Despite a number of global challenges, the US dairy industry is still an innovative market with the entrance of new products, increasing competition, and a strong consumer foothold with dairy products maintaining a significant market share. However, focusing on strategic priorities will bolster the industry and ensure consumers remain engaged.

“Committing to growth, resilience, and sustainability priorities can help protect dairy processors as they face today’s challenges – including inflation, supply chains disruptions, labour shortages, and climate change – while positioning them to take advantage of future tailwinds related to growth, innovation, and new market opportunities,” write the authors of the McKinsey report.

Growth is the most important area for US dairy executives

Analysing the findings of McKinsey’s fifth annual survey of dairy executives and almost 50 interviews with industry leaders, the authors of this report found that over 50% of respondents agreed that “setting and strengthening a corporate purpose for stakeholders” was a priority for their company.

Almost 70% of respondents were now collaborating in some way with other stakeholders such as farmers, suppliers, and research institutions. Leading with purpose and collaborating more effectively with a variety of stakeholders, which include employees, consumers, customers, and communities, was perceived as crucial.

“Companies that do not typically work together are also collaborating. For example, dairy exporters, a trade association, ports, and shipping lines came together in 2022 to discuss shipping challenges facing the industry, breaking down historical barriers to address pressing supply chain issues,” say the McKinsey analysts.

There is also optimism in the US dairy sector and finding new growth opportunities is being prioritised with 45% citing “entering new categories, markets, and geographies” as a top three strategic priority. With dairy consumption in Asia-Pacific set to grow and possible constraints in Europe and Oceania, US dairy executives are well positioned to increase supply and support demand abroad, according to analysts.

Developing and retaining talent was also key to overall growth with 44% citing this as a priority. Labour shortages were highlighted as a concern by a similar percentage of dairy executives in the 2021 survey. Executives are considering how they can improve the working conditions of employees by expanding benefits such as flexible working, additional pay, and vacation.

Resilience-building measures key to making industry more robust

According to the authors, adapting to rising inflation has been challenging for dairy processors. With rising input costs, putting in place cost reduction and efficiency initiatives was cited highly by those surveyed. The majority of executives interviewed were concerned about the impact of inflation and were trying to balance reducing costs, increasing their prices and squeezing margins.

Dairy executives also highlighted building supply chains that are more resilient as a top priority. Recent supply chain problems have ranged from difficulty accessing materials and shipping issues causing inconsistency and unpredictability for dairy businesses.

In addition to resilience measures, transforming businesses to become more environmentally stable was a commitment a sizable minority of executives support. The majority have a sustainability strategy or an ESG strategy (or both) in place and 67% have funds allocated to sustainability programs. This reveals an important improvement in this area with only 57% of companies in last year’s survey investing resources for sustainability goals.