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 National School Lunch Program 100,715 Schools Avg. Daily Participation = 31.8 Million Students Special Milk Program 66.6 Million Half Pints Served Summer Food Service Program 39,000 Sites Peak Participation = 2.3 Million 140.3 Million Meals Served Milk in Schools $1.50 Billion Cheese in Schools* $379 Million ~466 MM gallons of Milk (4.0 billion pounds) ~466 MM gallons of Milk (4.0 billion pounds) ~ 214 MM pounds of Cheese (2.18 billion lbs milk equivalent) 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 Yogurt & Other Dairy Products in Schools* $141 Million ~ 106 MM pounds of Yogurt & Other Dairy Products Total Dairy in School Meals: $2.02 Billion Purchased food data are from SY 2010

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

6. The Environment Obesity and Overweight Focus on children & youth Fitness, nutrition Better academic outcomes Political Gridlock Makes legislation unlikely Regulation is alternative Limits of Individual Action May require food supply changes instead Sodium prime case

7. The Environment Non-Government Actors & Partnerships Foundations, public-private partnerships Growing role of IOM States, Localities Move Ahead Sometimes frustrated with federal inaction Inconsistent regulatory patchwork could result Arguing the Science Disputes on fat, sodium, etc. “Nanny State” vs. “Evil Industry”

8. The Environment Consumer Interest, Attitudes Where does our food come from? Less reliance on authority figures Non-Traditional Issues Sustainability, environmental impact, animal welfare – momentum building Interest from activists, customers, consumers

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