NEW DELHI: Amul, owned by Gujarat Cooperative Milk Marketing Federation (GCMMF), for the first time plans to export fresh milk to US. However as the dairy giant makes its way to the US dairy market, it can come across some challenges that might hinder its smooth expansion plans.
US milk production, over the decades, surged by 96%, yet consumption plummeted by 47%.This imbalance usually leads to price drops.
In 2023, US milk prices dipped by 1%, contrary to the 3% rise in food prices.
According to the St. Louis Federal Reserve, milk, being a commodity, struggles with pricing power and without strong differentiation, Amul’s products might face the same fate.
Why is the production increasing despite low consumption?
Dairy farmers are not immune to market fluctuations and have a tough time adjusting to changing trends unlike factories. Unlike other products, Farmers have to milk the cows regularly to maintain their health.
The milk produced requires processing, but limited facilities, storage and labor scarcity have caused a surplus of unprocessed milk post the pandemic. Farmers have no other option but to discard unsold milk due to processing constraints and limited shelf life.
Government subsidies by the US government, on the other hand, encourage farmers to continue production despite price drops. Regulations and economies of scale favor large farms over small ones. Large farms, despite small margins still remains profitable because of volume as smaller ones struggle to compete against them.
Technological advancements have enabled efficient milk production through automation and data optimization. This has led to an imbalance between milk produced and processed, as well as supply and demand.
Why the demand for milk is going down?
Demand for milk in the US has been on a decline for various reasons. Since the 2000s, consumption of fluid milk has been decreasing by 1% annually, which has now accelerated to over 2% in the 2010s.
Lifestyle changes, consumer preferences, and demographic shifts play a significant role in this trend.
The focus on low-fat diets in the 1980s led to a shift in the types of milk consumed, with whole milk consumption dropping from 62% to 35% from 1979 to 2019. On the other hand, lower-fat milk varieties like skim, 1% plain, and 2% plain have seen an increase of 32% to 54% in consumption.
Public schools, which were once major consumers of milk, are now facing lower consumption rates among students. Since 2012, schools are required to offer only low-fat (1%) or skim milk, leading to less appealing options for children.
This change has resulted in decreased milk intake during school meals. Additionally, research indicates that lower milk consumption in childhood may lead to sustained lower consumption in the future.
Other than this, there is a shift towards milk alternatives such as plant-based and lactose-free options. While regular milk still dominates the market, with a consumption rate of 73.6% in 2022, there is a growing preference for its alternatives.
Sales of lactose-free milk have surged by 45% from 2018 to 2022, while plant-based milk sales have increased by 18%. In contrast, regular milk sales have declined by 12%. Varieties like almond milk, oat milk, coconut milk, and soy milk are becoming popular among consumers.
Another reason behind the decrease in milk consumption in the US can be the declining preference of having cereal, usually taken with milk for breakfast.
It is now being replaced by grab-and-go breakfast bars, leading to fewer people buying milk. Cereals are avoided currently asked to avoid on social media platforms for their high sugar content and lack of nutritional balance.
What’s ahead for Amul?
Amul is currently stepping into a declining market where milk consumption is decreasing. However, Americans are willing to pay more for alternative beverages like Coconut, Oat, Soy, and Almond Milk, which are pricier than regular milk. These plant-based products are gaining popularity despite their higher cost.
Additionally, consumers in the US are showing a preference for locally sourced and organic items, including milk against mass produced. This presents Amul with an opportunity to position itself as a premium choice for those seeking alternatives to traditional milk.
US milk production, over the decades, surged by 96%, yet consumption plummeted by 47%.This imbalance usually leads to price drops.
In 2023, US milk prices dipped by 1%, contrary to the 3% rise in food prices.
According to the St. Louis Federal Reserve, milk, being a commodity, struggles with pricing power and without strong differentiation, Amul’s products might face the same fate.
Why is the production increasing despite low consumption?
Dairy farmers are not immune to market fluctuations and have a tough time adjusting to changing trends unlike factories. Unlike other products, Farmers have to milk the cows regularly to maintain their health.
The milk produced requires processing, but limited facilities, storage and labor scarcity have caused a surplus of unprocessed milk post the pandemic. Farmers have no other option but to discard unsold milk due to processing constraints and limited shelf life.
Government subsidies by the US government, on the other hand, encourage farmers to continue production despite price drops. Regulations and economies of scale favor large farms over small ones. Large farms, despite small margins still remains profitable because of volume as smaller ones struggle to compete against them.
Technological advancements have enabled efficient milk production through automation and data optimization. This has led to an imbalance between milk produced and processed, as well as supply and demand.
Why the demand for milk is going down?
Demand for milk in the US has been on a decline for various reasons. Since the 2000s, consumption of fluid milk has been decreasing by 1% annually, which has now accelerated to over 2% in the 2010s.
Lifestyle changes, consumer preferences, and demographic shifts play a significant role in this trend.
The focus on low-fat diets in the 1980s led to a shift in the types of milk consumed, with whole milk consumption dropping from 62% to 35% from 1979 to 2019. On the other hand, lower-fat milk varieties like skim, 1% plain, and 2% plain have seen an increase of 32% to 54% in consumption.
Public schools, which were once major consumers of milk, are now facing lower consumption rates among students. Since 2012, schools are required to offer only low-fat (1%) or skim milk, leading to less appealing options for children.
This change has resulted in decreased milk intake during school meals. Additionally, research indicates that lower milk consumption in childhood may lead to sustained lower consumption in the future.
Other than this, there is a shift towards milk alternatives such as plant-based and lactose-free options. While regular milk still dominates the market, with a consumption rate of 73.6% in 2022, there is a growing preference for its alternatives.
Sales of lactose-free milk have surged by 45% from 2018 to 2022, while plant-based milk sales have increased by 18%. In contrast, regular milk sales have declined by 12%. Varieties like almond milk, oat milk, coconut milk, and soy milk are becoming popular among consumers.
Another reason behind the decrease in milk consumption in the US can be the declining preference of having cereal, usually taken with milk for breakfast.
It is now being replaced by grab-and-go breakfast bars, leading to fewer people buying milk. Cereals are avoided currently asked to avoid on social media platforms for their high sugar content and lack of nutritional balance.
What’s ahead for Amul?
Amul is currently stepping into a declining market where milk consumption is decreasing. However, Americans are willing to pay more for alternative beverages like Coconut, Oat, Soy, and Almond Milk, which are pricier than regular milk. These plant-based products are gaining popularity despite their higher cost.
Additionally, consumers in the US are showing a preference for locally sourced and organic items, including milk against mass produced. This presents Amul with an opportunity to position itself as a premium choice for those seeking alternatives to traditional milk.
