Nutrition Policy & the Dairy Industry 2013

1. Nutrition Policy & the Dairy Industry 2013 Randy Green Watson Green LLC

2. Agenda • Regulatory Environment • Role of Dairy in Federal Nutrition Programs • School Food Regulations • Dietary Guidelines for Americans • Focus on Sodium • Potential FDA Actions • Local and State Issues

3. Building Demand: Vital to Farmers Dairy Sector Stressed • Price volatility • Income over feed costs has fallen Demand is Part of Solution • Growing demand = growing income • Consistent with public health • Many Americans under-consume dairy

4. Dairy in USDA School Meals Programs, Fiscal Year 2011 • School Breakfast Program • 88,769 Schools • Avg. Daily Participation = 12.1 Million Students Milk in Schools $1.50 Billion ~466 MM gallons of Milk (4.0 billion pounds) ~ 214 MM pounds of Cheese (2.18 billion lbs milk equivalent) • National School Lunch Program • 100,715 Schools • Avg. Daily Participation = 31.8 Million Students Cheese in Schools* $379 Million • Special Milk Program • 66.6 Million Half Pints Served Yogurt & Other Dairy Products in Schools* $141 Million ~ 106 MM pounds of Yogurt & Other Dairy Products • Summer Food Service Program • 39,000 Sites • Peak Participation = 2.3 Million • 140.3 Million Meals Served Total Dairy in School Meals: $2.02 Billion • Purchased food data are from SY 2010 Sources: School feeding programs data – USDA; USDA milk & cheese volumes – NMPF; Milk & cheese expenditures – Watson/Mulhern estimates, based on USDA data; Purchased dairy product data – USDA School Food Purchase Study III

5. Dairy in All USDA Food Assistance Programs, Fiscal Year 2011 • Special Supplemental Program for Women, Infants and Children • Average Participation = 9.0 million • Dairy Share of Food Costs = $1.45 billion Total Dairy in Federal Non-School Food Programs: $10.4 Billion in FY11 Total Dairy in Food Assistance Programs: $12.4 Billion • SNAP/Food Stamps • Average Participation = 44.7 million • Dairy Share of Food Costs = $8.6 billion Total Dairy in School-Related Food Programs: $2.02 Billion in FY11 • Child and Adult Care Food Program • •Average Daily Attendance = 3.39 million • Dairy Share of Food Costs = $385 million or 11% of All U.S. Dairy Sales Sources: Federal food programs data – USDA; CACFP milk volume – NMPF; Milk & cheese expenditures –Watson/Mulhern estimates, based on USDA data

6. The Environment

7. The Environment

8. The Environment

9. School Foods • 2 Sets of Standards • Federal meal programs (lunches, breakfasts) • “Competitive” foods (vending, a la carte) • Meal program rules in effect • Competitive foods rules proposed, not final

10. Dairy Impact – Meal Rules • Only low-fat, fat-free milk • Schools moving this direction for years • Flavored milk must be fat-free • Effect unclear so far • Recent changes may favor yogurt • More flexibility to serve • Greek yogurt pilot project • Schools have struggled with “smoothie” rules • Difficult to use yogurt • Calorie limits on meals for first time • May limit cheese in some items • May also encourage reformulations

11. Dairy Impact – Competitive Food Rules • Only low-fat, fat-free milk • No 22 g sugar limit, despite IOM view • Reduced-fat cheese exempt from fat rules • But not sodium rule (200 mg for snacks) • Low-fat, fat-free yogurt exempt from sugar limits • If <30 g sugar / 8 oz • NSLP entrees may be exempt from fat, sodium rules • May be limited to day served • Implications for pizza, ethnic dishes • Rules reflect USDA view of dairy’s value • Under-consumed by many youth • One of DGA foods to encourage

12. Dietary Guidelines • Official federal diet advice • Every 5 years • Next in 2015 • Advisory committee named soon? • Much public, private activity already • Shape federal programs • WIC, school meals

13. Dairy Impact – 2015 Dietary Guidelines • Dairy major component of federal programs • WIC, school meals, CACFP • Guides messages from federal agencies • And producer checkoffs • Recent DGA editions encouraged dairy • 3 servings for most age groups • “Food Group to Encourage” • Advised low-fat or fat-free

14. Focus on Sodium • Most efforts voluntary • National Salt Reduction Initiative • But emerging view suggests regulation • Food supply changes, not individual actions • Some challenges to scientific orthodoxy • IOM committee considering different views • Significant challenges to food functionality, taste • Possible impacts on consumption of other nutrients such as potassium

15. Dairy Impact – Sodium Initiatives • Dairy checkoff-related groups focused on sodium reduction • Product analytics, food safety curves, low-sodium research • Some initiatives: Early targets feasible; ultimate targets difficult • NSLP rules • Salt fundamental to cheese-making process, taste, safety, functionality • Area for pre-competitive industry work, innovation, research • Success stories: “Smart Slice” school pizza • Cheese is #2 calcium source in American diet • More easily tolerated by lactose maldigesters than milk • Dairy is leading food source of potassium, phosphorus, etc.

16. On the FDA Horizon … • Nutrition Facts Panel • DVs, RACCs • Dietary Guidance Statements • Definition for label use • Front of Pack Labeling • Stop lights? • Agency agenda predicts action in 2013 • But delays may be likely

17. Dairy Impact – Potential Regulations • Do FOP labels highlight positive nutrients? • Or warn against negative ones? • Will change in Daily Values or RACCs affect … • “Good” or “excellent” source claims? • Perceptions of importance of calcium, other nutrients? • Exact impact unknown until regulations published • (If they are)

18. At the State, Local Level … • Where states lead, feds often follow • Competitive foods, food safety • Raw milk debates • Food safety vs. consumer choice • Public health issue • NYC procurement guidelines • Dairy criteria similar to new USDA rules • NYC soda size limit

19. Dairy Impact – State, Local Actions • Pros and cons of multiple standards • Local control, flexibility • Challenges for national or regional manufacturers • Do standards recognize dairy’s positive contribution? • Flavored milk: Great nutrient package, 3% of sugar in kids’ diets • Studies show major milk consumption fall when flavored milk removed from schools • Challenges for national groups to respond to multiple local actions

20. Questions? Randy Green rgreen@watsongreenllc.com 202-384-1840