Move over porridge: Oat milk is whipping up an international frenzy and Canada is lapping it up

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Wallace Espresso’s weekly order of oat milk is starting to rival what it receives in cows milk. The small chain of coffee shops in downtown Toronto brings in as many as 21 cases — 252 litres — of oat milk per week. That’s far more than any other milk substitute and about half the company’s weekly supply of whole milk.

“We’re going through quite a bit,” said Daniel Wahlen, Wallace Espresso’s owner. “We serve a ton of iced oat milk lattes, tons of oat cappuccinos, oat flat whites.”

About three years ago, Wahlen’s vegan and lactose-intolerant customers started asking for oat milk. Then, everybody seemed to be asking for it, young and old, hip and un-hip. He stopped having to explain what it was or how well it steamed into foam or how familiar it tasted. Oat milk also brought less political baggage than the more traditional plant-based milks, including concerns around the environmental impacts of growing almonds, and the debate over whether soy prevents cancer, causes cancer, or is essentially neutral.

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“It’s kind of the ‘it’ milk,” Wahlen said.

To be sure, dairy still rules Canada’s grocery fridges and coffee shops, with annual sales of US$2.1 billion that dwarf the substitutes, according to Euromonitor International, a market research firm.

But the widening world of milk substitutes has now cracked the mainstream, driven by growing concerns around animal welfare and the impacts of the livestock sector on climate change. The global market for substitutes was worth about US$17 billion in 2020, an increase of more than 96 per cent since 2010, according to Euromonitor. And of all those milk substitutes — made from nuts, hemp, pulses, grains, coconuts — oat milk is widely believed to hold the most promise, growing in demand faster than many producers can make it. One of the top producers, Swedish manufacturer Oatly Group AB, notched a stock-market valuation of more than US$13 billion in its initial public offering last week, backed by celebrities including Oprah Winfrey and Jay-Z.

Oats are such an exciting space right now … not words I ever thought I was going to say

Lenore Newman, director of the Food and Agriculture Institute at the University of the Fraser Valley

As one of the biggest producers of oats in the world, Canada stands to gain from the international frenzy. Boom times for oat milk could translate into boom times for the Prairies, where most of the country’s oats are grown. “Oats are such an exciting space right now … not words I ever thought I was going to say,” said Lenore Newman, director of the Food and Agriculture Institute at the University of the Fraser Valley. “They’re not just for porridge anymore, I guess.”

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The future was not always this bright for oats. While always a major global player, Canada’s total oat production had been in decline, Newman said. But after last year’s harvest, Canada unseated Russia as the second largest producer in the world, behind only the European Union, with 4.6 million metric tons of Canadian oats — up 27 per cent over the five-year average output, according to a report this month from the United States Department of Agriculture.

Canada’s total oat exports in the 2020-21 crop year are projected to hit the highest level on record, up 13 per cent over the previous year, the federal agriculture department reported in April.

It’s taking time for people such as Newman to adjust to the excitement around oats because the market up until now had always been pretty simple: Humans consumed an incredibly small portion, the rest went toward feeding livestock. But the burgeoning trend in plant-based milk presents an opportunity to extract more value out of oats.

“The thought is it’s going to continue to grow,” Newman said. “The weird sort of success story for Canada is we grow the things you have to feed into all these plant-based proteins.”

So far, the oat-milk explosion has delivered a major victory to Canadian oat farmers, but it doesn’t have to be the only victory. In an April prospectus ahead of its IPO, the Swedish company said it relies on Canada, and four other places, for its oats.

There’s more money to be made in processing those oats into specialized ingredients for the oat milk business, but historically Canada hasn’t exactly excelled at squeezing all the value out of its raw materials before exporting them.

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Something similar happened as recently as 2019, when Beyond Meat made its wild stock market debut. Pea protein was the star ingredient in Beyond Meat’s plant-based burgers and sausages, and Canada was growing a lot of those peas, but not processing as many.

But that old story is changing. French food giant Roquette Frères SA is expected to have its $600-million pea processing facility in Manitoba fully operational by early next year, and much of its powder protein product will be destined for plant-based meat products.

Oats appear to be up next. Regional processors have an advantage because shipping relatively heavy boxes of liquid around the world is expensive. So, the opportunity is in processing the raw oats into different inputs for oat milk manufacturers around the world. Some Canadian mills are expanding existing facilities or adding new ones to keep up with demand, according to the western Canadian consulting firm Oatinformation, which works with oat millers and food manufacturers.

“There is growth everywhere,” Oatinformation president Randy Strychar said. “I’ve been in the oat industry for 40 years. This is a pretty exciting time.”

Just as it doesn’t make sense to ship extra water around the world, it also doesn’t make much sense to ship raw oats since the hulls on them aren’t worth much.

That means Canadian mills, which are close to the fields, are best suited to do primary processing for the oat milk business — taking off the hulls and cutting them into flakes.

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Those flakes can go to a secondary processing facility aimed at making what’s known as “oat liquid,” Strychar said. Oat manufacturers can then mix the concentrated oat liquid with more water and other additives to make milk closer to the consumer.

Making oat liquid is something of a new game in Canada, and a backlog has begun.

Silk — the top alternative milk brand in Canada owned by Paris-based yoghurt giant Danone S.A. — is now struggling to procure enough processed oat ingredients in Canada to make its oat milk for this market.

“I don’t think Canada had seen the wave coming so they’re kind of trying to close the gap,” Geneviève Bolduc, marketing director of Danone’s plant-based food and beverages division in Canada, said in an interview.

Silk’s oat milk sales in Canada have been growing by more than 300 per cent in the last 12 weeks, compared to the previous year. That growth could be enough for oat milk to soon pass soy milk as Silk’s second biggest product, behind only almond milk, Bolduc said. To keep pace, Bolduc said Danone is working with Canadian processors to expand the industry’s capacity to process oat milk ingredients, which the company’s co-manufacturer in Ontario uses to produce Silk products.

“This is something as well that needs to grow because there’s such a high demand for oats right now that there’s a bottleneck at some point,” she said.

Canada does have a strong stable of plant-based milk producers domestically, which has been quietly pumping out soy milk for decades, including Vancouver-based Earth’s Own Food Co., and Quebec-based Natura Foods.

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Earth’s Own — the second biggest alternative milk producer, with a 28-per-cent share of the Canadian market — has spent roughly seven years figuring out how to process Canadian oats into milk. It runs two facilities at either end of the country — one in Vancouver, the other in Quebec City — that make the concentrated oat liquid, about the consistency of heavy cream, said Earth’s Own chief executive Maheb Nathoo.

The liquid is then shipped to one of three packaging plants that mix the concentrate with water, add minerals and vitamins and package the milk.

It’s tougher to make than, say, almond milk, because making that oat liquid involves a whole series of “complex, interdependent, multistage” processes, Nathoo said.

“We’ve been at it for over seven years. So it’s not something that came about overnight,” he said. “This is where our scientists and our engineers come into play.”

Earth’s Own total sales in all alternative milks last year hit $125 million, according to Nathoo. The company has the top-selling oat milk in the country, with sales hitting triple-digit growth.

“We are at full capacity,” he said, adding that the company is making capital investments to expand its oat processing capacity. “The demand is outstripping the supply at this juncture.”

Nathoo started the company in 1997 as Soyaworld Inc., and then rebranded as Earth’s Own a decade ago when it became clear the opportunity was bigger than soy.

He now employs 300 people. At some point in the future, after he gets a handle on the domestic demand, he’d like to start exporting Earth’s Own concentrated oat milk base.

“From a Canadian point of view, there is a huge opportunity to take this know-how worldwide,” he said. “But at the same time, we recognize: one step at a time.”

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