The dairy world has been turned upside down seemingly overnight. Whether it’s north or south of the Canada/U.S border, dairy farmers have to dump milk as the entire value chain adjusts to the disappearance of restaurant and foodservice dairy demand and a spike in retail demand.
Michael Dykes, CEO of the International Dairy and Food Association, says that panic buying at the outset of the COVID-19 outbreak has led to unprecedented demand on the retail side of the dairy industry. What’s key, Dykes says, is that the entire dairy value chain continues to work — but adjust quickly to not just a production and processing challenge (there’s plenty of milk and actual processing capacity), but also a distribution network challenge, as well.
The trouble in such a 180-degree turn of demand is that the entire value chain has to adapt. Grocery stores that have worked with a one-day delivery are now looking at perhaps two, three, or four deliveries to meet demand. That requires more trucks and drivers and people to load and unload them.
There’s also the difference in products. Restaurants buy in barrels, not small tubs or one pound blocks. Dykes explains there are different label requirements, too. So while dumping milk is a tough call, it’s necessary in the short term while the processors, distribution system, and retailers adapt.
“We have the processing capacity, the problem is, the retail grocery network doesn’t have the distribution capability to handle the demand,” Dykes says. In the U.S., the restaurant supply chain has started working as a holding and auxiliary distribution network, but that takes time to line up, too.
Talking big picture, Dykes is part of a group that has submitted a proposal to keep the dairy value chain intact through this pandemic, recognizing that even with an adaptation of the supply chain, a big drop in milk production is necessary for the short term.
We need farmers producing milk, we need processors, we need a distribution network, Dykes says, but a 10 per cent production cut still equates to billions of litres of milk. Dykes says they’re pushing for early dry off of cows and adjustment of rations to achieve the decrease, not a program to decrease the total herd size.
He’s also concerned about access to working capital for processors, and wants to see help to finance inventories, but stresses the organizations pushing for support do not want to see government purchases and storage of products.