Imitation Dairy Products: Are they Poised to Siphon the Profit out of the Dairy Industry?

Earl Jenstad

B.C. Ministry of Agriculture, Fisheries and Food,
17720 - 57th Avenue, Surrey, B.C., Canada V3S 4P9 E-mail: ejenstad@galaxy.gov.bc.ca

Introduction

The dairy industry has successfully preserved the purity and image of dairy products for several decades through legislation, standards of composition, quality, and safety assurance measures including the prohibition of imitation dairy products.

What is an Imitation Dairy Product?

Alberta legislation defines imitation dairy products as a food substance other than a dairy product, of whatever origin, source, or composition that is manufactured:

a) wholly or in part from a fat or oil other than that of milk,

b) for human consumption and,

c) for the same or similar use as, and in semblance of, a dairy product.

Margarine as defined in the Margarine Act or any product intended for use as a dessert topping, coffee whitener, or infant formula are not considered imitation dairy products. Similar legislation exists in every province in Canada with minor differences in the exception list.

Why Have Imitations Been Prohibited

To protect the consumer from nutritionally inferior products.

To provide the consumer with an assurance about the consistent quality and composition of dairy products.

To protect a highly regulated dairy industry from intrusion by a less regulated industry.

Changes are Coming

The agreement to remove interprovincial barriers to trade, the GATT and NAFTA are causing us to redefine and restructure the rules of doing business.

The B.C. Experience

In the province of B.C. we realized several years ago that there were new dairy look-alike products on the market which contravened our legislation. Products were seized, pizza parlors were warned regarding imitation cheese toppings, much to the pleasure of dairy producers and to the displeasure of some importers, health food stores, and hundreds of consumers. They all made their views known to their political representatives and to us.

We were supported in our efforts to uphold the legislation. However, the Minister of Agriculture requested a review of the legislation pertaining to imitation dairy products. This began a long, arduous process which has reverberated across our nation.

The Industry Studies the Issue

Consumers, dairy producers and processors, importers, researchers, nutritionists, and regulators grappled with the legislative issues such as labelling, terminology, provincial differences, penalties, and nutrition standards. They discussed, but did not resolve the economic issues of protectionism, the fairness of cheap alternatives, and industries riding on the good reputation of the dairy industry. They called for an economic impact study which was completed some time later by the firm of Peat, Marwick, Stevenson, and Kellogg. Consumer issues included freedom of choice, low fat products, cholesterol, allergies, lactose intolerance, safety of imitation, labelling (and confusion) of products, and use of imitations in the restaurant trade.

The study group really wanted to know the consumers position on all of these and asked for further study which was awarded to the firm of Canadian Facts.

The Minister's Review - Key Findings

Remove Some Prohibitions. Food products which may or may not simulate dairy products should be permitted as long as they do not employ dairy terminology, dairy graphics, dairy packaging or promotion. They may be blends of dairy/non-dairy ingredients or entirely non-dairy.

They must not confuse the consumer and must have full disclosure of ingredients. Clearly, this requires legislative and policy changes right across the country.

Define Products. The report recommends that clearer definitions of dairy products and imitation products is essentially a national responsibility. Hopefully this will happen under the National Dairy Code which is presently under development.

Need for Consumer Research. The report further recommended that regulations should not restrict products to consumers when demands are based on philosophical, religious, and health reasons and called for a consumer study to determine needs and demands.

No Dairy Terms on Imitation. Dairy product terms must not be employed in imitation dairy products.

Restaurant Regulations. If allowable imitations are used in restaurants there must be clear notification. The study group went so far as recommending full disclosure of all food ingredients in restaurants.

No Confusion. There must be no confusion over terms used on labels, particularly those relating to health and nutrient claims and origin of ingredients.

One Song Sheet. There must be consistency across all provinces, therefore a need for Federal/Provincial cooperation.

Blends Should be Allowed. The development of this aspect of the food industry is now restricted - there should be room for the blending of dairy and non-dairy ingredients including fats and oils.

What Does The Consumer Want?

The consumer study was completed by the reputable firm of Canadian Facts in 1992. Five focus groups were used and conducted 1000 telephone interviews with computer selected consumers. Almost everyone interviewed (98%) said they consume dairy products. There are few commodities which can claim that wide an acceptance among consumers. Seventy-five percent choose dairy products because they enjoy them - they like the taste. Seventy-three percent choose dairy products because they are nutritious (words such as calcium, vitamin D, protein, and healthy were often used).

Those people (2%) that don't eat any dairy products cited allergies, fat, vegetarianism, and taste as the main reason for avoiding dairy products. Persons who limit their intake of dairy products do so mainly for health concerns; often on doctor's advice.

Consumers like to read labels and they want all the information they can get on a label; whether its a dairy product or an imitation. Generally, they would not choose an imitation, but they still want the freedom to choose. Interestingly, they did not view margarine as a substitute or imitation for butter. It is a product in its own right. In fact, of the 1000 surveyed:

97% eat or have eaten margarine,

76% have eaten whipped toppings,

62% have used coffee whiteners,

31% have eaten non-dairy frozen desserts, and

19% have had soya drinks.

All of those products are exempted from classification as imitations because they were thought to be imitations. Generally, consumers see these products as having fewer calories, less fat, are more convenient in some cases and for some, provide an answer to milk allergies. Some respondents even liked margarine, coffee whiteners, and frozen desserts. Price did not strongly feature in their choice of products. However, the economic impact study looked more closely at this.

The Economic Impact

This study particularly applies to British Columbia and may not be completely applicable elsewhere in Canada. It dealt with the dairy products we produce, our quota allotment, and market prices; all of which do vary from province to province. Allowed imitations are generally imported, but soya drinks and potato toppings are examples of local manufacture.

In the U.S.A. where imitations hit the market in 1968 we found the following information, which may or may not represent an intrusion into the U.S. dairy market. Imitation cheese (pizza cheese) has 2.8% of the U.S. cheese market. Blends, butter-margarine has .3% of the Washington market. Imitation sour cream has 11.2%. Whether this is a new market or an intrusion into the dairy products market could not be determined.

In order to determine whether consumers would be willing to purchase lower priced imitations the study asked a group about price considerations for several scenarios. From that an estimate of the impact on the intrusion into the B.C. market was made.

Displacement Rates

It was estimated that a total of 4,382,000 litres of milk would be displaced by deregulation in B.C. or .9% of our annual production although this could range from 0.4% to a high of 1.7% of total milk production based on the high and low estimates.

Can the dairy industry financially and emotionally handle a change like this in addition to the new world trading environment? There are opportunities as well as threats for the industry to deal with. I'd like to summarize those now.

Opportunities for the Dairy Industry

To be consumer responsive and meet the needs of more people.

To be less regulated and more cooperative with other food industries.

To manufacture new products within the dairy processing and marketing system.

To move more dairy ingredients through blends of dairy and non-dairy products.

Canada can fill export markets with food products which contain dairy ingredients. Some countries have been using this strategy for years. Ireland for example sells a lot of its milk as Irish cream and casein. Danish Butter cookies is another example and these are not even imitations.

The dairy industry would be able to capture a niche "organic market" which most imitation products could not.

To promote the nutritional aspects of dairy products. There is no other food quite like dairy products.

The dairy industry should see this as an opportunity to make competitively priced substitutes for mayonnaise and other oil free salad dressings. Research into new uses for dairy ingredients will probably result in the production of all kinds of new foods containing dairy ingredients.

The dairy industry should have the opportunity to participate in:

The development of neutriceuticals.

The development of an ingredient market.

Threats/Needs

Aggressive research, development, and marketing needs money, planning and cooperation.

Direct loss of market share.

Erosion of reputation of dairy industry and its products.

Conclusions

Negotiations between federal departments, the dairy industry, and the oil seed industry are now underway. The provinces are not yet in the discussions, but I have been assured that we will be in the new year.

There are seven principles emerging from those talks and they are based on studies and experience in other countries. I believe these summarize how we will proceed in the future:

1. Dairy products and vegetable oil/protein based products are separate and distinct products.

2. Consumers should have access to both.

3. Neither should purport to be a substitute or imitation of the other.

4. Nutritional equivalency is not an option.

5. All food products shall declare all ingredients.

6. The name of either product should be distinct and not infer it is a substitute for the other.

7. Blends of two or more distinct products should have unique names, yet clearly indicate the nature and proportion of the contributing products.

Will imitations siphon the profits out of your industry?

The answer is summed up in the motto of my University, UBC, "Tuum est" which means it is up to you. It is up to all of us to make this a win-win situation for consumers, processors and producers.

References

1. B.C. Ministry of Agriculture, Fisheries and Food. 1991. Report and Recommendations of the Imitation Milk Product Review Committee. (May 1991).
2. Canadian Facts. Consumer Knowledge and Perception Study on Imitation Dairy Products. (April 1992).
3. Peat Marwick, Stevenson, and Kellogg. 1993. Economic Impact Assessment of Allowing the Sale of Imitation Milk Products in British Columbia. (Feb 1993).