From Cow to Consumer: How the Dairy Industry Sheds Light on Food Waste, Byproducts, and Supply Chain Resilience

When it comes to food waste, the dairy industry offers one of the most revealing case studies in how supply chains operate under pressure. Unlike most other sectors, dairy production in Canada operates within a fully allocated system — a government-imposed ceiling on production. This quota-based model sets a hard limit on how much milk can be produced, regardless of market fluctuations, which means producers are constantly optimizing for efficiency, cost, and minimal inventory.

The Allocated Dairy System 

In a fully allocated system, demand is essentially predetermined. Dairy farmers know exactly how much they can produce, but not necessarily how much of it will move smoothly through the supply chain. This drives investment in efficiency and cost reduction — but also limits flexibility. 

Unlike shelf-stable goods, dairy products can’t be stockpiled for long periods. This is especially true for raw milk, which typically arrives at processing facilities with only about four hours’ worth of inventory buffer. Any downstream disruption — from transportation delays to equipment failures — can lead to milk being disposed of simply because there’s nowhere to store it. 

Complicating matters further, dairy cows must be milked continuously for their health and welfare. Even if demand or processing capacity drops unexpectedly, production cannot simply be “turned off.” 

Innovating Food Rescue and Diversion

Raw milk is composed of three main elements:

• Water (naturally evaporates during processing — not counted as waste)
• Milk fat
• Skim solids

When measuring food loss, organizations like ReFED focus on milk fat and skim solids — the nutritional and economic components of milk. This raises important classification challenges: what counts as “waste” versus what’s simply a byproduct with untapped potential? 

The Byproduct Paradox

One of dairy’s most intriguing features is the economic value of its byproducts. For example, in cheese production, 80–90% of the milk volume becomes whey. Far from being a nuisance, whey protein often commands a higher market value per pound than the cheese itself — especially in booming segments like sports nutrition and functional foods. 

However, the infrastructure and coordination needed to capture and repurpose these byproducts at scale isn’t always in place. In some cases, valuable materials are discarded simply because no market, processing capacity, or logistical pathway exists to keep them in the human food supply. 

This is what makes dairy such a compelling example: much of what is classified as “waste” isn’t truly waste — it’s an unrealized opportunity.

Supply Chain Gaps and Opportunities

Current limitations in the dairy supply chain include: 

• Storage constraints at processing facilities 
• Lack of coordinated networks for byproduct utilization
• Limited tracking systems to classify and quantify surplus streams 

The future potential is equally clear: 

• Developing secondary markets for surplus milk fat, skim solids, and whey 
• Investing in infrastructure for rapid repurposing into other food products 
• Enhancing traceability systems to better classify waste, loss, and byproduct flows 

This is where supply chain expertise — the kind LIDD provides — can make a measurable impact. From designing storage capacity to integrating real-time inventory tracking, strategic supply chain planning helps reduce losses, unlock byproduct value, and keep more food within the human food chain. 

The Bottom Line

The dairy industry shows us that in a capped production system, resilience doesn’t come from producing more — it comes from making better use of what we already have. That means: 

• Redefining how we classify and measure food waste
• Supporting innovations that repurpose high-value byproducts 
• Building infrastructure that allows surplus to flow into new marketsBy addressing these supply chain challenges, we can transform dairy “waste” into valuable resources — and take a meaningful step toward a more resilient, efficient, and sustainable food system.