Dairy industry trends, growing demand, rising costs

• Dairy industry producers are experiencing rising demand globally.
• Players are tapping into the power of tech to enhance dairy value chains.
• For Tanzania, the dairy industry still grapples with a broad range of challenges.

Players in the dairy industry across the globe a experiencing rising demand for key products, reflecting the urgent need for entities across the value chain to innovate and increase efficiency. According to a recent industry survey, increasingly, consumers are choosing dairy, thereby, “driving overall volume growth in the industry,” states the ‘Dairy industry executives 2025’ report by international advisory firm, McKinsey and Company.

“For instance, domestic consumption of natural cheese and butter grew 1.5 per cent and 5.8 per cent, respectively, from 2023 to 2024,” the report notes. However, recent upheavals in the global economy including US tariffs, look set to drastically affect the dairy industry, too.

For instance, “the US dairy industry experienced numerous operational headwinds. Reduced herd sizes, inflation, and ongoing labour challenges put pressure on volume, prices, and costs across the dairy value chain,” details the report.

As of March 2024, avian influenza was discovered in North American cows… these challenges have evolved in 2025, and shifting international trade policies have added more unknowns, the report goes on to expound.

According to the study, approximately 80 per cent of dairy sector leaders that were surveyed expect volume growth greater than three per cent over the next three years. “Leaders shared their sense that consumers are continuing to choose dairy or are returning to dairy from alternative milks… we have seen a resurgence in consumer demand for dairy,” the report states.

Market trends have borne out this optimism and in addition to growth in butter and cheese, domestic demand for yogurt and cottage cheese grew over the course of last year, increasing by 6 per cent and 12 per cent, respectively, from 2023.

“This could be because health-conscious consumers are increasingly looking for simple labels and nutritional benefits,” details the report

Dairy industry trends in Tanzania

At the moment, this uptick in prices globally is also affecting Tanzania with Zanzibar and Dar es Salaam, two key markets where farmers sell milk at around less than a dollar (Sh2,000) per liter. “But this price is spiked by the management costs encountered,” explains the Tanzania Dairy Board.

Tanzania, like elsewhere in the world is facing rising inflation, a trend that is negatively affecting the prices of dairy products. Statistics from Trading Economics show that inflation rate in Tanzania was 4.8 per cent as of December 2022, a decline from 4.9 in the previous quarter and up 3.1 per cent as of 2024.

“Since most of the concentrates are obtained from food crops, it is most likely that the sector is also impacted,” the Board details. As a result, dairy cattle rearing might remain a subsistence-based business with minimal profit making unless the farmer opts to sell the live animal.

According to the board, the dairy sector in Tanzania has experienced slow growth, if not stagnation, since independence. “As consumers move away from ultra-processed foods, I think they will look for less-processed foods with functional benefits. Dairy is perfectly positioned at the center of this movement,” says the Board CEO.

Tanzania has a large number of cattle compared to other African countries, with approximately 33.9 million according to the National Crop and Livestock Census.

“However, the majority of these cattle are local breeds, which are known for their resistance to diseases and pests but have low milk production, with an average of fewer than 3.5 litres per day per cow,” the Board reports, pointing out that given the large population of cattle in the country, there is low profitability and a limited amount of milk production at the local and national level.

“With an estimated three billion litres of milk produced per year, with a difference of 40 per cent between the dry and wet seasons which is largely contributed by the number of local breeds reared in the country,” the Board says.

According to the Dairy Board, milk production in Tanzania is divided into five regions: southern highlands, northern, coastal, central, and lake zones. “The central and parts of the coastal zone have higher milk production due to a larger number of cattle reared.”

Tapping the ‘milk cow’ opportunities in the dairy sector

To address the growing interest in dairy products, executives plan to invest in innovation. “Most dairy leaders surveyed said they plan to increase their investments in product and manufacturing innovation over the next three to five years, continuing previous trends,”

The report says, many recent product innovations have been consumer-driven, particularly those concerning health for example, elevating protein while reducing sugar content. Further still, manufacturing has also been a focus area for leaders. For example, many interviewees noted they are investing in packaging capacity for extended shelf life.

“Other investments, for example, in AI and tech have centered on efficiency and operational resilience,” reads the report and notes that cost and talent have also become increasingly high priorities for executive in the dairy industry.

However, it is production cost that has risen in importance for investors in the industry with 69 percent of executives citing it as their leading priority in 2024. “This marks a significant jump from 48 percent in 2023 and 50 percent in 2022, reflecting concerns over increased volatility, rising inflation, high costs of raw materials, and logistics including  shipping and trucking, squeezing margins and forcing companies to look for efficiencies,” details the report.

To address cost challenges, the report says, 60 percent of leaders that were surveyed said they have altered their operations, with changes focused on rationalizing portfolios, reallocating partners changing vendors or customers, and adjusting infrastructure plans.

Key areas to improve in dairy sector development

Moving on, the research report points at skills as another key aspect driving the dairy sector. “Talent remains a top priority for 67 per cent of respondents, versus 60 per cent in 2023 and 44 per cent in 2022. This indicates that filling talent gaps has been more challenging than anticipated.”

In addition, only 60 per cent of leaders believe roles are being filled by the best-fit talent, particularly in skilled manufacturing labor. The report says that when it comes to dairy manufacturing and processing facilities, leaders are expressing difficulty in attracting and retaining entry-level labor compared with last year, especially in remote areas.

“A lack of technicians to fix equipment was a pain point for many respondents. According to interviews, more-flexible hours and plant schedules and increased pay have had limited impact on players’ ability to attract the right technical talent,” it details.

Similarly, respondents reported that they also face challenges with office positions, and that they are trying to address these challenges by offering hybrid work models and fully remote positions.

The most notable changes from 2023’s survey are in the importance of AI, which rose in priority by 20 percentage points (to 24 per cent), and in sustainability, which declined in priority by 32 per cent (to 12 per cent).

The report also shows an increasing reliance on digital and analytics, with a growing focus on AI. It says fifty-four percent of dairy company leaders reported using AI in pricing, manufacturing optimization, supply chain management, and in other areas of logistics.

“In interviews, nearly all executives said they plan to leverage AI in the future, although many noted that the effectiveness of today’s AI solutions has room for improvement,” reads the report.

Then there is the issue of sustainability, which the report says, has shifted from an emerging topic to a core factor for the dairy industry. According to the report, more than three-quarters of dairy companies that were surveyed have sustainability strategies, and 84 per cent, which is the largest share yet and up from 74 per cent in 2023, are investing funds to implement those strategies.

However, sustainability has dropped as a top strategic priority, with only 12 per cent of respondents ranking sustainability as a top-three priority in 2024 which is down from 44 per cent in 2023.

“Nevertheless, sustainability continues to play an important role in the dairy industry, particularly in response to customer demand,” admits the report. However, hands down, dairy leaders ranked customer requirements as the top reason for adopting sustainability strategies.

The report says, sales data support this reasoning; for example, products that are marketed as “sustainable” experience a 3.5-percentage-point increase in sales growth compared with conventionally marketed products.

“Although many executives interviewed remain skeptical that consumers will be willing to pay a premium for sustainability in the near future, they stressed the importance of sustainability,” reads the report.

As industry leaders look ahead, agility and resilience will be critical to maintaining operational effectiveness in a shifting macroeconomic and regulatory environment in the dairy industry.

The researcheea advice that, leaders should consider taking action in four key areas; consumers, innovation, talent, and sustainability to support sustained success.

Sectorplayers are advised to develop and market new dairy products that meet consumers’ growing preferences for simple, minimally processed foods that have high nutritional value, including high-protein and high-fat options with reduced additives and sugar.

Finally, investors in the dairy sector are urged to invest in technological innovation. “Dairy leaders can strategically invest in advanced technologies and AI to enhance productivity, efficiency, and transparency,” the researchers advice.

Overall, it is workforce development that needs more action. It is suggested that, to improve attraction and retention of top talent, dairy companies should foster a supportive work environment that includes flexible work schedules, mental health services, and open communication channels.

Employers are also encouraged to offer employment packages with competitive wages and comprehensive benefits, including health insurance, retirement plans, and performance bonuses.

“Companies can develop and implement training programs for technical skills including skills related to new technologies alongside opportunities for continuous learning,” the research authors urge.

To sum it all up, companies are urged to differentiate themselves on sustainability. Sectorplayers can differentiate themselves by mitigating or improving their companies’ environmental impact.

For example, companies should expand their focus beyond greenhouse gas emissions . This  includes implementing and/or supporting upstream practices that promote biodiversity, such as adopting regenerative farming or creating wildlife corridors.

“The dairy industry has huge future growth opportunities. Milk is a nutrient-dense food, and we are only scratching the surface of the value we can unlock,” the authors conclude.

Read also: Rwanda’s dairy sector challenges Kenya and Tanzania’s dominance