4% I E: :3 ALL CHANNEL TRACKING Focus on School Channel 2017 Edition September 2018 miI?EUE?ep Scope & Approach The scope of this project included all Class I fluid milk sales across the United States, as reported by the Department of Agriculture. The channel-specific projection of milk sales in gallons was achieved through a multi-pronged approach involving data collection, and analysis from each of the major points in the fluid milk supply chain. PROCESSORS SERVERS Foodservice Channels Foodservice Distributors Dairy Distributors Captive Processors CONSUMERS RESELLERS Clubs and Cash & Carry Retailers 2 The School Channels Represents 7.7% of Milk Sales 2013 7.7% NC * 2008-09 was the high water year with volume at 470 MM for K-12, 2017-18 year was 402 MM, -68 MM 2015 Absolute Change vs. ‘13 2017 4 Yr CAGR MM Gal % of Milk MM Gal % of Milk MM Gal % of Milk MM Gal K-12 420.0 7.0% 411.0 7.1% 403.0 7.2% -17.0 -1.0% Pre-School/ Daycare 28.8 0.5% 29.0 0.5% 28.0 0.5% -0.8 -0.7% 448.8 7.5% 440.0 7.6% 431.0 7.7% -17.8 -1.0% The school channel includes K-12 schools plus preschool/daycare as a separately reported segment. Milk sales to schools for the 2017 calendar year were 403 MM gallons, -2% or -9 MM gallons over two years ago. This is the 10th year of the processor survey conducted for MilkPEP by Prime. 25 processors (with ~100 plants), who collectively serve nearly 62,000 (65%) of K-12 schools directly, contributed information to enable the volume projections and analysis. These processors also provide product to distributors who deliver to an estimated additional 15-20% of schools. 3 School Milk Volume Trend CAGR 9 Yr (2008-17) … -1.7% MM Gallons 4 Yr (2013-17) … -1.1% 9 Yr Chg 462 461 470 460 Flavored 330 326 331 328 White 132 135 139 132 2007-08 2008-09 2009-10 2006-07 1st Wave of White Lowering Fat* Lowering of Fat in Flavors Started* 457 317 X 140 2010-11 X (2008-17) Gallons CAGR 452 429 411 411 403 -67 MM -1.7% 309 277 270 270 273 -58 MM -2.1% 143 152 142 2011-12 2012-13 2013-14 Req’d White be 1% or Fat Free Req’d Flavored Chg to Fat Free (7/1/11) (7/1/12) N/A 2014-15 141 2015-16 N/A 2016-17 130 -9 MM -0.8% 2017-18 * Individual Districts Began Changing Ahead of USDA Requirements X Lower Fat Implementation Requirement 4 School Milk Volume by Flavor MM Gallons Flav FF 462 88.4 461 470 109.8 111.2 460 143.0 457 452 Flav 2% 39.0 White FF 6.2 White 1% 66.7 White 2% 59.2 2006-07 195.4 198.2 20.5 9.3 73.6 21.5 10.6 87.2 52.5 41.3 2007-08 2008-09 1st Wave of White Lowering Fat* 183.3 411 411 403 277.6 269.4 270.0 258.0 149.1 264.3 Flav 1% 202.5 429 166.2 44.1 0.3 34.2 11.1 1.7 19.3 1.9 30.5 82.9 87.8 117.2 112.8 38.0 X 32.7 X 2009-10 Lowering of Fat in Flavors Started* 2010-11 2011-12 105.3 2012-13 2013-14 Req’d White be 1% or Fat Free Req’d Flavored Chg to Fat Free (7/1/11) (7/1/12) 15.0 24.7 31.9 36.8 N/A 2014-15 109.1 2015-16 N/A 2016-17 105.7 Reintroduction of 1% flavors contributed 15mm gallons. 2017-18 * Individual Districts Began Changing Ahead of USDA Requirements X Lower Fat Implementation Requirement 5 Meal/Milk Standards Continues to Drive Milk Decline Over the past two years (2015-16 to 201718), milk volume in schools declined 1.9%, or 8 MM gallons. Increases in enrollment, breakfast participation, summer feeding and a la carte contributed an incremental 3.4 MM gallons. 411 MM +0.5 +1.7 +0.9 Enrollment Summer +0.3 Meals/Milk Standards Breakfast A La Carte 403 MM -11.4 Increases Due to: Decrease Due to: 2 YR. CHANGE -9 MM -2.2% 2015-16 The combination of declining lunch participation and structural changes in the school feeding programs (meal standards, lowing of milk fat levels, fruit & vegetable priority, etc.), resulted in a loss of 11.4 MM gallons over the past two years. Over five years, the loss totals 34.2 MM gallons (547.2 MM servings), roughly 11 servings per student. 429 MM 2017-18 +3.4 +2.3 +3.5 Enrollment Summer Breakfast Meals/Milk A La Carte Standards Increases Due to: 4 YR. CHANGE -27 MM -6.3% 2012-13 -1.0 403 MM -34.2 Decreases Due to: 2017-18 6 Meal Participation Changes Lunch participation has continued to decline, to under 30MM/day for the first time, as students have not embraced the new meal standards/ menus. Breakfast growth has slowed to just 1% this past year. LUNCH 31.8 31.7 30.7 30.5 30.5 30.4 30.0 29.9 BREAKFAST 12.9 12.2 13.2 13.6 14.0 14.6 14.7 14.7 2016 2017 2018* CAGR 6 Yr (2011-17) LUNCH -1.0%/Yr BREAKFAST +3.2%/Yr (Fiscal Year) 2011 2012 2013 2014 2015 *Oct-Apr Lunches served declined by 1.9 MM per day over the past 6 years. Source: USDA National Databank Breakfasts served grew 2.5 MM per day over the past 6 years. 7 Weekly Milk Servings per Student & Current Potential DEFINITIONS Weekly milk servings per student is the simplest and most comprehensive measure of milk development. The calculation is as follows: Weekly Milk Servings per Student = Milks Used in a Week Students at the School/District Schools/processors can compare their current performance against calculated “current potential.” A school/district’s potential is defined as the number of potential milk servings at lunch (5 per week), plus breakfast (adjusted for participation). Potential for Milk Servings = 5 Lunches per Week + 5 Breakfast per Week x % Served = Current Potential Processors are encouraged to evaluate and identify growth opportunities within their school customers using these metrics. 8 Weekly Milk Usage The average student used 3.39 milks (8 oz) per week during the 2017-2018 school year, a decrease of 3.1% over two years. While volume was -144 MM servings (-1.9%), enrollment grew 220 M students, thus the fewer milks per student. 3.39 milks across the average of 6.45 meals per week means only 53% of meals have a milk. This equates to 122 milks per school year across the 232 meals (across breakfast and lunch) eaten at school. The nine year decline since the limits on milk fat levels went into effect, translates into the average student using 23 fewer milks each school year. That is one full month of lunches without milk. Weekly Milk Use per Student % of Potential 2008 65% 4.03 (145.1) 2009 65% 4.06 (146.2) 2010 64% 3.97 (142.9) 2011 62% 3.95 (142.2) 2012 62% 3.91 (140.8) 2013 58% 3.69 (132.8) 2014 55% 3.54 (127.4) 2016 54% 3.50 (126.0) 2018 53% 3.39 (122.1) 9 Current Performance vs. Potential Nationally, 53% of the potential was realized in 2017, -1 point vs. two years ago. Actual weekly milk servings per student were 3.39 (3.50 two years ago), vs. 4.4 meals served, and a current potential of 6.45 servings per week. 2017-18 Weekly per Student If a Milk was consumed with every meal, the nutrient intake for the added 110 units amounts to:  32 days of Calcium RDI  26 days of Vitamin D 3.39  13 days of Potassium 122/Yr  14 days of Magnesium Milk Servings 6.45 232/Yr 4.40 158/Yr Meals Served Current Potential* *Including Brownbag & A La Carte 10 Meal Standards Drove Fat Level Changes Even so, 3.1% of flavored milk was 1% during the year. WHITE MILK This is the first year under the relaxed meal standards for flavored milk, which allows states to grant waivers allowing the requesting districts to serve 1% flavors. A small portion of the schools have sought waivers, though some states are resisting the USDA guidance and waiver policy. 28.6% 27.8% 23.2% 74.8% 62.7% 62.8% 74.8% 73.7% 77.4% 77.8% 62.8% 25.9% 22.6% 22.6% 22.2% 21.3% 13.8% 8.4% 7.6% 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2015-16 2017-18 Whole Red Fat/2% 6.1% FLAVORED MILK White milk offerings are low-fat/1% or fat free/skim. The new meal standards drove the elimination of reduced fat/2% white by the start of the 2011-12 school year. % of School Milk Volume by Fat Level (Processor based Projection) 59.9% Fat Free & 0.5% 3.1% 14.3% 55.9% 52.4% 85.6% 33.6% Low-Fat/1% 43.6% 100% 100% 100% 96.9% 47.0% 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2015-16 2017-18 11 Flavored Milk in Schools has 44 Fewer Calories than a Decade Ago Flavored milk was only 25 calories more than the white milk in schools. 121.6 121.7 121.7 121.8 131.5 142.8 154.0 156.2 160.4 The average flavored milk serving in schools has remained just under 122 calories since 2012-13. 166.1 Avg Calories in 8 oz Serving of Flavored Milk 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2015-16 2017-18 Average Calories per 8 oz of Milk in Schools (by School Year) 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2015-16 2017-18 9 Yr Change White 110.8 107.8 106.2 105.8 104.3 97.9 97.4 96.3 96.6 96.7 -14.1 Calories -13% Flavored 166.1 160.4 156.2 154.0 142.8 131.5 121.8 121.7 121.7 121.6 -44.4 Calories -27% TOTAL 150.0 144.1 141.2 140.0 131.0 120.9 113.3 113.0 113.1 113.5 -37.0 Calories -25% 12 Added Sugar has Declined Over 50% in School Chocolate Milk The sugar level in chocolate milk has declined over 9 grams per serving over the past decade. Added sugar has declined from 16.7 grams to 7.5 grams, while the sugar in cow’s milk (lactose) has not changed (~12 grams per serving). Grams of Sugar per 8 oz Serving White Flavored 16.7 Equivalent Teaspoons 10.1 7.5 7.5 12 12 12 12 2006-07 2011-12 2013-14 2017-18 4.0 2.4 1.8 1.8 13