Value-Added Dairy Products: An Overview of a Growing Market.

 By Jaclyn Krymowski.

There are a host of challenges and gambles that come with participating in the commodity market. While this has been the natural go-to – or inevitable plague – for American dairy producers, the rise of more accessible technology, funding and marketing has led some to explore new avenues in value-added products.

Across the nation, local dairy products can be found in the dairy section of stores large and small. Many of these fall into the value-added category, in some cases even coming from on-farm processing facilities.

Part of what makes these items unique and especially profitable is how they are custom-made to fit a specific demand or niche. This is an especially interesting area to explore and learn from, especially given the rising number of dairy producers who are finding a way to make this work. Not to mention, the pandemic’s disruption of the industry has altered some consumer preferences and interests.

What are Value-Added Products?
Different things might come to mind when discussing value-added products in dairy circles. This isn’t a wrong way of thinking as the definition is very broad. The Department of Agriculture’s Office of Rural Business Development cites that products in this category could derive their value from any of the following: change in (dairy’s) physical state, a differentiated production or marketing, product segregation and/or economic benefit from the production of the operation’s renewable energy.

A Penn State Extension article – Get More from Your Milk: Increasing Profit through Value-Added Dairy Food Products – summarizes this in the simplest terms: “A value-added product is anything that you are able to differentiate from the competition so that consumers are willing to pay more for the product because of that difference.”
With this in mind, value-added products can come from any sector of the dairy industry (cattle, goats, sheep, etc.) span a wide range of niches, markets and labels.

Marketing strategies for getting started
For farms exploring avenues in value-added products – either independently or partnering with another company, farm, brand, etc. – there must be a solid program for marketing and supply is incredibly important.

Value-added products can come from direct-to-consumer marketing or traditional wholesaling. There are various circumstances that could make one of these outlets more desirable than the other, but both of them can be complementary in some situations.

Direct marketing has several channels. Some of the most common are on-farm shops/pickup, online stores or – as is becoming increasingly popular – home delivery services. For farms closer to large metropolitan areas, community-supported agriculture (CSA) programs may already be established for dairy producers to join. These offer great ready-to-go platforms to reach new customers. In some cases, a farmer might start a CSA of their own or with other local farms.

The wholesale market also holds a lot of potentials. Some operations with enough production are able to wholesale from their own processing facilities. They could distribute to local and national grocery stores, specialty shops, and even specialty restaurants.

Considerations in value-added products
In addition to having healthy marketing outlets and the financial means, there are other intricate details that farmers interested in the value-added market need to pay attention to in how they produce, and in some cases manage their product.

For example, according to Penn State, because the quality of the product is only as good as the quality of the milk, bacteria levels and somatic cell counts need to be managed exceptionally carefully in the realm. Remember, high bacteria and/or somatic cell counts not only reduce shelf life, but they also negate the product’s flavor and be detrimental to the processing process.

Another thing the value-added producer must keep a pulse on is the state of the dairy market, trends and economy. A report from DairyFoods highlighted some specific niches and trends that are pushing the growth of the value-added market. Here are a few of them:
The global probiotic drinks market is expected to grow by $14.5 billion between 2020 and 2024.

The global A2 milk market has an expected 14.4% CAGR between 2019 and 2025.

The organic dairy food and drinks markets are expected to grow by $34.9 billion by 2026 with a CAGR growth of 8.9%.

The CAGR for the global ultra-high-temperature (UHT) milk sector is 4.6% between 2019 and 2024.

Worth the leap?
From a marketing and opportunity standpoint, value-added dairy products are certainly full of massive potential, especially in our ever-changing marketplace and consumer preferences. But from an economic standpoint, there are no easier answers for anyone considering making this transition.

The startup costs for tapping into different dairy markets vary greatly. Projects that involve building an on-farm processing center or shop can be extensive, whereas selling milk under a different label might only require some feeding and/or managerial changes. Funding outlets for a way to make this happen are certainly out there in the forms of grants, investments and more.

But, financially feasible or not, the economics will only matter if marketing and strategy are handled accordingly. What is undeniable is the rising demand for various value-added products, continually opening more possibilities for ambitious producers.