that 94 percent of children will select milk on the school meal line if it’s served cold, in multiple flavors and packaged in easy-to-open, plastic resealable bottles. Consequently, DMI set out to encourage processors to improve their school milk programs by offering a variety of flavors and switching to resealable plastic bottles.

As a result of its efforts, Borden Milk Products LP, was recognized earlier this year with the first Leadership in School Nutrition (LISN) Award, sponsored by the Rosemont, Ill.-based National Dairy Council for its cooperation with a Houston-area school district. The award acknowledges and promotes positive partnerships between dairy processors and schools through innovations in milk programming using kid-appealing plastic packaging.

It was discussions with foodservice customers, rather than a prospect of an award, that led Borden to devise more attractive packaging, along with innovative new flavors, like Dulce de Leche, Orange Dream Delight and Choco-Mint. The company also began packaging milk in 11-ounce plastic bottles. In particular, Borden’s efforts have been focused on winning back the hearts, minds and stomachs of middle- and high-schoolers, according to Ray Platter, executive vice president, Borden Dairy, Conroe, Texas. While grade-school kids never really abandoned the category, he says, ‘tweens and teenagers were another story.

“It just didn’t seem like the cool thing to do to pick up milk with your school lunch,” he explains. “Once the milk was in plastic bottles, not only were the kids picking up more milk, but they were actually consuming it. That wasn’t necessarily the case before.”

In spite of all the good news regarding milk, sales don’t seem to be following suit. Overall, sales of milk fell 4.1 percent in dollars and 3.6 percent in units throughout supermarkets, drug stores and mass merchandisers, excluding Wal-Mart, during the 52-week period ending June 18, 2006, according to Chicago-based Information Resources Inc. (IRI). Delving down further, whole milk suffered the greatest losses, down 7.9 percent in dollars and 6.5 percent in units, while skim/lowfat milk sales declined 3.0 percent and 2.4 percent and flavored milk sales fell 1.4 and 3.4 percent, respectively.

These apparently conflicting results come as no surprise to Matt Samson, marketing director, Garelick Farms, Franklin, Mass. Encouraged by the good news regarding dairy and weight loss, consumers are motivated to drink more milk. According to Samson, they remain conflicted, however. Specifically, he says, consumers prefer the creamy taste of whole and 2% milk, but they are concerned about the high fat content of those products. Attracted to the lower fat content of skim- and fat-free milk, they’ve found that those products just don’t make the grade in terms of taste and mouth feel.

In an effort to address this issue, Garelick developed Over the Moon milk, which claims to deliver the rich, creamy taste of full-fat milk, but without all the fat. According to Samson, 1% Over the Moon milk tastes like whole milk, while the fat-free variety tastes like a 2% product. The seemingly impossible feat was accomplished merely by adding back more calcium and protein into the product.

Samson is hopeful that products like Over the Moon will lure health-conscious consumers back to the milk category. Likewise, Hayward, Calif.-based Omega Farms, a subsidiary of Pacific Cheese, hopes to encourage milk consumption with its line of products, all of which are fortified omega-3 fatty acids, which have been shown to be beneficial in the treatment of a number of illnesses, ranging from heart disease to arthritis to bipolar disorder.  

TOP 10 INDIVIDUAL SKIM/LOWFAT MILK BRANDS*
	$ Sales (In Millions)	% Change vs. Year Ago	Dollar Share	Unit Sales (In Millions)	% Change vs. Year Ago
Total Category	$6,681.5	-3.0%	100.0%	2,702.8	-2.4%
Private Label	4,157.5	-4.0	62.2	1,732.1	-2.5
Lactaid 100	215.9	7.9	3.2	63.1	2.9
Horizon Organic	131.8	19.1	2.0	34.1	8.9
Dean’s	82.3	-0.4	1.2	38.0	-1.0
Kemps	74.5	-13.2	1.1	29.7	-12.6
Garelick Farms	72.7	-1.3	1.1	31.5	1.6
Organic Valley	71.2	29.0	1.1	19.2	21.8
Prairie Farms	65.4	-8.6	1.0	29.3	-4.7
Hood	62.7	-11.2	0.9	24.2	-9.7
Mayfield	59.0	7.4	0.9	17.0	5.0
* Total sales in supermarkets, drug stores and mass merchandisers, excluding Wal-Mart, for the 52-week period ending June 18, 2006. SOURCE: Information Resources Inc.

“We feel like we are doing a good thing for an already healthy product, just enhancing it even more with better nutrition,” says Cindy DiFerdinand, corporate nutritionist and director of sales. “Because milk is such a mainstream product, it’s a great vehicle to get more omegas into everyday consumers.”

Omega Farms produces four varieties of milk — Vitamin D, 1% Low-Fat, 2% Reduced-Fat and Chocolate 2% Reduced-Fat — each serving of which contains 75 milligrams of EPA/DHA omega-3 fatty acids. According to DiFerdinand, the company has received overwhelming response both from consumers and retailers, who have been fielding consumer requests for products fortified with omega-3 fatty acids.

In light of the rapidly growing natural foods industry, Omega Farms very well might be heading down the right path in hedging their bets with the health-conscious crowd.

In particular, the organic segment of the milk industry is growing by leaps and bounds. While milk sales as a whole are down slightly, sales of organic milk have skyrocketed, reaching approximately a half-billion dollars in retail sales in 2005, according to Caragh McLaughlin, senior brand manager, Horizon Organic, part of Broomfield, Colo.-based WhiteWave Foods Co., which itself is a division of Dallas-based Dean Foods. Horizon, in particular, has fared quite well, capturing the number three spot in both the whole milk and the skim/low-fat sub-categories. Sales of Horizon milks rose 16.7 percent in dollars and 6.7 percent in units in the former and 19.1 and 8.9 percent, respectively, in the latter.

The tremendous growth in organic milk sales isn’t expected to slow down anytime soon. Unfortunately, reports Katherine DiMatteo, executive director of the Organic Trade Association, the demand for organic milk is currently 10 percent more than the supply. The shortage of organic milk will likely be compounded by the recent announcement by Bentonville, Ark.-based Wal-Mart Stores Inc. that it intends to significantly expand its organic foods line — and price it at a minimal premium above its conventional offerings. According to Reuters, the company intends to have more than 400 units of organic foods in Wal-Mart stores by the end of the summer.

Industry analysts predict that Wal-Mart’s massive buying power will push prices downward, narrowing the gap between organic and traditional products. With processors already fighting for limited organic milk supplies, the entrance of a giant player like Wal-Mart only threatens to make things worse, especially for regional dairies who’ve already been struggling to keep up with the demand.

Horizon CEO Joe Scalzo claims demand for organic milk is increasing 25 percent each year. If demand continues to grow at that pace, he says, the industry will have to more than double the number of cows and acres dedicated to organic over the next five years. Horizon’s parent company WhiteWave sponsors the HOPE (Horizon Organic Producer Education) program to educate farmers about what it takes to convert to organic and to provide them with financial assistance as they make the switch, a three-year process. Currently, WhiteWave is said to be helping about 200 small farms as they work toward becoming certified organic.

Horizon also has a vested interest in boosting the number of small farms producing organic milk. The company has come under fire in recent years for the use of what critics brand “factory farms” (approximately 80 percent of Horizon’s supply comes from two large Horizon-owned farms in Idaho and Maryland). The Finland, Minn.-based Organic Consumers Association has gone so far as to call for a boycott against Horizon Organic, arguing the company should not be labeling its products as “USDA Organic” because, the group alleges, its milk comes from feedlots where the animals have been brought in from conventional farms and are kept in intensive confinement with little or no access to pasture. Also under fire is Boulder, Colo.-based Aurora Organic Dairy, which provides private label organic milk to several major chains, including Costco, Safeway, Giant Food and Wild Oats.

One dairy that is not on the ORC’s hit list — La Farge, Wis.-based Organic Valley — has instituted an aggressive campaign to recruit dairy farmers to go organic and help the company keep up with the growing demand for organic milk. The campaign has included a mass mailing to many northeast Iowa milk producers, enticing them by explaining how much more money they could be making by producing organic milk.

With organic sales showing no signs of slowing down, schools embracing milk as they haven’t in decades and consumers seeking out dairy products to assist them in reaching their weight loss goals, processors are understandably bullish about the category’s future. For her part, Brown isn’t even concerned about the ongoing efforts of groups like People for the Ethical Treatment of Animals (PETA), which has set its sights on destroying milk sales through the use of an assortment of propaganda vehicles. That said, Brown does express concern that milk could someday become the target of a “Dateline”-type investigation revealing something negative with regard to milk, sparking public backlash regardless of accuracy or context. In her mind, the impact of such a broadcast could be catastrophic.

“Right now, milk has a pretty sweet spot in the minds of consumers in that people generally feel it’s very healthy,” she says. “If we ever get challenged on that or have anything that would threaten that golden halo effect for consumers with milk, that’s going to be a very scary place to be.”