Innovate or stagnate: Navigating the organic dairy landscape

In the blink of an eye, we find ourselves at the close of yet another year. Six months have passed since we last touched on organic dairy, and while the growth drivers and consumer trends may appear unchanged, the innovation activity in the organic dairy space is far from stationary.

The innovation landscape

With its link to naturalness, sustainability and health benefits presenting an attractive alternative to conventional dairy, consumer interest in organic dairy and alternatives remain high. And as the global retail value of organic dairy continues to increase year on year², organic remains a focus segment for many brand owners. How brands innovate in this space is dependent on the maturity of the market, the category, and consumer preferences. Categories that benefit from the positive associations of organic claims, such as milkfats and paediatric nutrition, are seeing greater rates of innovation in recent years.¹ Ethical, environmental and free-from claims are also seeing an increase, amplifying the clean and green position of organic dairy.¹

Markets driving organic dairy innovation

China never fails to make its mark on global consumption of food and drink, and both its scale and growth of organic dairy consumption is substantial. Even as a country that is still developing in this space, the competitive market has ramped up organic dairy innovations in recent years, jumping to 5.5% of dairy and alternative product launches having organic claims in 2023, more than double that of the 2.6% in 2019.¹ This no doubt contributes to the 5.8% annual retail value growth of organic dairy and alternatives in China over the past four years.²

In contrast, the more mature USA market has seen a decline in organic dairy innovations, dropping from 15.2% of dairy and alternative product launches having an organic claim in 2019 to 10.7% in 2022.¹ This despite US consumers showing an increasing appetite for organic dairy, reflected in an annual consumption growth rate of 3.6% over the past four years.² Brands appear to be banking on the permanence of their existing portfolio, despite product novelty being an essential or nice-to-have purchasing factor for 50% of US consumers.³ This gives space for smaller brands to shine, and in 2023 approximately a quarter of organic dairy and alternative products were launched by smaller players, driving the proportion of organic claims in dairy and alternatives back up to 16.1%.¹

France and Germany, both highly developed organic markets, sit squarely in the middle. Their organic dairy innovation rates remain relatively level over time¹, hedging their bets against the performance of existing products as well as sales of new innovations. This game plan is seen in many lower consumption but high growth markets, such as the UK, allowing brands to enjoy the best of both worlds.

Categories steering organic dairy innovation

Taking a more granular view of which category is contributing most to organic dairy growth worldwide, it would be perfectly reasonable to assume it was liquid milk as it accounts for 35% of the total retail value of organic dairy.² But over the past three years, butter and ghee have surpassed fresh milk as the categories with the highest rate of product launches holding organic claims.¹ This is largely driven by mature markets, where traditional categories of organic dairy such as milk and yoghurt have become saturated, and leveraging an organic claim in other dairy categories can still make a big impact. 

When looking at a developing organic market, it makes sense to take a step back. Where liquid milk and yoghurt is stagnant in mature markets, these categories are still booming in countries like China. Not counting infant formula, liquid milk accounted for 98% of total organic dairy product launches in 2023, seeing more than double the proportion of liquid milk with organic claims at 12.9% in 2023 compared to 5.6% in 2019.¹  This increase caters to the 50% of Chinese consumers who are willing to pay more for milk that is organic, a product claim that ranks third in their most desired features, closely following high calcium and high protein.⁴

Nourishing the next generation

Organic remains a consistent claim for infant formula, with the proportion of organic claims noticeably rising during the height of the Covid-19 pandemic as parents seek cleaner and healthier products for their children.¹ The presumed benefits of reduced exposure to chemicals and pesticides, which have been shown to affect young children’s cognitive and behavioural development, drives consumers to seek out organic infant formula over their standard counterparts.⁵

This parental awareness carries forward into the kids snacks category, with 19.1% of kids snacking products holding an organic claim in 2023 compared to only 8.5% of general snacks.¹ Increasing accessibility of organic foods from an early age can help consumers develop an emotional connection with the claim, providing long-term opportunities for organic brands.

Key innovation claims

Organic rarely sits alone and is often accompanied by other claims. By far the biggest partner, ethical and environmental claims go hand-in-hand with organic¹, preserving the clean and green image that organic generates. Claims that speak to low or no additives are also a large aspect of the organic image¹, and can reinforce the perception of health and wellness.

Sustainability

Sustainability continues its climb as the largest product claim for organic food and drink, with 49.2% of organic food and drinks launched in 2023 asserting at least one sustainability claim.¹ This is more pronounced for organic dairy, with 63.4% of organic dairy and alternative products making sustainability claims that same year.¹

Brands have also taken advantage of organic dairy’s prime position to showcase their sustainability efforts, with sustainable sourcing, environmentally friendly products, carbon footprint and biodegradable packaging claims rising year on year.¹ But these generic sustainability claims may no longer be enough for consumers as they start looking into the natural landscapes and contexts that ingredients are sourced from. Moving forward, it is likely that brands will increasingly need to emphasise their distinct, tangible benefits to connect more effectively with consumers. When executed well, like Flor de Alfalfa’s natural yoghurt, it can give consumers genuine reasons to believe in a product’s sustainability claim.

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Health

The health benefits that dairy provides is a great launching pad for this connection, with vitamin fortification and high protein claims noticeably emerging in organic dairy products in the past year.¹ This lines up well with the 25% of global consumers seeking higher protein content in their food, and the 29% of global consumers looking for a good source of vitamins and minerals when shopping for food and drink.⁴  

Brands can take this one step further by capitalising on functional claims that organic dairy can provide. Consumers have an automatic association between organic and health, and dairy can speak to many different functional benefits such as bone health, digestive health and immunity, all of which are emerging claims in the organic dairy space.¹ More than 21% of global consumers perceive multi-benefit or multi-functional claims to be an indication of value-for-money in dairy products³, and in a period of inflationary pressures, brands that can clearly communicate the functional advantage of their products will likely have an edge over both their organic and generic competitors.

Beam Super Gelato recovery ice cream is a solid example of a product catering to a specific functional need through enhancing sports performance, whilst still embracing its other health and wellness benefits.

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Natural

The saying of ‘less is more’ rings particularly true when it comes to organic food and drink. Consumers are increasingly drawn to products with shorter ingredients lists, viewing them as cleaner and closer to nature.⁶ More than 35% of global consumers are seeking natural ingredients when shopping for food and drink, and 49% of global consumers consider natural ingredients to be an indication of value-for-money.³

Organic dairy can speak to its naturalness with ease. Compared to standard dairy, 16.4% of organic dairy and alternative product launches had a GMO-free claim in 2023, triple that of the 5.3% for regular dairy.¹ Organic dairy products with an ‘all natural’ claim was also higher, at 4.9% compared to 3.3% for regular dairy. ¹ And as consumers increasingly embrace the ‘free-from’ trend, minimally processed foods will be in higher demand.⁷

Good Culture’s organic cottage cheese is a good example of a product that clearly emphasises their simple ingredients and takes pride in their clean label.

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The views expressed above are the opinion of the author, not those of Fonterra, and Fonterra is not responsible for any decisions taken in reliance on the same.