# Cream of the Crop: The Business of Plant-Based Milk

An episode of [Switched On](https://invisiblenetwork.ai/podcast/1469286286), 23 Aug 2023, 37 min.

Audio: https://podtrac.com/pts/redirect.mp3/traffic.omny.fm/d/clips/e73c998e-6e60-432f-8610-ae210140c5b1/01a10738-3608-4dec-883c-ae3c00026b36/eb661003-9242-4e8a-a5b5-b06600eec42f/audio.mp3?utm_source=Podcast&in_playlist=6d114f63-833d-4b78-bbf5-ae3c00026b44

The dairy industry relies on 270 million cows to produce over 600 million tons of milk annually, and these cows are having a significant impact on the environment. Plant-based milks have been presented as an alternative, a dairy-free way for us to enjoy our milk and be more environmentally conscious, too. But how does the plant-based milk business work, and just how clean is the industry in comparison to dairy? On today’s show, Dana speaks with Sarrah Raza, a Technology and Innovations Analyst from BNEF’s New York office. Together they discuss a variety of plant-based milk alternatives and their ecological footprints, the major companies that are operating in the space, and how agricultural policies in the US are helping keep plant-milk prices high. Complimentary BNEF research on the trends driving the transition to a lower-carbon economy can be found at BNEF<GO> on the Bloomberg Terminal, on bnef.com or on the BNEF mobile app. Links to research notes from this episode: Milking Crops Not Cows: A Primer on Plant-Based Dairy - https://www.bnef.com/insights/31455 See omnystudio.com/listener for privacy information.

## Transcript

[0:00] Speaker 1: This is Dana Perkins and you're listening to Switched on
[0:03] Speaker 1: the BNF podcast. Those who are interested in reducing their
[0:06] Speaker 1: carbon footprint, they may have heard of meat free Mondays,
[0:09] Speaker 1: but what about dairy free Monday, Because today we're talking
[0:13] Speaker 1: about another heavy emitter, dairy cows, and whether or not
[0:17] Speaker 1: plant based milks might be able to provide a greener
[0:20] Speaker 1: alternative to this established industry. The dairy sector relies on
[0:24] Speaker 1: two hundred and seventy million cows globally to produce over
[0:28] Speaker 1: six hundred million tons of milk every year, and when
[0:30] Speaker 1: combined with livestock, their annual greenhouse gas emissions are five
[0:34] Speaker 1: point eight percent of the global total. When converted to
[0:37] Speaker 1: CO two equivalents, this comes to about two point nine
[0:40] Speaker 1: gigatons of CO two emissions. The obvious alternative to dairy
[0:45] Speaker 1: might be plant based milks, a drink that goes back
[0:48] Speaker 1: centuries in some parts of the world, but in Western
[0:50] Speaker 1: culture it's only recently become a phenomenon. So just how
[0:54] Speaker 1: green are plant based milk alternatives and what options are
[0:57] Speaker 1: there out there? How realistic are they real as an
[1:00] Speaker 1: alternative to dairy. To find out more in today's episode,
[1:04] Speaker 1: I Speak with Sara Raza, a technology and innovations analyst
[1:07] Speaker 1: at B and EF based in New York. Together, we
[1:10] Speaker 1: discuss the varieties of different plant based alternatives and their
[1:14] Speaker 1: benefits as well as their drawbacks, including their ecological footprint
[1:18] Speaker 1: and water use. We also discuss the businesses behind the
[1:21] Speaker 1: sector and some of the major companies invested in this space,
[1:24] Speaker 1: as well as the politics behind the milk industry in
[1:27] Speaker 1: the United States in particular, and how the USDA treats
[1:31] Speaker 1: dairy and plant based milks very differently. As always, if
[1:35] Speaker 1: you like this podcast, make sure to subscribe and you'll
[1:38] Speaker 1: receive an update on future episodes as they're published. And
[1:41] Speaker 1: if you give us a review on Apple Podcasts or Spotify,
[1:44] Speaker 1: it'll make us more discoverable by others. But right now,
[1:47] Speaker 1: let's jump into our conversation about the dairy industry and
[1:50] Speaker 1: its alternatives with Sara. Sara, thank you so much for
[2:03] Speaker 1: coming back to the show today.
[2:05] Speaker 2: Thank you for having me again.
[2:06] Speaker 1: So we're here today to talk about dairy milk and
[2:09] Speaker 1: milk alternatives. And I certainly am a lover of cheese,
[2:12] Speaker 1: but I am also a lover of all of the
[2:14] Speaker 1: different dairy milks. I've probably tried everyone that has come
[2:17] Speaker 1: across my cup of coffee at one point or another.
[2:20] Speaker 1: But as we get into this, I hoped you could
[2:23] Speaker 1: really frame, I guess the problem, which is really the
[2:26] Speaker 1: emissions associated with dairy milk when we think about this
[2:29] Speaker 1: from a climate standpoint. So what is the problem and
[2:33] Speaker 1: where is dairy milk sit within emissions?
[2:37] Speaker 2: Well, that's a great question.
[2:38] Speaker 3: So I think often dairy kind of gets ignored as a.
[2:42] Speaker 2: Huge source of emissions globally.
[2:44] Speaker 3: The dairy industry relies on a ground two hundred and
[2:48] Speaker 3: seventy million cows to produce over six hundred million tons
[2:52] Speaker 3: of milk annually. Obviously, all of this occupies seven percent
[2:56] Speaker 3: of the world's land. And in terms of emissions, I mean,
[2:59] Speaker 3: we can go into comparing emissions between dairy and other
[3:02] Speaker 3: plant based alternatives, but just as a little summary statistic,
[3:07] Speaker 3: dairy milk is often three times or more emissions intensive
[3:12] Speaker 3: than all plant based alternatives.
[3:14] Speaker 1: Can you go into some detail around on a farm,
[3:18] Speaker 1: how those emissions break down and which activities on a
[3:21] Speaker 1: farm really comprise the different parts of that emissions pie
[3:25] Speaker 1: for this.
[3:25] Speaker 3: Group, absolutely, Yeah, So it is pretty difficult to assign
[3:29] Speaker 3: emissions of a single dairy cow to the milk product
[3:32] Speaker 3: in the life cycle of a farm, because as you know,
[3:36] Speaker 3: on a farm, many cows are also used for beef products.
[3:39] Speaker 3: But BENAF has come up with an estimate of greenhouse
[3:43] Speaker 3: gas emissions on a US dairy farm, and we've come
[3:45] Speaker 3: up with the total emissions coming from methane being about
[3:50] Speaker 3: six thousand, four hundred kilograms of CO two equivalents, and
[3:55] Speaker 3: that methane comes largely from the animal as you know
[3:59] Speaker 3: more popularly as cow fats, and around twenty to thirty
[4:04] Speaker 3: percent of that from manure storage. Nitrous oxide is actually
[4:08] Speaker 3: another concern which I think people really overlook and have
[4:11] Speaker 3: no idea that that's a really really potent gas coming
[4:14] Speaker 3: from dairy farms across the world. But in terms of nitrosoxide,
[4:17] Speaker 3: that's around one thousand, three hundred kilograms of CO two equivalent.
[4:21] Speaker 3: And these statistics, by the way, are per cow, So
[4:25] Speaker 3: the lot of emissions per cow for methane nitrosoxide, and
[4:29] Speaker 3: then you've got a little CO two and some other
[4:31] Speaker 3: other indirect emissions from the soil.
[4:33] Speaker 1: And on a per cow basis, But are these larger
[4:36] Speaker 1: small operations because one of the things that we certainly
[4:38] Speaker 1: see across other parts of plant based agricultures. These can
[4:42] Speaker 1: differ from different parts of the world in terms of
[4:44] Speaker 1: whether or not they're highly fragmented in small farmers or
[4:48] Speaker 1: really large, industrial grade operations. Where do most of the
[4:53] Speaker 1: cow and dairy farms. Where do they fall? Are they smaller?
[4:56] Speaker 2: They large?
[4:57] Speaker 3: Most of the cow and dairy farms in the US
[4:59] Speaker 3: are extreme large operations. If you choose somewhere like a
[5:02] Speaker 3: New Zealand dairy farm there, emissions naturally would be a
[5:06] Speaker 3: lot lower, just because they're not as water intensive, using
[5:10] Speaker 3: as many facilities, using as much energy on the farm.
[5:12] Speaker 3: A lot of those are also free range farms and
[5:15] Speaker 3: have a lot of cattle grazing out in the open,
[5:17] Speaker 3: with a lot more land. We're obviously very land constrained
[5:20] Speaker 3: in the US here, so it's a lot tighter, a
[5:23] Speaker 3: lot more factory farming.
[5:25] Speaker 1: One of the considerations around plant based alternatives is also
[5:30] Speaker 1: water usage. But let's talk about a little of the
[5:32] Speaker 1: water usage associated with dairy.
[5:35] Speaker 3: Freshwater use is extremely extremely high for dairy milk, and
[5:40] Speaker 3: is actually mainly a result of actually producing the feed
[5:43] Speaker 3: for the cattle, something that's obviously avoided when producing plant
[5:47] Speaker 3: based alternatives, And a way I like to view it
[5:50] Speaker 3: in my head is if you imagine, when you're producing
[5:53] Speaker 3: dairy milk, you go crop through cow to a glass
[5:57] Speaker 3: of milk, whereas when you go for plant based alternative,
[6:00] Speaker 3: it's just crop to a glass of milk. So you're
[6:02] Speaker 3: avoiding this entire fresh water use on an entire farm,
[6:07] Speaker 3: producing feed for cattle, consuming cattle, cleaning dairy operations, cooling
[6:12] Speaker 3: of facilities, sanitation, waste disposal systems.
[6:15] Speaker 2: This is all.
[6:16] Speaker 3: Contributing to high water consumption. And in terms of comparing
[6:20] Speaker 3: this water use between dairy and alternatives, around six hundred
[6:24] Speaker 3: and thirty liters of water is used per liter of
[6:28] Speaker 3: milk produced, compared to around I don't know, let's take
[6:32] Speaker 3: soy milk of twenty eight liters for each liter of
[6:35] Speaker 3: soy produced.
[6:36] Speaker 1: Well, actually, so then that's the perfect segue to get
[6:38] Speaker 1: into some of these plant based alternatives. Now, we'll talk
[6:42] Speaker 1: about consumer adoption a little bit later in the show,
[6:44] Speaker 1: because certainly there is a place in many people's lives
[6:47] Speaker 1: for plant based alternatives, not from an emission standpoint, but
[6:51] Speaker 1: just because of consumer preference. But let's really break it
[6:53] Speaker 1: down in terms of what are the benefits on a
[6:56] Speaker 1: climate standpoint, so soy, you brought that one up already,
[7:00] Speaker 1: let's go into that. What are I guess, maybe the
[7:02] Speaker 1: benefits when you compare it from an emissions, land use,
[7:05] Speaker 1: water standpoint. Give me the lowdown on where soy fits
[7:08] Speaker 1: in this space.
[7:09] Speaker 3: So soy was actually the most popular milk once upon
[7:12] Speaker 3: a time. Recently that has been taken over by oat
[7:16] Speaker 3: and almond milk and kind of some of the newer entrants,
[7:19] Speaker 3: but soy still is a staple, especially across Asia and
[7:23] Speaker 3: Southeast Asia where that is the main primary alternative milk consumed.
[7:28] Speaker 3: So in terms of emissions, soy milk actually produces less
[7:33] Speaker 3: than one kilogram of CO two equivalent per liter of
[7:37] Speaker 3: soy milk produced. And just to put that into perspective
[7:41] Speaker 3: for a dairy milk lita, that's around three point two.
[7:46] Speaker 3: So that's significantly less than dairy milk. And again I
[7:49] Speaker 3: mentioned for fresh water use. Again it's actually the least
[7:54] Speaker 3: water intensive plant based milk out there. How I like
[7:57] Speaker 3: to view it for each of the plant based alternatives
[7:59] Speaker 3: is it's really a toss up between how much land
[8:03] Speaker 3: actually producing that crop takes up, how much fresh woolter
[8:07] Speaker 3: use you'll using and the emissions intensity. I get this
[8:11] Speaker 3: question a lot of which milk is the best. The
[8:14] Speaker 3: answer is, there isn't actually one milk that prevails overall.
[8:18] Speaker 3: Like you're asking about soy, which yes, is great in
[8:22] Speaker 3: terms of fresh wool to use, but has slightly higher
[8:24] Speaker 3: emissions than some of the other milks.
[8:26] Speaker 1: So there are trade offs when it comes to I
[8:29] Speaker 1: assume also nutritional benefit for these things, and you have
[8:31] Speaker 1: to think about what it is that you're looking to optimize. Now,
[8:35] Speaker 1: So we're using this term soy milk. Are we talking
[8:38] Speaker 1: about it in its liquid form? Or is this actually
[8:41] Speaker 1: a term that we're using to account for all generally
[8:45] Speaker 1: soy derivative products that would therefore replace maybe cheese and
[8:49] Speaker 1: what we'd largely refer to as the dairy industry, or
[8:52] Speaker 1: we very specifically talking about in the liquid How I
[8:56] Speaker 1: would think of milk.
[8:57] Speaker 2: Form M Yeah, no, that's a great question.
[9:00] Speaker 3: So when we talk about milks, we are talking about
[9:03] Speaker 3: the actual grinding of the nut or the legome such
[9:06] Speaker 3: as soy, and changing that into a milk alternative, which
[9:11] Speaker 3: basically just means mixing that with water a bunch of
[9:15] Speaker 3: other nutrients to produce this liquid that is similar to milk,
[9:19] Speaker 3: which is why I actually prefer the term plant based alternative.
[9:23] Speaker 3: I think is a little bit clearer than saying oat
[9:25] Speaker 3: milk or soy milk, because obviously it's not milk. But
[9:28] Speaker 3: then when we're talking about cheese and ice cream and
[9:30] Speaker 3: even as of recently, chocolate and all these other products,
[9:34] Speaker 3: it's easier, I think, in those situations to directly refer
[9:37] Speaker 3: to the products such as almond based cheese or oat
[9:40] Speaker 3: based ice cream.
[9:41] Speaker 1: Right because oftentimes, you know, I think of soy, and
[9:44] Speaker 1: I think about the fact that it's an alternative sometimes
[9:47] Speaker 1: to the meat side of things, as a sort of
[9:50] Speaker 1: harder but still wiggly protein that it can be inserted
[9:54] Speaker 1: into certain meals. So we're decidedly not talking about that.
[9:57] Speaker 1: We're talking about these dairy alternatives.
[9:59] Speaker 3: And soy is actually very very popular for meat alternatives.
[10:02] Speaker 3: It's actually a base of most plant based protein in
[10:05] Speaker 3: terms of meat. But what's funny is I feel like
[10:07] Speaker 3: the dairy industry does not get the same recognition as
[10:10] Speaker 3: the meat industry.
[10:11] Speaker 1: Well, and you had mentioned that soy is extremely popular
[10:13] Speaker 1: in Asia, and I'm thinking of another thing that is
[10:16] Speaker 1: consumed in mass in Asia, which is rice definitely a
[10:19] Speaker 1: staple of the diet, and I'm wondering how rice milk
[10:22] Speaker 1: then compares, in particular in that market.
[10:25] Speaker 3: In Southeast Asia, rice milk is not popular at all.
[10:29] Speaker 1: And Southeast Asia being the largest producer of rice anywhere
[10:33] Speaker 1: in the world.
[10:34] Speaker 3: Exactly, which is so ironic, most of that rice is
[10:37] Speaker 3: actually exported out to other countries and in terms of
[10:40] Speaker 3: actually their own consumption in Asia because of lactose intolerance
[10:45] Speaker 3: being a really popular issue across most of the continent
[10:49] Speaker 3: of Asia over the years, soy before the times of
[10:52] Speaker 3: the Western world deciding oh, this is a great alternative
[10:55] Speaker 3: to plant based, this is a great alternative to milk,
[10:58] Speaker 3: This is a great alternative to meat. Asia as an
[11:00] Speaker 3: entire continent has been farming and producing soy based desserts,
[11:04] Speaker 3: soy based milk, soy based foods for a very long time.
[11:08] Speaker 3: I mean even just take Tofu for example, that's a
[11:10] Speaker 3: soybean based food ingredient which is very popular. So no,
[11:15] Speaker 3: rice milk is not widely consumed across Southeast Asia. It's
[11:18] Speaker 3: really soy milk. But rice milk actually has a lot
[11:22] Speaker 3: of the same benefits as soy. I would say the
[11:24] Speaker 3: only disadvantage to rice milk over soy milk is that
[11:27] Speaker 3: rice milk is one of the most water intensive milks,
[11:31] Speaker 3: purely because a lot of that rice is grown in
[11:33] Speaker 3: rice paddies needing water.
[11:35] Speaker 1: So, since we're looking at these plant based alternatives in
[11:39] Speaker 1: terms of emissions, water, and then also land use, which
[11:43] Speaker 1: we haven't really gotten into across those three things. If
[11:46] Speaker 1: you're just comparing soy and rice to one another as
[11:49] Speaker 1: plant based alternatives in this dairy category, how do they
[11:53] Speaker 1: compare to one another?
[11:54] Speaker 3: So, across all plant based milk alternatives, rice milk is
[11:58] Speaker 3: the most emissions intense of milk, with around one point
[12:02] Speaker 3: two kilograms of CO two equivalent emitted per liter of
[12:05] Speaker 3: milk produced. While it is plant based, so it still
[12:09] Speaker 3: avoids the enteric fermentation that's associated with cattle rearing. But
[12:13] Speaker 3: rice must be grown in standing water, which provides a
[12:16] Speaker 3: breeding ground for methane producing bacteria, which is why its
[12:20] Speaker 3: emissions are so high, which compared to soy that's just
[12:24] Speaker 3: not present. SOI has one of the lowest emissions actually
[12:27] Speaker 3: and is seventeen percent less than rice based milk in
[12:29] Speaker 3: terms of water. Again, rice milk is significantly worse than
[12:34] Speaker 3: soy milk, producing around two hundred and seventy liters per
[12:37] Speaker 3: liter of milk produced soy at you know, a very
[12:39] Speaker 3: tiny twenty eight liters. Again due to what I just
[12:42] Speaker 3: said about being grown in standing water, usually in rice paddies,
[12:46] Speaker 3: and a lot of water is actually needed then to
[12:48] Speaker 3: produce the milk as the crop needs more water. In
[12:51] Speaker 3: terms of land uses a bit.
[12:52] Speaker 2: Of a different situation.
[12:54] Speaker 3: They're very equal with soy milk, just using a little
[12:58] Speaker 3: bit more land than rice. And the main reason for
[13:00] Speaker 3: that is soy and oat milks. I kind of group
[13:03] Speaker 3: those two together quite often because the crop has grown
[13:06] Speaker 3: in a very similar way. It's grown across monoculture, which
[13:09] Speaker 3: is kind of large areas of forest needed to grow
[13:13] Speaker 3: this crop on flat land, which obviously takes up a
[13:16] Speaker 3: lot more land than a vertical standing plant.
[13:18] Speaker 1: But surely the monoculture problem could be solved if the
[13:22] Speaker 1: farming practices followed it so the way that it currently stands.
[13:25] Speaker 1: And of course we have to talk about what's actually
[13:27] Speaker 1: happening in the market right now, but there are opportunities
[13:30] Speaker 1: within this space to innovate further and to bring down
[13:34] Speaker 1: some of the negative drawbacks of some of these I
[13:36] Speaker 1: guess just as there are within dairy, because there's certainly
[13:39] Speaker 1: advancements being made in terms of food additives for cows.
[13:42] Speaker 1: So this whole conversation could and hopefully will change as
[13:46] Speaker 1: we go into the future in terms of technology development.
[13:49] Speaker 3: Yeah, definitely. I mean, we have companies now innovating in
[13:53] Speaker 3: pea milk. We have companies innovating in something called precision fermentation,
[13:57] Speaker 3: which is actually producing real day milk but from casin
[14:01] Speaker 3: and way powder, so actually doesn't involve cattle but takes
[14:05] Speaker 3: the protein. And so there are a lot of innovations.
[14:08] Speaker 3: But right now, almond milk actually prevails in the US
[14:12] Speaker 3: as the most popular milk.
[14:14] Speaker 1: So almond milk, since it is the most popular, we've
[14:16] Speaker 1: been through story, We've been through rice, let's talk about
[14:19] Speaker 1: almond milk. It's the lowest from an emission standpoint, but
[14:22] Speaker 1: highest from a water usage standpoint and hugely popular. So
[14:27] Speaker 1: not just from a overview of what it is from
[14:31] Speaker 1: a climate standpoint, let's talk about the market opportunity and adoption.
[14:34] Speaker 1: How much money is flowing into this space and how
[14:37] Speaker 1: popular is it really.
[14:38] Speaker 3: We have in the note a chot that shows the
[14:41] Speaker 3: annual sales of plant based milk, and all together, plant
[14:44] Speaker 3: based milk sales between twenty seventeen and twenty twenty two
[14:48] Speaker 3: has reached twelve billion US dollars in the US, which
[14:51] Speaker 3: is a crazy amount of money, and most of that
[14:54] Speaker 3: money has actually gone to almond milk, with sales of
[14:57] Speaker 3: almond milk just lost year in twenty two twenty two
[15:01] Speaker 3: reaching one point five billion in the US. And some
[15:04] Speaker 3: of those key players in the market, you definitely have
[15:07] Speaker 3: heard some of those names.
[15:08] Speaker 2: We have companies like Danon who.
[15:11] Speaker 3: Actually own some of the brands that a lot of
[15:14] Speaker 3: people drink that are probably not even aware that Danon
[15:17] Speaker 3: owns some of those brands.
[15:19] Speaker 2: Such as Silk altpro So Delicious.
[15:22] Speaker 3: I mean, Silk is the most popular almond milk brand
[15:25] Speaker 3: owned by Danon. And there are a ton of new
[15:27] Speaker 3: companies entering this space as well as ones that you
[15:30] Speaker 3: know like Ala, Chobani, General Mills who own a lot
[15:34] Speaker 3: of these smaller companies.
[15:36] Speaker 1: Gosh, I know so many of these and I have
[15:38] Speaker 1: at various points in time eaten most of them.
[15:40] Speaker 2: So there we go.
[15:42] Speaker 1: But when we talk about the water intensity with almond
[15:44] Speaker 1: milk specifically, and you referred to the note, and I
[15:47] Speaker 1: know that a picture is worth a thousand words, but
[15:50] Speaker 1: we are an inherently audio format, so we are going
[15:53] Speaker 1: to stick on trying to explain all of these rankings
[15:56] Speaker 1: to all of you in this way. It takes five
[15:58] Speaker 1: years of water to grow single almond. How does that
[16:01] Speaker 1: then translate into, like, for like, the same amount of
[16:06] Speaker 1: a lid of almond milk. So you'd mentioned earlier around
[16:10] Speaker 1: six hundred and thirty liters of water to create one
[16:13] Speaker 1: liter of dairy milk, how many liters of water does
[16:17] Speaker 1: it take to make one lid of almond milk?
[16:20] Speaker 3: Almond milk is the most water intensive milk of all
[16:24] Speaker 3: of them, and compared to that six hundred and thirty figure,
[16:27] Speaker 3: almond milk is around three hundred and seventy liters of
[16:30] Speaker 3: water to produce one liter of milk. And this high
[16:33] Speaker 3: level of water consumption is a huge challenge the almond
[16:36] Speaker 3: production today because obviously eighty percent of the world's almonds
[16:40] Speaker 3: are produced in California, which I think everyone knows has
[16:43] Speaker 3: been under a drought emergency proclamation until very recently, and
[16:47] Speaker 3: twenty twenty one was actually the second driest year on
[16:50] Speaker 3: record due to extreme heat and lack of rain and
[16:54] Speaker 3: As of now, only fifteen percent of California remains in drought,
[16:57] Speaker 3: which is a really positive thing for producing almonds. However,
[17:01] Speaker 3: this is still a huge issue in producing almond milk
[17:04] Speaker 3: that it needs this huge quantity of freshwater.
[17:07] Speaker 1: And this really isn't taking into consideration the emissions associated
[17:10] Speaker 1: with shipping, is it, Because when you think about dairy,
[17:13] Speaker 1: it's quite locally produced near where you live. Where if
[17:16] Speaker 1: we have so much of the supply of almond milk
[17:20] Speaker 1: being produced in one state, in part of a fairly
[17:23] Speaker 1: large country, there are going to be emissions associated with
[17:26] Speaker 1: shipping it around.
[17:27] Speaker 3: Yes, the supply chain emissions for all of these milks
[17:30] Speaker 3: is pretty similar depending on where it's farmed that crop.
[17:34] Speaker 3: But obviously some of the crops, such as soybeans, where
[17:37] Speaker 3: the largest markets of Brazil and South America, obviously incurs
[17:41] Speaker 3: much larger shipping costs than from California across the US.
[17:44] Speaker 1: So let's go into something that I think has been
[17:47] Speaker 1: well talked about more recently, which is biodiversity. And we're
[17:50] Speaker 1: staying on the topic of almond milk, because can you
[17:53] Speaker 1: explain a little bit around what's happening with bees and
[17:56] Speaker 1: pesticides and how the almond industry is impact ding are pollinators.
[18:01] Speaker 3: So I think that something that often gets ignored as
[18:03] Speaker 3: a metric is a bidiversity metric, largely because a bidiversity
[18:07] Speaker 3: metric hasn't been quantified as of yet for the dairy industry,
[18:11] Speaker 3: but almond milk actually fares the worst with regard to
[18:15] Speaker 3: bidiversity loss. So due to California's intense almond industry, this
[18:20] Speaker 3: requires the use of honey bees that actually pollinate the
[18:23] Speaker 3: almond farms. Because all of these almonds grow in trees,
[18:26] Speaker 3: you need bees that often have been bred on commercial
[18:29] Speaker 3: bee farms specifically for this purpose to help farm those almonds. Now,
[18:34] Speaker 3: all of those bees are then exposed to pesticides, fertilizer,
[18:38] Speaker 3: heat damage, and then, once farmed, often die after helping
[18:42] Speaker 3: to produce those almonds. So it's a concern for a
[18:44] Speaker 3: lot of people who are vegan drinking almond milk. It's
[18:47] Speaker 3: a concern that we're using an insect to produce all
[18:50] Speaker 3: of this and then killing that insect at the end.
[18:53] Speaker 3: A more environmentally friendly substitute for someone who like myself,
[18:57] Speaker 3: who loves nut based milks and loves the taste would
[19:00] Speaker 3: be something like hazel nut milk where those trees are
[19:02] Speaker 3: cross pollinated by the wind, meaning that bees are not
[19:06] Speaker 3: harmed in the production of hazel nuts.
[19:08] Speaker 1: So now hazel nut milk is not firmly on the
[19:11] Speaker 1: map in terms of market share yet though, is.
[19:13] Speaker 2: It not at all at all?
[19:15] Speaker 1: How about the newest entrant that's gained a lot of
[19:19] Speaker 1: attention as of late the last few years, oat milk?
[19:22] Speaker 1: Where does oat milk stand?
[19:24] Speaker 3: Oat milk is actually second most popular to almond milk.
[19:28] Speaker 3: Oat milk is very similar to soy in a lot
[19:31] Speaker 3: of the metrics, which is why I kind of always
[19:33] Speaker 3: clasp them together, mainly because they're grown pretty similarly.
[19:36] Speaker 2: But oat milk has slightly.
[19:38] Speaker 3: Less emissions than soy milk, so soy is at around
[19:41] Speaker 3: one just below one, and oat milk is at around
[19:43] Speaker 3: zero point nine kilograms of CO two equivalent per liter
[19:46] Speaker 3: of milk produced. In terms of fresh water, again, oat
[19:50] Speaker 3: and soy are very very similar. They're both grown in
[19:53] Speaker 3: monoculture and don't need a ton of water, so there
[19:57] Speaker 3: are two of the lowest in terms of water assumption
[20:00] Speaker 3: of plant based milks. And then again for land juice,
[20:03] Speaker 3: soy and oat are very similar, again having being grown
[20:06] Speaker 3: in monoculture. The only I would say the only probably
[20:09] Speaker 3: largest issue, Whereas for almonds we just discussed bidiversity loss,
[20:12] Speaker 3: we discussed water consumption. For rice, we discussed the high emissions.
[20:16] Speaker 3: For soy and oat, I would say land juice is
[20:18] Speaker 3: the most difficult metric for these two milks, because soybeans
[20:22] Speaker 3: are grown on flat land and are a major driver
[20:25] Speaker 3: of deforestation the same as oats, especially in less economically
[20:28] Speaker 3: developed countries, especially Brazil and Argentina, who actually share over
[20:32] Speaker 3: half of the global soybean export market. Oats typically need
[20:35] Speaker 3: slightly cooler climates and are largely grown in the northern
[20:39] Speaker 3: US States or Canada, so less of a problem for
[20:42] Speaker 3: deforestation in South America, but still a problem in those regions.
[20:47] Speaker 1: This is just depressing. I feel like a camper.
[20:50] Speaker 3: I know, it's really a choice of which one is
[20:54] Speaker 3: the least bad for all of the metrics.
[20:56] Speaker 1: Let's talk a little bit about consumer adoption and really
[21:00] Speaker 1: whether or not we see this industry growing into the future.
[21:04] Speaker 1: There are certain drivers associated with emissions as people become
[21:08] Speaker 1: increasingly concerned about climate and are focused on reducing emissions
[21:12] Speaker 1: in the longer term, but invariably there are other drivers,
[21:14] Speaker 1: and you mentioned it earlier in the show, How about
[21:16] Speaker 1: lactose intolerance. Is this something we're seeing growing in terms
[21:20] Speaker 1: of prevalence and awareness?
[21:22] Speaker 3: Yeah, I mean it's definitely growing in terms of prevalence.
[21:25] Speaker 3: I'm not sure if it's growing in awareness, but milk
[21:28] Speaker 3: protein actually accounts for twelve percent of all protein consumed
[21:31] Speaker 3: by humans and growing Lactose intolerance is one of the
[21:35] Speaker 3: largest reasons why a lot of consumers switch to plant
[21:39] Speaker 3: based milk, and I think the figure is around sixty
[21:42] Speaker 3: five percent of the global population suffers from lactose intolerance,
[21:46] Speaker 3: and a study showed that I think just under half
[21:49] Speaker 3: of today's consumers by plant based milks or proteins for
[21:55] Speaker 3: health reasons such as lactose intolerance. And with that growing, yes, absolutely,
[22:00] Speaker 3: that will continue to be a really important reason in
[22:02] Speaker 3: this shift to plant based airy.
[22:04] Speaker 1: What parts of the world and maybe you could even
[22:07] Speaker 1: call out a couple of countries that the adoption of
[22:10] Speaker 1: plant based alternatives have really taken off.
[22:12] Speaker 3: One of the main countries where plant based milks have
[22:15] Speaker 3: really taken off again, probably due to lactose intolerance, is China.
[22:20] Speaker 3: So around fifty percent of people in China have already
[22:24] Speaker 3: kind of integrated alternative proteins and dairy into their diet.
[22:29] Speaker 3: But the entire Asian market of dairy alternatives is structured
[22:33] Speaker 3: very differently to the US and Europe. In the US
[22:36] Speaker 3: and Europe, there are a ton of different players.
[22:38] Speaker 2: We have large companies, we have small tiny.
[22:41] Speaker 3: Startups with five six employees producing Pea milks. We have
[22:44] Speaker 3: these gigantic firms names that you're really familiar with, like
[22:48] Speaker 3: Kellogg's and Danon producing all these innovative lines of yogurt
[22:52] Speaker 3: drinks and plant based ice creams. Whereas in Asia this
[22:56] Speaker 3: market is structured very differently, with six main players that
[23:00] Speaker 3: dominate this entire market. And those six main players are
[23:04] Speaker 3: actually all soy or nut based.
[23:07] Speaker 1: Who are those companies, so.
[23:08] Speaker 3: You might be familiar with one of them, Vita Sooi
[23:11] Speaker 3: obviously you can tell from the name what crop they use.
[23:14] Speaker 3: Yang Yuan is the second largest, which is a walnut
[23:17] Speaker 3: and nut based milks. Dai Foods which is soy again,
[23:21] Speaker 3: they're the three largest.
[23:23] Speaker 1: And then in other parts of the world, there's been
[23:25] Speaker 1: a good amount of M and A activity as well
[23:27] Speaker 1: as some notable IPOs. What has happened in terms of
[23:31] Speaker 1: the business structure in other parts of the world.
[23:33] Speaker 3: So you mentioned MNA and some of those IPO deals.
[23:36] Speaker 3: So we looked at from twenty fifteen to twenty twenty two.
[23:40] Speaker 3: Then around two point eight billion, which is really not
[23:44] Speaker 3: a lot across seven years, was raised through public markets,
[23:47] Speaker 3: but a huge twenty three billion was raised from mergers
[23:51] Speaker 3: and acquisitions. Within that sort of first figure, I told
[23:54] Speaker 3: you the public markets, the largest transactions were Oatly who
[23:58] Speaker 3: I'm sure you're very familiar with the most popular oat
[24:00] Speaker 3: milk brand, and who I just mentioned the Asian firm
[24:03] Speaker 3: Dali Food their IPO as well. But in terms of
[24:06] Speaker 3: m and A, yes, a lot of larger firms such
[24:10] Speaker 3: as dan On and Otsuka who again you may not
[24:15] Speaker 3: know that those are the companies that own some of
[24:17] Speaker 3: your favorite brands and mine like Silk outpro So Delicious,
[24:21] Speaker 3: even Dia Foods, And then you have Upfield and Violife.
[24:25] Speaker 2: Again.
[24:25] Speaker 3: Violife and Dia Foods are two of the leading plant
[24:28] Speaker 3: based cheese brands in the US, again.
[24:30] Speaker 2: Acquired by KKR.
[24:32] Speaker 3: So a lot of these transactions we kind of know,
[24:35] Speaker 3: as the consumers the names of the brands rather than
[24:38] Speaker 3: the larger companies behind them.
[24:41] Speaker 1: So we've talked to fair amount about the large companies
[24:44] Speaker 1: and the acquisition opportunities in this space. But how about
[24:47] Speaker 1: the startups you reference that many of them may be
[24:50] Speaker 1: quite appealing at least when they reach a certain degree
[24:52] Speaker 1: of sophistication. But startups all start somewhere, and they start
[24:55] Speaker 1: with VC funding. What's the activity look like in the
[24:59] Speaker 1: VC space for these alternatives?
[25:01] Speaker 3: Across the last seven years, we've seen two billion raised
[25:05] Speaker 3: for early staged companies producing alternative dairy products. Across those
[25:09] Speaker 3: seven years. Total funding actually peaked in twenty twenty, where
[25:13] Speaker 3: around six hundred million was raised across the entire year.
[25:17] Speaker 3: That decreased to four hundred and fifty million in twenty
[25:20] Speaker 3: twenty one, and then around three hundred and thirty million
[25:23] Speaker 3: last year, so that VC money is decreasing a little bit.
[25:27] Speaker 2: But I think this trend is.
[25:29] Speaker 3: More reflective of the overall financial market today, which obviously
[25:33] Speaker 3: took a recent downturn, as well as the fact that
[25:35] Speaker 3: many of those plant based dairy startups were acquired early on,
[25:40] Speaker 3: so there's less need for VC funding and growth equity
[25:43] Speaker 3: funding in series D or eof rounds like you see
[25:46] Speaker 3: in I don't know the EV market.
[25:48] Speaker 1: Now you've brought up Dan in a couple of times,
[25:50] Speaker 1: and in twenty twenty one they had a change in CEO.
[25:54] Speaker 1: The previous CEO very much being considered one of the
[25:57] Speaker 1: more environmentally friendly CEOs out there in the food industry.
[26:01] Speaker 1: I imagine that some of the decisions around getting into
[26:04] Speaker 1: this plant based space we're in some respects aligned with
[26:07] Speaker 1: that view around making environmentally conscious decisions. Have they continued
[26:12] Speaker 1: to be actively involved in this space?
[26:14] Speaker 3: Just to preface that this French dairy giant is actually
[26:18] Speaker 3: one of the largest public players in the alternative dairy market.
[26:22] Speaker 3: Its plant based product market share was around forty one
[26:26] Speaker 3: percent in twenty twenty And yes, I'm aware of that
[26:29] Speaker 3: change in CEO and discussions around whether they're still going
[26:32] Speaker 3: to stay super green although I hate that word, but
[26:35] Speaker 3: you know, just as environmental friendly.
[26:37] Speaker 2: The answer is yes.
[26:38] Speaker 3: So. Actually, between twenty twenty one and today, dan On
[26:41] Speaker 3: reached its goal of sourcing all of its soybeans for
[26:44] Speaker 3: its outpro products from areas not at risk of deforestation.
[26:47] Speaker 3: They had all their soybeans pro Terra certified. If you're
[26:50] Speaker 3: not familiar with pro Terra, certification basically ensures that high
[26:54] Speaker 3: quality crops and food are certified as non GMO and
[26:57] Speaker 3: produced with this standard of sustained ability and they have
[27:01] Speaker 3: all these metrics like product traceability and waste management. But
[27:04] Speaker 3: as well as that, yeah, one hundred percent. In twenty
[27:06] Speaker 3: twenty two, they invested into another oat milk startup. They
[27:10] Speaker 3: announced further expansion into powdered milk, protein and plant based
[27:15] Speaker 3: baby foods last year. So a lot of new announcements happening,
[27:19] Speaker 3: especially in the last two years actually since this shift
[27:21] Speaker 3: in CEO.
[27:22] Speaker 1: So that's for Dannin specifically. But I mean, if I
[27:25] Speaker 1: had to sum up, what you've really been saying about
[27:27] Speaker 1: the market overall is that there is a lot of
[27:30] Speaker 1: interest from larger companies that we may not even realize
[27:33] Speaker 1: that are in this space. And it seems to be
[27:36] Speaker 1: that acquisitions and less so IPOs, but acquisitions continue to
[27:40] Speaker 1: be popular as companies and incumbent players add this to
[27:44] Speaker 1: their portfolio.
[27:45] Speaker 3: Yes, exactly, And I think that's a really big incentive
[27:48] Speaker 3: for a lot of these startup founders and a lot
[27:51] Speaker 3: of these smaller firms. They know that if they make
[27:54] Speaker 3: a great product, an innovative product, whether it's not based
[27:57] Speaker 3: or oat based, they know that there is a huge
[28:00] Speaker 3: market out there for m and a They know that
[28:02] Speaker 3: the chobanis, the Saputos, the Bell group, the DMK groups,
[28:06] Speaker 3: even existing dairy firms. They know that there is this
[28:10] Speaker 3: shift towards a plant based diet. Everyone knows that there
[28:12] Speaker 3: is this shift. So it's a real great incentive for
[28:16] Speaker 3: some of these early stage startups to be acquired by
[28:19] Speaker 3: some of these larger, even pure play dairy firms to
[28:22] Speaker 3: expand their product line.
[28:24] Speaker 1: Well. So then that brings me to influence and really
[28:28] Speaker 1: who has a stake in this market in terms of
[28:31] Speaker 1: either gaining market share or potentially keeping and withstanding their
[28:34] Speaker 1: market share in the US specifically, you know, the dairy
[28:37] Speaker 1: farmers certainly have a very active lobby. Can you talk
[28:41] Speaker 1: a little bit about some of the activity we've seen there,
[28:44] Speaker 1: because certainly market share is not lost easily.
[28:47] Speaker 3: That brings me onto the unfortunate topic of price, which
[28:53] Speaker 3: it's not a brand new fact that plant based milk
[28:57] Speaker 3: is a lot more expensive than dairy.
[28:59] Speaker 1: Milk a lot give us some context, so it can
[29:03] Speaker 1: often be double the price of dairy milk.
[29:06] Speaker 3: But just taking kind of retail prices of milks today,
[29:10] Speaker 3: in two Q twenty twenty three, the average price per
[29:13] Speaker 3: liter of dairy milk would be around a dollar thirty
[29:17] Speaker 3: and the average price per liter of let's say coconut
[29:21] Speaker 3: milk or soy milk is around two ten, so there
[29:25] Speaker 3: is a significant increase in price. Now A lot of
[29:29] Speaker 3: that is due to some of the subsidies. By talking
[29:33] Speaker 3: us specific some of the government subsidies. The US is
[29:37] Speaker 3: a bit of a special case because it is one
[29:39] Speaker 3: of the world's largest milk producers and has one of
[29:42] Speaker 3: the governments with the most mature support schemes in place.
[29:46] Speaker 3: The USDA regulates and promotes the US dairy industry through
[29:50] Speaker 3: a ton of dairy related programs. Three new policies were
[29:53] Speaker 3: introduced in the last two years alone, with two specifically
[29:57] Speaker 3: targeted at assisting dairy farmers due to the pandemic.
[30:01] Speaker 1: Could you give us a little bit more detail around
[30:03] Speaker 1: what some of the USDA policies are that are really
[30:06] Speaker 1: in support of the dairy industry.
[30:08] Speaker 3: Yeah, definitely, And just to preface that before I go
[30:11] Speaker 3: into the USDA policies, just fyi, there are no policies
[30:15] Speaker 3: or subsidies support for the plant based dairy industry. And
[30:19] Speaker 3: in fact it's actually in feb twenty twenty three, so
[30:22] Speaker 3: just a few months ago, the FDA introduced kind of
[30:25] Speaker 3: a new requirement for plant based milks to be labeled
[30:28] Speaker 3: with the nutritional comparison, which is obviously going to be
[30:31] Speaker 3: less protein than dairy milk on every bottle. And there
[30:35] Speaker 3: are a massive kind of lobbying happening right now to
[30:37] Speaker 3: actually make plant based milks unable to be called milk.
[30:41] Speaker 3: So there is a lobbying to remove the word milk
[30:44] Speaker 3: off some of those cartons. But some of those policies
[30:47] Speaker 3: include one of the largest ones, i would say, of
[30:50] Speaker 3: the Federal Milk Marketing Orders. So this is like a
[30:52] Speaker 3: classified pricing system and revenue pooling for dairy farmers, which
[30:57] Speaker 3: really helps to maintain stable marketing relationship. There's the Dairy
[31:01] Speaker 3: Research and Promotion Program, which is a really coordinated promotion
[31:05] Speaker 3: program that helps build demand and expand domestic and international
[31:09] Speaker 3: markets for dairy products in the US. It actually funds
[31:12] Speaker 3: a program called Dairy Management Incorporated to actually help pay
[31:17] Speaker 3: farmers that are producing dairy milk. There's the Dairy Donation Program,
[31:21] Speaker 3: which provides four hundred million dollars in reimbursements to dairy organizations.
[31:25] Speaker 3: And then there are other COVID specific programs like the
[31:28] Speaker 3: pandemic market Volatility Assistance program last year, which is again
[31:32] Speaker 3: another three hundred and fifty million available in assistance payments
[31:36] Speaker 3: to farmers. And yeah, just a lot of policies in
[31:39] Speaker 3: the USDA to ensure that dairy milk remains the cheapest option.
[31:43] Speaker 1: And certainly on the business end of things, which is
[31:45] Speaker 1: where we have focused really this show. And I think
[31:47] Speaker 1: it's great that you bring up the protein question because
[31:50] Speaker 1: that's actually something that we're not going into. We're talking
[31:53] Speaker 1: about land use, emissions, water, and then policies and also
[31:58] Speaker 1: business models in this space. But there is a whole
[32:00] Speaker 1: nother world of research within nutrition and how does one
[32:04] Speaker 1: create a planetarium yet nutritionally enhanced diet. So on that
[32:09] Speaker 1: nutrition end of things, that really then brings me to
[32:12] Speaker 1: some of this future technology. So we've been specifically talking
[32:16] Speaker 1: about various nuts and lagoomes and then of course dairy milk,
[32:20] Speaker 1: but how about precision fermentation and this much more technologically
[32:25] Speaker 1: advanced way of thinking about how this industry may develop
[32:29] Speaker 1: and what some of the pros and cons are.
[32:31] Speaker 3: Precision flementation is the newest technology in the plant based
[32:35] Speaker 3: airy space. Some people often refer to it as cellular agriculture,
[32:38] Speaker 3: so you may have heard that term before, but it's
[32:41] Speaker 3: essentially a newer technology that's used to produce milk proteins
[32:45] Speaker 3: such as casin and whey in a powder form. So
[32:49] Speaker 3: it uses not to get too sciency on you, but
[32:51] Speaker 3: it uses genetically engineered microbes to produce some of these
[32:56] Speaker 3: proteins that eventually are mixed then with water or nutrients
[33:01] Speaker 3: and a choice of feedstock like sucrose or glucose, and
[33:05] Speaker 3: when these organisms ferment in big bioreactor, they produce the
[33:09] Speaker 3: milk proteins that are desired. So essentially you can think
[33:13] Speaker 3: of this as a company producing the powder, selling to
[33:16] Speaker 3: other companies that then mix this powder and then sell
[33:19] Speaker 3: that on as an actual glass of dairy milk because
[33:23] Speaker 3: it is technically dairy milk. So this is a really
[33:25] Speaker 3: good solution for people who don't want to compromise and
[33:28] Speaker 3: don't want to try a plant based milk, who still
[33:31] Speaker 3: want the dairy milk, but without all of the emissions,
[33:33] Speaker 3: without all of the land juice, without all of the
[33:35] Speaker 3: biodiversity loss, without the intense water consumption, but still consuming
[33:39] Speaker 3: dairy milk.
[33:40] Speaker 1: And then that brings me to what would the cost
[33:42] Speaker 1: of this be well.
[33:44] Speaker 3: I was hoping we wouldn't get into that question. But
[33:48] Speaker 3: the cost of precision fermented milk right now in twenty
[33:51] Speaker 3: twenty three.
[33:52] Speaker 2: Bear in mind, this is a brand new technology.
[33:54] Speaker 3: It is actually only commercially available in the US by
[33:58] Speaker 3: two companies currently, so very very early st age is
[34:02] Speaker 3: around six dollars and eighty seven cents for a liter
[34:07] Speaker 3: of precision fermented milk.
[34:08] Speaker 1: So that brings me to my final set of questions,
[34:11] Speaker 1: which are a bit of watcher ignore. You are the
[34:13] Speaker 1: expert in this space, or at least at bn EF,
[34:16] Speaker 1: you are our resident expert on this topic, and so
[34:18] Speaker 1: I want to know what sort of things are you
[34:20] Speaker 1: watching closely? And what sort of things are you maybe
[34:23] Speaker 1: not watching so closely at the moment, So falling into
[34:25] Speaker 1: the category of watch or ignore. How about blends of
[34:29] Speaker 1: different alternative milks. Are people out there making their own
[34:33] Speaker 1: almond oats, rice milk cocktails to their taste or is
[34:38] Speaker 1: that something that is not so popular?
[34:41] Speaker 3: I would put that as ignore. I would say that
[34:43] Speaker 3: the blends aren't super popular. I think ultimately consumers have
[34:47] Speaker 3: defined likes and dislikes and defined preferences, So I don't
[34:52] Speaker 3: really I don't think blends are going to be a
[34:54] Speaker 3: thing going forwards.
[34:55] Speaker 2: Okay.
[34:55] Speaker 1: Also in the watcher ignore category the direct methane emissions
[34:59] Speaker 1: associated with cows themselves, and of course everybody's favorite topic,
[35:02] Speaker 1: cow farts. How about additives added to a cow diet
[35:07] Speaker 1: to reduce their direct methane emissions?
[35:10] Speaker 2: I would say, watch.
[35:11] Speaker 3: I think there are a lot of really interesting startup
[35:14] Speaker 3: that are looking at seaweed based feed additives that there's
[35:18] Speaker 3: also a really large agricultural firm DSM that have patented bromaform,
[35:24] Speaker 3: which is another feed additive for cattle. I think that's
[35:27] Speaker 3: an area that can definitely reduce methane emissions. The problem again,
[35:31] Speaker 3: then is adoption with farmers. How many farmers are actually
[35:34] Speaker 3: going to pay more for a feed additive without a
[35:37] Speaker 3: financial benefit to reducing their emissions.
[35:40] Speaker 1: Well, Sarah, thank you very much for joining today and
[35:43] Speaker 1: explaining the complicated world of trade offs that exist within
[35:47] Speaker 1: the dairy and dairy alternative space.
[35:50] Speaker 2: Thank you for having me.
[35:51] Speaker 3: I look forward to the next chat.
[36:01] Speaker 1: Bloomberg NEF is a service provided by Bloomberg Finance LP
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