Dry, Condensed and Evaporated Dairy Products

SIC 2023

Companies in this industry

Industry report:

This classification covers establishments primarily engaged in manufacturing dry, condensed, and evaporated dairy products. Included in this industry are establishments primarily engaged in manufacturing mixes for the preparation of frozen ice cream and ice milk and dairy and nondairy base cream substitutes and dietary supplements.

Industry Snapshot

The multi-billion dollar dry, condensed, and evaporated dairy products sector of the highly regionalized dairy industry includes both small family operations and multinational giants. The spectrum of products manufactured in this industry is equally broad, ranging from retail staples, such as canned evaporated milks that have been familiar on market shelves for more than a century, to sophisticated milk protein ingredients that are constantly being refined in research laboratories for new food uses.

According to industry statistics, 14,800 individuals were employed in this manufacturing sector in 2010; roughly two-thirds of these were production workers. Approximately 686 establishments operated in this category. Three-fourths of the companies employed fewer than 25 workers. However, those companies that employed more than 25 workers generated over 94 percent of industry revenues. Generally, U.S. dairy farms have declined in number but grown in size, so that fewer farmers are producing in much greater quantities.

The dairy industry was struggling to right itself in 2010 after it ramped up production in 2007 and 2008 to meet growing domestic and global demand. However, when the economy fell into a recession in 2008, demand at home and abroad softened significantly, and milk prices fell. In addition, production costs, including feed and fuel prices, increased. Some segments of the milk products industry fared better than others. In 2009, production of nonfat dry milk for human consumption was 1.51 billion pounds, down less than 1 percent from 2008. Skim milk powders totaled 222 million pounds, down almost 41 percent from the previous year.

Organization and Structure

During World War II, a dwindling number of dairy farms began to supply the raw milk from which dry, condensed, and evaporated milk products are processed, although the individual farms became much larger. Huge dairy farm cooperatives combined with operations that processed raw milk to produce branded consumer products and milk ingredients that were marketed to food and animal feed processors. One of the nation's largest cooperatives, Darigold Inc., was founded in 1918 and had more than 600 dairy farmers in the Pacific Northwest.

The small companies that pioneered condensed and evaporated milk technology and production in the nineteenth century were still in business more than 100 years later, producing not only the same products with which they had started but also many others. Two examples are diversified giants Borden, Inc., founded in 1857, and Pet, Inc., established in 1885 as the Helvetia Milk Condensing Company. Pharmaceutical companies that manufacture infant formulas also are included in this dairy food category. Nonetheless, there is always room for smaller companies, especially those that specialize in milk ingredients like whey proteins and ice cream, yogurt, and milkshake mixes.

Background and Development

Removal of all or part of the water from milk not only reduces transportation costs and makes handling easier, but it also allows unrefrigerated storage of sterilized or dried products for prolonged periods. Such products may be intended for consumer use or as ingredients in diverse processed foods.

The Federal Food, Drug & Cosmetic Act (FFDCA) established standards of identity (SID) for milk products that define what can be packaged under a given product name. The Food and Drug Administration (FDA) designates food ingredients to be generally recognized as safe (GRAS) when extensive past use has not shown any harmful effects.

Dry Milk.
Marco Polo allegedly encountered sun-dried milk in his travels through Mongolia in the thirteenth century. However, commercial production processes were later developed by scientists. An early patent for a commercial process to manufacture dried milk was granted in 1855. Technological advances since then enabled a wide variety of manufactured milk products with applications in frozen dairy desserts, ice cream, frozen soft and hard yogurt, bakery goods, confectionery products, dry mixes, soups, animal feeds, and countless other nutritional and functional uses.

Nonfat dry milk (NDM) results when both fat and water are removed from milk. Lactose (milk sugar), milk proteins, and milk minerals are present in the same relative proportions as in fresh milk. Moisture cannot be more than five percent by weight, and fat content cannot be more than 1.5 percent by weight unless otherwise indicated.

Dry whole milk results when water is removed from milk. It can contain no less than 26 percent milk fat and no more than four percent moisture. Dry buttermilk is made by removing the water from buttermilk that is derived from butter manufacture. It can have no less than 4.5 percent milk fat content and no more than five percent moisture.

Milk Proteins.
Milk proteins are used as ingredients in a wide range of food products for their nutritional value as well as functionality and are derived through various processing steps from skim milk. Casein, milk's principal protein, has been commercially isolated from skim milk since 1900. There are two basic types of casein, depending on the coagulating agent used to precipitate it from the milk: lactic (acid) casein and rennet casein. Most acid caseins intended for food applications are converted to caseinates by dissolving the acid casein curd with water and dilute alkali and drying the solution. Sodium caseinate is a GRAS ingredient.

Casein has a higher protein efficiency ratio (PER) than vegetable proteins. Under the Code of Federal Regulations, if the protein's PER is equal to or greater than that of casein, 45 grams is the U.S. Recommended Daily Allowance (RDA). However, if the PER is lower than that of casein (2.5), then 65 grams of protein are required to meet the U.S. RDA. Casein is used in nutritional supplements because of its high protein quality and content, low lactose, and bland flavor. Nutritional foods commonly formulated with casein include high-protein beverage powders, fortified cereals, infant formulas, and nutrition bars. Products incorporating casein for its functional properties of imparting texture, viscosity, emulsification, and opacity include coffee creamers, soups, sauces, ice cream, whipped toppings, yogurt, and salad dressings.

Whey seemed to have been the "forgotten" milk protein until April 1971, when representatives of 56 firms gathered to consider the potential of these milk solids that remain after cheese manufacture. The Food and Drug Administration affirmed the safety of whey products and their manufacture in 1984 with a declaration of common and usual names for diverse whey products ("Whey," "Reduced Minerals Whey," and "Whey Protein Concentrate") and by granting them GRAS status. By the late 2000s, the United States was the second largest producer of whey in the world.

Evaporated Milk.
Evaporated milk is a canned whole milk concentrate with a specified quantity of added vitamin D. Vitamin A may also be added. Related products are evaporated skimmed milk, evaporated low-fat milk, evaporated filled milk, and evaporated goat milk.

When Gail Borden returned to the United States from England in 1851, it was on a ship that had to carry cows to provide milk for the immigrant children on board. There was no way to carry fresh milk on a long sea voyage without it spoiling. Five years later, in 1856, Borden was granted patents in the United States and England for the preservation of milk in a vacuum after it was evaporated. The method used no added sugar, but sweetened condensed milk was Borden's first commercial product in 1861.

In 1885, the Helvetia Milk Condensing Company began production of the world's first unsweetened evaporated milk, calling it Highland Evaporated Cream after the plant's headquarters in Highland, Illinois. The company later changed its name to Pet, Inc.

Dairy and Nondairy Creamers.
Health-conscious consumers regard nondairy creamers as cholesterol free and, therefore, better for you than milk-based products. Nestle's introduced Carnation Coffee-Mate in 1961, and later added Coffee-Mate Lite. Carnation extended this top-selling nondairy creamer line with Hazelnut, Irish Creme, and Amaretto flavored powders. Pet, Inc. also marketed a nondairy creamer. By the mid-2000s, many more flavors had been added to the line, including special holiday flavors such as eggnog and gingerbread.

Infant Formulas.
Infant formulas that approximate human milk are fed to infants all over the world and are sometimes the sole source of nutrients during the first months of life. Such products were unknown until the twentieth century when they became a reliable alternative to breastfeeding. A century earlier, in London, only about 10 percent of infants not breastfed lived past their first birthdays.

In the United States, the Infant Formula Act of 1980 and its 1986 amendments specifically govern the manufacture of commercial infant formulas. The act authorized the FDA to implement quality control regulations and recall procedures, labeling and nutrient requirements, and requirements for exempt infant formulas. Additionally, infant formulas must satisfy FFDCA regulations dealing with foods for special dietary use and good manufacturing practices.

The stringent regulations governing infant formulas included setting maximum levels for 29 nutrients and minimum levels for 10. Labels were required to include a nutrient declaration with "use by" date information; a statement such as "use as directed by a physician;" a warning statement of the consequences of improper preparation; preparation and use directions that included pictograms, if appropriate; and more. All these requirements had long been standard practices of its member manufacturers, according to the International Formula Council, which was formed in 1998 by the merger of the Infant Formula Council (established 1970) and the Enteral Nutrition Council (established 1983).

In 1987, the U.S. infant formula market primarily included three companies: Ross Labs, a division of Abbott Laboratories; Mead Johnson, a division of Bristol-Myers; and Wyeth (known as Wyeth-Ayerst Laboratories until 2002), a division of American Home Products. These pharmaceutical companies held an advantage in the market because of the ability of medical detailing, which provided hospitals and medical facilities with sample packets and coupons. At that time, Ross Labs held 55 percent of the market with Mead Johnson at 35 percent, followed by Wyeth at nine percent. By 2000, the companies switched places, with Ross Labs holding 35 percent of the market share and Mead Johnson holding 52 percent, while Nestle's Carnation brand (produced by Mead Johnson beginning in 1988) took third place with 12 percent. Gerber entered the market with a Bristol-Myers product at this time, but the arrangement ended in 1997. Wyeth stopped manufacturing infant formula in the United States in 1997, but in 1998, the company began production specializing in powdered formula through PBM Products, which was sold under private labels in supermarkets and discount chains. By the late 2000s, the powdered infant formula market was led by Mead Johnson.

Infant formula producers presented their products as the best substitute for mother's milk. However, the industry was mired in federal and state price-fixing investigations. Antitrust inquiries were directed at contracts awarded to the three top producers under the Special Supplemental Food Program for Women, Infants and Children (WIC) (later "Food" was changed to "Nutrition"), designed for low-income families. Although federally funded, WIC was administered by the states, which paid full retail prices for formula because there was no competitive bidding.

In the early 1990s, after a two-year investigation into the three biggest producers, the Federal Trade Commission (FTC) charged the companies with price-rigging, contending that they had rigged contracts awarded under WIC. This program accounted for approximately one of every three cans of formula sold. The cost to the government was estimated at $25 million. Mead-Johnson and American Home, while admitting no wrongdoing, agreed to settle. Abbott Laboratories initially planned to fight the charges in federal court. Abbott Laboratories ultimately agreed to pay more than $140 million to settle a number of suits filed against the company nationwide but consolidated in Florida to simplify proceedings. The FTC's actions against Abbott remained in place in the mid-2000s.

In the early twenty-first century, the dairy industry was riding on a wave of high raw milk and milkfat prices due to low grain yields, high feed costs, and high demand for dairy products. The U.S. Department of Agriculture (USDA) reported that, despite a subsequent increase in retail dairy prices, most dairy categories posted good growth as consumers continued to eagerly patronize dairy products, and farmers were able to keep production costs low, because fewer farms were required to produce greater volumes of milk.

The export market was also showing increases across the board. According to the U.S International Dairy Foods Association, U.S. dairy exports increased almost 53 percent between 2007 and 2008. Nonfat dry milk accounted for most of the increase in volume, reaching 862.8 million pounds in 2008. Mexico and Canada were the largest markets, together accounting for 37 percent of all U.S. dairy exports.

In 2007, the U.S. Census Bureau reported $13.8 million in total shipments from the dry, condensed, and evaporated milk segment of the industry. Shipments of dry milk products and mixtures (excluding feed grade) totaled $6.6 million, and those for dry and modified dry whey products (food grade) were $1.5 million. Other statistics from the USDA's Livestock, Dairy, and Poultry Outlook showed 2007 total production of condensed and evaporated milk at around 700 million pounds, which represented a decline from 782 million pounds in 2003 but was far above the record low set in 2000 of 588 million pounds. Nonfat dry milk products were down to 1.3 billion pounds in 2007 after setting a record of nearly 1.6 billion pounds in 2002. Meanwhile, the USDA reported that per capita consumption for condensed and evaporated milk was 2.0 pounds in 2007, continuing a downward trend that began in the late 1990s. Per capita consumption for nonfat dry milk reached 2.9 pounds in 2007, down from a 30-year high of 4.3 pounds in 2004.

The powdered infant formula business dealt with some bad press in late 2008 when it was discovered that some formula made in Chinese manufacturing plants operated by the Sanlu Group contained melamine, an organic-based chemical commonly found in plastics, adhesives, countertops, and dishware. More than 50,000 babies in China who drank the contaminated formula fell ill, and four died, according to Consumer Health News. The Food and Drug Administration reported that no threat existed in the United States, because no Chinese company had received FDA approval to sell formula; however, the event caused a stir among consumers and officials. As of late 2008, five U.S. manufacturers were approved by the FDA to sell milk-based infant formula in the United States: Mead Johnson Nutritionals, Abbott Nutritionals, Nestle USA, PBM Nutritionals, and Solus Products LLS. SHS/Nutricia is approved to sell a dairy-free, amino acid-based formula.

Current Conditions

The industry took a turn for the worse in early 2009 as dairy prices plummeted due to a decrease in world demand. The dairy industry was also affected by large increases in feed costs. In March 2009, the USDA announced that in an effort to bolster dairy prices and increase efforts to feed the poor, it would take 200 million pounds of nonfat dry milk from its supplies and put it into domestic and international food programs.

Despite the economic downturn, the United States continued to hold a top position in the powdered milk segment of the industry in the late 2000s. According to the U.S. Dairy Export Council, the nation was one of the largest milk powder producers in the world, accounting for 10 percent of worldwide production. More than 700,000 metric tons of powdered milk products were manufactured at 80 U.S. plants in 2008. Sixty percent was used domestically, and 40 percent was exported.

In 2008, according to the U.S. Department of Agriculture, production of canned milk was 516 million pounds, and bulk condensed milk production totaled 1.91 billion pounds. Total dry milk products (primarily nonfat dry milk) production in 2008 was 1.62 billion pounds. Of particular note during 2008 was the 34.5 percent increase in production of sweetened skim condensed milk, which makes up the majority of the bulk condensed milk category (roughly 85 percent). Whole sweetened, whole unsweetened, skim sweetened, and condensed or evaporated buttermilk make up much smaller portions of production totals.

In 2009, in the canned milk sector, production increased overall by about seven percent to 553 million pounds. While evaporated and condensed whole milk production increased by just under 7.5 percent, from 497 million pounds to 534 million pounds, evaporated skim declined slightly from 18.5 million pounds to 18.3 million pounds. Overall, bulk condensed milk production increased by about five percent to 1.82 billion pounds. All categories within the sector actually increased production--whole unsweetened condensed milk production increased by nearly 26 percent--except the most important segment: unsweetened skim milk production fell by nearly 8 percent to 1.51 billion pounds. Dry milk production increased significantly in 2009 to 2.02 billion pounds. The segment's largest category, nonfat dry milk for human consumption, grew 17 percent from 1.30 billion pounds in 2008 to 1.52 billion pounds in 2009. Dry whole milk grew by 58 percent to 50 million pounds; skim milk powders, by 86 percent to 374 million pounds; and dry skim milk for animal consumption, by 70 percent to eight million pounds. Only production of dry buttermilk declined, by 11 percent to 72 million pounds.

In 2009, the United States exported 264,000 metric tons of skim milk powder, down from 403,000 in 2008. The top destination for U.S. dried milk products was Mexico (115,000 tons).

Industry Leaders

One of the industry leaders in the late 2000s was Kansas City, Missouri-based Dairy Farmers of America Inc. (DFA). One of the country's largest dairy co-ops, DFA had 17,000 members in 48 states and 3,000 employees in 2010. Sales in 2009 reached $11.2 billion with 4,000 employees. Others included private cooperative Prairie Farms Dairy Inc. of Carlinville, Illinois, which had 1,800 employees and estimated revenues of over $1 billion in 2009, and Leprino Foods Co. of Denver, Colorado, with $21.2 billion in 2009 sales and 2,500 workers.

Research and Technology

Evaporation and Drying.
Water is removed from milk either by evaporation, in which heat is applied under a vacuum, or by drying. Spray drying has been the more widely used method for preparing dried milk products. In this process, the condensed fluid milk is pumped from the vacuum pan while it is still hot and atomized in the heated air of the spray dryer either by the centrifugal force of being discharged from a rapidly turning disk or by being forced through a narrow nozzle. Drying is almost instantaneous.

Roller drying has rarely been used to dry milk for human use. In this process, condensed milk is fed between a pair of heated rollers and adheres to them in a thin film. The dried milk is scraped off by a sharp blade and hammered into uniform, fine particles. In addition to roller and spray drying, these products could be made by foam or freeze-drying. Making them more readily soluble was also possible; such products were called "instantized."

Ultra-High Temperature Processing.
Ultra-high temperature processing, which produces liquid soft-serve ice cream and yogurt mixes with a 90-day shelf life, six to nine times that of standard processing, enables food service distributors to compete with local and regional dairies with a full line of dairy products. Dairies have a tight hold on this lucrative segment of the dairy industry, selling to giant fast-food outlets like McDonald's as well as mom-and-pop stores.

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