Much Ado About Dairy? Unique Market Considerations for Milk & Dairy Markets in 2021

February 22, 2021 | Letters

Author: Dr. Nicole Olynk Widmar, Associate Head and Professor, Purdue University Department of Agricultural Economics

We watched our world change before our eyes as the realities of COVID-19 set in for nations across the globe. From an economics and markets perspective, it is far (far) from over. But the food system has developed and maintained resiliency thus far, largely keeping up on the macro level with consumer demands (albeit not without some pain along the way). Dairy markets have been the focus of a great deal of attention since the very earliest days of the pandemic when food service closures (especially of schools) led to painful adjustments without warning while milk supplies were diverted to products consumable at home.

Nicole Widmar crouches next to Miss Pixie the cow

COVID-19 Adjustments: Reflections And Lingering Questions

*The information below was directly inspired by Dr. Nicole Olynk Widmar’s article in the December 2020 Purdue Agricultural Economics Report, The Dairy Marketplace: Reflections on 2020 and factors to watch in 2021.

The sudden transition to ‘stay at home’ in mid-March 2020 led to significant changes in shopping for food at home versus away from home, which impacted every food sector in the nation and most around the world. For dairy markets, however, there was the confounding issue of movement of children home from schools. Fluid milk in schools is a significant market; one can visually see consumption of fluid milk and a variety of dairy products move in sync with the school year. Fluid milk consumption declines reported currently are attributed, at least in part, to lowered school attendance during the pandemic.

Basically overnight the demand for milk in schools fell (to near zero), leaving raw milk without a home for processing and fueling national media stories on milk dumping. While there was public outrage evident and the actual scale of milk dumping was drastically higher than usual, missing from much of the reporting was the relative localization of massive increases in dumping to the Northeast (and then Southeast, in that order).[1] Adding to the sting of dumped milk and (at the time) milk prices dropping rapidly were the images of empty supermarket dairy displays as shoppers sought but could not find fluid milk. Undoubtedly, dairy producers and the dairy industry faced some dark times in March-May 2020, as did many industries and societies grappling with COVID-19.

Certainly, nobody wants to see milk dumped; there is an emotional response to seeing what we recognize as a wholesome, complete food, often in the context of infants and children, wasted. However, what was largely missing from media coverage was the resilience shown by the milk supply and processing chain in the recovery/adjustments that followed. Considering the scale and speed of the adjustments necessary, the industry response was impressive. The duration when milk processing was unavailable for raw product was reasonably short-lived as the U.S. dairy industry worked to redirect product for processing, which includes a ‘heavy lift’ in terms of logistics of a perishable product requiring refrigeration combined with processing capacity and packaging availability. There was a brief period of time during which retail supermarkets struggled to keep fluid milk stocked on shelves as U.S. households moved home and stocked up on staple products. The transition to supplying more fluid milk for home consumption and less to restaurant and food service (including schools) was rapid, and the supply chain showed resiliency, although admittedly not without some short-term adjustment pain.

Dairy consumption at home is simply different than in restaurants or food-service establishments for most U.S. consumers. Consumption of butter and cheeses are of particular interest in the food at home versus away from home discussion. Bread baskets with butter, cream and butter-based sauces and the inclusion of items like cheeses and sour cream in dishes all tend to be more common in restaurant dishes or other ‘splurge’ type meals than every day at-home meals. In a special report on eating out expenditures during COVID-19 by USDA, ERS it was reported that, “In April and May 2020, food-away-from-home spending was down 50.8 and 37.2 percent, respectively, when compared to the same months one year ago.” Certainly the shift away from restaurant meals has changed how U.S. consumers eat. Butter stocks remain reasonably high presently, placing downward pressure on butter prices. Pizza is one of the biggest uses of mozzarella cheese in the U.S. marketplace, which is an interesting food category during the pandemic as it remained reasonably in-demand as a take-out item, even as households continue to stay at home and many continue to avoid in-person dining, even when it is available. Contrary to trends for a variety of cheese products, American-type cheeses have experienced an increase in demand during the COVID-19 era. Increased demand for American-type cheeses is fueled by at-home cooking and consumption, largely believed to be in conjunction with preparation of common comfort food items, such as macaroni and cheese.

What’s Next?

Human behavior is sticky, and we will not immediately revert to old habits, even once it is possible to do so safely. Vaccines offer a spot of hope, albeit cautious hope with new variants and rollout challenges remaining headline news. We’ve spent months (if not over a year) under duress, and that anxiety-driven canned food and toilet paper stockpiling behavior is likely to stick, just as depression-era stockpiling or post-war shopping behaviors did for our elders. How much impact this time period will have on how we spend, save, eat, travel and prioritize our time won’t be known with certainty for years to come. How quickly some things move to find their new normal depends a great deal on how successful vaccination programs are, as well as economic recovery around the globe.

More information and details surrounding this topic can be found in my recent conversation with Peter Tubbs of Market to Market. Check it out here: https://www.youtube.com/watch?v=JT7Pgw6fewk.

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