The dairy industry has never experienced a situation as disruptive as coronavirus and the sudden shift in consumer demand.
“Yet our supply chain seems to be managing it and handling it with a fair degree of aplomb,” Mark Stephenson, director of dairy policy and analysis at the University of Wisconsin, said in the Dairy Business Association’s latest “Dairy Stream” podcast.
With many states issuing near stay-in-place orders, people are not going out to eat. In normal times, out-of-home consumption of dairy products accounts for a little more than one-third of sales, he said.
“So this is a big change to be dropped from restaurant and foodservice organizations that quickly,” he said.
The shift to at-home consumption affects the demand for products made from barrel cheese, such as single-slice cheese for hamburgers or cheese product for nachos. Some of those products will be used in the home but not as much, he said.
While school systems are shut down, a lot are still providing food to children in many parts of the country. And there is an uptick in fluid milk sales at retail, he said.
“So barrel cheese plants are seeing a decrease in demand for product. Fluid milk plants are scrambling trying to keep up with orders,” he said.
So far, the industry is finding a home for milk and dumping milk hasn’t been an issue. The markets have been in reasonable balance, milk is just shifting from one plant to another, he said.
The bigger question could be whether dairy plants experience any disruption because of too many workers testing positive with COVID-19, or possibly even milk haulers. Smaller haulers probably don’t have a lot of backup, he said.
“But we’ve got a lot of flexibility in the system, and I think we’ll get through this without too many disruptions,” he said.
The industry’s ability to adapt has been better than he expected, he said.
“I’m really pleased to see how resilient our dairy supply chain seems to be, both from the production of milk through the pick-up and on into the plants and the ability to shift things around,” he said.
But another concern would be a recession, which is never a good thing. People don’t have the income to buy everything they had been buying, and it changes dietary selection. A worldwide recession would be especially concerning, he said.
“We had essentially that in 2008 and ’09, and none of us want to go back and think about the kind of price declines that we saw in 2009 in the dairy industry,” he said.
Class III milk fell to the $10 per hundredweight range. Producers responded pretty quickly, culling animals that weren’t pulling their weight and operating below capacity, he said.
“Of course that is part of the solution; that tightening of the milk supply did bring prices back up reasonably quickly,” he said.
As for what’s happening elsewhere, he’s spoken to colleagues in other countries and has heard a little from those in Italy. That industry’s product mix is changing a little as well. People are staying home, but they’re used to preparing food at home so it’s not a big change for them. But there is more fluid milk consumption there as well, he said.
