Milking it? LATAM dairy-free demands weak compared to global boom, says Rabobank

Dairy-free 'milk' alternatives remain modest in Latin America with consumers being priced out, following years of economic strain, says the executive director of dairy at Rabobank.

In 2017, global sales of dairy-free 'milk' alternatives pulled in US$15.6bn, with soy totting up 39% of total sales, according to Euromonitor. Latin America's dairy alternatives category pulled in just US$707m, by comparison.

According to Rabobank's recent report Dare Not to Dairy – How the Industry Can Respond to the Rise of Dairy-Free, global growth of dairy-free was being driven by “changing consumer perceptions” around health, lifestyle, curiosity, and perceived sustainability.

But, Tom Bailey, author of the report and executive director for dairy at RaboResearch Food & Agribusiness, said the Latin American category had a very different story to tell.

“In Latin America, the alternative 'milk' category accounts for around 5% of the region's total milk beverage category, and that number has fallen over the last five years,” Bailey told FoodNavigator-LATAM.

He said that whilst Brazil, Argentina and Mexico were the largest markets for dairy-free, representing one-quarter of all sales, penetration remained lower than global averages.

“This is likely due to the price point of alternative products and the fact that traditional milk is a cheaper way to get more nutrition, particularly as parts of Latin America have faced economic challenges over the last five years.”

Elsewhere, dairy-free connecting 'emotionally'

By contrast, the global dairy-free 'milk' market had seen strong growth in recent years, with retail sales growing 8% annually over the past ten.

Bailey said Asia-Pacific was the largest market but North America and the EU were also strong. In these latter two markets, he said growth in dairy-free was being propelled by consumers looking for “value of the emotional proposition”.

In his Rabobank report, Bailey said the marketers of dairy alternatives appeared to be “doing a better job of connecting emotionally with consumers”, particularly consumers who favored dairy-free options to meet their own perceptions around health and lifestyle.

“The largest segment of consumers choosing dairy-free beverages consists of – no surprises here – millennials and Generation Z. Their perceptions of health and sustainability (including animal welfare and environmental footprint) are core motivators for their choice to limit dairy consumption. Somewhat baffling is the finding that price and taste are not found to be incentives for consumers to leave dairy,” he wrote.

For Latin America however, Bailey said the consumer trend did “not appear to be as strong”, especially given dairy-free was an “economically sensitive trend”.

However, to some extent this sensitivity could also present an 'early adoption' opportunity for dairy-free, he said, if some consumers were perhaps “happy to take a little more risk”.

Either way, recommendations for traditional dairy to get involved in dairy-free or consider working with alternatives was “premature in the LATAM region”, Bailey said, despite success in Europe and the US. Traditional dairy companies in these markets had been acquiring dairy-free brands (Danone acquired WhiteWave); investing in startups through incubator programs (Land O'Lakes and Chobani); or launching their own dairy-free products (Valio with its oat-based products in Finland).

Traditional dairy 'stronghold' in LATAM

For now, Bailey said regular dairy remained a huge market for Latin America, worth US$14.3bn - a figure just under the global worth of dairy-free. The region, he said, represented around 10% of the world's milk production.

“Traditional dairy still has a stronghold in Latin America and is one of the key markets we expect will see strong growth in demand – slightly above the global average of 2.5% CAGR –  for dairy-based products through the coming decades.”

However, Bailey said Latin America's traditional dairy sector, as well as international players, could still learn some lessons from the global strength of dairy-free, in particular the category's 'consumer first' approach.