The Power of Change
International Dairy Foods Association (IDFA)
Dairy Forum 2020
Scottsdale, AZ
Remarks as Prepared for Delivery by Michael Dykes, D.V.M., President & CEO, IDFA
Monday, January 27, 2020
8:45 a.m. MST
INTRODUCTION
Welcome to Dairy Forum.
Thank you to everyone who made the journey here today, and hello to those of you watching VIA LIVESTREAM from around the world.
I also want to thank our amazing IDFA team who made today’s event possible. Our team is passionate about this event because we are passionate about dairy and we understand what’s possible when we come together. Collaboration. Passion. Big, Bold and New Thinking. That’s what Dairy Forum is all about.
This Forum brings together so many key players throughout the dairy supply chain.
• We have farmers with us today. It all begins with you.
• We have dairy processors here today— you process the milk into consumer products.
• We have retailers—you make the products available to consumers.
• And we have suppliers who manufacture the equipment, packaging, and so much more. You are a key link in the supply chain.
• We also have academics, researchers, nutritionists, marketers, government officials, and many others.
Take a look around. This is our dairy industry. I want to thank each of you for the contributions you make.
Last year, I talked about disruptive forces in our industry—the issues that would drive change and cause us to react with new ideas and approaches. And boy, have we seen disruption in our industry since last year’s Dairy Forum! We are seeing more disruption and it is coming at us faster than ever.
We are here at Dairy Forum to explore the Power of Dairy…and how we can unleash/leverage the power of dairy through leadership, listening to consumers, advocating for policy, embracing disruption, to become a shining example of a sustainable industry that taps into new ways of thinking to access the full power of dairy. Hopefully you will leave this Dairy Forum energized and committed to leading our industry through transformation with the information provided during the many sessions at this year’s Forum.
Our industry is changing and indeed the world is changing.
THE WORLD IS CHANGING
The Iranian crisis of just a weeks ago. Oil prices didn’t skyrocket as they would have a few years ago. Why? Our domestic oil and gas industry has changed. Technology has changed the United States to be an energy exporter.
Outside the Middle East, China and Russia are major players on the world stage.
China is now a global economic player, the world’s second largest economy with 1.4 billion people. China represents a $23 billion market for our dairy products in the future.
The United States is Changing: The Rural Urban Divide
We are using our industry leaders to strengthen our advocacy and our coalition building. Rural representation in our government continues to decline. It is in this new environment that IDFA has developed a fresh outlook on how we collaborate with our industry leaders to build influence. The bottom line is this: We must have a broad, diverse, more urban coalition that can influence policymakers in this changing demographic landscape.
It is our responsibility—including everyone here—to communicate with policymakers often, offer guidance and support, and bring them into the conversation so they see the jobs, the innovation, and the impact in their states and districts. This is how we advocate for a healthy dairy industry.
IDFA HAS CHANGED – STRUCTURE AND MEMBERSHIP
On that note, IDFA has gone through quite a bit of change in the past three years. Since I joined IDFA in 2016, we’ve reshaped and refocused the organization, building a more inclusive governance structure that represents and engages all segments of the growing dairy industry. And with our Five Industry Segments Boards representing Milk, Cheese, Ice Cream, Yogurt & Cultured, and Butter/Ingredients, we’ve developed action plans for our industry to drive policy and regulatory change in a measurable way.
That change has paid off and broadened our appeal across the industry. In 2019, we welcomed more than 30 new members into the association now representing over 90% of the industry.
We have changed our focus and leveraged our legislative, regulatory and communications expertise to achieve wins for our members. Here a few examples of change and the results.
CHANGE AND RESULTS
• New focused efforts on trade – passage of USMCA; Phase I Japan deal; Phase I China deal
• Collaboration with NMPF – Achieved meaningful policy changes for both producers and processors without the usual controversy
• Collaboration with Feeding American and MilkPep - USDA made the very first purchase of fluid milk for food banks, purchasing $253 million in total dairy products.
• Federal appropriations:
o SNAP - $1 million appropriated for a SNAP milk incentive program
o ARS - $3 million for USDA ARS ice cream waste research
Everyone in this room shares in these accomplishments. Working together we embraced change and made this possible!
WHY CHANGE IS ESSENTIAL
For businesses and people alike, just the word change can be scary. But call it by another name—innovation—and it becomes exciting and essential.
Regardless of what we call it, change is necessary. In fact, I’ll make a prediction about the dairy industry: We will see more change in the next five years than anything we’ve experienced over the last 15 years. We will continue to see consolidation across our industry … and change in the products we make … the way our industry is organized to produce and deliver those products … and we will see more public scrutiny on our industry with changing consumer demands and preferences for our products.
The question is: Are we going to endure change or embrace it? Are we going to react to change or get in front and lead it?
Why do I say that change is necessary? Because we can’t afford to stand still.
As McKinsey will share on Wednesday morning, the headwinds in our industry are strong. Consumer confidence is at an all-time high, but dairy demand faces challenges, with lower volume growth and more intense price pressure than the overall CPG sector.
Henry Ford said, “If you always do what you’ve always done, you’ll always get what you’ve always got.”
It is time to take charge of our future together rather than allow others to determine it for us. Let’s look at Kodak and IBM as two case studies.
Kodak was an iconic brand that dominated the photographic film market for most of the 20th century. It invented roll film in the late 1880s, making it the biggest film company in the world. In 1975, a Kodak engineer invented the first digital camera, but the company did not develop it because its leadership was concerned it would hurt its film business. As a result, Kodak missed the digital revolution. They failed to lead change. Instead, they reacted—very late—and tried to catch up. Kodak filed for bankruptcy in 2012 and still struggles to find a foothold in today’s digital economy.
The other side of the coin is IBM. In the 1980s and 1990s, IBM bought hardware components from smaller manufacturers and shipped its PCs preloaded with Microsoft Windows. "PC clones" soon flooded the market, each built with cheaper components and running the same versions of Windows. IBM was slow to innovate, allowing nimble competitors to undercut its prices. In 1993, IBM posted the then-biggest loss in the history of corporate America — $8 billion.
The company had to make an incredibly difficult choice: innovate or die. IBM chose to lead. To embrace change. It abandoned its core business to instead focus on providing IT expertise and computing services to businesses. By 2010, IBM had acquired more than 200 companies in the IT services sector and invested heavily in its server business, becoming the No. 1 seller of enterprise server solutions in the world by 2013 and is a leader in AI tech today.
The point of these examples is: Don’t resist change – it’s inevitable. It’s going to happen to you. Embrace it. Lead it.
Now, let’s gauge how our industry is embracing change.
I have three products here. One is a staple—an iconic product purchased each day by millions of families. It’s the foundation of everything we do. The second is a small protein bar made from what was once considered a byproduct of dairy production and today is a high-value ingredient found in the homes of health-conscious people. And the third is a 16-ounce bottle of clear liquid with a slightly pink hue and fruity watermelon flavor. It has just 60 calories, 0 grams of sugar but just as much whey protein as a 10-ounce glass of milk or one of these bars. You can buy it for $5 a bottle at your local gym, on Amazon, or at the gas station. To the average person, it’s a health drink. It’s trending. But to some of you in this room, it’s the future.
The future is in innovation. We must continue to innovate to stay ahead and remain on the consumer’s shopping list. That’s what we’ve done with microfiltered milk. farilife and Darigold Fit (twice the protein, half the sugar and extended shelf life) as well as Slate shelf stable-chocolate milk in a can with only 9 grams of sugar are great examples. Coscto took cheese to new heights with a prepackaged cheese flight. Sargento mixed nuts with cheeses in a grab-and-go. DFA combined cow’s milk with a plant-based beverage. Ice cream and yogurt have also made big, bold changes.
Our industry is embracing the change it takes to create world class products. Look at the prestigious World Cheese Awards, where in 2018 U.S. cheeses won 89 medals, more than France and Italy. Last year, for the first time ever, an American cheese took the top prize at the World Cheese Awards in Italy. In fact, it was Rogue River Blue from Savencia Cheese USA’s Rogue Creamery—an IDFA member.
We are no longer just one of the largest cheese exporters in the world—we are the best and the most celebrated.
And there are many more examples of innovation happening in dairy—including extended-shelf life technology and aseptic packaging that help our products reach more customers regardless of their location; or products with lower sugar content thanks to sweetener innovations or new value-added products with added omega 3 and DHA—making it the greatest time to be in our industry.
GOOD TIME TO BE IN DAIRY
Let’s step back and survey the industry for a moment. Here’s why now is the greatest time to be in dairy—and why everyone in this room deserves credit for our sustained growth.
The dairy business in the United States at the consumer level has never been bigger, never been stronger, and it continues to grow. Dairy is highly relevant in the marketplace. It is a flexible product able to maintain core attributes of quality, taste, affordability, and nutrition—as it evolves with shifting consumer preferences. Dairy consumption is growing around the world, providing us with a significant long-term opportunity as emerging middle classes begin to demand more protein.
Since the USDA began tracking per capita dairy consumption in the 1970s, the trend has continued upward for five straight decades increasing 22% since 1975.
Let’s zero in on the past decade. There is a false narrative out there, perpetuated by uninformed media, that the past decade has been bad for dairy. In fact, just the opposite is true.
Overall, total per capita dairy consumption is up 6%. The product mix is, of course, changing. Even as beverage milk sales have declined, we have found ways to adapt to evolving consumer preferences, demonstrating that we’re dynamic, innovative and committed to delivering dairy’s essential goodness and powerful nutrition to consumers in all sorts of products and offerings. We are eating more dairy and drinking less.
The future will not look like the past, but it’s change we must embrace!
Much of that change has been caused by shifting consumer preferences. Today, it is most important for each of us to understand that we all work for the same boss—the consumer! What do consumers want?
WHAT DO CONSUMERS WANT?
Consumers top 5 concerns when selecting food and beverages:
1. Health
2. Affordability
3. Safety
4. Sustainability
5. Ability to meet specific nutritional- or values-based characteristics
According to IFIC’s latest Consumer & Health Survey, consumers consistently rate health as one of the top desired outcomes of all food and beverage choices. Consumers rate improved cardiovascular health and weight loss or management as the top two factors behind food choices.
Consumer views of what is healthy continue to shift, however. For example, in 2009, 34% of survey respondents said fat it was the leading source of calories that led to weight gain. Yet, a decade later, just 13% shared that view. Consumer perception is often skewed by the prevailing narrative of the time. Today, nutritional science tells us not to avoid fat—healthy fats are good for us. Consumers agree. Butter consumption is increasing globally.
Let’s look at affordability. Compared to all other countries in the world, Americans are accustomed to spending the least and getting the most food for their dollar. Price and affordability remain key drivers.
Food safety is top-of-mind for consumers when making food purchases in stores and restaurants.
Today, 6 in 10 consumers believe it is important that the food they purchase is produced in a sustainable way—and 7 in 10 are willing to pay a premium to get that assurance.
Consumers want food that meets a specific nutritional- or values-based need or belief. For some, it’s a specific health requirement. For others, it’s a value based on how food should be produced, such as how animals are raised and cared for. This awakening is driving purchasing decisions.
Fortunately for us, dairy has all these attributes. The opportunity is in how we respond. We need to make products consumers want and embrace the change they demand, making it easy for them to decide at the retail level to choose the quality, safety, and performance our products are known for, giving us space to create new, exciting ways to get it to them—no matter where they live in the world.
TAKE BOLD RISKS, EMBRACE GLOBAL MARKETS & LEAD
Embracing this change and harnessing the Power of Change will require us to do three things across our industry.
TAKE BOLD RISKS
First, we must take bold risks. I know that’s easy for me to say when all of you are living in an environment of risk-taking each day—but what I mean is we must continue to turn toward innovation as the solution, beginning on the farm, moving throughout the supply chain to embrace technology and sustainable solutions, and then updating our business models to stay competitive.
On the farm, we need to continue to focus on increasing output through new technology, improved genetics, and responsible care of our cows and sustainable use of our natural resources.
After spending an entire career in food & agriculture, I tell people that if you haven’t been on a farm in the United States in the last five years—you are out of touch. Broadband, data on demand, smart sensors, robotics, and the innovation in plant and animal genomics have changed food and agricultural production forever and for the better.
Thanks to the efficiency of farmers and innovation throughout the supply chain, we produce twice as much milk today as we did 50 years ago with half as many dairy cows on much less land. Over the past 30 years alone, milk production has grown 51% while CO2 output has declined 9%. This efficiency creates astounding – astounding – sustainability impacts.
We know that 6 in 10 consumers in the United States factor sustainability as a main driver of purchasing decisions. It’s time that we fully embraced dairy’s sustainability story—yet we’ve historically undersold these results. Think about if all other dairy-producing countries adopted our sustainability and efficiency standards. Not only is there HUGE opportunity for the United States to market our knowledge and expertise in dairy production to enhance food security and sustainability around the world, we should market these practices as clear separators among global competitors.
After visiting with more than 100 IDFA processor members across North America, I can say for certain that sustainable practices transcend agriculture and influence every piece of the dairy supply chain—from how we recruit and retain talent, to use of natural resources, to packaging, and much more.
I encourage everyone to incorporate higher standards for sustainability throughout your supply chains and to share your efforts and results with your end users.
You will begin hearing more about IDFA’s position and support for sustainability across the dairy supply chain. From IDFA’s perspective, our goal is advocacy for you—leveraging sustainability practices and commitments of our members to advocate for change in front of state and federal governments as well as international bodies. IDFA’s sustainability efforts will focus on offering guidance and support in five distinct areas:
1. Animal care;
2. Products and materials sourcing;
3. Environmental stewardship;
4. Ensuring workforce and workplace wellbeing;
5. Harnessing information technology—such as AI and digitalization—to create the conditions for continued growth across our industry.
As farms and processors prioritize sustainability, they are taking other bold steps to secure efficiencies across the value chain. The digital revolution has transformed and will continue to transform operations. AI and algorithms have automated analysis, collecting constant streams of data about operations, performance, customers and the marketplace. With that data, businesses are investing in smaller and more specialized companies that allow them to establish footholds in specific customer bases or to capture consumer trends. Expanding into new subsegments diversifies operations and exposes companies to new ways of working.
Businesses are offering grant dollars or seed capital to incubate new ideas, support research and development, and scale up operations for fresh new approaches that show promise.
Some businesses are taking a direct ownership stake in pieces of the supply chain that will help deliver a more reliable, cost-effective product while guarding against risks. In the case of retailers investing in processing plants or production agriculture operations, for example, this brings everything that much closer to the consumer, shortening supply chains and allowing companies to be more nimble.
EXPAND GLOBAL MARKETS
Next, we must expand global markets and competition as part of our overall vision for growth.
Two decades ago, U.S. dairy was almost 100% a domestic market. But the past 15 years have been transformational. Over the past 15 years, U.S. dairy exports nearly tripled., and the United States became the world’s third-largest dairy product exporter behind New Zealand and the European Union (EU). It’s no coincidence that, over the past decade, more than two-thirds of US milk production growth went to exports. Today, 85 percent of our consumers are in the United States and 15 percent are global.
2018 was one of the strongest years on record for U.S. dairy exports, as value hit $5.5 billion. This past year, despite significant challenges including the U.S.-China trade war and retaliatory tariffs with Mexico, U.S. dairy is on track to beat last year’s strong returns.
As the share of product for export continues to grow, we realize more each year how trade is vital. Each trade policy discussion is crucial for dairy, which is ever-more-dependent on global markets to support prices as U.S. production rises to meet global demand growth.
More Milk Coming!
The USDA says we are going to add another 15% of output by 2028. What will we do with another 33 billion pounds of milk? We cannot look at the world as a place where we merely offload lower-value products. The marketplace demands higher-value products stamped with America’s trademark qualities of quality, safety, taste, and affordability. We will need to repeat the successes of the early 2000s by
pursuing two tracks simultaneously: create new products that consumers want and create opportunities to grow exports.
To that point, dairy must evolve from a fluid commodity business chasing declining volumes and serving a handful of staples, to a value-added business meeting the needs of people everywhere. In other words, we need to shift to making what we can sell—rather than continuing to attempt to sell what we make!
The emerging story in exports is no longer overall value, but in value-added products growing as a share of the export pool. We still see big markets for powder and whey. But the biggest movers are cheese, lactose, butterfat and food prep blends—high value products taking the world by storm. That’s why comprehensive trade deals including the “whole bucket of milk” are so important to our industry.
But how do we serve those markets? The dairy industry needs a predictable, transparent and rules-based system of international trade that provides certainty and a clear path to growth through comprehensive trade deals. It is essential that we negotiate new trade agreements that expand our market access and provide a level playing field for our members to regain market share from competitors who’ve benefited from our trade disputes.
We need new trade agreements as our competitors are very active in negotiating new trade agreements. The session on the Power of China this morning will for sure highlight even more details on the value of trade. We are very pleased to have our US Ag Trade Ambassador Greg Doud on this year’s Dairy Forum Program! He and the team at USTR are doing a great job for our dairy industry!
LEAD, LEAD, LEAD
Finally, we must inspire not only a new generation of diverse leaders who think differently, but we must also demonstrate to our customers that we are responsive to their demands for sustainable, affordable, nutritious products. At the same time, we must use our leadership platforms to educate policymakers and advocate for change. Producers and processors must work together to unite our interests, share information, grow our relationships, and cultivate our leaders.
IDFA has created a new People Strategy with three new, distinct initiatives focused on leadership development and building a workforce for the future.
IDFA’s NextGen Leadership Program is designed to support, guide and prepare mid-senior level dairy industry professionals ready to take the next step in their leadership journey. This unique program convenes a class of 10-20 IDFA members annually for a multi-faceted, year-long curriculum that builds relationships, develops leadership skills and sharpens advocacy skills. Let’s look at the first class. [VIDEO]
We’re also pleased to formally launch the Women in Dairy Network here are Dairy Forum. The outpouring of interest has been amazing. We already have 230 women who have expressed an interest in this Network. The Network is another way for IDFA to bring together established leaders with young professionals to create a forum that fosters mentoring, supports development, builds networking opportunities, and encourages leadership.
You also will want to stay tuned for details on the Power of People conference, slated for October, which will offer knowledge, training and networking opportunities for CEOs and human resources leaders in dairy. It is a program we are organizing with two great partners, McKinsey and Egon Zehnder.
CLOSING
As I close, I want to bring us back to the theme for this Dairy Forum—the Power of Dairy. Everyone in this room represents our real power and influence as an industry. In other words, YOU are the Power of Dairy. What we have done at IDFA is to unify the industry across all segments—unite YOUR voices—and give YOU a platform to unleash your innovation.
Next, remember what I said about change at the beginning of this speech? I said that we’re going to see more change in our industry in the next five years than anything we’ve experienced over the past 15. Who will lead that change? Who will create the products, the innovations, the new ways of working? YOU. You will lead the change.
How do we lead the change? I’ll leave you with these five things:
1. First, we must evolve. I’ve talked a lot about innovation today because innovation leads to evolution. We all need to embrace an evolution in dairy.
2. Second, we must take bold risks. That means breaking the mold. New ways of thinking. And new people who bring fresh ideas and perspectives.
3. Third, look for ways to build coalitions and create new allies to get movement on specific issues, working with consumers, advocates, policymakers, producers, and others.
4. Fourth, we need to diversify our product array. Let’s not get caught selling roll film 20 years after digital cameras were introduced.
5. Fifth, we must work to expand markets here and abroad, from new countries and regions of the world to new communities with specific values and preferences.
We will have challenges ahead—litigation, consolidation and competition—but I believe if we take these five lessons from Dairy Forum, we will continue to grow and evolve.
We can no longer just iterate and improve on the last thing we did and expect to be propelled forward. Instead, we must be able to pivot, change and take the next step. This requires speed and bold moves.
When I joined IDFA three years ago, I committed to embrace change; build an organization of respected experts; establish a culture of trust and collaboration; unify and leverage the power of our broad, diverse industry to enhance thought leadership.
Our growth and achievements over the past three years are a testament to our laser focus on executing this approach. These were not small changes—in a sense, we pivoted—but they were necessary to build an industry suited for the rapid pace of change ahead.
I cannot thank you enough for your genuine support and I hope you leave this year’s Dairy Forum with a new way of thinking about the future of our industry, embracing change and the Power of Dairy.
Together, we’re making a difference for dairy.
Thank you.
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