Where is the global dairy industry headed? In this episode of The Milk Check, we’re joined by Andy Powers, vice president of technical services at the American Dairy Products Institute (ADPI), alongside members of the Jacoby team, to explore the future of dairy. Together, we tackle emerging trends, market forces, and opportunities for dairy proteins, fats, and other dairy products in the next 5 to 10 years.
From health-conscious consumers to industrial applications, we examine how dairy is evolving to stay competitive.
Plus, check out The ADPI 2023 ADPI Dairy Products Utilization & Production Trends report here and the ADPI Ingredient Resource Center here.
Don’t miss this comprehensive look at the future of dairy with insights from Andy and the Jacoby team, including Ted Jacoby, III, CEO & President, cheese, butter & dry ingredients; Josh White, vice president, dairy ingredients; Diego Carvallo, director of dry dairy ingredient trading, and Tristan Suellentrop, sales associate,
Into (with music): Welcome to the Milk Check, a podcast from TC Jacob and Company, where we share market insights and analysis with dairy farmers in mind.
Ted Jacoby, III (T3): Hello, everyone, and welcome to this month’s episode of the Milk Check. Today, we are excited to have Andy Powers, vice president of technical services for the American Dairy Products Institute, joining us. Joining us as well, we have some of our usual suspects. Josh White, vice president of Dairy Ingredients, Diego Carvallo, our Director of International Sales for Dairy Ingredients, and Tristan Suellentrop, our sales associate and resident 20-something on our sales team. Guys, thank you, and Andy, excited to have you with us. Thanks for joining us.
Our topic today is: what’s the future of dairy? Where do we think demand is going to grow globally in the dairy industry? What are the components that this industry is going to see the greatest demand and opportunity for as we look out over the next 5 to 10 years? Andy, I’ll start by saying we just recently had a five 10 year vision conversation within our organization, and one of the things that we spent a lot of time talking about was how dairy proteins, specifically as you look at the way the developing countries and the way their diets are changing and growing and developing when you look at the aging populations of many parts of the world when you look at the addition of medicines like Ozempic and Wegovy, protein is just going to become a bigger and a bigger part of the nutritional profile of what human beings eat.
I’ve got two boys in their twenties, and they are much healthier eaters than I ever was when I was in my twenties. That means they’re consuming a lot more dairy protein.
T3: What are your thoughts, and where do you think dairy proteins fit in that space?
Andy Powers: First and foremost, because I’ve worked for the American Dairy Products Institute, you’re going to hear me talk about dairy. I drank the Kool-Aid a number of years ago. I believe in dairy’s value proposition, and I believe in its strengths in terms of nutrient density and complete nutrition. You talked about some of the driving forces that are going to influence demand for dairy in the future. We’ve got population growth as the baseline talked about an aging population. I think that’s significant. The ongoing current modernization or GDP growth meaning that people can transition from the most commodity-oriented and cheapest foods up the value chain and start to consume according to their preferences instead of their absolute needs and availabilities. All those things, I think, are supportive of dairy, and then you add some icing on that cake. You mentioned GLP-1. Everybody’s talking about this class of drugs, the GLP-1 agonists.
Ozempic is the one that’s maybe most consumer-forward. It’s off-label use for designer weight loss. I guess I would say it needs to be accompanied by the consumption of high-quality protein or loss of muscle mass as a problem. And so all those things, I think, speak to a higher protein diet in the future. I think if you follow the money, there’s been a lot of US investment in plants to process milk and turn that milk into, among other things, high-protein foods and ingredients. So all of those signs, I think, are positive. It’s just a matter for dairy to flex its muscles, showing its adaptability, and overcome some of the challenges to have a pretty bright future. That’s my view in a nutshell.
Josh: You spoke of the GLP-1 drugs. Obviously, that’s topical, but the average person doesn’t really understand why that drives additional protein consumption, maybe in a short way. Can you go into a bit more depth? Is this medical advice by people who are put on this drug that they need to really, really increase their protein consumption? Are they steering people to dairy, or is that just the popular solution?
Andy Powers: Yeah, great question, Josh. To be honest, I’m not sure that I could tease out the difference between people who are accidentally going in the direction of dairy and people who are being instructed to do so. And I’m certainly not a dietician. I’m not a physician. So whether or not the science says that dairy is the best, the one and only answer for the particular consequences associated with the GLP-1 drugs, I couldn’t say for sure. But what I can say is that on the label, it was originally developed to help people manage diabetes, right? A follow-on consequence of appetite suppression is reduced caloric intake. And without balancing that reduction in taking in calories with some sort of improvement in the quality of the calories that you take in or a deliberate choice to go after a high protein density diet, much like a sports nutrition sort of a diet, the consequence is loss of muscle mass. That’s definitely undesirable whether you are on-label or off-label for the drugs. And the good news is whether or not medicine is pointing people to dairy, dairy’s nutritional value proposition is very much aligned with those needs. If you’re going to try to build muscle or retard the loss of muscle, then dairy is far and away the best choice at this time.
T3: Andy, why dairy instead of plant proteins? What makes dairy the better choice of protein relative to some of the other protein options out in the marketplace these days?
Andy Powers: Yeah, it’s a couple of things. I’m going to start by just saying complete nutrition and what that means for us as animals consuming protein, in particular, is that we have to take in those essential amino acids or those indispensable amino acids to support our own protein synthesis. And that’s not just about muscle, it’s about hair, it’s about bone, it’s about connective tissue, so virtually all of the structural things that make us have a substantial amount of protein associated with them. We build those things through synthesis pathways, and that means that, in part, we can make some of those building blocks to create muscle, to create connective tissue with our own biomechanical machinery, but we have to take in some of those, and those are those essential amino acids or those indispensable amino acids. So when you start to look at foodstuff, what makes dairy special is that it has the densest concentration of, let’s say, especially muscle synthesis supporting amino acids of any foodstuff out there.
And so far and away, it is the best choice when it comes to taking in quality calories that your body can readily transform into its substance, especially muscle. So, among those essential amino acids, and there are nine of them, you hear a lot about BCAAs. So, if you’re going to buy a protein powder at the store, maybe it’s saying on-label contains five grams per serving of BCAA. So those are branch-chain amino acids. We are mammals; cows are mammals. So, what cows are producing is very much aligned with what we need to take in. Dairy is very high in those branch-chain amino acids. It’s the densest of the essential amino acids and contains high levels of those branch chain amino acids. So we’re talking about valine, leucine, and isoleucine, and nothing better than that cocktail for us to take in and then turn into healthy tissue.
T3: And so when comparing dairy proteins to many plant proteins, it’s the lack of those BCAAs and plant proteins that makes it harder for the human body to synthesize a lot of those plant proteins successfully at the same level of intake at the same efficiency.
Andy Powers: That’s right. So you can still get it done with a plant-based diet, but sometimes you have to take in substantial multiples of alternatives that are plant-derived to hit those same minimum requirements that dairy can deliver more readily because it is a denser source of those same nutrients. And then you get into some factors on top of plant composition not being as well aligned with human dietary needs as animal protein sources are. Some, like soy, for example, contain anti-nutritional factors. This isn’t a made-up thing. I can’t pretend to understand all the science of it, but the reality is that as you take in soy, some of its composition will inhibit your ability to digest and take up those amino acids and peptides, and that means less efficient utilization of the nutrient, to begin with. So it’s one thing to analyze it chemically and say, Hey, the makeup is the same. But when you get into this digestibility piece, not only can plant proteins be less digestible innately, but some of them bring along these anti-nutritional factors that even further worsen that efficiency challenge. If you want to make a diet that’s based entirely on plant proteins,
T3: So regardless, you have to consume many multiples more grams by weight of, let’s say, most plant proteins to get the same efficiency as dairy proteins
Andy Powers: Mostly, that’s true. So, if you look at soy protein and soy protein isolate in particular, it is very highly refined and contains minimal to no levels of these anti-nutritional factors. And the amino acid profile is pretty good, fairly readily digestible. So soy protein tends to be the one that competes most effectively, but some of ’em are pretty poorly. They fare pretty poorly when compared directly to dairy, and that’s part of the strength of our value proposition.
Josh White: So, as we’re thinking about trends going forward, optimizing the diet in the US to fit whatever nutritional needs we need, you’ve got the aging population, you’ve got need as you’re aging for muscle mass retention, all these things, that all makes sense. I can’t get on YouTube without being overwhelmed with influencers and others telling me exactly how to optimize my diet based on my lifestyle, but it takes a pretty healthy income and disposable income to optimize that. As we’re thinking about the rest of the world, do we expect these same trends to unfold and that we’re going to continue to see growth in the dairy protein demand globally based on the ingredients that we’re manufacturing as opposed to just the raw milk aspect of it?
Andy Powers: So, there’s a whole continuum even at what I would call the commodity end where you have relatively little differentiation. Dairy still has a strong value proposition, and that’s part of why you see it connected to nutrition in developing nations as well. Consuming milk directly from the animals, whether it’s cows or goats or camels or buffalo, whatever the case may be, that’s step one. And you’re still getting high-quality nutrition regardless. The minute you begin to refine that, and you make something like a skill milk powder or non-fat dry milk, all you’re doing is excluding water and converting that milk into a more portable form that has a longer shelf life. You’re making it easier to transport around the world. So you’re just adding some utility but not changing the nutrient density per se. And then downstream from that, if you further fractionate it, you not only increase the density, but you also frankly increase the price. So, if you look at something like whey protein isolate right now, if you have the luxury of optimizing your intake, you might choose to go after WPI. So that becomes a luxury choice that I think you’re talking about in the first world for the most part. But dairy’s got products along that continuum. So somewhere along, there is the right match between the available dairy product, whether it’s a commodity or a highly differentiated value-added ingredient, and the income level of the consumer.
Josh: So, where we stand today, we’re starting to see whey proteins are a great example of growing up the value chain, finding their way into different products, and naturally, you’re going to have products that are using whey proteins for functional benefits that aren’t as valuable as nutritional benefits that are going to try to trade or substitute trade down the value chain at a certain moment. And so an interesting whey complex we’re dealing with right now where you have WPI, it’s at a historically high price is price relationship to the related whey products is as extreme as it’s been. Got continued investment in products like WPC 80, which is, I won’t go as far as saying commoditized at this moment, but there’s a lot of interchangeability between different products that are out there, and now we’re left with a void of Sweet Whey powder and WPC 34 and some of these other traditional products that may have to start looking to other dairy alternatives or substitutes outside of the dairy space to fill those needs. The functionality for baking filler products, things like that, and snack foods. What’s next? I don’t fully understand it, but there’s a lot of talk about acidified isolates today. How is that different? What’s different about those products?
Andy Powers: First, you asked the question, what’s next? I do think that proteins, you talked about nutritional value, but you also talked about their functionality. Such characteristics like action, like water binding all of are important because they function when you combine a protein ingredient with other ingredients, which means certain characteristics in the finished product when you’re done with it. So, functionality is another way that you’re bringing value. And then, on top of that, you’ve got the nutritional value proposition. Maybe the sky’s the limit with regard to how many different kinds of modifications can be made to proteins. I would’ve gone in the direction of hydrolysates, for example, as saying that’s kind of a next wave of value, adding differentiation, hydrolyzing, the proteins can be thought of as kind of a predigestion, if you want to think about it that way. So, if you think about it from a nutritional point of view, you take in protein, and it’s already been broken down into smaller bites, as it were.
Those smaller bites are more digestible. Uptake can be accelerated by this predigestion process. And as a result, then the consumer can enjoy a more rapid effect from consuming those proteins. So that’s one thing, certainly true, but where would you see hydrolyzed proteins appearing most? They’re being used in high-value applications like infant formula, for example. There’s a brand out there right now that on-label advertises that it’s more digestible, and it does so on the basis of using a hydrolyzed protein ingredient, which is already partially digested for the infant. And in that way, you’re just increasing the availability of those nutrients to the infant. You’re also improving comfort, reducing colic or gas, things of that nature, and so on and so on. So, in this whole realm of hydrolysis, I talked about it from a nutritional point of view, the impact on absorption, but it also changes the functional properties.
So the minute you begin to transform that intact protein into broken down smaller peptides, or you can digest them all the way to amino acids if you want, and you’re completely altering the functional properties. And so in that way, you can also tune an ingredient to be most effective in a specific application, a partially hydrolyzed whey protein at a lower concentration, but a higher price might deliver the same effect in a food product as more of a different ingredient or the same amount of a more expensive ingredient. So again, this T ability from a functional point of view is an outcome that can be achieved by hydrolysis that’s done with enzymes most effectively. Enzymes are best for this because they’re specific enzymes do a very precise thing as opposed to using a chemical treatment like acid to break down protein. That’s kind of a hammer.
It’s less precise. And the acid that you add to protein will not only start to break down the protein, but it will interact with anything else that’s there. So can potentially influence the flavor profile, for example, or the other sensory attributes because the acid is acting on everything that’s present and not just protein. An enzyme will do something very specific rather than a hammer. It’s more like a scalpel, and you can use it to go in and cut linkages within those protein molecules themselves in a very precise way. You can control them on or off with simple physiological simulations like controlling pH, for example. So you can tune the hydrolysis process with enzymes to yield a very specific profile for the final product that accomplishes the functional and or the nutritional needs that you’re looking for. And that sophistication, I think is a next wave of adding value to whey proteins that might be more strongly supplied in our near future because of all the investment that’s happened here in the us.
Josh: So, let’s predict that that’s a natural movement, the value of dairy proteins, and we’ve been speaking of whey protein quite a while, and I think we can touch on the milk proteins differently, but as we continue to graduate up that value chain and we continue to find more value in these products, we’re left with byproducts. So how are we going to manage those byproducts? Mostly the carbohydrates. At the ADPi I seminar last week, there was a lot of discussion on whey protein, phospholipids concentrates and those type of products. What is the derivative of this whey protein value and what are some possible next steps for those products?
Andy Powers: Well, good question. I jumped right to hydrolysates because I’m especially interested in them. There’s a lot of work going on with them, and we are involved with them pretty extensively in my workplace. But it is also true that existing technologies like fractionation using membrane filtration are the way that you already arrive at some of these value-added ingredients. If you’re going to make everything from WPC 34 to 80 to WPI or the analogous proteins on the milk protein side of things, you’re going to use membranes to do it. And whenever you’re using membranes, you’re really just concentrating one thing by excluding another thing. You’re concentrating the protein by excluding the lactose and minerals. And so to your point, you’re asking, well, the lactose and minerals then become a byproduct of making these concentrated protein ingredients. What do we do with ’em? Well, great question. Lactose, there’s a substantial part of the world that genetically speaking is lactose intolerant.
So if you’re going to put lactose into the human food chain, again, enzymes may be a saving grace because you can use enzymes to convert lactose into lactose and glucose. A lot of the products that you’re seeing on the shelf right now where they say lactose free, they’re not sugar free, but they have been processed with enzymes to convert the lactose, which is a challenge for some people, digestively into more compatible sugars. And you can also reduce the levels of sugars through the same kind of processing through membrane filtration so that you are delivering a reduced total sugar product. All that’s being declared on the label, right? You see the nutrition facts on the back and the ingredient declarations part of the nutrition facts is about total sugars, and you can reduce the amount of sugar that you’ve got there by using membrane filtration as an example.
But again, enzymes you can also use to process that lactose into digestible sugars, and that’s beneficial. So I think you’re going to see some of that lactose making its way through enzyme processing into reduced lactose or lactose-free products. That’s going to put a burden on regulations in the United States, for example, we don’t have a good definition for lactose-free, but there’s been some recent guidance from FDA on that point. I think they’re reading the writing on the wall that there will be more lactose in our world as we make more whey proteins. How do we help guide the industry and help utilize that ingredient appropriately? Also, there’s, I wouldn’t say almost no end, but there’s great value for lactose in high value animal feed applications. As an example. You can put it into a calf milk replacer as a carbohydrate source. It’s good for energy. And so any place where you want to feed in the livestock supply chain, you want to feed the animals a balanced ration, part of that’s going to be carbs and lactose is a great option there.
The minerals tend to go along for the ride also until you get to the very highly refined lactose and the minerals, again, are excluded, but those minerals are useful too. So yet another byproduct where the intent is to take minerals away from permeate to make lactose, but now you have a minerals product that can be used for things like sodium reduction, for example. Lots and lots of calcium in dairy, also other valuable elemental nutrients. There’s potassium and there’s magnesium, and all these things are again nutritionally valuable. So they all have a destiny, and it’s really just been dairy’s challenge over time of thinking about both sides of that separation process. Let’s not think just about the value added ingredient that is our intended product, but let’s find the value proposition for that. I don’t think calling them waste is right. Find the value for that co-product and then position that appropriately in the market.
Josh: So, Andy, it’s a real issue that the industry is facing right now. And before we move on and maybe talk about milk fats and some of the other potential ways we can go right now, the US dairy industry is facing this migration to, again, higher protein production, which yields a lot more permeate and that is more readily available and will continue to be sober the next couple of years, but less sweet whey powder production.
Josh: Earlier you highlighted the different uses for dairy products, both from a functionality standpoint and nutritional standpoint. Is there substitution possibilities in bakery and in WPG type snack foods and other things like that to be replacing whey products off of the ingredient deck and substituting that for products like whey permeate?
Andy Powers: Yeah, certainly. I think the early history of 34, for example, WPC 34 is a marginal improvement over sweet whey powder, takes away a little bit of the lactose and a little bit of the minerals and leaves you with a higher concentration of protein that is now analogous to non-fat dry milk, right? So those two, they’re a great example of the interchangeability across dairy ingredients that can be driven by price. If a label has the flexibility to accommodate using either of those ingredients, then you’ve anticipated and prepared for the ability to swap back and forth between them based on your discretion as the price in the market shifts. Certainly as you separate these fractions though, also, I mean we talked about the lactose. If you lose lactose with a protein, but you still need your product to brown when you bake it, for example, you can put permeate there and provide enough additional lactose that the malar reaction can proceed and you can get that toasting or browning effect that you’re looking for, and all the while if you want to double dip, then by substituting permeate, you can potentially displace some salt and bring some other minerals, some potassium and some calcium into the mix and get another benefit on that nutrient disclosure.
So yeah, lots of synergies there, but I gave you one example of the ready interchangeability, and then for example, if you add a protein ingredient for protein fortification, you can also bring in lactose as a separate ingredient and use that for browning as well or permeate if you can capitalize on that mineral composition too.
Josh: So can we shift gears just a little bit to the other side of the dairy complex, what we call the Class IV products, milk powder and butter fat side of things. There’s been a big movement recently to see more higher protein products coming out of the skin solid side of things and more MPCs, things like that, but I don’t feel like it’s quite taken hold the same way the whey protein complex. Is that really because of true nutritional differences between the Cain protein and the proteins that come along with the milk side, or is that just the whey proteins are just a little bit further along in the inevitable path that we’ll see on the milk protein side?
Andy Powers: Yeah, I mean, I think the real value that’s come from all this fractionation that has resulted in these whey protein ingredients, this proliferation of whey protein ingredients and their co-products, the real value is the versatility and that ability to tune those ingredients to do specifically what you want. So really, if you’re trying to get a clear beverage that’s heavily protein fortified, modified whey protein is probably the direction you’re going to go. And that has been for a very long time, a brass ring in sports nutrition. You want something that looks like a hydration drink, but also has protein fortification and whey protein is really the way that you need to go to get that done. Milk proteins have their own value, and you talked about cains. What makes a milk protein different than a whey protein is that you’ve preserved that natural ratio of whey proteins to Cain proteins that you find in milk.
You’ve preserved that throughout the processing to make a milk protein. All you’ve done is to keep both of those together, kce plus whey in the same ratio, and you’ve again done the same thing. You’ve excluded lactose, you’ve excluded minerals to achieve those milk protein analogs to the whey protein complex. Where they really have value is where a whey protein just won’t do. Milk has a characteristic taste. I’m going to say that sensory becomes one of the main differentiators there. Milk has a characteristic taste and mouthfeel, and part of that stems from having both the cain proteins and the whey proteins together in that ingredient in milk. So as you get to the dry analogs there, preserving that same ratio means that you can get many of the same sensory characteristics in a product. And you’re not talking about any sort of disadvantage for casein versus whey from a nutritional point of view, definitely different functionality altogether. If you need the sensory and the functionality is compatible for you with regard to milk protein, you may elect to use that, but it tends to be a more niche application than the more universally useful whey proteins are.
Josh: Sorry to keep asking all the questions.
Josh: Do you think there’s ever going to be a world that we derive whey proteins on a commercialized basis without making cheese, like actually running the milk through the facility, separating out the fat, and then figuring out a way to separate the different types of proteins to concentrate the whey protein side of things?
Andy Powers: Yeah, I mean, so you can do it. It’s a few years old at this point, but that same membrane technology for fractionation is what enables you to go after milk itself and to tease it into its separate components without any further downstream. So whey, as an example, classically is the co-product from cheese make and processing that stream, which used to be discarded as waste, has yielded all these other value added ingredients. But you can absolutely take separate separation technologies and apply them to the milk itself and tease it into its parts. So if you’ve seen any of the manufacturers that make and sell native whey, it has not been through the cheese make process. So those whey proteins are completely unaltered and they have slightly different functionality and very clean flavor profiles and can be useful in high value applications. They’re absolutely out there. Again, it becomes a question of what’s the value at a price point?
Will they outperform an analogous product that is derived downstream from cheese and where they do then those native proteins are absolutely going to be used Cain’s. Another interesting one though, I mean you’ve got the casein mis cell, which is a complex three dimensional structure. Of course casein, if you’re going downstream through a lot of processing, that structure can be pretty heavily altered. But if you’re performing a separation at the front end from milk, you can get casein in its mis cell form and it will behave the same way that casein in milk does. And that can be very desirable too. Again, at a certain price point, it’s all about where you want those classical dairy sensory attributes. Plus you can pay for the specific functionality that comes along with all of that fractionation, that intentional separation by processing. Josh, I thought you were going to go down the path of precision fermentation there. She threw the curve ball and started talking about separating the proteins out without cheese making. You can absolutely do that. It’s already being done.
T3: We will be right back after a short break. If you’re a dairy producer or a cooperative looking for a better market for your milk or you’re a food manufacturer hoping to strengthen your dairy procurement or risk management strategy, please reach out to TC Jacoby and Company. We’ve been building worldwide relationships with all sides of the dairy supply chain for over 75 years. Tap into our expertise for unlimited free consultive support and we’ll develop a sales or procurement strategy that hits all of your targets. Please visit us [email protected] to get started. Thanks for listening to the milk check back to the show.
Josh: So, Ted, do you see a world where native whey, a product that we’ve seen a little bit in the past, but it’s always been high priced, it’s not available really on a commodity basis for us to trade or to commercialize. Do you see a world where we might be actually making native way on a commodity like basis as opposed to the combination between cheese and whey? And do you think that processing facilities can be viable within the next five to 10 years doing so?
Andy Powers: Was that question posed to Ted? I thought it was.
Josh: I did. Yeah, I put that
T3: 5 to 10 years. No, look, it’s different for every product, but I would say in my experience, I think you need to usually assume almost 20 years of use to commoditize a new product. The description I’ll make is WPC 80. I think we’ve been producing as a nation WPC 80 in significant volume for about 20 years. And my sense is it’s commoditizing right now. It was not a commodity 10 years ago, but we’re producing enough WPC 80 today and the demand is high enough today and enough of the users of WPC 80 can interchange different producers, which to me is the important part of commoditization. You need to get to that point before a product will commoditize. And right now, do we have one producer of native way in the United States? In other words, there is a long line of demand development before we get to that place.
Josh: Now, do you think the Chinese look at it differently?
T3: Honestly, I’m the wrong person to ask. I don’t know enough about the Chinese diet to know where they’re at.
Josh: And the main reason that I bring that up is I have the impression, and again, a lot of the analysts and people that are much closer to this will probably beat up a lot of these assumptions. But I have the impression that the Chinese dairy industry continues to grow, but the Chinese dairy industry doesn’t consume the dairy product the same way that we consume the dairy product. And it’s left a natural vacancy or void to get the actual whey products that they want. They want to process it into whole milk powder, process it into other products. And the development of the Chinese cheese industry hasn’t been balancing to that need. They need more whey than the result of the cheese product that can be there. And if they can find a way to eventually get to the whey products without having to deal with the cheese because it’s not yet mature to their diet, they would do so. They’re one of the largest consumers in the world of what we consider our byproducts of the whey process. A few single producers of hogs in the Chinese market are larger than the US market. It’s that big. And they’re the largest consumer of whey permeate, for example, which again is the co-product, but ultimately has been viewed as a byproduct of a rapidly growing whey protein industry in the us.
T3: But here’s the other thing you have to keep in mind when you’re having that conversation. I would call our whey permeate market globally today, an oversupplied market. There’s more production of way permeate than there is natural demand, including all the hogs in China. Now, is it possible that we will see the Chinese swine industry grow in their use of permeate to the point where maybe that balance tips? It’s possible, but I think as it looks today and probably for the foreseeable future, there’s a price element to the fact that permeate is oversupplied because you’ve produced permeate in order to create whey proteins that the financial incentive isn’t there for them to go down that path.
Josh: Well, we shouldn’t ignore. They’ve been a big importer of whey proteins, particularly from the us. And so ultimately the balance of using the whey product coming in has a lot more value than the cheese it takes to get to that whey product within the Chinese market, which is the origin of the question. If you want the way you must buy it from the US and Europe basically, and of course other parts of the world.
T3: And the other part of that question needs to be what’s the cost of making native whey proteins versus making it from cheese? And is that cost higher than the logistics cost of getting it to China from the us? And I would argue today it’s not.
Josh: Andy, do you think the technology is extremely costly at this point in time, will become more economical in the future for people to make these type of products
Andy Powers: To make the micella casing and native way pair out of fluid milk?
Andy Powers: As long as we’re continuing to make so much cheese, I’m not sure why you would. I think ultimately we’re going to figure out how to solve that problem with the proteins that are downstream from cheese making.
Josh: Well, let’s talk a bit more about cheese then. What cheese consumptions continue to grow? Our cheese production continues to grow. When I say our talking about the northern hemisphere, the mature markets, Europe, the US are consuming more cheese per capita each year developing markets are starting to consume more and we’re meeting that with production. Is that likely to continue? What is the big driver? Why do people want more cheese?
Andy Powers: Yeah, we’re going to have to successfully connect the consumer with cheese around the world. I think that extra production is going to be satisfied largely in the export markets. You’re absolutely right. We’re eating more cheese than we ever have. How much more are you prepared to eat? I’m eating a lot. I dunno how many pounds per person it is. It’s a pretty bonkers number, isn’t it? Something like 50 pounds of cheese per person per year in the United States? It’s off the top of my head. But I do think that even at last week’s A DPI event, we heard from analysts like Mike McCulley for example, saying that cheese exports are a big opportunity for us dairy. I think it was well intentioned to build big cheese plants, especially in the southwest. And I think that as long as we continue to promote it successfully, you’re going to find that we can match that cheese output in the export markets with global consumers.
T3: And I would agree with that. From my perspective, there’s a path to higher level consumption of dairy on a per capita basis that starts with infant formula. And I think Japan over the last 50 years has been the great example. It starts with infant formula and then as those human populations that historically have become lactose intolerant as they’ve gotten into their teenage years and beyond, when they’re starting with infant formula, they continue to consume ice cream. Maybe they start having pizzas when they’re teenagers and they just keep dairy and they keep cheese in their diet, and that’s where cheese consumption grows. Last generation was the generation where the infant formula use per capita really grew. I think the generation today that’s being born in China and in a lot of those developing Asian countries, that’s where you’re going to see the increase in cheese consumption grow and the increase in ice cream consumption grow in some of the other dairy products.
Andy Powers: Cheese is pretty useful. Cheese is a pretty durable way to get good nutrition to move it around the world. It’s high in protein. We’re seeing more and more research around the benefits of milk fat and cheese contains fat. Getting the style right makes a big difference to that consumer. We can’t continue to push just yellow American cheddar into global markets. A little bit of differentiation there probably wouldn’t hurt, but at the end of the day, a pretty dense way to move large amounts of dairy solids economically around the world. And to Ted’s point, I think there will be demand homes for it globally.
T3: I think it’s also worth noting that 80 to 85% of all cheese is consumed as an ingredient. It’s very common to mix cheese into a recipe versus consume it on its own, which increases the options and the waste cheese is consumed.
Andy Powers: We’ve got some other things. There’s some consumer attitudes around food right now. If you think about the movement towards Whole Foods, and if you think about the concerns about food processing, cheese is in an interesting spot where it’s viewed as a whole food and it’s also viewed as minimally processed. It also occupies that fermented foods category. So there is an intersection here of a few trends that I don’t know are the primary trends, but they’re emerging as influences in consumer behavior. And I think those are relevant. I think you’re going to be able to find a value proposition articulated in those three languages that will help to continue driving cheese demand.
T3: While we’re talking about cheese, let’s pivot a little bit and talk about butter fat. Andy, how is butter fat going to evolve? And I’m going to start by going out on a legend making this statement. We have seen some pretty significant increases in per capita butterfat consumption in the US in the last 10 to 15 years, just incorporating it in more and more foods and replacing margarine as the go-to fat that’s put in foods. But I can’t shake the gut feeling that we’ve been on this high growth curve for so long that we’re about to approach that curve plateauing here in the us. Meanwhile, the amount of butter fat per pound of milk that dairy farmers are producing is going up at over 2% a year. My gut is we’re going to start exporting butter fats. My question for you is where do you see that dairy component growing?
Andy Powers: Yeah, so that’s a good point. Again, the scientist in me would like to believe that consumption of butter fat is going to be driven by the science. And we’ve had two things really that have happened. You’ve had the awareness rebellion against hydrogenated vegetable oils and trans fats that has led a defection back to traditional sources for fat. So that’s one piece of it. And another piece is that research is reversing. Also, we’re starting to look at fat, fat components and also fat as a part of the milk nutrient complex. So all of those things are starting to remind us that there is real health value in milk fat ingredients, and that’s a stark reversal from where we were 30 years ago. So with those forces in mind, the science is really starting to show some good things. I didn’t have a chance to read it.
Moises Torres Gonzalez just recently shared the results of another milk fat related study, and I think it was centered around consumption of whole milk powder as opposed to alternatives. And there was a strong correlation observed in that study between consuming whole fat milk and reduction in appetite, for example, which has direct implications for weight gain. It’s good science that I think shows us what milk’s real value is from a fat perspective. The question becomes how much of that can you translate to the consumer? Science seems to be the wrong language through which to communicate. But again, butter as an example, if you like the idea of buying foods that are produced somewhat locally or having a strong identification with or connection to the source of your food, and you can visit the farm where the milk is turned into butter and that’s a product that you like to buy.
You’ve got the grassfed proposition that goes along with that and so on and so on. Butter’s got a pretty strong story. I think whole milk and whole milk powder have a pretty strong story. And then at the other end of the spectrum, you’ve got some really, really specific value added ingredients like milk fat globulin membrane that are only beginning to be understood for the amazing bioactivity that is shown there. And that’s a fat based nutrient delivery system. So the more the science shows us that these things are interesting, the more we can carve out these opportunities for some of the milk fat. Now, don’t get me wrong, butter will make a difference if we can keep the world eating more butter and the science shows that that’s a good idea. Same thing with whole milk powder. The fat solids can go with that powder and be consumed around the world.
And again, highly transportable, highly portable, pretty stable on the shelf and so on and so on. MFGM is not an ingredient where any of us is going to be consuming 20 grams of this stuff every day, not the case right now. It goes into infant formula applications. The Chinese take whole milk powder and along for the ride in that milk fat, they’re getting milk fat globulin membrane. And so the cognitive benefits for brain tissue formation in infants are being delivered through a more basic ingredient. But you see other formulas out there on the market that specifically have whey protein phospholipid concentrate or whey lipid concentrate, or maybe even just hide the benefits in an ordinary whey protein concentrate. But the lipid parts are there and they’re delivering those nutritional benefits to infants. That’s the first tier. But you’re starting to see some science, again, that’s showing that there’s benefit for seniors, for example, to consume MFGM as well.
One of the bellwethers or senior health is mobility. If a person can maintain mobility late in life, quality of life is higher, life expectancy is higher, chronic disease rates are lower, and so on and so on. Part of maintaining mobility is muscle. So that’s the protein piece we were talking about. But another part of it is the inevitable degeneration that happens with our nervous system. So when we’re infants and we’re developing, we’re growing nerves and then insulating those nerves with fat and spino, myelin specifically the fat that is being taken in, whether it’s from breast milk or it’s being taken in by MFGM or whole milk powder in infant formula. And that’s what’s helping infant brains to grow. But as we get older, then the reverse begins to happen. It happens in our minds. It also happens in our peripheral nervous system. And this is how it relates directly to mobility.
If you can’t activate your muscles so that you can move, then you can’t move. And it’s not about losing muscle mass, it’s about not having the right insulation on those skeletal nerve fibers anymore. Technically it’s called demyelination. If you can slow that down and it looks like MF GM has applications in this, then you can improve neural signals and you can then stimulate muscle. You can maintain muscle mass or lose it more slowly. You can preserve mobility and you get all of those healthy aging late in life benefits. There’s science that was all originally about infants and now is starting to be about adults too. And I think we’re really just scratching the surface of what we’re going to find as we start to look at the fat part of milk’s health and wellness, nutritional benefits.
Diego Carvallo: Andy, before you go. Yeah, Diego, do you guys get a chance to talk about the possibility and the options that some customers have to switch between?
Andy Powers: We didn’t a little bit. Diego
Diego: Right now, MPI is widely available if you compare it to gopi, right? So a lot of people probably have that question.
Andy Powers: I would say those ingredients are not interchangeable when you’re looking at functionality. They are somewhat more interchangeable when you’re looking at nutrition because all of the dairy proteins have a very high level of nutritional quality and nutrient density. Milk proteins also though, become the choice of preference when you’re looking for those milk flavor attributes, for example, as opposed to where you’re looking for the cleanest, most neutral flavor profile achievable. And that would be with some of the ultra high purity whey protein isolates that are out there to make a clear sportsbet, for example. So no, they aren’t a hundred percent interchangeable by a long shot, and I think you have to know what those differentiators are. Maybe a final note for you, and I’m not the expert on those nuances, but we recently created a new guidebook for ingredient utilization and it includes some tables that summarize all this information for you pretty well.
So if you want to know from a functional point of view how milk protein isolate and whey protein isolate compare, you can look right in the table and see here’s how it works on ation, here’s how it works through heat processing, here’s how it works in terms of sensory and so on and so on and so on. You can find those in some of our informational resources. That’s a great place for a lay person to go and find comprehensive guidance. It’ll get way more down into the weeds about those functional and applications differences than I can in the context of the podcast. Anybody who has specific functional or applications questions, KJ Barrington is far and away the expert both within the dairy industry and then definitely on the A DPI staff as compared to me. I think she would be a fantastic resource.
Diego: Fantastic. Andy, I think many customer have that question. Appreciate you for everything.
Andy Powers: You’re certainly welcome. Appreciate you speaking up.
T3: I couldn’t agree with you more, Andy. Alright, Andy, so we’ve covered whey proteins, milk, proteins a little bit. We’ve covered cheese, we’ve covered butter, fat, even a little bit of lactose. As we’re wrapping up here today, is there anything we didn’t cover, anything that you’ve seen out there that you think is worth talking about that we didn’t cover today?
Andy: Yeah, there’s this whole category and you’re going to find coincidentally milk’s ingredients. Its composition can be categorized in some major buckets and protein is one of those buckets, right? Carbohydrates is one of those buckets and fat is the remaining bucket. And maybe we could talk about minerals a little bit and we did, but in the proteins bucket and in the milk fat bucket are all these different types of what I call them bioactives. Now with FDA, that’s not a fun word when you say bioactive to F-D-A-F-D-A thinks drugs. And so when you’re talking about food, as medicine begin to transition over that line into a more regulated space and a more challenging space when it comes to trying to connect label claims that you’d like to make on your product with the benefits of the healthy ingredients that are in that product, the reality is that milk is full of bioactive stuff, all kinds of them.
We were talking about milk fat globulin membrane. It’s a fat delivery system for a whole bunch of these bioactives and some of them are proteins. So we know about lactoferrin, for example. We know about osteopontin, but you’ve got a host of proteins that are embedded in this lipid tri layer of no fat globulin membrane, and we’re just starting to figure out what they all do. Another fact is that the delivery system itself might be the only effective vehicle for the full benefits of all of those fractions. We’ve tended to be reductionist, I would say, in our approach to nutrition thinking, well, okay, I figured out that lactoferrin is the thing that mediates iron metabolism in humans, but I’m not going to deliver that lactoferrin in a complete system. I’m going to refine that lactoferrin out into a pure ingredient. The higher purity, the better higher price point, the greater margin, and we’re going to sell that.
And that’s a panacea, that’s a silver bullet. That’s a magical ingredient. That doesn’t mean that we don’t need to keep figuring these things out. And it doesn’t mean potentially that there might not be avenues for continuing to attract these things and refine these things and then deliver them as a pure ingredient where you can control exactly how much someone can take in. You can supplement an infant formula with them or what have you. But this whole world of bioactives, both on the fatty side and on the protein side, we’re figuring out what those individual constituents do. But we’re also having to start to think in a much more complex fashion about how these things synergize in a system to deliver a health benefit that is greater than the sum of those parts. So that’s a whole other arena of understanding. I think our minds are starting to become attuned to the concepts.
If you’re trying to prove a claim though, let’s say you want to get into this almost drug-like arena. Well now you’re talking about clinical trials for example. It’s challenging enough to isolate one attribute and to prove scientifically that there was a correlation between the health benefit you’re trying to derive and the ingredient that you’re feeding to a test population. But now you’ve got a matrix of these things. You’ve got two ingredients, so three ingredients and four ingredients, and that becomes an exponent on the complexity of that experimental design for a clinical trial. That means it’s that much harder to get all the science you need to make a compelling case that an ingredient does what you say it does and it does so safely, and you can make a label claim about that. That becomes more difficult when you start systems thinking instead of a reductionist individual component thought process.
T3: Cool. So Josh and I, as usual dominated the conversation. Tristan, I would be remiss if I didn’t ask you if you had any questions prepared for the day.
Tristan Suellentrop: I have a few. I would like to ask, which regions are markets do you see driving the biggest demand for high protein dairy products?
Andy Powers: Well, okay, so let’s start at the highest protein levels. Those isolates, they’re expensive. Josh said this before, whey protein isolate is at historic highs right now, the only people that can afford those are buying them because they choose to buy them and they have to have the discretionary income to do it. So I think it makes sense that you’re talking about developed nations first world countries. Those are going to be the markets for it. And then you have to be really in touch with consumer attitudes to figure out how you’re going to position that high protein ingredient to justify the cost of including it in a food. So that’s a thing. And then it’s really easy to look at the bookend on the other end of the continuum and say, for basic nutritional needs, you got to get milk in there. Maybe you are commoditized milk powders, maybe even Ted, to your point, maybe WPC 80 kind of fits in that category just by virtue of being so grossly robustly supplied, right? But the in-between is where you make your money. And I got to say, Tristan, if I could predict those kinds of details, like where exactly should I ship my marginal ton of WPC 80 to optimize my profit? That’s complicated.
T3: Andy. You can tell me the truth offline. We’d like to know. Gotcha.
Andy Powers: Happy to keep that secret between us. Ted, I know you won’t let the word get out.
Tristan: So which product categories like sports, nutrition, meal replacements, healthy snacks, would you say has the most significant growth potential done?
Andy Powers: Yeah, great question. Healthy snacking is a big category right now,
And people are excited about that. It’s interesting though. So I try to be simultaneously aware of conflicting forces. So we like healthy snacking and how do we encourage healthy snacking? Well, we take proteins primarily. We turn them into fun things like crisps for example. And we put those into a dairy novelty. And now when you bite into that, you got a crunchy little bit of mouthfeel or maybe they go into a bar or something along those lines. So maybe you get this fun dimension of texture that goes along with it. And in that way, you can not only satisfy an indulgence, but you can also deliver on that protein intake thing because people almost universally equate protein with health, with a healthy lifestyle. So that’s great. But on the flip side of it, that’s processed foods and ultra processed foods. There’s a pretty strong current against an attitude against multiple steps to take a thing and turn it into a more complicated thing.
There seems to be a direct connection. And this is born of some of the classification systems like Nova, for example, where consumers think that processed food is bad. So how do you tell ’em what a processed food is? Well, you got really two measures that people can make. Does it go through a lot of processing steps? That’s one way to say it’s ultra processed. Does a complex food have more than five ingredients in it? That’s another way to say that. It’s ultra processed. And so on the one hand, we do a lot to tease out protein, for example, and make a whey protein isolate, but will the consumers start to rail against that and to view that as an ultra processed food? And the bad news is that facts and science aren’t the primary driver for informing and influencing the consumer. I mentioned cheese, earlier.
Cheese in its many iterations. We only deal with a few kinds of cheese for the most part in the United States. But look around the world and you’ve got hundreds if not thousands of types of cheese that are out there. It’s one of the most sophisticated, one of the most ancient products on the planet. Can have so many different flavors, can have all kinds of different cultures in it. It can be covered in wax, it can have a rind, it can be washed, you name it, any permutation of processing that you can think of. And it’s been applied to cheese. And yet people view cheese as safe, as natural as a whole, food as not heavily processed. And there’s a cool alchemy that goes on with the microorganisms to translate the ingredients of cheese into the magical finished product. Healthy snacking, yes, fantastic. But at some point that seems to butt heads with or come at odds with concerns about ultra processed foods.
T3: All right, Andy. Hey, thank you so much for joining us today. This was a fantastic conversation. I really, really enjoyed it. You’re certainly welcome. We really thank you for joining us today,
Andy Powers: And thank you also for the informed question. To your point, we touched on carbs and we touched on protein, we touched on fat. Hopefully there are a few insights in there. Most of my perspective is driven based on nutrition and functionality and the scientific side. I’m much more removed from the economics of day-to-day trade than I used to be, but we’ve got experts out there that help keep us informed, and you guys are on that list. Thanks for inviting me, appreciate being here and having a chance to talk.
T3: Thanks a lot, Andy. Keep up the great work you do for the ADPi.
Josh: Good stuff, Andy. Appreciate it. Thank you. Bye.
Outro (with music): We welcome your participation in the milk check. If you have comments to share or questions you want answered, send an email to [email protected]. Our theme music is composed and performed by Phil Keagy. The milk Check is a production of TC Jacoby and Company.
T3: All right. Is this a wrap?
