Terminology Tempest in the Dairy Case David Sprinkle Research Director, Packaged Facts

PACKAGED FACTS ON OPPORTUNITIES IN FOOD INDUSTRY DISRUPTION Terminology Tempest in the Dairy Case David Sprinkle Research Director, Packaged Facts The recent European Union Court of Justice ruling against marketing of non-dairy soy/ soya products in dairy terms (such as soy “milk” or tofu “butter”) was the right call, narrowly speaking. From the consumer protection viewpoint, however, it’s not clear that much justice was served. Nor is the European dairy industry likely to benefit significantly, as is the case with parallel initiatives taking place in the U.S. EU Ruling Against Soyfoods Marketed in Dairy Terms Since 2013, European Union law has specified that dairy terms such as milk, cheese, yogurt, and butter are restricted to animal products. With logic that fails to leap out, at least on this side of the Atlantic, EU regulators baked in exceptions for dairy analog products including almond milk and coconut milk, which are relatively new as packaged dairy alternative beverages. Ice “cream,” similarly, was allowed for non-dairy alternatives. The EU regulators left soy “milk” out in the cold, even though soy milk has been marketed in Europe as well as the U.S. for a century. While marketers of soy-based dairy analogs were officially barred from using dairy terminology for their products, enforcement of this restriction has been lax, as in the parallel case in the U.S. This led the main consumer protection organizational alliance in Germany (funded by the Federal Ministry With logic that fails to of Consumer Affairs, Nutrition, and Agriculture) to leap out, EU regulators file a case in German courts against Tofu Town—a baked in exceptions for German food manufacturer that (as the company name almond and coconut proactively gives away) markets soy-based foods. The milk, but not soy milk. matter was subsequently referred to the EU Court of Justice, which ruled against Tofu Town on the letter of the law. Establishing regulations without enforcing them is seldom optimal, so as a point of order, the court ruling makes sense. Muddy Waters in the Dairy Case But little else adds up in this skirmish among dairy case competitors, especially if you focus on what should be the intent of the law. The essential purpose of food identity standards is to protect consumers from buying products that Adulterated milk aren’t what they claim to be (not to establish a products have a long and canon of federally sponsored foods). Adulterated dishonorable history, such products—diluted or made cheaply with inferior and that “purity” is close to the sometimes unsafe substitute ingredients—have a heart of dairy producers. long and dishonorable history in the milk industry, in urban as well as remote markets, such that the concept of dairy “purity” is rightfully close to the heart of dairy producers. Moreover, the historical trajectory of soy milk in the West (setting aside the far older East Asian tradition) ties in to wartime food shortages and substitutions for meat, flour, and dairy. In the Western context, soy products gained extra visibility around World War I, and then spiked during World War II and the post-war recovery era. This historical context supports the mainstream industry perspective that dairy milk is the real thing, a gold standard against which products made from soy are second-best imitations and substitutions. Dairy Alternative Beverages Take Off But time has paved over that history. It was in the late 1970s that soy milk really began to take off, particularly as a counter-culture health beverage in the natural food channel. Soy (though now dogged by GMO concerns), almond, coconut, and other plant milks and blends have subsequently gained significantly in popularity. In this process, plant milks became entrenched in mainstream supermarkets (as have hit products from the natural food channel generally)—first fairly innocuously in the shelf-stable center store, but then much more visibly, and competitively, in the refrigerated dairy case. Next-generation refrigerated plant milks inevitably Next-generation refrigerated attracted the attention, if not necessarily the plant milks inevitably neighborly affection, of conventional dairy milk attracted the attention, if marketers, even though leading European-based not the neighborly affection, dairy titans such as Nestlé and Danone also of milk marketers. market dairy alternatives. © 2017 MarketResearch.com. All rights reserved. 2 If anything, therefore, the current market context for plant milks in Western grocery stores is the opposite of what food identity standards are meant to protect against: consumers buying adulterated, knock-off products that are spuriously being passed off as the real thing. A Clarification Without a Confusion? The reasonable assumption is that buyers of dairy The current market alternative products know what they are buying. It’s context for plant milks difficult if not alarming to imagine a consumer so unwary is the opposite of what as to purchase Tofu Town Soyatoo! Tofubutter—further food identity standards labeled as “100% vegetal,” and boasting of being “the protect against. best soy on planet earth”—under the assumption that this product is dairy fare. In the case of refrigerated plant milks and other dairy alternative products, factor in that plant milk buyers on the whole are paying more attention to nutrition, rather than less. And factor in that the standard dairy counterparts are usually very prominently, and more economically, available for sale just an eyeshot and arm’s length away. (An exception is when plant food products are formally slotted into a specialty section, such as natural/organic or vegan foods.) The merits of dairy products vs. their non-dairy analogs can and will be debated, but it’s hard to question whether consumers are making free choices, with ingredient information literally at their fingertips, in a land of plenty. The Point of Non-Dairy Is Non-Dairy The whole point is that refrigerated plant milks are no longer specialty or peripheral. Among non-dairy milk alternative buyers in the U.S., only 5% are watching their diet for lactose intolerance, and only 11% are vegetarian/vegetarian leaning. In contrast, 82% of these non- dairy milk buyers also buy dairy milk or half-and-half. Marketers of plant milks and other dairy alternatives are hardly concealing the nature of their products because the whole point is that Among non-dairy they are offering dairy alternatives. Hence, Tofu beverage buyers, only 5% Town rather than Cheez City. In the U.S. market, are watching their diet for similarly, a cashew milk product from Silk (now under lactose intolerance, and WhiteWave/Danone) does everything to visually and only 11% are vegetarian. © 2017 MarketResearch.com. All rights reserved. 3 verbally assert that it’s cashew based short of hanging from a cashew tree. In terms of product labeling, the term “milk” is used only secondarily, and is easily omittable. Alpro, the top producer of soy milk in the European market, reports that it already complies with terminology regulation, such that the EU court ruling would have “no impact” on its soy product labeling (Financial Times, June 14, 2017). If top producers of plant beverages don’t consider the term “milk” central to their product positioning or consumer appeal, why should anybody else? If anything, marketers of trendy plant milk products are waggishly (Califia Farms Better Half Coconut Cream and Almondmilk) or quantitatively (Ripple Foods Pea Milk) highlighting their differentiation from dairy. On the whole, dairy alternatives aren’t flying under cover of dairy terminology to conceal their non-dairy identity. Instead, with their non-dairy identity a given, they are signaling to consumers which dairy products they aim to compete with. So it’s true that non-dairy products compete brazenly against dairy products, but that’s how the marketplace works. And it’s true that these products generally are substitutes for and imitations of dairy products, but that does not necessarily mean they are inferior. When they obviously are inferior, on the terms that matter to individual shoppers, consumers will purchase them once at most, which indeed is the fate of a disproportionate number of dairy alternative products. When dairy alternatives are inferior but less obviously so, the dairy industry can make its case directly to consumers through marketing. The Case Against Plant Milks In its regulatory lobbying and legal efforts, the dairy industry is making the arguments that consumers are being misled, and that plant milks aren’t nutritionally equivalent to milk, such that they represent a regulatory and public health concern. The latter point has merit, given milk’s time-honored nutritional role in Western diets, especially for children, and that plant milks products (which are not uniform in their nutritional merits and demerits) can be nutritionally inferior to dairy on various scores. Despite almond’s superfood status, for example, standard almond milk has much less protein than does dairy milk, at one gram vs. eight. And milk (with chocolate milk as a niche exception) doesn’t have added sugars, while most plant milk products do. And consumers are probably prone to give plants milks, which are highly processed beverage products, too much credit for “naturalness.” Because of the health halo of natural, organic, and mainstream-alternative products, plant milk consumers may also be overlooking © 2017 MarketResearch.com. All rights reserved. 4 (Nutritional Panels notwithstanding) some Because of the health halo of hard facts about saturated fat, added sugar, alternative products based on and artificial ingredient content, especially “superfoods,” consumers may when plant milks ride the coattails of a trendy be overlooking some hard superfood ingredient such as coconut. facts on Nutritional Panels. More generally, but also more ephemerally, consumers may also be prone to excess optimism about how successfully products such as cheese analogs are at duplicating the qualities of the real thing.

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