Dairy ingredient usage patterns

by David Phillips
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The latest edition of Dairy Management Inc.’s Project DIAMOND study indicates the use of dairy ingredients for the U.S. market in a variety of food and beverage applications continues to grow. Companies making everything from cream of chicken soup to high protein nutrition bars are more likely now than a few years ago to formulate using dairy ingredients. They are adding either basic ingredients such as milk protein concentrate and dry whey, or higher value ingredients such as WPC80 and whey protein isolates.

“One of the things we have noticed this time is that companies are looking for ingredients that can give them clean labels, or you might say simplified labels,” said Laura Gottschalk, vice-president of market research for the U.S. Dairy Export Council, Arlington, Va. “In some cases the non-dairy fillers (starch) are gone and are being replaced by sweet whey or nonfat dry milk. In some of the product categories, like frozen dinners or appetizers, imitation cheese is being replaced by real cheese. Real dairy ingredients are making a comeback.”

DIAMOND is an acronym for Dairy Ingredient Assessment Monitoring of Opportunities and New Developments. The report originally was created by U.S. Ingredients with Dairy Management Inc., Rosemont, Ill. Today the U.S. Ingredients group operates as a part of the global ingredients platform under the U.S.D.E.C. The study focuses on seven ingredient groups: Nonfat dry milk, sweet whey, W.P.C. (whey protein concentrate) 34 and 80, whey protein isolate, milk protein concentrate (M.P.C.) and milk protein isolate, casein/caseinate, and lactose.

The survey might be described as sort of a reverse engineering project to determine trends in how dairy ingredients are being used by food manufacturers.

“We use syndicated data from IRI (SymphonyIRI Group, a Chicago-based market research firm) and look at 86 different (food and beverage) categories that contain dairy ingredients,” said Ms. Gottschalk, one of the principal managers of the study. “Then we review the total pounds sold of say, frozen pizza, and calculate how much of each dairy ingredient goes into that particular product. We repeat this process for all the food and beverage categories.”

In addition, more than 200 food and beverage industry research and development executives were surveyed about what dairy ingredients they currently use and plan to use. The survey asked which ingredients they have used in the past 12 months, and whether they have revised formulations to increase, decrease or if they have made no change. They also are asked if they expect to revise usage up or down, or maintain use in the coming 12 months.

Initially, the project was to be updated annually, but plans now call for a semi-annual edition. Both ingredient suppliers and food formulators may use the survey for a clearer picture of how the dairy ingredient market is evolving. The U.S. Department of Agriculture provides figures on volume production and how production and consumption are trending, but this is the first on-going look at how those ingredients are utilized.

As an example, the initial report, released in 2008 and based on 2007 data, showed sweet whey was used mostly in processed cheese (33%), entrees and dinners (24%) and ice cream (22%). With the new data it was revealed total sweet whey use increased from 447.6 million lbs in 2007 to 572.5 million lbs in 2009. Two new ingredient groups were added to this year’s study: butter, and butter oil/anhydrous milk fat.

Dairy Business News requested interviews with Project DIAMOND’s coordinators to give readers a preview of the findings. The complete report will be made available in January to U.S. dairy ingredient suppliers, and posted on the password protected web site DMI-DIAMOND.com. A password may be acquired by contacting techsupport@innovatewithdairy.com.

Highlights for the 2009 survey included:

• Usage was down for cream, and to a lesser extent for casein/caseinates;

• Most responses for most ingredients indicated usage would stay the same;

• NFDM accounts for 48.8% of the volume of ingredients used; and

• Notable opportunities for dairy ingredient marketers include refrigerated juice and smoothies (+28% continued growth), refrigerated yogurt (+6.7%) and weight control, nutritional liquids or powders (+5.2%).

Comparing the 2007 survey to the 2009 data indicated there were several changes based on retail store audits and ingredient labels:

• Dry macaroni and cheese mixes are using more M.P.C. and less W.P.C.;

• Frozen macaroni and cheese dinners are using real milk and cheese and less non-dairy fillers;

• Frozen pizzas are using more real cheese and significantly less imitation cheese;

• Sales of nutrition bars were up 26%;

• Sales of infant formula were down 14.5%;

• Nonfat dry milk is being used more often in English muffins;

• Nutrition bars are using more M.P.C. and less caseinate; and

• Buttermilk solids are replacing nonfat dry milk in some baking applications;

“The nutrition bar category is up significantly,” Ms. Gottschalk said. “That is a huge play for higher value protein. Many of these bars contain 25 to 27 grams of protein. Consumers don’t want to blow that first meal of the day — they want to eat something fast and portable. A category that has decreased is infant formula. Over the last three years decreased formula consumptions mirrors the lower birthrates and this impacted the dairy volume for this category.”

Overall, the study pointed to continued growth for most dairy ingredients. Just over 77% of the survey respondents indicated they would either increase or maintain their use of an ingredient, while 6.4% expected to use less. The figures are averaged for nine different ingredients. The most common response (71% overall) indicated using the same amounts.

The reasons for the shifts in usage are not measured in the survey, but a number of factors may be at play, said Vikki Nicholson, vice-president, U.S. manufacturing and ingredients marketing, for U.S.D.E.C.

“There are some drivers that we have found, including a desire for a simplified label,” Ms. Nicholson said. “Sometimes for a food manufacturer it may be a trade-off based on costs or availability.”

Production volumes of different products within a company’s portfolio also will ebb and flow from year to year, and new products or line extensions are almost always in the pipeline. Prices and supplies of the ingredients are affected by a variety of pressures from the domestic and global market. Examples may include weather patterns, the strength of the dollar and economic and political climates.

Prices for most dairy ingredients trended higher in 2009, and indications are they will remain so. But there is every indication (including the data from DIAMOND), that even at the higher price point dairy ingredients will continue to play a role in food formulation. (For more on the global market outlook see story on Page 34.)

Looking forward, Ms. Nicholson said the higher-value whey protein ingredients still offer a great deal of growth potential. She pointed to studies from the dairy industry that will further enhance the reputation of whey as a key ingredient. Ms. Gottschalk agreed, and also expects to see use of lower value products like sweet whey and milk powders to continue to grow.

The next survey is scheduled to be completed in 2012, Ms. Nicholson said.

Exports may buoy dairy ingredient prices in 2011

ARLINGTON, VA. — Global demand for dairy ingredients remains strong, and economists believe continued demand will keep prices in a higher range during 2011.

The U.S. Dairy Export Council (U.S.D.E.C.) hosted a webinar in November to discuss the prospects for the world market in the coming year. More than 300 participants listened in as analysts from various continents projected a continued pull on the market. And in an interview with Dairy Business News in December, U.S.D.E.C. director of global trade analysis Brad Gehrke provided additional insights.

“Yes, there has been a steady increase in demand for dairy ingredients as a whole,” Mr. Gehrke said. “When markets were crashing in late 2008 and our exports were hitting bottom in 2009, across the globe, exports in a very short period of time began to recover. Exports were up for all of 2009, in fact compared to 2008. But the U.S. wasn’t exporting because the prices had been so low.”

In a statement after the webinar, moderator Marc Beck, U.S.D.E.C.’s senior vice-president of export marketing, suggested whole milk powder prices would trade in a range between $3,500 and $4,500 per metric tonne next year, a price “that’s shown to be sustainable on the demand side and a price that is needed to sustain production growth and production profitability out of the market leader in Oceania,” Mr. Beck said.

Mr. Gehrke said there are several drivers that will hold prices higher well after Jan. 1, chief among them the relatively recent lack of surpluses that historically had a tendency to flood markets and lower prices.

“The E.U. and the U.S. historically had large stockpiles of government-owned supplies,” he said. “And when supplies became tight, they would pull product out of those stockpiles and the prices would moderate. Now it’s more supply driven, so prices tend to stay higher. They need to stay higher so that U.S. and E.U. farmers can afford to keep exporting.”

That shift took place around four to five years ago, and at that time the normal range for whole milk powder was often $1,000 to $2,000 per metric tonne.

Looking at figures through the end of June, Mr. Gehrke said global export sales of nonfat dry milk were up 13% and U.S. exports were up 11% despite slow demand from Mexico, one of the largest customers.

A growing middle class in many emerging markets has combined with an increase pull in China (its domestic production has dropped sharply following the melamine scandal) to produce the world demand. China buys much of its powder (used in large part to make pizza cheese) from New Zealand and Australia. While those Oceania producers have been busy supplying China of late (and New Zealand’s production has been flat due to harsh weather), they have been less able to supply other markets such as Southeast Asia. This has given U.S. exporters added opportunities.

Not all those who participated in the webinar agreed that the higher prices are sustainable.

“I wonder whether the amount of milk that might be produced when that kind of price translates back to farmers is really the amount of milk customers around the world can consume,” said Dalyn Dye, president and chief executive officer of Hoogwegt U.S., a global dairy marketer based in Libertyville, Ill.

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