Hoogwegt Horizon September Report

For some in the dairy industry, the plant-based dairy alternativemarket has grown at an alarming rate. Valued at $22.6 billion in2020, the global dairy alternative market, is expected to grow at acompound annual growth rate (CAGR) of 10.3% between 2020and 2025. By January 2026, the market is expected to reach $40.6billion, according to Markets and Markets. That’s nearly adoubling in value over a mere five years.

The global plant-based cheese market, valued at approximately$1.01 billion in 2019, is anticipated to grow ever faster, with anexpected CAGR of 12.8% between 2020 and 2027, according toWise Guy Reports. Alternatives are also close to outraising dairyfor needed expansion capital.However, these numbers need to be looked at in perspective.The total value of the alternative market in 2020 is still miniscule,3.2% compared to the total value of the global dairy market at$720 billion in 2019. Furthermore, Mordor Intelligence projectsthe global dairy market will grow at a CAGR of 5% between 2020and 2025, which would put it over $920 billion by January 2026. While these projections show the alternative market gainingslightly on dairy, both industries have plenty of growth potential.

Effects on Trade Considerable

Value-added dairy markets, such as lactose-free and high-proteinproducts, rival the entire dairy alternative beverage market bothin terms of market share and growth rate. The popularity of thesedairy products suggests they have just as much potential forexpansion as the alternative market. For example, Fairlife beganas a joint venture between Coca Cola and a group of U.S. dairyproducers in 2012 with one product, its Core Power high-proteinperformance shake. The product line today, which Coca Cola nowowns entirely and plans to expand globally, consists ofultrafiltered, high-protein, lactose-free milk, nutrition andperformance products, and ice cream, with the bottled milkproducts experiencing double-digit growth.

Three main drivers are responsible for the growth in dairyalternative markets. First, people who are lactose intolerantoften continue to choose alternatives to dairy even though thereare a growing number of lactose-free dairy brands on the marketto serve this large consumer group. According to Healthline,lactose intolerance affects 5–17% of Europeans, 60–80% ofAfricans and Asians, and about 44% of North Americans.

Second, environmental concerns and consumer awareness thatclimate change is accelerating have also convinced some peopleto switch to plant-based beverages or at least cut back on dairyand meat consumption to help reduce greenhouse gas (GHG)emissions. However, dairy’s share of global GHG emissions is only2.7%, with 2.2% coming from the milk production sector, and it isunclear whether dairy’s footprint is any larger than that ofalternative products.

Finally, some consumers believe plant-based dairy alternatives tobe healthier than dairy products due to the perception that dairyproducts contain more saturated fat and cholesterol, bothtraditionally thought to be major contributors to chronicdiseases. However, recent peer-reviewed studies havequestioned the assumptions that the saturated fat in dairy isharmful. Looking at the overall nutritional differences betweenthe two markets clearly shows milk is superior to plant-basedalternatives, a fact acknowledged overwhelmingly by healthprofessionals. Compared to oat milk, for instance, dairy has nineessential minerals versus five for the plant-based product, twicethe amount of protein, fewer grams of sugar and carbohydrates,the same amount of saturated fat, and nearly 25% fewer calories.

World Comment

The last weeks have been mainly about whether China will keep on buying or will they slowdown a bit. GDT participation of just 40% in the last two GDT’s seem to give an indication,since it was the lowest participation for over a year. South East Asia is experiencing one theof most severe lockdowns since the start of the pandemic, resulting in factory closedowns, strikes and less consumer demand. With twolarge buying regions being less active at least, a softening of prices would not come as a surprise. However, we currently see prices increasingacross the board, due to an even more disappointing supply in the EU and logistical issues in the US. The last two months’ supply growth inthe key exporting regions went down from 3,0% to 0,8%. Which cannot just be explained by strong numbers in 2020. US supply have beenstrong throughout the season, but July reporting a growth of just 2%. EU growth was negative in July, but the outlook for August seem to bebetter. Could a strong New Zealand season bring some better news for the buy-side, or will the first downside be the EU flush?

Lab Milk Threatens Alternative and Dairy Markets

While plant-based dairy alternatives have proliferated rapidlyover the past several decades, a new technology, lab grown milkproteins, has been evolving over the past 5-10 years that couldthreaten both markets. Fermentation-based milk proteinproducts are now being sold commercially for relatively spendysums. Some analysts believe these products could become moreaffordable in time, making them even more popular thanalternatives as many believe they both taste and function better.

This new technology has garnered the attention of some of theworld’s largest food companies. According to The Guardian,Nestlé and Danone have bought start-ups that are working ontechnologies to grow milk proteins in the lab, and investmentbanks are also putting money into the technology. However,these products, and their meat counterparts, have been slow toreach commercial status. So far, only Silicon Valley-based PerfectDay, has been able to bring its lab-grown, milk protein productsto market. Perfect Day now sells three branded products to 5,000stores in the United States. One of its ice cream brands sells for$9.99 (U.S.) per pint, more than twice premium ice cream brands.

Lab-made cheese could also be in stores within the next fewyears. New Culture, a start-up based in San Francisco, has beendeveloping a fermented milk protein product to make a type ofMozzarella. The company hopes to make a product with all theright melting characteristics needed for pizza cheese. While thetechnology has advanced quickly over the past two years, scalingup to sell it commercially has been slow, according to the firm.

Yet even if these new companies could scale up their technology,consumers would need to be open to trying their products, andgovernments would eventually need to shift massive amounts ofsubsidies away from traditional agriculture and toward thistechnology for it to ever overtake traditionally produced dairy.