The demand for fluid milk has been dropping for many years. Consumers have moved toward other beverages that can offer convenience, better flavor, certain health characteristics or any number of demands. With 34% of the milk produced in the U.S. ending up as fluid milk on grocery shelves, it’s important to identify ways to turn this category around.

A recent study by Rabobank suggests that those fluid milk products that can differentiate themselves from regular, commodity milk are turning the demand curve upward. During a recent conversation with Chip Flory on AgriTalk, Tom Bailey, senior dairy analyst with Rabobank, shed light on this new trend.

“Consumers have changed. A lot are looking for something new, exciting and different. They are looking to make an impression. When someone looks in their fridge, they want to make a statement,” Bailey said. “The milk brands haven’t adjusted along with consumers. Where we have seen differentiation we’ve seen some big wins. Brands that [offer a premium experience] are not only are getting margins back into their returns, but they are selling more. It shows that if brands are willing to innovate and reinvest, there are some low hanging fruit there.”

In addition to more premium products, whole milk continues to be the only conventional milk category that is growing.

“Anything skimmed is declining, and that’s what consumers have been buying,” Bailey said. “They like whole milk – it tastes better, has better mouth feel and is generally preferred. Nutritionally it’s good for you so people are coming back to it.”

While there are opportunities for dairies to take advantage of local market, it’s not without risk, Bailey warns. Setting up your own bottling plant, or working out an arrangement with a local bottler, takes a lot of investing and follow through in order to win. But, Bailey says, consumers like that “red barn effect” where consumers want to get back in touch with the farm and farming culture.

“Local milk is coming back around. People want milk that tastes good,” Bailey says. “When you’re able to control the supply chain a little bit more and have solids control you can have a product that not only speaks from the local standpoint from the taste standpoint too.”

Still, milk brands that offer some point of difference from conventional private label milks have been winning in the marketplace.

“Long term that could be great for commodity prices,” Bailey said. “Short term it will take investing and realignment with the consumer to get there.”