PROJECTIONS OF U.S. DAIRY PRODUCT CONSUMPTION, Reginald Adamus and Emerson Babb. staff Paper 384 June 1990
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1 PROJECTIONS OF U.S. DAIRY PRODUCT CONSUMPTION, by Reginald Adamus and Emerson Babb staff Paper 384 June 1990
2 PROJECTIONS OF U.S. DAIRY PRODUCT CONSUMPTION, by Reginald Adamus and Emerson Babb staff Paper 384 June 1990 Staff Papers are circulated without formal review by the Food and Resource Economics Department. Content is the sole responsibility of the authors. Food and Resource Economics Department Institute of Food and Agricultural Sciences University of Florida Gainesville, Florida 32611
3 Abstract consumption trends for were projected for nine dairy products based on dairy product prices, consumer price index for food, per capita disposable income and time during The dairy products projected were whole milk, lowfat milk, cream, cottage cheese, ice cream, ice milk, American cheese, other cheese, and butter. Total consumption of aggregate dairy products is expected to increase 1.0 to 1.5 percent per year during Key Words: dairy product consumption projections, dairy sales trends. i
4 PROJECTIONS OF U.S. DAIRY PRODUCT CONSUMPTION, Reginald Adamus and Emerson Babb The consumption of dairy products generally follows long-term trends. Consumption for some products may increase or decrease at about the same rate for a long time period. Cheese and lowfat milk are examples of products that are characterized by constant change over a long time period. The consumption trend for some products follows the product cycle of rapid growth after introduction which diminishes and may even become negative (cottage cheese). For some products, declining consumption is arrested and even reversed as a result of changes in consumer taste, technological developments, or product modification (cream, butter). While consumption is relatively stable from one year to the next, the accumulated changes over time often add up to significant shifts in consumption, especially for individual dairy products. The dairy industry must be cognizant of these trends in consumption as it organizes for future production and marketing. In the past, simple models have proved to be relatively accurate in projecting consumption trends. The preliminary data on consumption for 1989 suggest that some of the long term trends may be changing. Diet and nutritional concerns may have accelerated the shift to lowfat dairy products. If we are entering a period where long term consumption trends are changing, the projections reported here will not be as accurate as past Reginald Adamus and Emerson Babb are graduate student and professor at the University of Florida. 1
5 projections. Methods and Assumptions Simple models (OLS) were used to project total consumption of individual dairy products during the period, based on data for The term "consumption" refers to the commercial disappearance of dairy products in product pounds and does not include distribution from u.s. Department of Agriculture (USDA) stocks. The following four factors were used to project consumption: 1. consumer price of dairy products, 2. consumer price index for all food, 3. per capita disposable income, and 4. time (which reflects trends in consumer preferences and population changes). The models used for projections did a reasonably good job in estimating actual consumption (R 2 ranged from.85 to.99) and in correctly calling turning points. Consumption data were the annual domestic disappearance in product pounds from commercial sources published by the USDA in Dairy situation since Price indexes for dairy products were constructed for dairy products during based on data published by USDA. Consumer price index for all food and per capita disposable income were from Bureau of Labor statistics.' For projection purposes it was assumed that the consumer price index for food would increase by five percent per year during 1989-, The data set is available on request from the second author. 2
6 93 and that per capita disposable income (nominal) would increase by six percent. Dairy product prices were assumed to increase three percent per year. In evaluating projections, it should be noted that the Bureau of Census has projected annual increases in population of 0.9 percent and increases in real disposable income of 1.8 percent for the period. The impacts of increased expenditures for advertising and promotion of dairy products were contained only in the data used to make forecasts. Results The annual percentage changes in consumption (disappearance) during and projected changes during for specific dairy products are contained in Table 1. Projected volumes are contained in Table 2. Actual and projected consumption of specific dairy products is shown graphically in Figures Fluid Milk The decline in consumption of whole milk during is projected to accelerate compared to The projected increase in lowfat milk consumption would more than offset the decline in whole milk but total fluid milk on a product weight basis is projected to increase slightly less in than during The projected 0.8 percent annual increase is about the same as the projected increase in population. Preliminary data on actual consumption of all fluid milk for 1989 indicate a perc en t 1ncrease. 2 Dairy Data, National Dairy Promotion and Research Board, March
7 Perishable Manufactured Products Fresh cream reflects a turn-around situation with very strong growth during The projections call for slightly slower growth rates during , and significantly below the 7.1 percent growth during Some of the diet concerns that have motivated lowfat milk purchases may have influenced consumption of cream. After a 20 year period of excellent growth, cottage cheese purchases became stagnant about Annual consumption declined 0.2 percent during , and the decline is expected to accelerate during There are now many cultured products, spreads, and dips that consumers may be substituting for cottage cheese. Preliminary figures for 1989 show a 6.9 percent decline in consumption. Consumption of ice cream is projected to increase by 1.0 percent annually. The preliminary figure for 1989 indicates a 3.3 percent decline. The projected increase is about the same as the long term trend in sales and reflects a recovery from sales declines in Ice milk consumption greatly expanded during , at which point sales became flat, but sales growth has picked up since The preliminary 1989 figure shows a growth of 4.3 percent in sales. A large number of new frozen desserts and novelties have been introduced recently, which consumers may be substituting for both ice cream and ice milk. The composition of many frozen desserts is changing so that more milkfat and solidsnot-fat are used in a gallon of product. The preliminary
8 figures for all frozen desserts show a 1.0 percent decline from storable Manufaetur.d Products Since about 1960, the growth in cheese consumption has continued to outperform other dairy products for which USDA publishes disappearance data. Projected increases in consumption during are near the long term trend, but somewhat below the growth during Preliminary estimates of consumption for 1989 were 3.5 percent for American cheese and 7.3 percent for other cheese. Total cheese consumption would be further expanded by donations of cheese from government stocks. Cheese consumption is vulnerable to changes in consumer preferences and to inroads made by cheese substitutes. The high growth rate for cheese may be beginning to abate. Butter consumption declined during the period but has since stabilized. During , consumption increased 0.6 percent per year and consumption is projected to increase 1.0 percent during Preliminary figures for 1989 indicate a 7.3 percent decline from It is estimated that over half of butter consumption is in away-from-home establishments, but butter blends may increase at-home consumption. 'l'otal Dairy Preliminary figures for 1989 indicate a decline in aggregate milk consumption of 0.5 percent. However, consumption of all dairy products is expected to show modest gains during , about 1.0 to 1.5 percent per year. This increased consumption will obviously 5
9 help reduce the persistent imbalance in production and consumption, but potential increases in production exceed two percent per year. Thus, we cannot expect increased consumption to eliminate government purchases and sol ve the chronic problem of excess production. Some of the recent increases in dairy product consumption are the result of higher levels of expenditure for advertising and promotions. Consumption may be higher than projected if the effectiveness of these programs is sustained. The assumption that dairy product prices will increase less than all food prices contributes to the projected higher levels of dairy product consumption. likely hold. Given current dairy policies, this assumption will However, changes in dairy programs could easily reverse the expected situation, i.e., cause dairy prices to rise more rapidly than other food prices. 6
10 Table 1. Annual Average Percentage Change in Total u.s. Domestic Disappearance of Dai,y Products, 1983 to 1988 and Projected 1989 to 1993 Product Actual Projected Whole Fluid Milk Lowfat Fluid Milk Total Fluid Milk Fresh Cream cottage Cheese Ice Cream Ice Milk American Cheese other Cheese Butter Based on domestic disappearance from commercial sources in Dairy Situation and Outlook, ERS, USDA. 7
11 Table 2. Annual U.S. Domestic Disappea~ance of Dairy Products, 1988 and Projected 1989 to 1993 Product Actual 1988 Projected (Million Pounds) Whole Fluid Milk Lowfat Fluid Milk Total Fluid Milk Cream Cottage Cheese Ice Cream Ice Milk American Cheese other Cheese Butter 26,228 25,135 20,762 31,026 32,594 38,867 57,254 57,729 59,629 1,879 1,975 2, ,228 4,271 4,444 1,941 1,959 2,029 2,578 2,646 2,918 2,992 3,142 3, Based on domestic disappearance from commercial sources in Dairy Situation and Outlook, ERS, USDA. 8
12 Fig 1. Actual and Projected Consumption of Fluid Whole Milk VOLUME (Bil. Ibs.) 60 ~ ~ Projected -- Actual o I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I YEAR
13 Fig 2. Actual and Projected Consumption of Lowfat Milk VOLUME (Bil. Ibs.) 40 ~ ~ Projected -- Actual 30,, o I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I YEAR
14 Fig 3. Actual and Projected Consumption of Total Fluid Milk, Product Weight VOLUME (Bil. Ibs.) 70,~ , Projected -- Actual I I I I I I I I I I I ' I, I I I I I I I I I, I I I I I I I I! I I I I I I I I I I YEAR
15 VOLUME (Bil. IbsJ Fig 4. Actual and Projected Consumption of Fresh Cream Predicted -- Real ~. - -,---- ' , ", " " 0.5 o 'I r I I I I I I I I I I I I r I I J I I I I I I I I I I I I I I I I I I I I I I I I I II YEAR
16 Fig 5. Actual and Projected Consumption of Cottage Cheese VOLUME (Sil. IbsJ 1.2~ ~ Projected -- Actual 1 ~ " 0.4 I I I I I I I I I I I I I I I I I I I I I I I I I I I I I YEAR
17 Fig 6. Actual and Projected Consumption of Ice Cream VOLUME (Bil. Ibs.) 5~' ~ Projected - Actual f-: I 1 I 1 I I I I 1 I I I I I I I I I I I I I I I I I I I I I I I I I I I I II YEAR
18 Fig 7. Actual and Projected Consumption of Ice Milk VOLUME (Bil. Ibs.) 2~ ~... Projected -- Actual ) I I I, I I I I I I I I I I I I I I, I I I, I I I I I I I I I I I J I I, I I I, YEAR
19 Volume (Bi I. Ibs.) Fig 8. Actual and Projected Consumption of American Cheese Projected - Actual ~ o I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I Year
20 Fig 9. Actual and Projected Consumption of Other Cheese VOLUME (BiL Ibs.)... Projected -- Actual ~'i t~=- I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I I YEAR
21 Fig 10. Actual and Projected Consumption of Butter VOLUME (Sil. Ibs.) 1.4 ~' ~ Projected -- Actual I I I I I ' I I I I I J! I I I I I I I I I I I I I I I I I I I I I I I I I I I I, YEAR
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