Dairy

Global demand for dairy is expected to increase by approximately 60 percent by 2050, driven by population growth and rising incomes. The greenhouse gas emissions from dairy production are significant – generated from crop production for animal feed, methane produced by cows digesting their feed and their manure.

This brief provides a summary of the main environmental and social factors that affect dairy production worldwide; however, it spotlights key players in the U.S. value chain, and provides examples of actions being taken by companies operating or headquartered in the U.S.

KEY TAKEAWAYS

Global demand for dairy is expected to increase by approximately 60 percent by 2050, driven by population growth and rising incomes.
Dairy production can contribute to water pollution when manure and synthetic fertilizer (used for crops to feed cows) are not managed properly.
The greenhouse gas emissions from dairy production are significant. In the U.S., the dairy indusry accounts for around 2 percent of the country's total GHG emissions. More than half of dairy's GHG emissions are generated from crop production for animal feed, from methane produced by cows digesting their feed and from their manure.
Producing milk uses a lot of water and water scarcity poses risks to dairy production. In the U.S., the dairy industry accounts for 5 percent of total water withdrawal, over 90 percent of which is used to produce feed for cows.
Investors should address risks in the dairy supply chain through direct engagement with their portfolio companies and support of relevant policies and multi-stakeholder collaborations. Effective implementation of a company's policies requires promoting commodity traceability and having a clear approach to supplier engagement, verification and disclosure of progress.

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Environmental and Social Factors that Drive Risks

Climate Change
Deforestation and Land Use Change
Soil Health and Biodiversity
Land Rights
Water Use and Pollution
Working Conditions

Climate Change

high

Dairy production has a significant impact on climate change. Dairy cows contribute directly to greenhouse gas emissions when they digest their feed and produce manure. Fertilizers and energy used to grow feed also contribute to greenhouse gas emissions. Approximately 21-26% of the global emissions from the livestock sector are related to dairy cattle production. Globally, the dairy cattle sector generated 1.7 gigatons of carbon dioxide equivalents in 2015, representing approximately 3% of human-induced greenhouse gas emissions.
Deforestation and Land Use Change

low

Soy feed for dairy cows can sometimes originate from deforested land. Rainforests are converted to farms to grow commodity crops such as soybeans for export to Europe and China as meal to feed dairy herds.
Soil Health and Biodiversity

medium

Overgrazing, soil compaction from cow’s hooves and poor agricultural practices can lead to loss of topsoil and organic matter, which can take decades or even centuries to replace. Conversely, dairy cows can contribute to healthy habitats and soils through well-managed grazing and manure applications, which can help to control flooding, protect wetlands, conserve open spaces, sequester carbon and revive degraded lands.
Land Rights

low

Dairy production has not been a major driver of land rights issues.
Water Use and Pollution

high

Dairy operations have a high water demand for animal feed coupled pollution from manure and fertilizers. In fact, the dairy industry accounts for approximately 5 percent of U.S. water withdrawals (excluding thermal power), with more than 90 percent of this use linked to growing feed for cows (irrigation).
Milk production requires a substantial amount of water to grow feed, nourish cows, manage manure and process products. The nitrogen and phosphorus nutrients from manure storage, handling and land application, and from synthetic fertilizers used to grow crops, can run off fields to surface water or leach into groundwater.Surface water and groundwater can also be contaminated by sediment from poor grazing management. Moreover, as the global cattle industry expands, so have the beef slaughter and leather industries. Slaughterhouse and tannery waste—rich in organic matter, heavy metals and caustic solutions—is highly polluting to local water resources when it isn’t treated.
Working Conditions

medium

Migrant agricultural workers are at particular risk for exploitation by labor brokers who may employ unethical practices such as high recruitment fees, passport retention and contract fraud to lure them into forced labor schemes, and use threats of deportation to keep them from reporting abuses. A 2014 survey of migrant dairy workers in Vermont found that 40 percent of respondents were not making minimum wage; 40 percent reported working seven or more days in a row; and 20 percent stated they had no access to bathrooms or water at work.

Commodity Background

In the U.S., the three biggest dairy product segments (based on revenue) are cheese (about 40 percent), milk and milk products (35 percent) and dry and condensed milk products (20 percent). Other common products sold in the U.S. include butter, ice cream, cottage cheese and yogurt.
Given the importance of freshness, consumders primarily buy domestically raised milk -- less than 10 percent of global milk output is traded globally.

Top Production Regions

The U.S. and India are the Two Biggest Producers of Fresh Milk

(though together they account for only 25 percent of total production).

Production Statistics, Trends, and Drivers of Demand

661 million metric tons:
Average global production of whole fresh milk, 2014-2016

$287 billion:
Global production value of whole fresh milk

<10 percent:
Proportion of global milk output traded

Supply Chain

Some segments in the U.S. dairy products value chain are highly concentrated.

The U.S. dairy supply chain is highly concentrated. The number of dairy operations has declined and the number of cows per operation has risen to meet increasing U.S. demand.

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Company Examples

Danone

Danone’s goal is to have at least at least 80 percent of its fresh milk supply in compliance with its sustainable agricultural practices by 2020. In 2017, 90 percent of conventional fresh milk from U.S. producers came from farms receiving certification that demonstrates compliance with standards related to proper animal handling and management, food and water quality, as well as housing that promotes animal comfort.

General Mills

General Mills committed to purchasing 100 percent of its directly sourced fluid milk by 2020 from producing regions that demonstrate continuous improvements as measured by the FARM module in the U.S. and other comparable environmental metrics globally. As of fiscal 2017, 83 percent of this milk was sustainably sourced. In California, General Mills is addressing declining groundwater quality and supplies by supporting the California Water Action Collaborative and partnering with its members and local dairy farmers to demonstrate a drip irrigation system that aims to reduce water use, nutrient use, and GHG emissions.

Unilever

Unilever committed to sustainably sourcing all of its agricultural raw materials by 2020, a commitment that includes the milk it uses in ice creams--such as Ben & Jerry's--and margarines. At the end of 2017, 74 percent of its dairy products were sustainably sourced globally. Unilever helps suppliers comply with its Sustainable Agriculture Code (SAC) and is moving this program from one based on self-assessment to third-party certification.

Dean Foods

Dean Foods committed that by 2018 it would require on-farm assessments of all farms that deliver milk to its plans. Through its Dairy Stewardship program, farms are asked to meet certain animal welfare standards and resolve deficiencies within a specific time frame or demonstrate a plan of action for doing so.

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