Dairy sales fall, plant-based milks grow
The dairy industry is enormous, but it is struggling. The price of dairy milk, and the quantity consumed around the world, is falling rapidly. At the same time, plant-based milks are gaining traction and the attention of investors, particularly in Western markets.
Take the UK as an example; per-capita consumption of dairy milk has fallen by a third since the 1970s and, with those under the age of 35 saying they will continue to cut back, this trend is here to stay. The Müller Milk Group, one of the UK’s largest dairy producers, has warned of “unsustainable returns” for farmers and slashed the price of its milk to 1.25p/litre.
In the year since January 2018 almost 2% of all dairy farmers in the UK have quit the industry and it is likely that more will follow over 2019 thanks to this latest round of price cuts. Margins are slim enough to force people into other lines of work.
Another good example of the decline of the dairy milk industry comes from the USA where Dairy Farmers of America (DFA) has announced that sales plummeted by US$1.1bn in 2018. This represents a fall from US$14.7bn in 2017 to US$13.6bn in 2018.
On the other hand, plant-based milks are booming. The global market was worth US$11.9bn in 2017 and analysis from Grand View Research shows that it could exceed US$34bn in value as early as 2024.
Not only should investors be impressed with that level of growth, the size of the profit margin should also be of interest: plant-based milks provide 6% higher returns than dairy milks according to the same research.
Moreover, the reasons plant-based milks are gaining popularity are only likely to become more pervasive in future. An increasing awareness of the health benefits of avoiding dairy is spreading in regions of the world with growing disposable incomes such as Brazil, India, China and Japan. This is a tried and tested condition for increasing the uptake of plant-based milks.
Secondly, and most importantly, concerns over the impact of dairy milk farming techniques on both the environment and the animals themselves are becoming more urgent. The more information people have, the more likely they are to turn away from dairy products. As our environment and climate continue to deteriorate, the causes of climate change will have to be eliminated whether we want to do so or not. When it comes to products like dairy-milk with simple, easily-adoptable alternatives then the change will not be fundamentally painful. This puts a short time limit on future dairy growth.
For investors this means that the smart money should be going into plant-based alternative milks as they proliferate in the future.
