The dairy industry is changing and evolving as never before.

Over the past two years, dairy producers have shifted the business direction of their promotion organizations away from generic image promotion to focus on what consumers want and need. Dairy Management Inc.TM (DMI), the National Dairy Board and the 18 state and regional United Dairy Industry Association member organizations are working to answer unmet demand for dairy by supporting industry innovation and addressing barriers to growth.

Short-term industry success is evident. Milk sales were up 1.2 percent in 2006 — the largest increase in 20 years. Value-added milk represents a healthy chunk of all milk sales — $2.3 billion to $2.5 billion out of $13.4 billion — with products offering extras such as additional milk protein and calcium, probiotics and omega-3s. A new probiotic yogurt is one of the most successful product launches ever. Dairy protein now appears in bottled water.

Yet for success to continue in the long term, we must embrace change and work together to innovate and remove roadblocks to growth. Our future depends on meeting the needs of people who are on the go, health-conscious and focused on flavor. We must become a consumer-driven industry and supply consumers with innovative products that meet their needs.

Recent successes with milk are powerful proof of what we can do together. Single-serve plastic packaging has been a growth driver in schools and quick-service restaurants (QSRs) over the past five years. Today, with partnership and education efforts by DMI, more than 7,300 schools and 55,000 QSRs serve milk in resealable plastic packaging. A single restaurant outlet went from selling 49 paper cartons of milk a week to selling 300 when it switched to plastic. Research shows sales increases of 13 percent to 34 percent year over year for school districts serving milk cold, flavored and in single-serve plastic.

Flavored milk is another example. As restrictive nutrition standards were suggested for schools across America, DMI and dairy processors worked closely with the Alliance for a Healthier Generation to revise guidelines for flavored milk in schools, allowing the industry time to develop new formulations lower in sugar and calories and yet still appealing to kids. Working closely with industry since 2005, DMI formulators came up with a 150-calorie strawberry milk that kids like and that meets the guidelines. A chocolate formulation is in the works. Consuming milk at school is definitely part of the solution to childhood obesity, and these changes help preserve the presence of flavored milk on school lunch lines.

As we work with industry to identify opportunities to turn unmet demand into more dairy sales, we partner with companies with the same product goals that we have. Examples might include value-added cheeses, availability of milk in non-traditional locations, new whey-based products targeting specific consumer niches, milk powder opportunities in China and fluid milk opportunities in Mexico. DMI and these partners agree on what needs to be done and who is best positioned to make it happen.

For instance, we’re working with partners to introduce value-added milk products aligned with needs uncovered in DMI research. Some 62 percent of the time consumers reach for a beverage, they are open to value-added milk. The greatest growth areas are in replenishing beverages, health-focused drinks, meal replacements and indulgent beverages.

Beyond value-added milk, DMI is focusing on other areas with strong innovation potential and industry interest: cheese, products for the Hispanic market, ingredients and export. Each platform involves market research followed by industry partnerships and outreach.

DMI’s National Dairy Foods Research Center Program, a national coordinated research program involving dairy research centers, applications labs and universities, works to give industry answers that can lead to new dairy and dairy-based products. For example, researchers are working to develop a low-fat cheese that both tastes great and works in foodservice to protect future sales of cheese in low-fat menu offerings.

When it comes to nutrition, successful manufacturers use innovation and nutrition-based marketing to help them increase sales and position themselves positively with consumers. The focus is on consumer benefits as opposed to product attributes. Couple these benefits with consumer-friendly packaging and products made available where the consumer wants them, and they are successful. As has always been true, great taste is essential. But it is innovation and nutrition positioning that separate category leaders from everyone else.

Nutrition research supported by DMI’s National Dairy Council® (NDC) continues to explore the nutritional benefits of dairy and solidify the sound science behind potential label claims for dairy products and ingredients. These efforts are more critical than ever, as the nutrition environment becomes increasingly polarized and consumers make choices based on concerns about health and wellness.

NDC is working with industry to stress the benefits of nutrient-rich foods, such as dairy. DMI’s 3-A-DayTM of Dairy program reminds consumers that the federal Dietary Guidelines for Americans recommend three servings a day of low-fat and fat-free dairy for good health.

Long-term growth also depends on collaboration to address barriers to expansion. These areas require attention.

Dairy plant infrastructure: For the U.S. dairy industry to become consumer-driven, we need plants that create products people want. DMI’s loans-and-grants program supports infrastructure revitalization, but more help is needed. The governments of Ireland and other European countries are helping their dairy industries transform themselves. How about the U.S. government?

Price volatility: We need solutions that both look at managing milk production growth and create incentives for industry to innovate.

Demand for protein and a surplus of milkfat: With production of dairy protein comes excess milkfat. Why not create incentives for industry to produce milk components in high demand and disincentives for less desired components?

Nutrition as a value-added concept: NDC has built a body of research since 1915 on dairy’s nutritional benefits. Nutrition as a point of differentiation is an underdeveloped opportunity for U.S. dairy companies. Manufacturers can leverage this information for success.

Dairy producers have changed the direction of their checkoff program to drive increased sales and demand. Now it is time for the rest of the industry and government to do their part in responding to consumer demand, motivate innovation and leverage the positive nutrition environment. The opportunities are there, and we must get past the barriers to realize them.  

Together, we can meet unmet demand by delivering the right products at the right time in the right locations to meet consumer needs.