Dairy shows intolerance to plant-based competitors

jamesdean

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y: Scheherazade Daneshkhu, Consumer Industries Editor
In the Hollywood classic, a moody James Dean comes home, pulls open the fridge and grabs a bottle — of milk. Hardly a headstrong choice for a Rebel Without a Cause, even if he does drink direct from the bottle.

But that was 1955, when milk consumption was almost at its height in the US. Since then, each person in the US and many parts of Europe, including the UK, have on average almost halved the amount of cows’ milk they drink.

In some countries, including bucolic Switzerland, people are consuming less than the government’s daily recommended level of dairy products.

Against this backdrop of falling demand, the dairy industry is now becoming rebellious itself — with a cause of combating the fast-growing $16bn market for plant-based food and drinks that have become increasingly popular with consumers as a dairy replacement.

TofuTown, a German vegetarian food manufacturer selling products called “plant cheese” and Soyatoo “tofu butter”, was told by the European Court of Justice last month to change its labelling or face potential legal action.

Only milk from animals can be described as such, with the same applying to yoghurt, butter, cream and cheese. Adding the plant name — tofu — “has no influence on that prohibition”, the court said.

There are some exceptions to the rule, based on products deemed to carry no risk of misleading consumers. These vary from country to country. In the UK, manufacturers are allowed to use descriptions such as salad cream, peanut butter, coconut milk and cocoa butter; in Spain, Italy and France (but not the UK) almond milk is a permitted term.

The ECJ’s ruling came after a case brought by a German consumer group and upheld existing law dating back 30 years, which the food industry says protects consumers against misleading labelling.

“It’s about fair trade,” says Alexander Anton, secretary-general of the European Dairy Association, representing milk producers. “The micronutrient balance of dairy products cannot be matched by ersatz products, which are highly processed, and are hijacking the deserved good image of milk.”

In the US, dairy producers have redoubled efforts to convince the Food and Drug Administration to enforce similar standards. 

A move towards hipper, sexier beverages in terms of the marketing of the products has had a major impact on fluid milk consumption

JIM MULHERN, THE NATIONAL MILK PRODUCERS FEDERATION
But the Vegan Society describes the recourse to the ECJ as “a desperate move to try to restrict the marketing of vegan products”. Dominika Piasecka, for the UK-based industry body, says: “The meat, dairy and egg industries are feeling threatened.”

That would not be a surprise given the growth of plant-based alternatives in recent years that has caught the attention of large multinationals, including Nestlé, Coca-Cola and Danone, which have all made acquisitions in the sector.

The most recent — and biggest — was Danone’s $12.5bn purchase of WhiteWave, completed in April. Based in Denver, Colorado, WhiteWave is the world’s second-largest producer of milk alternatives — after China’s Hebei — with brands that include Silk in the US and Alpro in Europe.

Retail sales of plant-based alternatives have been growing at a compound annual rate of 12 per cent over the past decade, according to Euromonitor, while milk sales rose at 3.5 per cent.

The market is worth $16bn, with half of that concentrated in China — by far the biggest market because of high lactose intolerance.

The rate of expansion has slowed in the past five years compared with the previous five, but Euromonitor forecasts sales of plant alternatives to rise to 20 per cent of those of cows’ milk in 2021 from 5 per cent in 2002.

Once dominated by soya, there are “milks” based on coconut, cashew, rice and almond. China’s Hebei specialises in walnut-based drinks. 

This variety and improved taste has helped broaden their appeal from fad to the mainstream.

In the US, more than half — 58 per cent — of consumers say they have drunk a non-dairy alternative, according to Mintel, while in the UK, “milk-type” drinks for the first time entered the shopping basket of goods used by the Office for National Statistics to calculate inflation, in March this year.

Danone, the world’s biggest dairy yoghurt-maker with its Activia and Actimel brands, has hedged its bets on both sectors by buying WhiteWave, now renamed DanoneWave.

The French group plays down the conflict between dairy and plant-based alternatives. 

“We believe that dairy and plant-based are two complementary health-focused categories and that there are growth opportunities for both,” it says. “Dairy and plant-based products can serve different dietary and lifestyle preferences. More importantly, an increasing number of consumers are so-called ‘flexitarians’ who opt for both dairy and plant-based proteins, depending on what suits them best in specific occasions.”

Coca-Cola this year closed its acquisition of Ades — the biggest soya-based drink in Latin America — from Unilever, while Dean Foods of the US in May took a minority investment in Good Karma, which has flaxseed-based dairy alternatives and dairy-free probiotic yoghurt drinks.

Last year China Resources made an investment in Oatly, the Swedish oat-based alternative, while Nestlé bought into the peanut milk market in China in 2011 when it took a 60 per cent stake in Yinlu, the world’s fifth-largest plant-alternative group.

Andrew Wood, analyst at Bernstein, expects further mergers and acquisitions, despite the recent slowdown in sales growth for plant-based alternatives. 

“We are fundamentally positive on the prospects for milk alternatives globally. The market appears ripe for consolidation, with huge amounts of geographical white space among all the world’s top 30 players,” he says. 

Consumers cite health and taste as their top reasons for choosing plant-based alternatives, which on average sell for more than twice the price of milk. 

Jim Mulhern, chief executive of the National Milk Producers Federation, representing the US dairy industry, says the long and steady decline in milk consumption in the US from the 1950s was spurred by dietary advice against consuming too much fat. That prompted the dairy industry to produce reduced-fat milk varieties.

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More recently, government advice has emphasised the importance of eating more grains, vegetables and fruit, at the expense of dairy and meat, which has also benefited plant-based products.

Alpro’s unsweetened almond drink contains less fat and sugar per 100ml than semi-skimmed milk — but more fat than skimmed milk. Some of the nutrients found naturally in milk are added, along with stabilising agents, locust bean gum, gellam gum and emulsifier.

Scott Wotherspoon, head of UK and China for Australia-based a2 Milk, says: “While plant-based alternatives often try to mimic the nutritional gold standard of cows’ milk, they are highly processed and packed with a long line of artificially added nutrients which are not as easily absorbed by our bodies.”

The product a2 Milk contains the A2 protein instead of the A1 protein present in most milk. Mr Wotherspoon says many people self-diagnose themselves as lactose-intolerant when the problem may be that they find it difficult to digest A1 protein milk.

“There is a huge level of misunderstanding around dairy. As many as one in five people in the UK say they don’t get on with milk but real lactose intolerance affects far less than 5 per cent of the population,” he says. “We are bringing more people back to dairy than ever before, with sales up 140 per cent year on year.”

New products, such as a2 Milk, are essential if the dairy industry is to win back consumers, especially as the main rivals to milk are not plant-based alternatives but soft drinks and water.

“A move towards hipper, sexier beverages in terms of the marketing of the products has had a major impact on fluid milk consumption,” says Mr Mulhern. “The rise of competitive beverages in the last 40-50 years is in parallel with the decline in fluid milk consumption.”

That in part is the dairy industry’s own fault, admits Mike McCloskey, co-founder and chief executive of Select Milk Producers, a US-based co-operative of family-owned dairies that set up the Fairlife joint venture with Coca-Cola in 2012.

“The consumer isn’t really looking for plant-based milk, the consumer is looking for some added value but we have not innovated, pushed and protected the wholesomeness and the nutritional value of milk like we should have,” said Mr McCloskey at a dairy conference in Chicago two months ago.

Even if few people are likely to drink milk the way they might a soft drink, they are eating more yoghurt, cheese and other dairy products — a factor which has, to some extent, compensated for the fall in liquid milk consumption. But these are products into which plant-based alternatives can also expand.

Jenny Zegler, Mintel’s global food and drink analyst, says the non-dairy alternatives sector has “only just scratched the surface” of its potential. 

“The category still has ample space to add innovation through drinking yoghurts, ready-to-drink coffee made with non-dairy milk, and plant-based frozen desserts such as ice-cream and frozen yoghurt,” she says. “They can also capture consumer interest in hybrid beverages, especially ones that offer functional benefits such as bone health, high protein, energy or relaxation.”

Natural state
Move over, “milk”. In the US, numerous lawsuits have centred on the use of the word “natural” on the label of products that, in some cases, have contained artificial or genetically modified ingredients, writes Barney Thompson.
This is in part because the Food and Drug Administration has been reluctant to set hard rules on what is and is not “natural”. From a scientific perspective, says the FDA, it is “difficult to define a food product that is ‘natural’ because the food has probably been processed and is no longer the product of the earth”.
In the UK, the Food Standards Agency issues guidance on what is “natural” — as well as “fresh”, “pure”, “farmhouse”, “original”, “authentic” and even “best”, among other terms — but says this is “voluntary best practice advice” and is not legally binding.
Companies are keen to promote products as natural because it is “a proxy word for ‘good’”, says Nick Lee, professor of marketing at Warwick Business School.
“The assumption among the public is that ‘natural’ is better for you than artificial. But that is completely untrue — lots of natural things are bad for you and lots of artificial things are good for you.”
GM crops were a case in point, he says. “The evidence suggests they are safe and have a hugely beneficial impact on the world. Yet many people whose ethos is for environmental sustainability are against them.”
In this post-milk, post-natural world, the battle is likely to move to meat, with the plant-based products that look and taste like meat — and even “bleed” — though they contain no meat.
The environmental benefits of artificial meat are clear: cows take up vast amounts of farmland, require huge quantities of water and produce methane, a potent greenhouse gas. To get consumers to eat it, though, the marketing needs to be right, says Prof Lee.
“The labelling on artificial meat will be crucial for making it popular.”
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