Is Dairy Udder Threat?

It’s a tough time for the dairy industry right now, with a variety of threats to contend with: increasing costs of inputs, lack of labour, supply chain struggles, and sustainability concerns to name but a few. As inflationary pressures mount on dairy companies, and prices of dairy products begin to hike, inflation is set to pinch the consumer pocket over coming months, which could prove detrimental to the industry.

In October 2021, the UK average milk price was 32.6 pence per litre (ppl), a 3.1% increase since September and a whopping 8.5% increase on the same month last year (Gov, 2021). Arla, Freshways, and Muller are just some of the big names having announced price hikes to their milk and dairy products over recent weeks. The timing isn’t great either – consumers are set to feel these rising costs at a time where supermarket price inflation has reached it’s highest level for over a year. Grocery price inflation rose 2.1% in the four weeks to 31 October (Kantar, 2021), excluding the pandemic, these are the highest figures since September 2018. This means consumers will no doubt be getting more savvy with their shopping to make savings wherever possible.

This rise in dairy prices is likely to present an opportunity for the industry’s nemesis: dairy alternatives – as price dissonance across the categories tightens. Whilst price compared to its dairy counterparts has long been an issue faced by plant-based dairy, as the gap in prices looks to reduce, it looks as though price will become far less of a barrier to those looking to enter the category. This is compounded by several plant-based drinks having experienced average price declines over the past year: oat milk fell by 6p per pack on average, lactose-free by 5p and coconut milk by 4p (The Grocer, 2021).

Lockdown also saw many UK consumers enter the plant-based drinks category for the first time, with panic buying antics and product shortages an issue across most categories, milk and dairy products were no exception. As many consumers sampled dairy alternative milk for the first time, and with taste, texture and similarities to dairy milk advancing across the category, many consumers continued with their plant-based drink purchases, with 32% of UK households now regularly buying plant-based milk (Oatly, 2021).

Sustainability concerns over dairy products may further encourage consumers to transition into plant-based drinks, once prices align more closely to that of dairy milk.

The industry often comes under scrutiny for high CO2 production, with total global emissions currently around 50 billion tonnes of CO2-eq and dairy emissions equating to about 3.4% – almost double the impact of aviation (1.9%). With carbon emissions deemed to be a key concern for 60% of UK consumers (The Grocer, 2021), as consumers grow increasingly conscious of their own personal impact on the environment, a reduction in all dairy products is often seen as a way in which to reduce carbon footprint.

Some light relief for the dairy category perhaps is that despite many UK households now opting for dairy alternative milks, 64% of UK consumers do not see dairy alternatives as being more or less sustainable than dairy products (The Grocer, 2021). These consumers are likely to remain loyal to the dairy drinks category, despite foreseeable price hikes across the category.

With many unable to part with the dairy in their life, however still seeking a more sustainable way of living, many consumers are transitioning to flexitarian diets. 41% of UK consumers currently follow a flexitarian diet (Quorn, 2021), with shoppers often purchasing both a dairy milk and a plant-based option for their household. This gives consumers the flexibility of switching in and out of dairy within the home. As inflation continues, and pockets are pinched, the question remains whether consumers will continue to opt for both a dairy and a plant-based milk over the long term.

With dairy alternatives still in their infancy and set for major growth over coming years, there is no doubt that major opportunities present in the category. Oat drinks are currently the bestseller in the milk alternatives category – and by some margin. Oat milk value sales increased 50% to £147m this year (Kantar, 2021), and is no doubt starting to give dairy milk a run for its money.

Here at Framptons we have our own proprietary oat extraction capability. We are the leading partner of choice for brands that are looking to develop a reputation for taste, convenience, and health. If you would like to talk to us about our production capabilities get in touch today and see how we can help, make your vision a reality.

Contact our friendly team at sales@framptons.ltd.uk for more information.