The organic milk sector hasn't been hit as hard by declining sales as the conventional dairy industry, but due to the current glut, it still needs to find new ways to expand, according to the Dairy Reporter. Mintel research projects the overall drop in dairy sales will amount to 11% to $15.9 billion from 2015 through 2020. At the same time, sales of plant-based alternatives to dairy are expected to jump from $2 billion to $3 billion by 2020.
Melissa Hughes, Organic Valley's chief mission officer and general counsel, said last month at Natural Products Expo West that, "[W]e are in a milk-heavy world right now," and one that is experiencing a saturation of organic dairy products.
As a result, she said that organic brands need to push against obstacles to "the next level of penetration" in the marketplace by potentially taking share from conventional products in the food service arena.
Organic dairy has outperformed traditional dairy products by appealing to customers who look for the "USDA Organic" seal and view it as a guarantee of fresher, healthier products. According to the Organic Trade Association, parents between the ages of 18 to 34 are the largest group of shoppers who buy organic, and they are an ever-growing influence in the marketplace.
Excess supplies and lower prices led Organic Valley to post an after-tax loss of about $10 million in 2017, its first loss in 20 years, according to Dairy Herd. And this was in spite of the cooperative's 4% sales jump that year — and total gross sales of $1.1 billion.
Organic Valley's 2,043 farm members spread across 35 states are paid about twice as much for their milk as conventional dairy farmers, which puts them in a more solid financial position as long as supplies moderate and prices stay up. The differential may tempt conventional producers to go for organic certification, but that's a long and costly process which takes from one to three years, and it isn't likely to occur quickly enough to make a difference in today's depressed market.
Despite the cost difference at retail, consumers who buy plant-based dairy alternatives may also choose to go for organic milk for flavor and health reasons — particularly as the oversupply drives down the price. They're also shifting to higher-fat products such as butter, half and half, cream and whole milk, which has created a glut of skim milk. Organic Valley's Hughes suggested that the byproduct could be diverted to protein drinks, protein powder or infant formula as another route to creating value in the organic sector.
Even with multifaceted challenges facing the dairy industry, there are still options for organic and conventional producers. They might focus more on sideline products where they can excel, such as butter and cheese, look for additional ways to divert excess supply, and emphasize the nutritional benefits of their products.