Industry Environment
According to the U.S. Dairy Export Council (2015), there were 9.3 million cows which produced 93.4 million tons of milk in the United States in 2014. The country has about 50,000 farms under dairy farms which are majorly family-owned (U.S. Dairy Export Council, 2015). Dairy farming is practiced in all the 50 states as well as in Puerto Rico, and it is the leading agricultural business in Arizona, California, Michigan, Idaho, New York, New Hamshire, New Mexico, Utah, Vermont, Pennsylvania, and Wisconsin. 74 percent of dairy farms in the country have less than 100 cows, and the average herd size is 115 cows. Wisconsin and Pennsylvania are the largest producers of milk with 12,100 and 7,200 dairy farms respectively (United Dairy Men of Idaho, 2014). In 2014, the dairy industry generated revenue of US$102 billion which was an increase from US$98.17 in 2013 and 94.49 in 2012 (Statistica, 2015). The milk produced by dairy farmers is processed into butter, cheese, nonfat dry milk and ice cream. The dairy industry in the U.S. has faced little competition in the past but due to globalization, the market has been disrupted by entry of dairy products from other countries.
Most of the milk produced in the country is consumed locally with data showing that there has been a strong growth in sales for butter, whole milk, kefir, cream, and natural cheese. On the other hand, low-fat and skim milk, margarine, and frozen yogurt have been recording slow performance (US Department of Agriculture, 2016). In 2015, the country had a notable sales growth in goat’s milk and yogurt’s for young children. Dairy sales are usually consistent throughout the year, and they are not significantly affected by climatic seasons because farmers have embraced mechanisms to ensure milk production remain high throughout the year (U.S. Dairy Export Council, 2015). The dairy industry is resilience to economic fluctuations because it is one of the subsectors of the larger food industry. People must consume food items whether the country is going through a recession or a boom. Therefore, the market for dairy products is highly stable, and the key suppliers of the industry are thousands of family-owned farms dispersed across the vast country. The key issue in the dairy industry is to ensure that high standards of hygiene are maintained from the farm to the retailer (Watson, 2015). One of the main regulatory concerns in the dairy sector is the requirement by public health laws to ensure the U.S. Dairy Authority approves the technology used along the supply chain.
The use of technology will continue to be affected by macro forces. The increase in uncertainty over the economy, politics, supply, and prices will result in a reduction of the middle-income consumers which subsequently will cause a decrease of mid-priced products and retailers. The definitions of value will become more polarized. The dairy sector will have to deal with the constant description of value for both low-end and premium to offer solutions to demand at all ranks. Additionally, the consumers of dairy products are increasingly becoming diverse and highly aware as the population becomes old, growing Hispanic, highly diversified youth, ethnically mixed families and nontraditional households. The shifting face and consequential health conditions of consumers in the country will necessitate the dairy sector to apply more versatile segmentation and respond to specialized needs of targeted markets in product formulation, package selection, and communication. In fact, it is expected that “smart” technologies will evolve at a rapid rate as consumers will require unimaginable amounts of information, lucidity and point-of-purchase decision-making capacities supported by daily and complicated digital technology. The information technology will change and augment customers’ expectations to that of an experience rather than just an event of an exchange of goods. Therefore, retailers of dairy products and the entire dairy sector should provide products, packaging, information and several ways of addressing these needs. Technological innovation in the dairy sector should move beyond communication and product delivery to consumers to blending of benefits that provide more successfully on the changing and multidimensional needs (Innovation Center for U.S. Dairy, 2012). The majority of the current dairy categories are meant to fulfill the most basic consumer needs, but the expanding application of technology in the sector will create new opportunities for these products to meet more complex needs.
Companies in the dairy sector that will adapt to the evolving needs of consumers have business opportunities in the local and international markets. Even though the domestic market has not recorded significant real growth in dairy product consumption for a while, as population growth has almost entirely driven the expansion in the industry. The low growth in the industry has been driven by competition from alternative beverages and food items as well as the concerns of the consumers on the implications of dairy products usage on different issues such as health, environmental sustainability, and animal welfare. However, all is not gloomy especially when one looks beyond the U.S. borders. China, India, and other emerging markets have experienced high economic growth in the recent past which has pushed millions of people to middle-class level, and increased their consumption of dairy products significantly. China recorded a growth of 6.1 percent and India had 3.6 percent in dairy product consumption in 2015. Many of the emerging economies are net importers of milk as they cannot meet local demand through domestic production. It is projected that countries with milk deficit will have to import milk by 2020 if they do not expand their local production for about 119 million metric tons of milk which will be an increase of 66 million metric tons of 2013 levels (Carbonneau & Meilhac, 2016). It is tough for these countries to achieve that level of production within the short duration and, therefore, they will have to depend on imports for their dairy products.
Financial Aspects
In 2014, the dairy industry spent about US$1 billion in technology related services which is about 1 percent of the sector’s total revenue in the same year. The cost of technology differs widely between the farmers, making it difficult to determine the appropriate cost per cow. There are so many factors which contribute to the overall cost of technology in dairy farms. Some of these factors include number of cows, geographical context, and size of the farm, competency of staff, fodder system, animal housing, and milking systems. For example, farmers can apply the same technology in their farms but have different costs of technology because of the differences in how they will apply it in their respective farms. Farmer cannot fully benefit from a technology if they do not have the adequate knowledge on how to use in improving the efficiency and profitability in their farms. In some cases, an introduction of a new technology in a farm may result in increased inefficiencies and losses.
Application and Technologies
Information technology has significantly changed the way farmers produce milk in the United States. The industry has experienced several innovations in the recent past which are commonly called “precision dairy.” Precision dairy management is the application of technology to assess indicators on animals and automation to carry out some activities. The technologies are adopted with the aim of increasing efficiency and enhancing animal management which eventually leads to higher farm output and profitability (Haan, 2013). Some of the popular precision technologies in the U.S. include the use of computerized milking technologies, automatic feeding procedures, and activity and rumination sensors. Even though some of the technologies are not very new, they have been enhanced to incorporate recent development in ICT sector (Hogeveen & Steeneveld, 2013). The dairy industry has been adopting technologies that were initially meant for other sectors (Bewley, 2013). For example, farmers are using smartphones, tablets, and GPRS in their activities to improve communication with milk processors, vets, suppliers and other stakeholders in the sector.
Precision system is about using technologies to assess the health, conduct, and output pointers on cows as well as the application of automation systems to carry out all farm activities. The technologies help farmers to improve labor output per man hour and improve feed efficiency (Bewley, 2013). Additionally, the techniques are meant to reduce ecological effects and enhance the health of the animal through higher access to details on better animal management. The technologies are not only applicable on large farms but on small ones as well (Haan, 2013). However, the adoption of IT in the dairy industry has been slow because of lack of information on the availability of these technologies, higher costs than benefits, and availability of excess information and the farmers may not know how to use it properly. There are many developers of IT solutions in the dairy industry with each of them dealing with different lines of specialization. For example, Lely is the inventor of robotic machine and is the main dealer in North America.
Technology use does not start and end at the farm in the dairy sector, but it continues to the processing stage. Companies use different milk processing equipment in their factories to ensure that they make products that will be acceptable to their customers. The technology utilized in the factories depends on the type of the milk product that is envisaged. For example, the technology used to make cheese is different from the one for making butter. In 2015, two companies developed a new technology called SEVENx which they said would reduce the original weight of milk by 14 percent. The technology can allow milk to have a longer shelf life without refrigeration and retain the protein level throughout that period. The technology can reduce the carbon footprint of milk by 30 percent as it cuts carbon dioxide to one kilogram per liter of milk. The technology is very useful at this point in the country when the local manufacturers are looking for international markets because of the stagnation of the domestic market (Conick, 2015). Milk products processed through this technology can be shipped to international markets without refrigeration.
Standards
The dairy industry does not have any standards set for adoption of technology solutions. However, farmers take into consideration several factors before implementing any technology in their farms. The cost of implementing the technology is one of these factors as farmers want to adopt solutions applications that will improve their efficiency and profitability at the same time (Bewley, 2013). For robotic milking machines, the quality of life and scarce labor are the main reason for the increase in their use in U.S.
However, some studies have found that robotic devices are more costly than conventional milking systems. Lack of standards in the use of IT in the dairy industry hinders the farmers to access information on most efficient systems to apply in their farms. Technology can only benefit the farmers if they accept to use them (Haan, 2013). For example, some farmers may not find activity monitors helpful if already their breeding and conception levels are high. On the other hand, application of activity monitors in a farm may not help to improve breeding and conception rates unless the farmer corrects other farm management issues.
Use of innovative technologies in dairy processing and ingredients has been successful in Use of innovative technologies in dairy processing and ingredients has been successful in the past because of the development of new ways to make a better product at almost every turn. The desire by consumers to have healthier products has led dairy manufacturers to respond with brand names that are not defined in the standards that customers resonate with and trust. Manufacturers of dairy products feel that the kind of restraint they face is not applied in other competitive industries. They site that the Federal Order regulations and standards of identity are impeding growth and innovation in the dairy industry. There has not been an agreement on the most appropriate technology to be applied in the milk processing. The industry has witnessed very slow deregulation of local, state-controlled pricing and flexibility in the adoption of new techniques and elements to come up with healthier products. If these issues are addressed, the industry will experience more competition, innovation and increased consumer choice in product arrays. Currently, cooperatives are basically in the business of redistributing money from a highly restrictive system, but they need to acquire real market power for their members. Milk buyers need to manage the risks of price volatility for inputs just as it happens with packaging and other components. Therefore, current standards in the dairy industry have adverse effects not only on the use of technology but the business environment as a whole. The stakeholders need to come together and understand the dynamics of the market and stop putting a lot of emphasis on the regulatory aspect of the industry (Tipton, 2014). They need to identify technologies that will improve efficiency and effectiveness of the industry, and they can only do so by having a serious conversation among themselves.
Trends and Innovations in the Dairy Industry
The large dairy producers have recorded increased automation and adoption of other technologies which have increased competition for smaller farms which have been slow in adopting these innovations. The use of technology has led to a gradual increase in milk production every year from 2010 to 2015. The use of IT has enhanced access to better equipment and higher quality feed which enlarge herds (FoodEngineering, 2013). As technology contributes to greater competition, the industry will likely continue to witness more consolidation that has been a trend in the last one decade. Another technological trend in the dairy industry is in the milk processing where the manufacturers are looking for innovative and aseptic packaging to extend the shelf life of non-refrigerated dairy products.
The innovation will be valuable in helping U.S. manufacturers to export their products overseas and take advantage of foreign markets. A game changer in the dairy industry is an application called MooMonitor which is a device developed to monitor cows on the heat. It is estimated that 50 percent of heats in the U.S. go undetected which cost about US$600 million every year. MooMonitor has 90 percent accuracy in identifying an animal on heat. The innovation was developed in Ireland by Dairymaster in 2015 and involves fitting sensors on cows which send data wirelessly to a central point and then upload it to a website (Regan, 2016). Farmers are prompted by text messages on their mobile phones indicating animals on heat. The farmers then share the details with artificial insemination vendors.
As a conclusion, the dairy industry is among the industries with significant growth potentials because the demand of dairy products continues to increase as the population increases. From the statistics of 2014, it is clear that the industry plays a significant role in the economy and its growth potential is high. With the increasing potential and adoption of technology in the industry, efficiency is expected to improve, which will further improve productivity. There is a need for the introduction of standards that will act as guidelines for the industry players because lack of clear standards has continued to affect the industry significantly.
References
Bewley, J. (2013). Exciting dairy breakthroughs: Science fiction or precision dairy farming? Proceedings of the Precision Dairy Conference. Rochester, MN.
FoodEngineering (2013). Looking ahead: Dairy industry trends & challenges. Retrieved August 29, 2016, from http://www.foodengineeringmag.com/articles/91280-looking-ahead-dairy-industry-trends-challenges
Carbonneau, P. & Meilhac, L. (2016). Got growth? Opportunities and challenges for U.S. Dairy industry. McKinsey & Company.
Conick, H. (2015). The future of milk? New technology increases milk’s shelf life, cuts carbon footprint. Retrieved August 29, 2016, from http://www.dairyreporter.com/Processing-Packaging/The-future-of-milk-New-technology-increases-milk-s-shelf-life-cuts-carbon-footprint?utm_source=copyright&utm_medium=OnSite&utm_campaign=copyright
Haan, M. M. (2013). Precision technologies in the dairy industry. Retrieved August 29, 2016, from http://extension.psu.edu/animals/dairy/news/2013/precision-technologies-in-the-dairy-industry
Hogeveen, H. & Steeneveld, W. (2013). Integrating it all: Making it work and pay at the farm. Proceedings of the Precision Dairy Conference. Rochester, MN.
Innovation Center for U.S. Dairy (2012). Executive summary: The future of dairy. Dairy Management Inc.
Regan, M. K. (2016). Connected cows: A game changer in the dairy industry. Retrieved August 29, 2016, from http://www.ptc.com/product-lifecycle-report/connected-cows-a-game-hanger-in-the-dairy-industry
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Tipton, C. (2014). U.S. dairy industry of the future. Retrieved August 29, 2016, from http://www.dairyfoods.com/blogs/14-dairy-foods-blog/post/90879-us-dairy-industry-of-the-future
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