“May you live in interesting times.” If nothing else, the ancient Chinese proverb rings true for the dairy industry, which certainly lives in interesting times today.
The dairy industry, already faced with labor issues, supply chain shortages, and increased competition from dairy alternatives can add inflation and the potential for recession to the list of daily challenges.
As noted by our respondents, labor issues are perhaps the most daunting challenge the dairy industry currently faces.
However, all of these challenges can lead to plenty of opportunities, as well as the comforting thought that food and beverage industries have often performed well during uncertain times.
To take an in-depth look at the dairy industry, we asked several industry executives to answer five hot-button questions. This year’s participants are Eric Stone, chief operating officer, Byrne Dairy Inc., Dewitt, N.Y.; Paul Snyder, executive vice president, Stewardship, Tillamook County Creamery Association (TCCA), Tillamook, Ore.; Dennis Rodenbaugh, president, and CEO, Dairy Farmers of America (DFA), Kansas City, Kan.; Pedro Silveira, president, yogurt at Danone North America, White Plains, N.Y.; Tim Omer, president and managing director, Emmi Roth, Fitchburg, Wis.; and Joe Diglio, president and CEO, Michigan Milk Producers Association, Novi, Mich.
Dairy Foods: What do you view as the biggest challenges in the dairy industry and how are you overcoming those challenges?
Eric Stone: There are always challenges in the dairy industry and they change, often without warning. We see these as opportunities and how to think about things differently to improve on the situation. One of the largest opportunities, which isn’t isolated to the dairy industry, is attracting and retaining a sustainable workforce. We have put many touchpoints in place to engage with our employees, show appreciation, and to attract new workers into our family. It’s a never-ending process and we will never get to a point where we can say that we are finished.
Paul Snyder: Climate change is a threat to farming, our industry, and the world, and we’re already seeing its harmful effects and the challenges it brings. The dairy industry has an opportunity and responsibility to demonstrate how dairy producers and processors can be part of the climate solution to protect the future of our ecosystem.
To successfully face and overcome these challenges as an industry, we need to come together as a collective to learn from and work with one another. Already, the dairy industry has reduced emission per gallon of milk by more than 60% since the 1940s, but we still have a lot of work to do. We can’t solve these challenges alone and it will take action from all of us, but dairy farmers and producers deserve a seat at the table to help drive positive impact and change.
Dennis Rodenbaugh: Labor availability and retention is the leading challenge. The labor shortage and the high turnover rates across the manufacturing and distribution sector result in a ripple effect throughout our industry. From the farm through our entire supply chain, the industry is challenged by availability and quality of inputs, reduced shifts and production levels, and higher costs, all which impact the consumer. We are focused on understanding the needs of employees to determine how we can best support and retain them. We are looking at solutions such as offering improved scheduling options, expediting the application and onboarding processes and implementing more intuitive and visual training methods. Most importantly, we are working to best showcase our welcoming culture and the greater purpose that we’re able to offer employees who are seeking more than just a job.
Another focus is on understanding and appealing to the wants and needs of today’s consumer. We continue to challenge ourselves to develop innovative dairy products and packaging formats across all forms, functions and flavors to meet consumer demand and connect them to the complete nutritional package that dairy offers. The marketplace will continue to be saturated with lesser nutritional alternatives. Leveraging consumer insights and understanding will help generate demand and provide differentiation on the dairy shelf.
Finally, there is an ongoing opportunity to reinforce the facts with consumers on how dairy is a sustainable solution. Our farmers are good stewards of the land and have been focused on shrinking their environmental footprint and working to lead in environmental health initiatives. This isn’t new — they’ve been the leaders in this effort for generations, so we have a positive sustainability track record, and we are actively sharing that with consumers. At DFA, we’re taking steps through our Nerd Herd campaign to help combat misinformation about dairy’s impact on the climate and ultimately help consumers understand that they can feel good about eating dairy.
Pedro Silveira: As we look at the marketplace and industry, we understand that an unprecedented amount of volatility is still present and are acutely aware that these challenges extend beyond our category. For example, we know that consumers are feeling pressure in a number of places, including the grocery aisle. Rooted in our mission to bring health through food to as many people as possible, we continue to adapt and prioritize how our company can continue to bring health to the shelf for consumers. At Danone North America, we have taken several steps to influence the accessibility and affordability of our yogurt portfolio, which we believe has material relevance to consumers given our offerings across Greek and high protein, probiotics, plant-based, kids’ nutrition, and lower sugar products. Specifically, we are working to partner with channels that appeal to a wider spectrum of consumers and to create more cost-effective options.
We have also taken several steps to provide value to our customers and believe that it’s important to stay agile, so we can continue to adapt. For example, we’re actively managing inflation in a variety of ways including regularly assessing price, promotions, package diversification, channel mix, and innovation. We deployed strategies to sustain our service recovery and navigate the supply chain challenges many businesses have felt.
We are pleased to see the continued resilience of our portfolio, underscoring not only the relevance and leadership positions of our house of brands including Oikos, Activia, and Two Good but also how these brands continue to transform to meet evolving consumer and customer needs.
Tim Omer: People are our greatest asset and, like every industry, finding and retaining talent has become more challenging. We continue to improve our benefits package, making meaningful changes to attract and retain. We implemented on-demand pay, sign-on bonuses, have gone to a hybrid work model for certain roles, and continue to discuss other offerings to attract top talent. Like most manufacturers, we’re not immune to global supply chain challenges. One way we’re easing supply chain is to open up additional capacity both internally and externally.
Joe Diglio: I see two main areas that are challenging our industry. The first is supply chain as it relates to getting our products to where there is demand. Transportation challenges such as escalated costs, lack of resources and infrastructure capacity require solutions to allow us to deliver production from rural communities to population-dense areas as well as overseas. We are regularly partnering with customers and industry alliances to find synergies for challenges like this. Together, we can find opportunities and service the demand of a product at a price point that the customer is willing to pay.
The second challenge isn’t necessarily specific to dairy, it’s the challenge of securing labor. The lack of labor is affecting not only our producers on the farm, but also manufacturing operations and production facilities. Dairy producers are progressive and resourceful and will continue to find ways to utilize technology as an opportunity to accommodate for the lack of labor and the challenges they are facing on the farm. As we continue to find ways to invest in infrastructure that eliminates reliance on labor, it will benefit us in the future as we improve our productivity on farms and at our facilities.
Dairy Foods: On a related topic, the possibility of a recession is looming. Will that affect your business in any way? Why or why not? How will you respond to this concern?
Stone: Economics always has an impact, but the dairy food and beverage industry has some insulation. However, we can’t predict what it will do. We monitor inventory pull and if people spend less, that pull may slow. Cost control is always on the radar so it’s not something we have to turn on.
Rodenbaugh: The dairy industry as a whole offers an area of stability. For most Americans, dairy is an essential purchase, not a discretionary one. Additionally, the growing global demand for dairy puts us in a strong position to reduce the impacts of a recession.
That said, dairy commodity and feed prices are extremely volatile, which can present challenges for our family farm-owners’ operations. To help manage the unpredictability markets bring, our risk management team has developed a number of innovative solutions to help our family farm-owners secure a consistent and reliable margin. It is critical that we offer expertise and market insights to help both our family farm-owners and our customers manage market volatility.
On the commercial side of our business, we work with our operational teams and customers in a similar way, collaboratively developing unique strategies and solutions that add stability to their ingredient costs and solidify margins.
Silveira: With the possibility of a recession and continued volatility on the horizon, we are continuing to ensure consumers are at the center of our products and that we are prioritizing what is most important to them. We know that, though consumers are continuing to demand good-for-you, healthy foods and beverages. The conversation has expanded to encompass what this looks like in an inflationary environment. Specifically, consumers’ values equation has evolved from “fixed” to “fluid” with factors like price, quality, relevance, and experience taking an increased focus. (Hartmann Group The Business of Thrift, 2018 and Sustainability, 2021). As consumers make purchasing decisions, these values shift in importance based on category, context, personal values, and consumer demographics.
We ensure we keep this understanding of what consumers are looking for top of mind, leading to performance that proves the incredible relevance and material value of our mission and portfolio. For us, we know that taste, quality of ingredients, and health and nutrition of a product are fluid for our consumers so we approach them with flexibility. With a variety of products offering accessible health, alongside the right packaging mix and product offerings, we are well-positioned to provide the value consumers are seeking at this moment and sustain our continued growth.
We are also constantly assessing how to communicate the right benefits for the right value to consumers, understanding that products in our portfolio serve different needs for different consumers. We leverage a variety of bundles and promotional strategies, and more clearly relay unique product benefits we know consumers find important.
Omer: I’ve seen three or four recessions in my time in this business. Specialty cheese tends to weather well. Consumers have already felt the shock of inflation, and they’re still purchasing cheese.
Diglio: Traditionally, agriculture is viewed as a recession-proof industry, but it’s important to consider that the production and manufacturing within the dairy industry is still subjected to the impacts of the economy. As the costs of labor, utilities, supplies and energy go up, there is more expense to produce a product, both in the plant and on the farm. It’s important to remember that our industry won’t be alone in being captive to a recession, so we must respond by streamlining and managing the demand side as effectively as possible. Products and technology innovation will be critically important, along with finding opportunities to enhance efficiencies, create consumer awareness and develop new product offerings.
A recession is also a great time to promote the benefits of dairy as consumers prioritize their buying behaviors and dairy is an excellent source of nutrition. It will be important to play off of the benefits associated with dairy, engage in promotion and be responsive to consumer needs.
Dairy Foods: Sustainability continues to become a more important topic for the dairy industry. Please describe what both your sustainability efforts and goals are for the present and future.
Stone: Sustainability as a focus has led us to strategically replace our truck fleet with more efficient models over time and invest in software that selects the safest and fuel-efficient routes for drivers to take. Work to reduce wastewater loading and effluent volume is a journey and partnering with local authorities for win-win solutions is vital. Utility consumption is considered for new installations and/or upgrades. This too, will be a continuous evolving process that will constantly be in an improvement mode.
Snyder: Since our founding in 1909, our farmer-owners have built everything with a long-term outlook to ensure we are here for generations to come. Being good stewards of cows and farms, of people and products, of our communities and the environment, lies at the heart of everything we do. As a Certified B Corp., we’re committed to reducing our impact on the planet.
To be part of the climate solution and continue our commitment to ensure we are here for generations to come, TCCA has aligned with the Innovation for U.S. Dairy’s Stewardship Commitment to reach net zero emissions by 2050 and this year we set an interim goal of 30% reduction in emissions by 2030. We are not the first company or industry to come out with climate goals and solutions, and we won’t be the last, but now is the time to unite as an industry to address climate change head on.
Rodenbaugh: Dairy farmers have been on a sustainability journey for decades. Our family farm-owners are always thinking about the next sustainable effort or technology because their farms are their futures, and they want to preserve and improve them for the next generation. Our farm families are utilizing a variety of methods to help protect the land and reduce emissions, including regenerative agriculture practices, renewable energy methods, anaerobic digesters and so much more. In fact, our farms are increasingly providing solutions by converting municipal and other waste into renewable energy to power more communities around the country.
As a cooperative and industry, we’ve set and are committed to making continued progress on our Environmental, Social and Governance (ESG) goals. A focus for advancing progress is partnerships, technology and projects with key customers to help expand and implement sustainable practices on dairy farms. We believe farmers should retain the value their sustainability efforts produce as we transparently account for the actual reductions in emissions that some carbon accounting metrics may not fully capture.
We are also excited to have been selected by the U.S. Department of Agriculture to receive a Partnerships for Climate-Smart Commodities grant to implement a pilot project. The project will focus on further reducing on-farm greenhouse gas (GHG) emissions and increasing carbon sequestration and will enable us to develop and market climate-smart, low-carbon dairy products. Our goal is to create a self-funding circular rural economy model so that our family farm-owners are incentivized to continue to reduce on-farm GHG emissions, which in turn will lead to the creation of low-carbon dairy products.
Silveira: As one of the world’s largest Certified B Corps, Danone North America is committed to addressing critical sustainability and climate issues that intersect with our business. This emphasis on sustainability and using our business as a force for good is underscored by our One Planet. One Health frame of action, our belief that the health of people and the health of the planet are interconnected, and that as a leading food and beverage company, we have a responsibility to advance both.
One example of this is our establishment of the dairy industry’s most comprehensive regenerative agriculture program to protect nature, respect animal welfare and acknowledge the role of farmers and farming. Our Soil Health Initiative, a multi-year, multi-million-dollar program, brings together experts and academics to build best-in-class regenerative agriculture programs to benefit farms and communities across our portfolio. So far, more than 140,000 acres have enrolled, surpassing our initial goal. We have also reduced the equivalent of more than 119,000 tons of carbon dioxide and sequestered more than 31,000 tons of carbon; and we have saved more than 337,000 tons of soil from erosion.
Our products are also rooted in sustainability. For instance, knowing that food waste is a No. 1 contributor to climate change, our Two Good “Good Save” brand addresses food waste at its earliest stages, using Verified Rescued Produce that would have otherwise gone to waste at the farm level to create delicious, seasonal, lower sugar yogurt products that have a positive impact on the environment.
Omer: We’re on the path toward achieving net zero by 2050 and our focus for the next five years is on reducing emissions, waste and water use, and sourcing sustainable milk. We’re already making great strides, hitting our 2027 goal for water efficiency this year. Our new cheese conversion facility and headquarters will also become one of our largest sustainability initiatives to date, allowing us to scale back transportation needs significantly. Fewer miles on the road means less fuel consumed and fewer emissions.
Diglio: We are aligned throughout the dairy industry on sustainability initiatives with the objective of being carbon neutral by 2050. Dairy is an industry leading sector within the agriculture community, taking action to respond to sustainable efforts, ensuring that the farmer voice is heard, and that we create unifiable actions to educate key stakeholders. Dairy farmers already practice sustainable efforts on an everyday basis, but moving forward it’s more than just common practices, it’s about capturing the data and promoting the results. Whether it’s on the farm practices or manufacturing, continuous improvement and measuring output becomes an opportunity to progress each year. I believe sustainability is everyone’s initiative and it shouldn’t be used as a marketing tool within industries.
Dairy Foods: Although the pandemic is still omnipresent, we are hopefully moving toward a post-COVID-19 pandemic period. Can you describe some lessons learned from the pandemic and changes you have made as a company since the beginning of the pandemic?
Stone: Employees safety is our upmost importance. Making the best decisions possible based on limited information and data became a way of life during the pandemic. Our focus on enhanced communication and flexibility were key elements to leading our team through the COVID-19 pandemic.
Rodenbaugh: We always knew the dairy industry overall and our farmers were resilient. But the pandemic further demonstrated this. Our family farm-owners got up every day and continued to operate their businesses and supply milk. Our employees diligently worked to process that milk so consumers could enjoy their favorite dairy products. And we saw that consumers did just that. We saw sales across all dairy formats increase during stay-at-home orders, affirming consumers love and use dairy in its different formats and flavors throughout the day.
I think one of the most important lessons we learned was around flexibility. At the height of the COVID-19 pandemic, suppliers and manufacturers across many industries shut down as schools, restaurants and businesses closed. But our farmers were still milking cows and people still needed products at retail. Our teams were incredibly solution-oriented and figured out how to adjust and work with partners to get products to market and keep people fed and nourished. And because of that, we saw consumers lean into dairy across its flavors and formats as a source of comfort and wellness as they weathered the uncertainty the pandemic brought, especially in its early days.
Silveira: Our mission to bring health through food to as many people as possible and our portfolio of brands has never been more relevant. In the past two years, COVID has further cemented consumers’ focus on overall health, increasing their desire for healthier foods and appreciation for the role food plays in health and well-being.
In line with this trend, we have seen the perception of “healthy” continue to evolve as consumers not only seek out nutrient-rich foods but also functional foods, making our portfolio even more relevant. To meet this heightened demand, we are continuing to bring transformational innovation to our portfolio. For example, Oikos Pro — a collection of high-protein dairy products with 0g added sugar — meets consumer desire for less sugar and more protein, and Oikos Triple Zero is the No. 1 high-protein yogurt in North America. Specific to probiotics, Activia, a probiotic pioneer, introduced in 2006 when consumers were largely unaware of probiotics, is increasingly sought after as more consumers look to improve their immune system and gut health. Activia has maintained its place as the No. 1 gut health brand, with new innovations like Activia+ driving significant growth.
Separately, as convenience has become top-of-mind for consumers as their busy, on-the-go lifestyles take off post-pandemic, we are ensuring consumers have on-the-go options to meet their needs. For instance, in keeping with consumers’ focus on gut health, Activia Dailies, a probiotic low-fat yogurt drink, makes adding good bacteria to daily routines even easier. We will continue to prioritize formats that evolve alongside consumers’ busy, active lifestyles, including drinkables, while also prioritizing health-forward, nutritious products to meet consumer expectations.
We have also seen a rise in products being available on new channels. Despite a return to on-the-go lifestyles, consumers have continued to shop in non-traditional ways: moving from the grocery store aisles to the digital supermarket. We have seen a significant acceleration of digital commerce sales over the last year, expected to climb from $35 billion to more than $250 billion by 2025, with more than half (51.3%) of the U.S. population expected to be digital grocery store buyers.
With this in mind, we believe digital commerce, or what we like to call “the virtual shelf,” is here to stay, making it even more critical for food and beverage brands to take note. We are continuing to lean into digital platforms to ensure our products are showing up in the right places, and that we are using these platforms to tell our products’ stories on-site.
Omer: The pandemic caused us to become more agile and strategic than ever before. When restaurants shutdown and airlines scaled back, we had to quickly think on our feet and find alternative product destinations. We also cared for and supported our customers even more, which has had a lasting effect. Our team uses this experience to their advantage. We’re extremely strategic about what products we bring to market, where they best fit, and how other sectors of our business might be able to use them.
Diglio: The greatest takeaway from the pandemic, outside of the important role that technology plays, is that as an industry, we are able to continue handling milk and getting into customers’ hands effectively and responsibly. We didn’t miss a beat during the pandemic and these past few years have proved that dairy is essential. All farmers have an underlying commitment of getting their product to the marketplace and we saw the entire industry come together to ensure consumers had dairy available.
We’ve embraced technology more so than ever before. The pandemic pushed us in a direction where we found we could be successful operating from different locations, and it changed our ordinary course of operation. A big positive that came out of the pandemic is that while we were expecting communication to breakdown in the shift to reliance on technology, our communication was actually enhanced. The way we came together as an organization to ensure milk got to market collectively brought us together and let us hone in on our internal practices. We’ve since relooked at some of our historical practices and reflected on our learnings to become more flexible, understanding and communicative.
Dairy Foods: Looking ahead, what are you most excited about in terms of growth prospects for the dairy industry?
Stone: The most exciting growth prospects in the dairy industry include the continued expansion of the current customer base and new customers coming on board, both in extended shelf-life and aseptic product lines.
Snyder: I’m excited for the world and industry leaders to see the dairy industry as innovators who are helping address some of the world’s toughest challenges. Elevating the work and progress of the dairy industry will help show others that we are problem-solvers and play a key role in the fight against climate change.
Rodenbaugh: The dairy industry and make up of our cooperative are rooted in family farms, the communities that farm families live and serve in and the healthy and innovative product they produce that is nutritionally superior and can serve and sustain a growing global population. Supporting farmers’ livelihoods and their ability to manage and grow their farms for future generations also aligns to our Cooperative’s commitment to grow the global demand for dairy, not only for DFA farmers, but for all dairy farmers in the United States. There’s much to be excited about with international trade and the global marketplace, but farms must both thrive and grow for the industry to be able to meet the demand opportunities.
There are many opportunities to innovate and deliver dairy products that meet and exceed consumer expectations. I’m excited to see how we at DFA and the industry overall will continue to look for new and innovative ways to deliver dairy to benefit our family farm-owners and support health and wellness to a growing population.
Silveira: At Danone North America, we understand the culture of yogurt better than anyone and, as the market leader in the category, our yogurts are in 50% of households. Our hugely versatile house of brands has offerings that stretch generations, occasions, and values to reach a large variety of audiences. And our ability to identify emerging needs and trends to reach these consumers and keep them excited about the category is matched by our investment in culture and purpose to bring those category offerings to consumers in a competitive, relevant and emotional way.
As we look ahead, we know that consumers’ desire for protein, probiotics, and low- and zero-sugar products is here to stay and will only continue to accelerate. Our cutting-edge approach to innovation will continue to guide us as we break through with low- and zero-sugar products with taste that is on par with their full-sugar counterparts. Our Research and Innovation team is at the heart of making the best-tasting, low- and zero-sugar products on the market.
As a leader in both plant-based and dairy, we also see tremendous growth opportunities across both as more consumers embrace flexitarian lifestyles, fueling a transformation of the grocery aisle from the traditional to the unexpected. As the leader across several plant-based categories, including yogurt alternatives, we are seeing unmatched growth as we bring new dairy alternatives to the market that break conventions with the unmatched taste and texture consumers love. For example, our Silk Greek product was one of the first plant-based yogurt alternatives to deliver the signature traits of Greek, resulting in a breakthrough combination of incredibly thick texture, a good source of plant-based protein, and single-digit sugar in a great-tasting plant-based yogurt alternative line. Though we’ve seen significant growth in the category, with household penetration of our plant-based products up double-digits from ten years ago, we know there is still more room to grow.
Omer: It’s an exciting time to be in the dairy industry because we’re constantly evolving to become more relevant. We continue to be more and more sustainable as an industry, and I am looking forward to seeing the industry as a whole come together to find solutions.
Diglio: Dairy is the most nutritional product there is for consumers. With the pressures of a recession looming, consumers will need to make choices on their buying behaviors. We recognize when the pandemic started, consumers relied upon dairy for their health and wellness. This presents a real opportunity for the industry to take advantage of the momentum and benefits dairy has. With consumer preference and our ability to adapt, the dairy industry is well positioned to service an expanding category. It’s up to us within the industry to continue innovating through our sustainable efforts while benefiting the communities we live and work in. How can you not be excited?