Following a trip to World Dairy Expo to view new ideas and to get recharged for the year ahead, I have been reflecting on the supply struggles that the industry is facing. The last two years have seen continued growth of production holding prices down. At first glance, this seems to be a simple supply and demand issue, but as I have done some closer looking, I am wondering if there are also some issues with product/market fit.

Scholze theo
Theo Scholze
Dairy Producer / Scholze Family Farms LLC

While those of us in the states are seeing record per capita dairy consumption, our production has outstripped the demand, and as an industry we have been looking to the export market to help take up the slack. Here is where the processing portion of our industry is failing: The products made are suitable for U.S. consumers but don’t always match the global demand.

A major player in food production and distribution for much of the Western world is our access to refrigeration, which drives how we consume all of our perishable goods – both fresh and processed. However, when one examines the parts of the world where most of the population lives – China, India, Africa, etc. – the access to refrigeration is spotty. Some places are very good; others it is minimized. These areas of the world are showing an increasing interest and demand for dairy products, and it would do wonders for the demand side of the equation if we could get a product to them that is in a form that they can store and consume.

I believe continued research and development into shelf-stable, drinkable dairy products has the potential to bring products to consumers who want them but currently don’t have the infrastructure in place to be able to store perishable dairy products. My feelings this way were recently confirmed by our veterinarian, who is helping to design and build a dairy barn in Indonesia. Upon his return, we were talking about the dairy and the reasoning behind building it. It turns out that it was being built by an Asian drink bottling company that sees a consumer demand for shelf-stable, drinkable dairy products, but they cannot find other processors that are making the product, so they have decided to build their own dairy as to guarantee a supply of milk.

While from a business standpoint I totally understand the reasoning for this, but as a dairy producer, it raises some alarm bells. This project, plus the recent changes by Grassland locally in the Midwest, should be opening the eyes of all of us farmers to the potential for rapid vertical integration in our industry, similar to what the pork industry has experienced. I think that if you have a laissez-faire attitude about these changes, you are most likely going to be swallowed up by the changes that could be coming in our industry.

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I feel now, more than ever, if we as farmers want to remain independent and not be required to contribute capital to the processing industry, it is imperative that we act. We as farmers currently donate a portion of our milk check to federal, state and local organizations (Dairy Management Inc. and Wisconsin Milk Marketing Board in my case) who are charged with helping to create new products, educating consumers about our products and advertising on behalf of the industry.

We need to make sure that we are pushing them to be spending money on research as to what the global consumer wants, as well as helping processing and bottling companies develop these products and get them to the consumer. I hope that we all have a safe and successful harvest and that we can work together as an industry going forward to help improve the demand side of the current supply and demand curves.  end mark

Theo Scholze