Analyzing the Future of the US Dairy Industry in 2025
Throughout 2024, the US dairy industry experienced numerous operational headwinds. Reduced herd sizes, inflation, and ongoing labor challenges put pressure on volume, prices, and costs across the dairy value chain, and in 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.
But the news hasn’t been all bad. Consumers increasingly choose dairy, driving overall volume growth in the industry. For instance, domestic consumption of natural cheese and butter grew 1.5 percent and 5.8 percent, respectively, from 2023 to 2024.
Against this complex backdrop, McKinsey’s seventh annual US dairy survey sheds light on how dairy leaders are thinking about the industry going into 2025 (see sidebar, “About the research”). This article explores executives’ top strategic priorities—costs, talent, and volume growth—as well as how AI and sustainability have shifted in relative importance. Based on the survey and interview data, we delve deeper into these strategic priorities and offer recommendations for dairy industry executives facing the dynamic challenges and opportunities ahead.
A new set of priorities for 2025
Our 2024 survey revealed some surprising changes from years past, with cost jumping to become the top priority. New technologies, market instabilities, and ongoing challenges with talent have garnered more attention for 2025, shifting the industry’s focus from purpose and sustainability. Survey respondents expressed great optimism about the dairy industry’s recent growth but also highlighted the importance of addressing ongoing operational challenges and taking action on AI and sustainability.
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A line graph shows priorities for US dairy leaders across 2022, 2023, and 2024. The priority categories are cost, talent, volume growth, purpose, supply chain, digital and analytics, and sustainability. For the 2024 survey, relative to 2023, cost, talent, volume growth, and digital and analytics increased in priority; purpose and sustainability decreased; and supply chain stayed the same. The top three priorities in 2024 were cost, talent, and volume growth, with about 70 percent, 68 percent, and 55 percent of respondents, respectively, naming those categories as a priority.
Source: US Dairy Leadership Survey 2024, McKinsey and International Dairy Foods Association (n = 100)
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Optimism about volume growth
Dairy leaders are bullish on the future of their industry. Approximately 80 percent of leaders surveyed—up from 76 percent in 2023—expect volume growth greater than 3 percent over the next three years. In interviews, 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.
Dairy executive
Market trends have borne out this optimism. In addition to growth in butter and cheese, domestic demand for yogurt and cottage cheese grew over the course of 2024, increasing by 6 percent and 12 percent, respectively, from 2023. This could be because health-conscious consumers are increasingly looking for simple labels and nutritional benefits.
As consumers move away from ultraprocessed foods, I think they will look for less-processed foods with functional benefits. Dairy is perfectly positioned at the center of this movement.
Dairy executive
To address this growing interest, 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.
Image description:
Two pie charts show the percentage of dairy leaders who intend to increase investments in innovation over the next three to five years. The left chart shows that 65 percent plan to increase investments in product innovation. The right chart shows that 79 percent plan to increase investments in manufacturing innovation.
Source: US Dairy Leadership Survey 2024, McKinsey and International Dairy Foods Association (n = 100)
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Operational challenges
Cost and talent have become increasingly high priorities for executives.
Cost
Cost has risen in importance, 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 squeezing margins and forcing companies to look for efficiencies. As a result, 60 percent of leaders surveyed said they have altered their operations, with changes focused on rationalizing portfolios, reallocating partners, and adjusting infrastructure plans.
People are still feeling the effects of the inflation and are choosing things that are a little bit more fiscally responsible.
Dairy executive
Talent
Dairy executives are still feeling pressure on talent, a lingering effect of the COVID-19 pandemic. Talent remains a top priority for 67 percent of respondents, versus 60 percent in 2023 and 44 percent in 2022. This indicates that filling talent gaps has been more challenging than anticipated.
We’ve got plants now that have 18 different combinations of shifts that you might be able to work. It might be weekend only, an 8- or 12-hour shift, or something else.
Dairy executive
The biggest shifts since last year
The most notable changes from 2023’s survey are in the importance of AI, which rose in priority by 20 percentage points, and in sustainability, which declined in priority by 32 percentage points.
AI
Leaders reported an increasing reliance on digital and analytics, with a growing focus on AI and gen AI. Fifty-four percent of dairy company leaders reported using AI in pricing, manufacturing optimization, supply chain management, and more.
We haven’t utilized AI to any significant degree. It’s something we’re beginning to talk more about—we’re keeping our eyes open. We need to be aware when something’s commercialized and can truly add value.
Dairy executive
Sustainability
Sustainability has shifted from an emerging topic to a core factor for the dairy industry. More than three-quarters of dairy companies surveyed have sustainability strategies, and 84 percent are investing funds to implement those strategies. However, as sustainability has become table stakes, it has dropped as a top strategic priority.
The dairy industry needs to act fast on sustainability. Demand for it is coming.
Dairy executive
Looking ahead in 2025
As industry leaders look ahead, agility and resilience will be critical to maintaining operational effectiveness in a shifting macroeconomic and regulatory environment. More concretely, leaders can consider taking actions in four key areas—consumers, innovation, talent, and sustainability—to support sustained success.
- Accelerate dairy’s momentum with consumers. Leaders today can develop and market new dairy products that meet consumers’ growing preferences for simple, minimally processed foods with high nutritional value, including high-protein or high-fat options with reduced additives and sugar.
- Embrace technological innovation. Dairy leaders can strategically invest in advanced technologies and AI to enhance productivity, efficiency, and transparency. For example, leaders could adopt AI-driven maintenance solutions, such as gen AI copilots, to reduce equipment breakdowns and improve maintenance efficiency.
- Focus on workforce development. To improve attraction and retention of top talent, dairy companies can act on several fronts, including fostering a supportive work environment, offering competitive employment packages, and providing training programs for technical skills.
- Find new ways to differentiate on sustainability. Leaders can differentiate themselves by further mitigating or improving their companies’ environmental impact, such as expanding focus beyond greenhouse gas emissions to include natural capital more broadly.
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.
Dairy executive
Conclusion
Dairy players are optimistic about the future of dairy, despite current pressures. As 2025 progresses, further changes are likely to shake up the US dairy industry. Navigating this evolving landscape will mean addressing talent and cost challenges, exploring sustainability and AI, and finding new ways to meet consumer demand. By focusing on these strategic areas, dairy executives can build on the industry’s growing momentum and move forward with resilience and adaptability.
FAQ
1. What were the top priorities for US dairy leaders in 2024?
The top three priorities for dairy leaders in 2024 were cost, talent, and volume growth, with about 70 percent, 68 percent, and 55 percent of respondents, respectively, naming those categories as a priority.
2. How are dairy companies addressing the growing interest in dairy products?
Executives plan to invest in innovation by increasing their investments in product and manufacturing innovation over the next three to five years to meet consumer preferences for simple, minimally processed foods with high nutritional value.
3. Why is sustainability becoming a core factor for the dairy industry?
Sustainability has shifted from an emerging topic to a core factor as more than three-quarters of dairy companies have sustainability strategies in place, and consumers are increasingly demanding sustainable products.
