In a follow-up from our previous episode, Ted, T3 and Anna discuss the state of dairy product marketing.

Plant-based milk alternatives are on the rise. Fluid milk sales have been in decline for decades. Is dairy falling behind? Does the way the industry markets its products need a makeover? And if it does, what would it look like?

Anna: Welcome to The Milk Check, a podcast from T.C. Jacoby & Co., where we share market insights and analysis with dairy farmers in mind. In our last episode, we talked about changing consumer expectations and how those have impacted the dairy industry. But that discussion is incomplete without also talking about the ways dairy products are marketed.

Before we ended the previous episode, T3 alluded to the difficulty the industry has had in marketing to consumers whose expectations have changed. We'll pick up where we left off.

T3: Where are the greatest growth opportunities for the dairy industry today? Every single one of them is small and I don't mean that in a negative way. It's more specialty cheese, more unique products, more local products. I think that's where the opportunities are for the dairy industry. Smaller farms, smaller plants, smaller demand for products and things like that. That's where all the growth opportunities are.

I think there's a ton of opportunities there, but I think our industry, for a couple of reasons, is really struggling with how to access that market, how to successfully meet the consumers' request there, and I think it's because we're so overwhelmed by, you know, we need to clear more milk. We need to clear a lot more milk. Let's build a big plant and that we're focusing on move the big things to solve this problem we've had about dairy demand and oversupply that we're not focusing on where the true opportunity is which is in the smaller opportunities.

Anna: I would imagine that's harder to do too because with all the government regulation on food safety and everything, that's pretty cost-prohibitive for some of the small plants as well.

T3: Yes.

Ted: And if you look at the fact, switching to the demographics, you know, the population is not growing that fast anymore and our consumption has flattened out a little bit. Certainly, we're negative in Class I milk, which is probably a marketing issue more than anything else, but we're negative in Class I milk, but we're still growing in cheese, specialty cheeses and fractionated products and pizza cheese and so on. Yogurt has flattened out. So, the question, then, is building a 10-million-pound plant to produce a small piece of cheese where the industry needs to go? And my answer would be no.

We need to adopt a different strategy, a strategy where you set up an environment where small producers who produce a highly specialized product can take advantage of the infrastructure that a group might develop, and I think that's where we're probably going to go because we certainly have a limited ability to continue to build 10-million-pound plants that produce one product and chew up that much milk in one product. It isn't going to work. You're going to hit the wall eventually with that approach and that, to some extent, might be where a little bit where we are right now.

If we look at the cheese market and the way that cheese market is developed and so on, we're continuing to crank out barrels and blocks and mozz. Unless the population is going to continue to grow, our market isn't going to grow to accommodate all the production that these plants can throw out. So, the increase then comes from the smaller specialized, which is more difficult and certainly marketing is more of an issue.

T3: And the cost per pound is much higher.

Ted: It's higher, but on the other hand, you look at the variations of parmesan now that...