Dairy Supply & Demand—A Global Balancing Act Featured

Dairy Supply & Demand—A Global Balancing Act Leo Reynolds, Norwich, UK

Despite a decline in milk consumption in the US and Europe, the dairy market is buoyant, fuelled by population growth, rising prosperity and urbanisation in Africa, Asia and Latin America. Dairy manufacturers will have to get into a juggling act to find balance in the global market. By Tetra Pak


Joe Dyer, Buckhurst Hill, UK

Liz West, Miami, US

Mike, Dayton, US

Global consumption of dairy products, including milk, cheese and butter, is expected to rise by 36 percent during the next decade, reaching in excess of 710 million tonnes of liquid milk equivalent by 2024.

Booming demand, fuelled mainly by population growth, rising prosperity and urbanisation in Africa, Asia and Latin America, will likely outstrip supply, creating a deficit within the next 10 years that will almost inevitably be met by climbing prices.

Combined with changing consumption habits and shifting global demographics, our industry is in the throes of transition, with dairy companies increasingly looking beyond their own domestic markets to the wider global landscape, be it to source or to sell. It is a new, interconnected world, which will present opportunity and challenge in equal measure. 

As milk producers in established markets look for new ways to respond to a boom in demand in the developing world, they are facing the mirror challenge of falling consumption at home. 

In Europe and in North America, for example, changing lifestyles and dietary requirements have caused a significant shift in traditional consumption habits. Milk sales in the US are at their lowest levels for 30 years, while white milk consumption in western Europe has fallen 0.8 percent in the last three years.

To maintain a viable business in these markets and drive value into the sector, dairy producers are shifting towards value-added products that deliver extra nutrition, flavour or other lifestyle benefits, which have greater consumer appeal.

This includes products that meet the rising preference among consumers in developed nations for snacking, ‘deskfasting’ (eating breakfast at work) and ‘on-the-go’ consumption, creating considerable opportunity for innovation, both in terms of the product and the package.

Meanwhile, rapidly rising demand in many less-established markets for milk products towards the more basic end of the spectrum is creating greater incentive for local dairy companies to increase their own production. To sustain high quality raw milk supply, these companies are reaching out to the export countries to form partnerships. 

At the same time, however, with competition for raw milk becoming ever-more fierce, and traditional milk exporting countries reaching production capacity, developing nations are coming under increasing pressure to invest in greater self-sufficiency. In doing so, of course, they will need to address challenges related to the environment, natural resources and the availability of expertise. 

Several markets have already begun that journey. For example, despite its hot and arid climate, more than half of Saudi Arabia’s domestic milk consumption is now met from local supply, and it has built a strong export business to countries across the Middle East. 

In parallel, more and more companies in emerging geographies are looking for ways to ‘stretch’ milk, combining it with ingredients such as juice, cereals, nuts or other ingredients to create new products and formulations. 

Taken as a whole, the outlook for the global dairy industry remains extremely strong, particularly for companies that are able to tailor their operations to serve both the booming demand in developing markets, and address the need for exciting new products among consumers in mature geographies.

The dairy industry is approaching one of its most transformational eras. As a traditionally domestically focused industry, it is now facing the challenges and opportunities posed by ever increasing globalisation. Dairy companies today need to take a world view of the supply of milk and the demand of consumers.

For dairy companies in developed export markets, meeting the demand from rapidly growing emerging markets offers a huge opportunity. However, to ensure long-term success, these producers need to balance the ‘quick wins’ of exporting to fast growing economies against the need to continue to grow their domestic markets. 

This means understanding and adapting to changing consumer demographics, behaviours and lifestyles. Product diversification, innovation and brand differentiation will be crucial.

On the other hand, dairy companies in import markets must overcome the challenge of securing a sustainable, high quality milk supply. Those who are getting it right are doing so in two ways: increasing investment in domestic dairy farming, and partnering with companies in the export market. 

As businesses realise the positive effects of these collaborations, we are likely to see greater consolidation in the industry, perhaps even across borders. At the same time, companies are also working on product innovation to reduce the pressure on the milk supply.

In the context of these considerable global developments, the reaction of dairy companies over the next few years will have a significant and long-term impact on the future of the global dairy market.

 

China—Securing Supply In A
Rapidly Evolving Market


Mitch Altman, San Francisco, US

China’s rapid economic growth, urbanisation and booming milk consumption have created unprecedented opportunities for domestic and foreign dairy companies to offer new products to new consumers in the world’s most populous nation. Milk is strongly perceived as a healthy and nutritious addition to the daily diet.

China’s ever growing appetite for dairy has confronted the world’s second biggest economy with the challenge of closing the gap between the amount of milk it produces and the amount of milk its more than 1.35 billion people consume. To do so, it is looking at home and abroad to ensure a steady supply.

At home, China is encouraging the creation of bigger and more productive dairy farms. This has led to increased self-sufficiency, which stood at 86 percent last year. 

In the first half of 2014, the previous shortage of raw milk has been eased due to this higher milk production, which has also been fuelled by favourable temperatures, abundant feed supply and the effects of historical investment by the big dairy farms in their production methods.

At the same time, slowing economic growth has also reduced domestic demand, thereby resulting in the shortage of raw milk becoming less prevalent. Despite this, in the long run it is predicted that China will face raw milk supply shortages, albeit with short-term fluctuations. 

Abroad, the Chinese government is encouraging its dairy companies to expand through acquisitions and partnerships, securing dairy expertise, experience, land and milk as far away as France and New Zealand. 

Imports continue to grow with China poised to double its share of global milk imports in a little more than a decade from around six percent in 2013 to around 12 percent by 2024, according to food and drinks consultancy Zenith International.

No matter where the milk comes from, dairy consumption is set to boom in China well into the next decade with ambient milk sold in portion packs dominating the market. More than 80 percent of liquid dairy products sold in China are ambient with portion packs accounting for 93 percent of sales.

 

Diversification And Trading Up

Chinese dairies—such as Inner Mongolia Yili, Mengniu Dairy and Bright Dairy—have been making the most of growing demand by offering a greater variety of dairy products, including growth categories such as ambient yoghurt and premium flavoured milk. 

With health-consciousness growing, Chinese consumers are increasingly ‘trading up’ to buy premium dairy products ranging from ambient organic milk to other liquid dairy products (OLDP) such as premium flavoured milk and ambient drinking yoghurt. 

Bright Dairy, for example, is enjoying booming demand for its ambient drinking yoghurt Mosili’an, China’s first ambient yoghurt product. Yili and Mengniu too have seen strong demand for dairy beverages, including premium flavoured milks.

Booming demand for trading up and diversification has also created opportunities for foreign dairy companies like New Zealand’s Fonterra to sell its flagship Anchor brand of UHT milk in China or Japan’s Meiji to sell its yoghurt there.

 

Securing Supply

China’s milk deficit has also created opportunities for exporters in Germany, Ireland and New Zealand among others, to sell more milk at a time when demand is modest or falling at home. 

“With the milk production outputs increasing in Oceania and in the EU, it is estimated that the flow of dairy products… from these two regions to China will be at unprecedented levels in the coming years,” said Zenith International. 

In 2013, more than 70 percent of China’s milk import needs were met by New Zealand. Germany, the US, Australia and France met most of the remaining demand.

“China’s milk and milk powder imports will grow aggressively during 2014-2018, averaging 15 percent or more annually, before slowing down to under 10 percent annual growth during 2019-2024,” according to the research company.

“Even with estimated growth of five percent in domestic milk production in 2013, the supply demand gap keeps widening in China, opening doors for more and more imports.” 

The Chinese government has created incentives to invest in sustainable growth of dairy farming. The industry is moving from family-owned, backyard-style farming to professionally managed, large scale farms, boosting the quality and availability of Chinese milk.

China is responding positively to the increased demand for milk. New dairies providing increased domestic production and partnerships with suppliers in exporting countries are helping to secure future supply. 

Furthermore, as consumer tastes for milk develop, there is a growing demand for a variety of products, particularly those with health benefits, which has created further opportunities for local and foreign producers. 

 

 

Saudi Arabia—Milk From The Desert

Saudi Arabia has set the standard as it has worked to reduce its reliance on milk imports. Despite its hot and arid climate, it now produces more than half of its own milk and its dairy companies are enjoying thriving demand at home and abroad. 

 

With a dairy herd of around 130,000 cattle and some of the largest and most modern dairies in the Middle East, Saudi Arabia has emerged as a major dairy producer in a matter of decades.

 

Overcoming The Raw Milk Supply Issue

Investment by the oil-rich country since the 1970s to boost self-sufficiency in food, ranging from milk and eggs and meat, has turned it into a major producer of dairy, exporting to countries like Yemen, Iraq, Jordan and Syria. 

Demand is strong at home as well. Saudi Arabia is expected to see LDP demand climb by 4.3 percent CAGR between 2013 and 2016, with baby and toddler milk, sweetened condensed milk and flavoured milk performing strongly. 

White milk is also set to grow by 4.7 percent CAGR from 2013 and 2016 to almost 1.2 billion litres. While ambient milk still claims the biggest share of consumption, chilled milk is growing faster.

 

Falling Imports In Recent Years

Demand for flavoured Laban, traditional cultured milk, is also strong with demand set to rise by 1.6 percent CAGR in the three years to 2016, while flavoured milk consumption is set to rise by more than five percent. 

Consumers are also becoming increasingly conscious about health and healthy eating habits, whilst at the same time demanding products with greater differentiation, whether it’s nutrient-enriched dairy, lactose-free products or flavoured milk appealing to children. 

With a growing young population, dairy companies are seizing the opportunity to increase sales to children by promoting products such as flavoured milk and Laban as fun. 

For example, Alsafi Danone—a joint venture between French food company Danone and Saudi Arabian dairy company Alsafi—has placed a major focus on producing flavoured milk for the domestic market while another Saudi dairy company, Almarai, produces strawberry-flavoured Laban with special probiotic culture beneficial to digestive health.

Other countries seeking to boost their self-sufficiency in milk should look to Saudi Arabia as an example of how to succeed.

 

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  • Last modified on Monday, 01 December 2014 19:03
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