Leading Dairy Forward – Part II

Michael Dykes, D.V.M., President and CEO International Dairy Foods Association

This is Part II, excerpted from his remarks as prepared for Dairy Forum 2019
Jan.21, 2019 – Orlando, Fla. Part I appears in our Feb. 4 edition of
DairyBusiness Digital

As we think about our positioning for dairy’s path forward, three things are critically important: sustainability, innovation and trade.

Over the past few months, I have had several conversations with members about their mandates to retool operations with an eye on sustainability. Reducing waste. Shrinking carbon footprints. Sourcing responsibly. Contributing to communities.

Kroger, for example, launched a “Zero Hunger/Zero Waste” campaign that aims to end hunger in communities they serve and eliminate waste in the company by 2025.

Companies such as Danone and Unilever are seeking to be entirely carbon neutral or even carbon positive within the next 10 to 15 years. Nestle is committed to using more renewable energy. Walmart, an IDFA member and new milk processor, is taking out fluorescent light bulbs and installing LED lighting in all 5,000 of its stores. IDFA members are also among the 250 companies worldwide that have pledged to eliminate plastic waste by 2025, promising that 100% of plastic packaging will be 100% reused, recycled or composted.

Google any big food company and the word “sustainability.” The websites feature Environmental, Social and Governance, or ESG, reports with detailed statements and pledges to do more, to do better. By extension, suppliers to those companies – including many IDFA members – are going to have to do more and do better, if they plan to supply these companies.

This is not a passing fancy. More consumers demand that their food comes from companies that hold environmental stewardship and social responsibility as core values. I often say, “Consumers want food with a story!”

Animal protein is in the crosshairs. GlobalData says that its research shows 70% of the world population is reducing or eliminating meat consumption. A recent report from the EAT-Lancet Commission on Food, Planet and Health — a group of 20 leading scientists from around the world — called for severely curtailing consumption of animal protein products such as meat and milk to reduce greenhouse gas emission and protect the environment.

We just had a Bloomberg article. “Big Dairy is About to Flood America’s School Lunches with Milk”! Just one quote from this story will make the hair on the back of your neck stand up, “The killer is white milk: It just doesn’t have a reason for being,” says Jeff Manning, who commissioned the ads for California milk processors and is now an independent marketing consultant. “I don’t think a millennial will ever drink a cold glass of milk.”

I encourage you to read the story. The policy fight on USDA school lunch program is long from over. We will see a renewed focus in the political campaigns of 2020 to overturn Trump Administration policies and we are likely to see a return to previous policies such as the “Let’s Move Campaign” from the Obama Administration.

We are coming off eight years of nonfat flavored milk in schools. That hurt near-term consumption and, even more importantly, likely did lasting, long-term damage to milk consumption.

Plus, with 100 new members of Congress seated this month, the legislative agendas and actions will undoubtedly reflect the evolving views of more values-oriented food consumers. We have a huge educational challenge in the Congress!

These changes are all around us! They are a big deal. Are we listening and, most importantly, are we ACTING?

IDFA and its members must be vigilant, developing and – as importantly — promoting the dairy industry’s efforts to be more sustainable. We must have people see us as being on top of the issue. On the forefront of positive developments with meaningful metrics. Positive. That’s important.

And as long as we are talking about defense and Congress, we must keep spotlighting dairy’s positive role in well-balanced diets. We must intensify our efforts to make sure dairy gets into “good food” categories. That was why creating a new milk incentive pilot program within SNAP was one of our farm bill priorities. Put milk next to broccoli. Make sure we get some of the glow from vegetable health halos!

Look at what might happen in Canada. People who have seen Canada’s 2019 Food Guide say that it no longer recommends that Canadians consume four full servings of dairy each day. Draft reports show only one recommendation: a pint of milk. No cheese. No yogurt.

We also have a new Dietary Guidelines for Americans coming in the U.S. in 2020. How will dairy be addressed in the new Guidelines?

People on balance still have a positive view of animal protein. AC Nielsen reports the same, with 55% of US households saying that high protein is an important attribute. But we cannot be the only ones who understand that. We applaud ADPI for its new effort to say positive things about protein. The Dairy Protein Messaging Initiative is not only something we support, it is something we need more of.

We cannot take anything for granted. The new Congress could wittingly or unwittingly hurt our industry based on popular perceptions about the environment or nutrition. We are all in this one together. I promise that IDFA will be engaged. We will continue to build our legislative/advocacy efforts!

Innovation is part of the same story. It is about developing more products, better products, better packaging that meet consumer needs. That could be from a nutritional perspective. It could be from a taste perspective. It could be from a convenience perspective.

fairlife is still one of the best success stories in the dairy beverage category. It has become a billion-dollar brand for Select Milk Producers and Coca Cola. Coke’s website says that the company is “reimagining what is possible…” Now that’s the spirit!

As members take up that challenge for themselves, know that IDFA is paving the way. Our regulatory team is making great strides with the Food and Drug Administration to urge standards of identity be as flexible as possible to encourage new technology and to foster innovation.

How do we get to the next fairlife? Several companies are using incubators that help food industry entrepreneurs discover new products. Land O’Lakes has a Dairy Accelerator program that empowers dairy entrepreneurs and equips them to scale up their operations and achieve meaningful growth. The Chobani program offers similar assistance, helping small companies “with big heart and ideas to challenge the food industry, improve broken systems and make a difference.” Others like General Mills and Nestle are buying small companies, infusing capital and marketing leverage while hoping to get smarter about innovation in return.

Can we do more at the industry level? I think we can.

Innovation also colors the trade story. During the next few days at Forum you will hear more and more about the need for more market access through trade agreements. McKinsey and Torsten Hemme will have interesting things to say about global opportunities, especially in dairy-deficit regions such as Africa, as well as Asia outside of China and India.

Most everyone in the dairy industry agrees that expanding trade is critical to growing the U.S. industry. USDA says that domestic milk production will grow by another 33 billion pounds between now and 2028. Where is that going to go? Can we consume it all home? USDA’s forecast says it doesn’t think so. And I don’t either.

Right here, to state the obvious, we need to keep reminding the administration and Congress that trade skirmishes are doing untold damage to U.S. dairy industry prospects. We need to fix the steel and aluminum tariff situation with Mexico. We need movement on China trade and resolution on China tariffs. We cannot ignore the market opportunities with 1.5 billion people in China and the growing populations across Asia.

We applauded the announcement by the U.S. Trade Representative that the United States would begin trade negotiations with Japan during 2019. Japan is our fourth-largest market abroad, representing sales of more than $290 million. However, U.S. dairy exports still face high tariffs, limited tariff-rate quotas and other barriers to trade in the Japanese market. We have provided input on the negotiating objectives.

In addition, we recently asked U.S. officials to address our widening import

disadvantage with New Zealand, Australia and now the European Union, which also is in conversations with Japan about trade.

But we must do a lot more than that. We need to up our game in a big way and not let our competitors get ahead of us

This summer, I had the privilege of joining my friend Jim Mulhern from National Milk on a unique opportunity to meet with USDA’s dairy team. Dana Coale extended the invitation, asking us to share our views on the Federal Milk Marketing Orders, the state of the industry and view for the future.

As part of my presentation, our friends at Blimling and Associates put together a graph, which shows that the EU not only exports more volume than the U.S., it also exports more value per unit of volume. I said at the beginning of my talk that we are doing a nice enough job growing cheese, powder and whey exports. We are in the game. But to win the game, we need to really figure out how to export higher value products.

Why was that conversation with USDA especially relevant? In my opinion, if we believe that growing exports is critical, we need to make sure our regulatory system and industry practices support progress toward that goal. The same is true for innovation.

I spoke of a “shared vision for growth” for processors and producers. A vision that unites the industry. A vision that gets past zero-sum game thinking. Here are some key points:

  • Embrace disruption and encourage innovation
    • Our Federal Milk Marketing system must have flexibility and generate the market signals to encourage investment and risk taking throughout the supply chain
  • Expand markets with higher value products
    • Producers make a high-quality milk, we must find ways to maximize the returns in domestic and international markets
  • Listen, learn and lead bold change
    • Value winning together and acknowledge the need to do even more with greater speed and deeper commitment

These are broad sketches. They are my views. We can use these principles as a guide. They will mean different things to each of you, and each of you will have different ideas about how we may accomplish them.

But I am confident about this much… We know that what worked yesterday is not really working today and definitely won’t work tomorrow. Same old same old approaches are going to generate same old same old results – if we are lucky!

I am also confident that this industry has the power, the leadership and the commitment to find a way to win. We must put a greater focus on winning together!

Now let’s go make it happen and lead dairy forward.

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