An annual survey conducted by McKinsey & Company and the International Dairy Foods Association (IDFA) has found that corporate purpose and talent development are far more important to dairy firms than bolstering their company’s environmental performance.
More dairy executives consider sustainability a key priority compared to a year ago, the category’s strategic importance growing 7% year on year, only behind talent development (16%) and corporate purpose (11%).
Sustainability was also the greatest source of concern for dairy bosses, with around 75% admitting that their companies’ climate efforts were being driven by customers and under half saying the same of consumers. Interviewed executives in particular voiced their concern that consumers were not willing to pay a premium for sustainable dairy, and some questioned whether these attitudes would ever change.
However, a Nielsen IQ and McKinsey analysis from February 2023 found that consumers were more likely to buy yogurt and cheese with ESG-related claims than products without those claims.
The survey was carried out predominantly among executives from US-based companies but also from organizations from the rest of North America as well as Europe and Oceania. The leaders polled work at companies of varying sizes and types, including processors, producers, retailers, packaging firms, and others. The survey was conducted in Q4 2023 and is the sixth annual poll conducted by IDFA and McKinsey that tracks dairy businesses’ ESG policies and commitments.
Besides consumer demand for sustainable dairy, executives were also worried about addressing their companies’ Scope 3 emissions. As DairyReporter has written before, Scope 3 emissions – those that occur outside the company’s direct control – are the most difficult to quantify and reduce.
McKinsey also highlighted the difficulty to balance environmental performance with the growth in demand for dairy in the US. According to the analysts, while emissions per kg of milk had decreased 27% from 1995 to 2015, the growth in US dairy production has resulted in an overall increase in GHG emissions.
Growth aspirations meet demand hurdles
Growth remained the main source of excitement for dairy executives, reflecting the strength of the sector. According to McKinsey, the retail value of US dairy grew 9% from 2021 to 2022 and by 7% from 2022 to 2023, mostly driven by pricing though future growth is expected to be driven by volume.
McKinsey projects dairy to grow 4% annually from 2024 to 2027, with cheese and yogurt the categories seeing the most growth.
Capitalizing on this demand is a source of both concern and excitement for dairy companies. In particular, executives are worried about how their companies can meet evolving consumer expectations, ranking ‘demand’ as the third greatest source of concern for businesspeople, behind only regulation and sustainability.
At the same time, entering new markets, categories and geographies has become a greater priority for firms compared to last year, while nutrition and innovation are a major sources of excitement for executives.
Focus on labor
According to the survey, the importance of talent retention and development grew by the largest margin across all categories, with 60% of executives citing talent as a strategic priority, moving it from fourth to second place in the rankings. “Our interviews with dairy leaders revealed three common approaches to managing labor issues: compensation, culture, and process,” the authors said. “Dairy companies are considering increasing wages and benefit packages, focusing on company culture, and investing in operational technology to help attract and retain talent.”
In 2019, FARM commissioned a nationwide survey to better understand current labor practices on US dairy farms. The survey identified several areas that needed improvement, such as a higher than ideal rate of employee turnover, a lack of management training offered on most farms, and not leveraging pre-employment screenings often enough.
Source: FARM
At the same time, strengthening their supply chain has become less of a priority for businesses, suggesting that one of 2022’s critical issues has now been overcome.
Dairy executives' top priorities according to the survey are ranked as follows:
1. Setting and strengthening your corporate purpose for stakeholders (-)
2. Talent and capability development (+2)
3. Cost Reduction and efficiency initiatives (-)
4. Entering new categories, markets, geographies (-)
5. Transforming the business to become more environmentally sustainable (+1)
6. Increasing supply chain resilliency (-1)
7. Others (-)
8. Digital data and analytics (-1)
9. Portfolio simplification (-2)