Why does oat milk cost more than dairy milk?
This is just one of the stories from our “I’ve Always Wondered” series, where we tackle all of your questions about the world of business, no matter how big or small. Ever wondered if recycling is worth it? Or how store brands stack up against name brands? Check out more from the series here.
Listener Joel Sholtes from Grand Junction, Colorado, asks:
Why does cow’s milk (which comes from a mammal that requires food and water and specialized equipment, etc.) cost less than oat milk (something a cow could eat)? Subsidies? Paying the yuppie premium?
Experts explain that dairy milk is generally much cheaper partly due to economies of scale.
“It’s an exceptionally efficient supply chain. The dairy farms in the United States have been around for a long time. They’ve been working on breeding cows in ways that actually can reduce the cost of production quite a bit. They have very well-established bottling plants, processing plants, etc.,” explained Trey Malone, an agricultural economist at the University of Arkansas.
He continued, “They have a well-defined, albeit complicated, agricultural policy structure around it, along with a bunch of cooperatives that also work toward reducing that price for the end consumer.”
Oat- and plant-based milk in general costs more than cow’s milk. In 2022, retail data showed that plant-based milk cost an average of $7.87 a gallon compared to $4.21 a gallon for cow’s milk, said Daniel Gertner, business analyst at The Good Food Institute. But there are exceptions — Gertner noted that these are general figures, and that the most affordable store-brand almond milk may be near the price of store-brand dairy milk.
How does oat milk stack up to dairy milk?
We looked at the cost of different oat milk and 2% milk brands, per ounce, at Target and Walmart. We chose 2% to represent cow’s milk because it is the most popular in the category, per USDA stats from 2017. The Oatly categories are for the company’s “The Original Oatmilk” products, while the Califia Farms categories are for the company’s “Extra Creamy” products. Here’s the breakdown:
|Oat milk brand||Price per ounce|
|Oatly (Target)||8.1 cents|
|Oatly (Walmart)||7.8 cents|
|Califia Farms (Target)||8.7 cents|
|Califia Farms (Walmart)||8.7 cents|
|Good & Gather (Target)||5.9 cents|
|Great Value (Walmart)||6.4 cents|
|Dairy milk brand (2%)||Price per ounce|
|Alta Dena (Target)||3.9 cents|
|Alta Dena (Walmart)||3.6 cents|
|Lactaid (Target)||7.3 cents|
|Lactaid (Walmart)||6.7 cents|
|Good & Gather (Target)||2.7 cents|
|Great Value (Walmart)||2.6 cents|
*These are prices listed on the websites for these stores, and may be different depending on where you live and/or if you purchase these products in-store.
A 2021 report from Mintec Global, a price data and market intelligence firm, broke down the key cost elements that go into the production of dairy- and plant-based milk, which include the raw materials, production, research and development and marketing, among other expenses.
The global milk price at the time was 1.18 cents an ounce, while U.S. oats cost 0.69 cents an ounce.
But while oats can be cheap, experts say they may be subject to factors outside of the farmer’s control.
“I’m at the mercy of international markets. I’m at the mercy of other prices for other agricultural commodities,” Malone said, explaining that the price of other crops can lead farmers to plant those instead of oats in a particular year.
And Gertner said that last year, oat harvests were poor, which led to rising oat milk prices.
Plant-based milk also requires greater marketing and R&D costs since it’s still a nascent industry, Gertner explained.
Then, you have to consider transportation costs. Historically, milk has been delivered straight from the plant where it was processed to the grocery store, cafeteria, or whichever location it needed to get to you, explained Andrew Novakovic, a professor emeritus of agricultural economics at Cornell University.
He added that this is still “a fairly common model.”
Novakovic said the large amount of milk consumed, plus the rapid turnover of milk, meant establishing a large network of processing facilities made sense. That large network of facilities helps keep transportation costs down.
He added that unlike other types of goods you can toss into your pantry, milk is highly perishable, and people might go through a gallon a week.
“That rapid turnover meant that you could have these plants busy all the time, and in a way that was sensible and economically justified,” he said.
Mary-Kate Smitherman, senior director of communications at Oatly North America, responded to our request for comment, stating: “As we’ve scaled, we’ve worked to make our product as available as possible, which is why we’re sold across all types of retailers, though of course that doesn’t dictate final price. We (Oatly) can’t have final control over the price of our products because of U.S. fair trade regulations, but since launching we’ve worked to keep our product within the same price range as other high-quality products in the dairy case.”
Dairy farms can also get various forms of government support, which come in the form of insurance plans; hundreds of millions of dollars in financial assistance; a food purchasing program in which the USDA buys dairy products for schools, food banks and nonprofits; and a price system that means there’s a minimum price for milk processors buying milk from dairy farmers.
Malone said there’s a robust safety net for dairies because of their razor-thin margins. “Over the last 20 years, we’ve seen this unbelievable decline in the number of dairies in the United States. Dairy bankruptcies are just rampant,” Malone explained.
Gertner said he expects more public and private investments in plant-based milk to lower costs. For example, this could come in the form of funding for equipment and facilities.
“Over time, that should work to help close the price gap to cow’s milk,” Gertner said.
He pointed out that other more established plant-based milks, like almond and soy milk, are typically less expensive than newer products, like oat and cashew milk.
There’s a lot happening in the world. Through it all, Marketplace is here for you.
You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible.
Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.