Christina Howlett, Global Graduate Dairy Sector, Bord Bia – The Irish Food Board
Currently, organic dairy is positioned towards naturalness and sustainability, but a growing number of organic dairy manufacturers are attempting to move towards health and wellness, and it is set to be a strategic expansion area for brand growth. This FoodAlert will focus on trends in the organic market globally, and take a look at what Arla, one of the biggest players in the category, is doing.
Over the last 5 years, global organic milk production has been growing steadily at 1.9% per annum. Prices have proven more resilient, with a price premium of up to 10-20 cents higher per litre than conventional milk prices (3A Business Consulting, 2017). Organic farming costs are approximately 1.6 times higher, but it can be a profitable system by maintaining high output levels, lowering production costs and applying premium market prices (Teagasc, 2019). Certified organic milk accounts for 0.9% of global dairy milk production (KPMG, 2018). International sales have also contributed to high margins for European brands, because they often carry higher trust and premium pricing (Passport, 2018).
Research into organic dairy has found that organic production enhances milk nutritional quality by improving the omega three to six fatty acid ratio and contains higher levels of vitamins, antioxidants, and unsaturated fatty acids than conventionally produced milk (Benbrook et al., 2013) (Ferriro et al., 2015). It is also claimed to be favoured by some baristas for its ‘superior frothability’ (Organic For Us, 2019).
Organic certification on milk for domestic consumption is becoming the norm in EU countries, and in France, Germany, Spain and Italy, 27% of milk launched in 2018 was certified organic. For French consumers, organic milk is seen as better for the planet, and as their sustainability concerns continue to grow, they will pay more attention to the environmental impact of their milk purchase. However, while some existing research points to the increased health benefits of organic milk, consumer perception in France still sees little difference between conventional and organic milk from a health perspective. (3A Business Consulting, 2019).
The overall rise of organic in the UK, with 54% of adults buying more organic food and drink now compared to last year, will benefit Arla Organic. They have expanded their infant milk formula and children’s organic ranges. In line with the group’s overall investment in organic dairy, Arla Organic acquired Yeo Valley’s dairy business in 2018 to boost organic dairy sales in the UK. It has been found that only 1 in 5 UK cow’s milk users would be willing to pay more than £1.60 for a four-pint bottle of milk, and with supermarkets pricing their organic milks from £1.50 upwards for that volume, justifying the price remains a key struggle for organic milk and cream. Since 81% of milk/cream buyers trust UK regulators to ensure adequate animal welfare standards in dairy farming, this dilutes the appeal for organic dairy credentials. It is clear that mainstream growth will be challenged by price sensitivity. (Mintel, 2019).
Arla are also pushing organic in developing markets, particularly China. China is an important market for Arla as they are the 4th largest market for organic packaged food and beverages. The growth of organic products in China is largely due to past food scandals such as the melamine scandal which has led consumers to look for premium and organic products that are perceived as trustworthy and healthy (3A Business Consulting, 2017).
Arla introduced their first branded organic milk in the United Arab Emirates in 2017 as part of “an ambitious business strategy to become the number one organic dairy brand in the Middle East and North Africa by 2020”. In the Middle East and Africa, dairy products with a long shelf life appeal to customers. It is the first brand to launch in Saudi Arabia, where the key trends in organic dairy are health, wellness and ‘cruelty-free’. There is a growing awareness of animal treatment by dairy consumers, driven by education and media coverage, leading to the rise in ethical consumerism. (3A Business Consulting, 2017)
In terms of supply, there are several challenges impacting the growth of the organic dairy sector including processors receiving the correct certifications for the specific market, availability, cost of inputs and competition from alternative premium products. As conventional milk brands continue to raise their natural and sustainability credentials, organic milk will have to explore other value-added avenues such as functional health benefits to maintain relevance to an ever more discerning consumer (Mintel, 2018).
References:
- 3A Business Consulting (2017). The Global Market for Organic Dairy Ingredients 2017-2021.
- Benbrook, C. M., Butler, G., Latif, M. A., Leifert C., Davis, D. R. (2013) Organic Production Enhances Milk Nutritional Quality by Shifting Fatty Acid Composition: A United States–Wide, 18-Month Study. Plos One.
- Ferreriro, T., Gayoso, L., Rodríguez-Otero, J. L. (2015) Milk phospholipids: Organic milk and milk rich in conjugated linoleic acid compared with conventional milk. Journal of Dairy Science, 98(1), pp.9-14.
- GlobalData (2018) Opportunities in the Global Dairy & Soy Food Sector.
- Grünefeld, M. (2019). Added Value in Dairy Drinks, Milk and Cream - UK - April 2019. Mintel.
- KPMG (2018) Global Organic Milk Production Market Report
- Organicforus.ie. (2019). Organic For Us. [online] Available at: https://organicforus.ie/ [Accessed 17 Sep. 2019].
- Passport (2018) Arla foods AMBA in Packaged Food (World). WARC
- Roux C. (2018) What’s next for organic milk? Mintel