Effect of surging dairy prices on food and beverages
With growing concerns surrounding dairy, manufacturers have been seeing higher commodity prices over the last couple of years. Reports have shown that agriculture and export indices have closed 2% and 6% higher, creating volatility in dairy prices.
WorldBank, 2022
We’re seeing changes in prices due to several reasons such as:
Weather Conditions
that affect milk production
Price Fluctuations
in cow feed
Geopolitical Events
that affect trade
As a result, manufacturers who rely on dairy as a raw material will be met with a price increase (known as inflation) due to the limited dairy supply.
Inflation in Dairy Prices
Inflation has reached a record high in 2022,
and is predicted to remain on a high even in 2024. Skimmed milk powder has seen an increase in price by about 63% while whole milk powder has seen an increase in price of 64%.
Dairyreporter, 2022
The Function of Dairy in Food and Beverages
With that being said, if manufacturers continue to follow their current formulation, the high costs of dairy will add to manufacturing costs. Indeed, one can attempt to reduce the dairy component in the finished good to optimize costs by product reformulation or Shrinkflation.
Challenges will be faced during the reformulation process while attempting to lessen or remove dairy components. This is because dairy is a multi-purpose ingredient and plays a critical role in segments like Bakery, Infant Nutrition, Desserts and Powdered Beverages.
Impact on Bakery
Acts as a binder and helps in browning of baked goods.
Impact on Infant Nutrition
Main contributor to protein content of nutritional infant products.
Impact on Desserts
Binds product together and creates unique textural properties.
Impact on Powdered Beverages
Acts as canvas for addition of color.
Another alternative to cost optimization is to partake in “Shrinkflation”. Knowing that dairy prices are on a high, manufacturers may be tempted to partake in “Shrinkflation” to reduce dairy components in their product. Shrinkflation is when the price of the finished good remains the same, but the product’s size is reduced.
This may not be a suitable long-term solution as consumers will gradually notice the change in product size or volume. Upon realization, this may make consumers feel that they are shortchanged, and may end up switching to an alternative product or brand.
Original Product
Product after “Shrinkflation”
With rising prices, and dairy’s critical role in many food and beverage products, how can manufacturers tackle price spikes in dairy? This can be done through optimizing the usage of dairy in products. There are multiple considerations for this process, depending on the product matrix and ingredients in the base formula.
Here at Sensient, we have the expertise in helping you optimize your base formula to reduce the reliance on the dairy component in your recipe. We have a panel of experts in our team to advise you on the dairy optimization process to ensure your product looks and tastes good all the time.
Depending on your product needs, our experts can recommend you a diverse range of flavors that can deliver smooth, creamy mouthfeel while providing authentic, rich and satisfying taste of dairy ingredients.
Our range of flavors in our portfolio include:
Fresh Milk, Butter, Cream, Condensed Milk and Cheese
Still confused about the dairy optimization process? Partner up with Sensient as our technical experts support you through your product’s development process. To find out more about how we can help, schedule a consult with us today!
