More Capacity Depends on the Consumer

Markets for new products must exist before processors expand. ( iStock )

The cold months of winter are upon us, and all of us in the Upper Midwest look forward to days of green grass and tree buds. Spring brings new life and regeneration.

In the dairy industry, spring has also brought more milk. This is mostly an old adage based on when milk production went up when cows were turned out on new, green pasture. The industry has largely gone away from pasture-based systems, however there is still generally more milk production in the spring than other times of the year.

In an industry where processors are already at capacity, having more milk on the market is not a welcome occurrence. Last April we saw how tight markets can get when a few processors lost markets into Canada and had to cut off nearly 100 producers. A mad scramble for a home for that milk ensued, made more difficult because many processors were already burp full of milk and could take no more.

To alleviate this situation, producers clamor for more processing capacity. In a Field of Dreams sort of way, producers say, “build it and we will fill it.” Problem is, it’s not quite that easy.

Last month at Dairy Forum, hosted by the International Dairy Foods Association, the last panel of the event included representatives from three processors: Wells Dairy, Associated Milk Producers, Inc. (AMPI) and Schreiber Foods. They were asked about the opportunity to add capacity to their manufacturing facilities.

Their response, and rightfully so, was it depends on demand. Just as dairy producers shouldn’t expand their dairy unless there is a place that will take the extra production, processors won’t expand or build on to their capacity unless there is a market for the product. “If there is demand, we’ll allocate capacity and respond accordingly,” says Mike Haddad, president and CEO with Schreiber Foods, Inc. Sheryl Meshke, co-president and CEO with AMPI says essentially the same thing. “It comes down to what do our customers want us to deliver, and is our manufacturing able to meet their needs.”

It’s not like processors aren’t trying. New products are continuously in development, based on a continuous effort to meet ever-changing consumer demands and desires. But not every product can hit a home run, like Fairlife for example. For every Fairlife there are a dozen other products that never saw the light of day.

Thankfully technology is available to turn milk into a variety of products useful to a number of companies, foreign and domestic, that use those ingredients to manufacture processed materials. This behind-the-scenes market will continue to grow as technology evolves to meet burgeoning demand for dairy products.

The problem is, this product development process takes years to develop. In a simplified way, companies have to conduct research, identify a consumer need, create a product to fit that need, build the manufacturing process to make that product and then, if that product takes off, expand capacity to meet that product demand. Processing expansion doesn’t happen overnight.

So cows will keep producing. Perhaps there will be fewer cows in the near future, or maybe global markets will open up to alleviate the supply-demand logjam. In the meantime, get ready for more milk this spring and processors full of milk.  

 

Note: This story appears in the February 2018 magazine issue of Dairy Herd Management.

 

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