The dairy industry in APAC has been resilient, yet we increasingly see customers skipping the dairy aisle with consumption declining in key markets. Among the main reasons are low sales due to lack of innovation, and increasing popularity of vegetarian/vegan foods, which are correlated with growing plant-based dairy alternatives. Innovation and pointed strategic action is crucial to revive the category and re-connect with consumers
Future Market Insights recently participated in the 6th Global Dairy Congress Asia 2022, presenting key findings on Reinventing the Dairy Aisle through Innovation. Our chief analyst spoke with prominent frontrunners looking to introduce new and innovative dairy product concepts, generating a plethora of opportunities in the alternative dairy landscape.
In this write-up, we bring to the fore some of the prevalent trends discussed during our session, that are expected to shape future demand in the dairy industry across the Asia Pacific.
Innovations in Dairy-based products Bring Lucrative Market Opportunities to the Asia Pacific
The dairy industry has registered commendable progress globally. While established markets in Europe and North America are experiencing predictable changes, the market in the Asia Pacific is exhibiting astonishing shifts in product offerings, flavor preferences, and overall trends. Dairy has become mainstream in this region, attributed in part to extensive social media coverage of key influencers, widening e-commerce sales channels, and a rapidly expanding middle class population.
Asia is the world’s largest dairy consuming region, accounting for 39% of global consumption, with India and China being the epicenters. While the former accounts for 16% of global milk production, the latter is likely to experience threefold growth by 2030. Yet, customers are increasingly skipping the dairy aisle, majorly in part due to the growing popularity of plant-based dairy alternatives. This is being fueled by an increasing tilt towards veganism and vegetarianism, brought about by growing environmental and sustainability concerns.
According to Future Market Insights, per capita spending on dairy products by consumers in APAC accounted for 3-4% of global expenditure in 2022. A major factor contributing to this reduction in expenditure is the increased emphasis on sustainability and ethics of dairy products manufacturing. Beginning in 2020, consumers have begun replacing conspicuous consumption habits of the past in favor of more mindful purchases and behaviors.
Part of this reduced dairy consumption is also attributed to growing health & wellness concerns. 56% are migrating towards consuming functional dairy products to address specific health concerns, including cardiovascular health, cancer, diabetes, and cognitive disorders. 44% claim weight management, immunity boosting, and enhancing energy & performance as the key reasons for reducing dairy product intake. Taking cognizance of these rapidly evolving paradigms, stakeholders must innovate and undertake pointed strategic action to revive this category and reconnect with consumers.
Asia has enjoyed the highest growth in demand for milk and dairy products globally. Estimates by the United Nations Food and Agricultural Organization (FAO) projected that demand for milk and milk products in Asia reached 320 million tons in 2021. The past 3 decades has seen a 2x increase, fueled by an expanding population base, an emerging middle consumer class, and the rising need for health and wellness solutions in Asian societies. Although prospects appear promising, there are various differences with regard to per capita consumption.
One end of the consumption spectrum involves countries such as Cambodia and Laos, wherein per capita consumption ranges from 2-5 kilograms; Indonesia consumes 8 kilograms, and Vietnam and the Philippines average around 14-15 kilograms. On the other end, there are Malaysia and Thailand, where consumption ranges from 30-50 kilograms per capita. Cultural factors matter too. In Pakistan and India, where milk consumption is very much part of local traditions, there will be a continuing trend of increased milk consumption in these countries.
From 2009 to 2019, the average annual rate of growth in terms of volume in India totaled +5.4%. The remaining consuming countries recorded the following average annual rates of consumption growth: Pakistan (+3.2% per year) and China (-1.2% per year).In value terms, India ($146.8 billion) led the market, alone. The second position in the ranking was occupied by Pakistan ($37.3 billion), followed by China. The countries with the highest levels of whole fresh milk per capita consumption in 2019 were Uzbekistan (339kg per person), Turkey (281kg per person), and Pakistan (231kg per person).
In China, where the sector has been recovering since 2018, it is projected that milk production will increase by almost 3% in 2020, amid ongoing consolidation of farms and increased efficiency of large dairy enterprises. The introduction of stringent food safety standards by the government has also increased consumer confidence in Chinese milk, which has helped support domestic production growth.
While milk and dairy products remain all-time favorites among various consumer pools, recent estimates show that tastes and preferences with respect to conventional milk and milk products are gradually shifting. Expectations regarding ingredient sourcing, packaging, ethics, convenience in snacking and healthy indulgence are playing important roles in carving a space for alternative dairy products. Moreover, consumers are becoming increasingly conscious about the nutritional content of the dairy products they consume. Brands which merely package their products as “healthy” to a general Asian audience are unlikely to gain much traction.
In FMI’s study, it was revealed that China is the kingpin when it comes to checking the nutritional content of dairy products more frequently compared to 2019. 57% of Chinese consumers seek proper information about the ingredients used while manufacturing said dairy products. This was followed by Indonesia, wherein 41% of consumers focus on enhancing nutrition intake through dairy products. Today, over 2/5th of all APAC consumers are looking for dairy snacks devoid of artificial ingredients. For example, yogurt consumers in Japan consider nutritional value of utmost importance, while blends offer the best of both worlds in India- enhancing nutritional value, as well as imparting the taste and texture akin to conventional dairy products. Moreover, 35% of urban consumers desire plant-protein drinks infused with milk in China.
Another attribute contributing to the changing tastes and preferences is regarding sensory and indulgence. Adventurous consumers want to experiment with new tastes and sensations which match their level of sophistication. This is most prominent in the case of ready-to-drink coffee creamers and dairy-based energy & sports beverages. 68% of East Asian millennial coffee consumers view added functionality as an important criterion while purchasing their preferred brand, while 62% of Southeast Asian consumers indicated flavor as the most important determinant while selecting an energy drink.
Evidently, a large part of the shifting dairy consumption patterns can be attributed to increasing animal welfare concerns across key countries. With enhanced knowledge about unsustainable and cruel practices associated with dairy production, individuals are transitioning towards consuming plant-based dairy products. According to the Good Food Institute, dual use of plant-based milk and animal-derived milk is observed, as 90% of plant-based milk users have also consumed animal-derived milk in the past 12 months.
Of these, around 12% are currently using only plant-based milk, 65% exhibit dual usage of plant-based & animal-derived milk and 19% are consuming only animal-derived milk. Approximately 40% of plant-based milk consumers have used more than one type of plant-based milk in the past 12 months. 20% of users have used all 3 types of milk – almond, soya and oat, pointing towards a ‘trial and error’ phase. Consequently, the dairy market has seen plenty of plant-based dairy product launches in the past few years. For instance, in November 2022, Green Rebel Foods introduced Creamy Crew, a line of plant-based cheese, sauces and dressings across Indonesia.
On a similar plane, Nestle debuted a range of plant-based dairy products, including Milo, in April 2021 across Malaysia. Besides this, Nestle Malaysia also introduced plant-based Nescafé lattes in oat and almond versions, which combines almond and pea, while oat and soy are the main ingredients for the Nescafé Dairy Free Oat Latte. The company also launched them in Japan. All these product launches are testimony to the fact that an increasing proportion of the Asian population is transition towards consumption of plant-based and animal-free dairy products. This trend is not likely to diminish anytime soon. However, the focus on animal welfare does not imply that consumption of conventional milk and dairy products will completely cease. While plant-based cheese, sports drinks and beverage will continue to remain opportunity sweet spots, manufacturers also have the opportunity to enhance the nutritional profile of mainstream dairy-based beverages.
Moreover, improving livestock rearing practices to ensure sustainable dairy production is also acquiring tremendous importance. According to the FAO, livestock contributes 40% of the global value of agricultural output and supports the livelihoods and food and nutrition security of almost 1.3 billion people. Currently, the livestock sector emits an estimated 7.1 GT of CO2-equivalent per year, representing 14.5% of human-induced greenhouse gas (GHG) emissions. Increasing the efficiency of livestock supply chains is key to limiting the growth of GHG emissions in the future. Vietnam has emerged as a pioneer in the region with regard to reducing GHGs from livestock rearing. In 2019, a Word Bank sponsored program benefited over 151,000 livestock farmers. A key feature of the project has been the implementation of good animal husbandry practices (GAHP). Twenty-three thousand one hundred seven household-based producers received technology and learned techniques to reduce negative environmental impacts, 362 meat-processing plants improved their waste-treatment systems and 489 wet markets upgraded their facilities to improve hygiene and food safety.
While Asia will continue to dominate the global dairy industry for some time to come, some of the largest societies in the region are ageing rapidly. We are seeing a growing percentage of the population who are above the age of 65. Taking China as an example, the number of working adults who can support an elderly person will decrease quite significantly. Projections are that in 2020, China will have six working age adults per elderly person. That will drop to 2.6 working adults by 2050.
What this means in real terms is that working adults will have to shoulder a heavier burden as there will be less of them to help look after seniors. This means there will be fundamental changes in the way societies and businesses operate as there will be a need for greater support for the elderly.
Companies like FrieslandCampina, whose business is to provide daily nutrition to consumers around the world, continually innovate and renovate products in order to better tailor and cater to the needs of consumers. The company launched Optimel in Hong Kong in 2016, which was developed in collaboration with nutrition experts to specifically cater to what was found to be lacking, from a nutritional standpoint, in middle-aged and elderly Hong Kongers. A product like Optimel can help to bridge the gap, and ensure that seniors lead healthy lives.
The food and agriculture, and certainly the dairy industry, is confronted with the pressing issue of food and nutrition security globally. There is a challenge to meet the demands and nutritional needs of 10 billion people in 30 years’ time. While commitments have been made to increase the supply of milk and dairy, these are constrained by factors like farming skills, land, the lack of infrastructure in rural areas and small herd sizes, especially when the majority of our supply is provided by smallholder farmers in rural communities.
To meet demands and build a sustainable sector, FrieslandCampina has developed the Dairy Development Programme, which seeks to work with farmers and governments across Asia to share best practices and expertise such that we are able to improve the quantity and quality of milk produced by local farmers.
The benefits of this are clear. Through this programme, they are able to not only improve product quantity and quality but also the livelihoods of local farmers - and future generations of farmers to come - and contribute to the development of the local economy. The programme has already supported over 100,000 dairy farmers directly and indirectly in Asia and beyond, via knowledge sharing and training, as well as helping to develop milk distribution systems. Helping local farmers build their ability is critical, particularly when agriculture is one of the main pillars for so many Asian economies.
Within the context of rising non-communicable diseases, obesity and malnutrition, the other challenge is addressing the nutritional deficiencies amongst consumers in a sufficient manner. Knowing what consumers require is the most effective way of addressing demand. The South East Asia Nutrition Survey (SEANUTS) was therefore introduced to study the nutritional needs of consumers in the region.
The survey, which involved about 16,000 children (between ages 4-14), found that there is a significant dual burden of malnutrition. In addition to a trend of rising obesity, children were also found to be lacking in micronutrients such as Vitamin D (despite the abundance of sunlight here). This paved the way for the development of products that specifically addressed the needs of children.
Considering the consumers of Asia, besides addressing nutrition deficiencies, manufacturers also need to offer the right products. Companies such as FrieslandCampina not only encourage good nutritional intake, but also advocate physical activity. Their Drink.Move.BeStrong initiative has sought to share the importance of both good nutrition and adequate physical activity with children across Southeast Asia.
To truly effect change, the company strongly believes that a concerted, multi-stakeholder approach is needed to tackle these issues. These include private-public partnerships. FrieslandCampina has been working and aligning closely with multiple stakeholders end-to-end to ensure that we are able to build an ecosystem for action and create systemic change now that can benefit future generations to come.