Shaking up the dairy industry: an overview of the alternative milk market and development in China

Updated: Mar 17, 2020

“Artificial” or “alternative” meat was the global buzz term last year, especially with Beyond Meat’s IPO making such a huge splash in the stock market. Likewise, its rival, Impossible Foods, also began making a name for itself, partnering with Burger King and other top restaurant chains. The outlook for this year is expected to also be quite positive. We have previously covered the exciting development of the alternative meat market in China. Check out the post in English and Chinese.

The other product that is fast becoming a hot commodity is alternative milk. In this article, we will cover the basics of this market and provide an update on what’s new with “milk” today.

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What is alternative milk?

The first thing that comes to mind when talking about “milk” is usually dairy milk. Historically, dairy milk was popular among northern European and North American communities that were mainly engaged in pastoral farming. Although humans were initially unable to properly digest lactose in animal milk, since the body stops producing lactase (an enzyme that digests lactose) after childhood, evolution has favored milk-drinking. Lactase persistence traits are now very high in certain geographical regions. Families all over the world are encouraging their children to drink dairy milk. Milk-drinking is becoming popular even in Asia and South America where lactase persistence traits may not be as prevalent among consumers.

The IFCN Dairy Research Network estimated in a 2018 report that dairy milk production has increased every year since 1998. With demand growth continuing into 2019, the report forecasted that milk demand will rise 35% by 2030 with global production reaching 1,168 million tons.

But recently, we have also seen a number of alternative milk options on the rise. People are becoming more aware of their health and the environment, sparking an interest in alternatives, particularly ones that are lactose-free and more environmentally friendly. The dairy alternatives market size was estimated at $13,021 million in 2018 with an expected CAGR of 13.6%, reaching a market size of $35,804.6 million by 2026. The beverages segment accounted for the largest share of this market. So, what exactly are some of the alternatives found in the beverage segment?

Types of alternative milk

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Almond milk

One of the more commonly found alternative milk is the creamy, nutty-flavored almond milk. While almond milk does sound like a trendy option, its environmental impact might not be as trendy. It utilizes a large amount of water to produce compared to other dairy alternatives, consuming around 130 pints of water just for single glass. Its land use and emissions, however, are relatively low.

But the most alarming impact of almond milk production is actually on the bee population. Each year in the US, large colonies of commercial bees are sent to almond farms for pollination. While bees tend to thrive in biodiverse habitats, the industrial monoculture farms are suspected to be putting a huge strain on the bees’ health. In addition, bees encounter large quantities of harmful pesticides. The bee colonies sent to almond farms in California face an incredibly high mortality rate.

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Soy milk

A staple in many Asian countries, soy milk is no stranger in the stores. Soybeans are known to offer a protein content very comparable to dairy. They also contain isoflavones which studies have shown to reduce inflammation in the body.

While soybeans don’t necessarily require huge amounts of land and water, thereby limited emissions, soybeans are already cultivated at a large scale due to the demand for livestock feed. Additional demand for soy milk may pose a threat to forest land as soybean farming has already been linked to increase in deforestation in areas like the Amazon.

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Oat milk

Another creamy alternative, oat milk is the up-and-coming drink due to its performance on sustainable metrics. Oats are also produced on a large scale, but the good thing is that there is still enough to be dedicated to milk production without putting additional pressure on the production side. Grown in cooler regions like US and Canada, oats have not been connected to deforestation in developing countries. One negative environmental impact that has been heavily debated is that Roundup pesticide is commonly sprayed on monoculture operations of oats, where the active ingredient of glyphosate may be a possible carcinogen that can harm consumers’ health. Food Navigator reported according to Nielsen data that oat milk sales grew by 35% from 2017 to 2018, leading almond milk (+11.5%) and coconut milk (+1%).

Other plant-based alternatives include rice, coconut, hazelnut, hemp and flax milk. Rice is found to be lower in nutritional value while also comparatively higher in emissions and water use. Coconut farming can create a huge toll on poor farming regions. The other options mentioned show more potential in becoming nutritional and sustainable dairy alternatives. A recent University of Oxford study demonstrates the environmental impact of five common milk categories, depicted in the graph below.

The players of the alternative milk market

From large conglomerates to budding startups, the market is ripe with various players vying for the biggest gulp of the market.

Danone’s Silk brand has been a visible competitor in the alternative milk market for a while. Danone bet big when it acquired WhiteWave Foods in 2016 for $10.4 billion, in order to position itself better in the alternative dairy product market. Silk boasts a portfolio of soy, almond, cashew, coconut and recently oat milk (aptly named Oat Yeah) along with respective yogurt types. With its Silk brand, Danone is set to ride the alternative milk trend.

Blue Diamond is another giant in the plant-based product market. Known for its almonds, the company has expanded its portfolio to include other almond-based products through its brand of Almond Breeze (almond milk) and Nut-Thins (gluten- and wheat-free crackers).

Califia Farms is a company to watch out for. Recently raising $225 million in a series D round led by the Qatar Investment Authority (QIA), the startup offers a variety of alternative milk options (and juices) in unique curvy bottles. Having only started in 2010, Califia Farms is ranked 3rdin the US market for plant-based milk, second only to Danone and Blue Diamond. Califia Farms also promise that they work with organic almond farmers who ensure the wellbeing of honeybees used in their operations. Almonds bought by Califia are all grown and processed within a 20-mile radius of their bottling facility. Their sustainability strategy goes even further to include a detailed life cycle assessment of their products, which showed that Califia’s products are leaving a much lighter environmental footprint than dairy milk.

Another rising startup is Oatly. With its snazzy advertisements and catchy taglines, the Swedish-based startup makes drinking oat milk look fun. The firm places a huge emphasis on sustainability as seen in its 2018 sustainability report which analyzes in detail the firm’s environmental footprint, including energy, water, waste and product life cycle. Founded in 1990, Oatly’s revenue surpassed $100 million in 2017 and aims to reach $400 million this year. In 2016, a joint venture between Hong Kong-based China Resources and Belgian-based PE firm Verlinvest acquired 65% of the firm. Oatly is reportedly assessing multiple funding options and exit scenarios, possibly an IPO in the next 18-24 months.

While the aforementioned types of plant-based milk have been around for a while, Perfect Day is trying something else. The startup uses microflora to make its dairy through genetic modification. Two main proteins of whey and casein are combined with other ingredients, resulting in a product that is very similar in taste, consistency and nutritional breakdown as dairy milk. It’s aiming to hit the B2B market first but it has also been dabbling with releasing products under its own brand.

What’s happening in China?

The current 13th five-year plan proposes guidelines that recommend Chinese people consume triple the amount of dairy food they usually consume. The plan also pushes for larger industrial factory farms in the country. Official nutrition guidelines have been recommending more milk in people’s diets. China’s largest dairy producers like Yili and Mengniu been reinventing the concept of milk through large-scaled sports campaigns.

In 2008, a scandal involving melamine, an industrial chemical used in plastics, discovered in top milk products temporarily stopped the rise of milk in China. Since then, Chinese consumers especially parents have become extra careful when buying milk products, demanding higher safety regulations.

Even with that, studies have shown China’s demand for milk will prove to be a huge strain on the country’s already scarce land and water resources. Alternative milk products can help alleviate this problem. As health and safety continue to be prioritize by Chinese consumers, more informative campaigns that advertise the benefits of plant-based milk for health and environmental reasons can create better awareness for the discerning consumer. The Chinese market is no stranger to alternative milk, with already many strong players in the field.

Things to watch out for “milk” this year

On the consumer side, we hear more about consumers demanding options that are lactose-free, lower in cholesterol as well as less harmful to the environment. Certain businesses are responding by choosing to be more transparent with their operations like Califia Farms with their almond and bee farmers and Oatly in its company sustainability reporting.

This might be a good call as in August of 2019, there was a case of Fair Oaks Farm in Indiana, USA coming under fire for undercover footage displaying mistreatment of the cows in their farms. We anticipate more standard regulations for the dairy sector this year, e.g. Fair Trade USA venturing more into the US dairy sector to develop a fair trade certification program.

The current alternative milk market is still quite fragmented with no clear outright leader. Big conglomerates are feeling the heat from startups, which also have to strategize on scaling up quickly and sustainably. Whether or not the dairy industry can improve their ethical and environmental image, we still expect growing consumer demand for alternative milk for this upcoming year.


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