Special Section: Dairy

Dairy's new design
Smart merchandising, new products and farm improvements
By E. M Morrison

Ronald McDonald is leading the dairy industry’s new approach to milk merchandising.

Last summer, McDonald’s restaurants introduced a colorful plastic milk jug featuring Ronald McDonald surfing on a sea of milk. The resealable jug has supercharged McDonald’s milk sales from 625,000 to 4.2 million units a week, according to Dairy Foods Magazine, an industry trade journal.
 

McDonald’s Milk Jug is one example of dairy’s new focus on consumer appeal, says Alan Terwedo, a program manager at Midwest Dairy Association, which represents 17,000 Midwestern farmers.
 

Annual consumption of dairy products has risen slowly since 1975, to nearly 600 pounds per person, according to the USDA. While cheese use has nearly doubled during this period, fluid milk consumption has fallen, mainly because of competition from other beverages, Terwedo says. The lesson for the dairy industry: “We can’t look at milk as a commodity any more. We have to look at it as a value-added beverage.”

Youth appeal
McDonald’s isn’t the only place where milk is getting a new look. Wendy’s restaurants are selling milk in colorful plastic bottles. “They’ve had great success with it, as well,” Terwedo says.
 

Schools are also interested in dairy products with packaging panache. In a recent pilot test at 146 schools in 12 different markets, traditional paper milk cartons were replaced with single-serving plastic bottles. Milk consumption jumped an average of 28 percent after the new packaging was introduced, Terwedo says.
 

Milk in flavors such as cherry, strawberry, banana, orange crème and vanilla made a big hit with students, too. Keeping milk ice-cold and installing see-through dairy vending machines, like those that sell sodas and sports drinks, also boosted milk consumption in pilot test schools, he says.

Whey more uses
Dairy ingredients offer another marketing opportunity.
 

Milk components, such as whey, nonfat dry milk, lactose, calcium and milk fat, are used in many processed foods to improve flavor, consistency and nutrition.
 

The dairy-ingredients market, now more than four-billion pounds, is growing about 3 percent a year, says Mary Higgins, ingredient marketing manager for Midwest

Dairy Association. “This area represents a new, under-tapped avenue we can pursue to further expand the market for dairy products,” she says.
 

Beverages are one of the fastest-growing segments of this market, she says. New offerings include drinkable yogurt, fruit smoothies made with dry milk, low-lactose milk drinks, and “meal replacement” drinks made with whey protein concentrate.
 

Whey, which used to be treated as a worthless byproduct of cheese manufacturing, is now being processed into protein concentrate and added to all kinds of foods, including infant formula, bakery goods, energy bars and candy. It’s even being extruded into crunchy snack bits. Long a favorite of body builders for its nutritional value and flavor, “Whey is going mainstream,” Higgins says.

More opportunity
Another emerging opportunity is “functional foods,” which are tailored to specific nutrition needs. New research is shedding light on the health benefits of specific dairy components, sparking additional demand, Higgins says.
 

Other promising dairy uses coming up:

• Fat-free aseptic-formula puddings for school lunch programs

• Oxygen-barrier coatings for snack peanuts and nuts.

• Gloss coatings for candy.

Combating decline
Dairy is Minnesota’s second-largest livestock sector (just behind hogs), generating more than $1 billion in farm cash receipts. Still, Minnesota dairy has suffered a decades-long decline. Cow numbers have dropped by nearly half since 1970, according to the Minnesota Department of Agriculture. During the same period, the state’s milk production fell by almost a quarter, even as total U.S. milk output climbed 40 percent.
 

To combat this decline, state milk producers are supporting a variety of development initiatives, says Bob Lefebvre, executive director of the Minnesota Milk Producers Association. These include:
• Access to capital and investment credits to modernize or expand dairy facilities.
• Workable environmental regulations and land use laws.
• Effective quality improvement program

• Public relations efforts that promote the benefits of animal agriculture for society and the environment.

Positive signs
Despite Minnesota dairy’s slump, there are signs of vitality, says Pat Lunemann, 45, who runs a 530-cow dairy farm near Clarissa, Minn. and serves on the boards of the Minnesota Milk Producers Association and the Agri-Growth Council.
 

Milk prices have been strong for the last 18 months, and the state continues to have a robust dairy infrastructure, he says. “We still have the cheese plants; we still have the feed mills, veterinarians, consultants.” Minnesota has 10 large dairy processors and several small processors that make niche-market products such as kefir, creamline milk, grass-fed butter, and organic milk and ice cream. AURI has worked with many of these specialty processors.
 

Minnesota also has ample water and land for animal agriculture, Lunemann says. And the state’s ethanol, beet and soybean plants provide abundant supplies of inexpensive, high-quality feed. “These plants need livestock so they don’t have to put their byproducts on a rail.”

Cow power
As fertilizer and energy costs rise, the state’s dairy manure is an increasingly valuable resource. “I’ve had my neighbors arguing over who gets more manure from me,” Lunemann says. Some day, he adds, methane
digestion could let farmers add even more value to dairy manure.

Milking change
In another encouraging sign, the region’s dairy science programs are full. “We now have more kids ready and willing to go into dairy than we’ve had in a long time,” Lefebvre says. As younger farmers enter the business, “we’re seeing some early signs that the decline in dairy may be leveling off.”
 

Efficiency is improving, too, Lefebvre says, as more Minnesota dairy operators modernize their facilities or undertake modest expansions — “going from, say, 80 cows to 200.” And a few are “jumping to the next level,” he says, milking 1,000 cows or more.
 

Lunemann, for one, is optimistic about Minnesota’s dairy future: “The key thing for our industry is for dairy producers to be able to adapt,” he says. “I see us being able to turn the corner if we embrace changes.”