January 2007

The examination of various types of dairy production systems worldwide added an extra dimension to the IDF World Dairy Summit in Shanghai. Part II

A large portion of the world dairy market consists of very small farmers, with very small amounts of cows, often one, producing milk. The IDF 27th International Congress and World Dairy Summit in Shanghai, China, looked at milk production and processing from many angles, including reports from nations as diverse as Iran and China (see Part I in December 2006 issue for the full report on the Asian market).

Challenges to dairy
Globally, the dairy industry is complex and changing. Phillippe Jachnik, head of international affairs, La Maison du Lait, Paris, notes that the issue of milk pricing is a challenge. "The dairy sector has been led to a situation where dairy co-operatives are price takers rather than price setters in some countries. Also, dairy products compete with other food products for price changes in the value chain," he points out. There is no single mode that can be used in all regions of the world to set milk product prices, he concedes.
If dairy plans to be an exporter, then it must get organised, as developed countries have learned. Emerging countries, by contrast, can incorporate this into their plans for their domestic dairy industry from the beginning. "Processors and co-operatives should work together for this," Jachnik says. Forecasts indicate that emerging countries will develop most for dairy.
Another challenge is that dairy farmers in different regions of the world never have the same production costs. Most of the international trade done in dairy is on a regional basis, and disputes between countries over dairy are common.
He made a few predictions for the industry as whole, noting that the growth of added value products in the dairy sector will largely depend on local demands and tastes - the question is, what can the consumer afford in a particular country? "Dairy products will evolve in countries as they see an increase in living standards and distribution networks. Dairy contributes forcefully to the establishment of chilled distribution networks in emerging countries," Jachnik states. "It is hard work establishing a dairy chain."

African issues
Piet Theron, managing director of Parmalat Zambia, examined trends in the global dairy market and its effects on African markets for the audience. There are several challenges with dealing in Africa, depending on which country you are in. Sudan is the top milk producer in Africa, at around five million litres per year, followed by Egypt not far behind at around 4.5m litres. Kenya and South Africa, with 2.5 million litres of milk produced. (see Table 1). He notes that a large portion of milk production in Africa is done by very small producers, ie, one or two cow operations. However, the main obstacles to increased consumption of dairy in Africa are the poor infrastructure, low per capita income and low average herd sizes, Theron points out. For example, in the Congo, which is the largest country in Africa, there is virtually no infrastructure, and a very undeveloped agricultural sector. On the plus side, countries have sufficient natural resources for dairy farming, as well as available land and good genetic quality. "The people of Africa are discovering the goodness of value-added products such as yogurt," Theron says.
Plans are for the regional bodies such as SADC (Southern Africa Development Community) to develop the dairy sectors over several countries in order to grow the markets.
His suggestion for multinational companies looking to work in Africa is to not be threatening to the local industry, and to look into opportunities on the continent. "Get involved, but get involved on the ground. I see fantastic opportunities for Africa, but it not for the faint-hearted," he warns. "Don't make assumptions from afar."

European views
Joop Kleibeuker, secretary general of the European Dairy Association, had much to say on European Union dairy policy. The EU has recently been eclipsed by Asia as the largest milk production area in the world, but it remains the largest consumer of dairy goods globally. The dairy sector in the EU makes up €117 billion of the €785 bn total EU food sector turnover, and cow milk production reached 142 million tons in 2005, ahead of the US's output of 80m tons, according to analysts Rabobank. Forecasts will see the EU continue to produce more cheese than it consumes, with a similar deficit in butter and skim milk powder. Future markets in the EU will also be determined by the outcome of the WTO talks, and the EU-25 internal policies on subsidies, Kleibeuker notes. He says there is a continued need for cost reduction in the EU countries, along with product innovation, as well as an alternative approach for raw milk production management. The future is that market support schemes will be phased out, and there will be continued competition in added value products, both from within and without the EU.
Jurgen Jensen of the Dutch dairy board concurs, noting that while world dairy trade in WMP has increased by one-third since 1995, the EU has lost considerable market share since then even while expanding its home market. Meanwhile, Latin America's share has been well above the global average, with Brazil and Argentina becoming big players in this area. "International competition of Brazilian dairy companies has improved, and they sought to export dairy products when their domestic market softened," Jensen says. "This is turning inward again as the domestic market grows, but this trend won't disappear."
End markets for WMP are fragmented, ranging from Saudi Arabia and Indonesia to Sri Lanka and China. "Growth in demand in the last decade is far above average. Powder exports to China were very high in the last decade, but this has since dropped due to the Chinese ramping up their domestic production," Jurgen says.
Meanwhile, SMP has suffered from competition with whey products, and the EU and the US are now the main players in whey powders. Whey has seen an increase from 350,000 tonnes in 1995 to 960,000 tonnes in 2005. "Countries more involved in cheese production dominate this world trade," Jurgen notes.
The Ukraine is has become the largest cheese supplier to the Russian Federation, moving up to 160,000 tonnes in 2005 from 20,000 tonnes in 2000. "Russia plays a key role in cheese markets," Jurgen notes. Another new cheese player is Argentina, with improved exports to other Latin American countries.
Jensen also says that there has been a steady upward growth in global cheese production and sales of whey and whey products are flourishing. The enlarging of the European Union trading bloc has influenced Lithuania's cheese market, for example. The country formerly saw 80 per cent of its cheese exports go to the US, but now less than half of total exports leave the EU.
In the future, "dairy exports will grow in favour of WMP, cheese and whey," Jurgen predicts. "Dairy trade will definitely grow and increase but remain at a modest level. The global dairy sector will grow to offer more flexibility."

Retailing dairy
Richard Lange, general manager of marketing for Dairy Australia spoke about educating consumers at the retail shelf about the benefits of dairy. The organisation has recently launched the "Dairy Good for Life" brand, which aims to promote the virtues of dairy such as nutrition and benefits to diet and health. It is using media such as point-of-sale material, public relations events and working with companies to promote dairy via their sales force. The campaign is a co-operative one, as Dairy Australia designs the recipe, theme and photography, the retailer does the in-store promotions, and the food company funded the leaflets used in the campaign.
Lange notes the need to reach the consumer at a number of points - television, retail, print - and on an emotional level. The result has been increased awareness and sales. "Partnerships across the retail chain can produce benefits," he says.
Nathalie Noël, marketing director, Dairy Farmers Canada, also had a retail supply chain good news story for the assembled, with her discussion on how an advertising campaign improved Canadian consumption of cheese. Canadians eat cheese in 97 per cent of households, but it is mainly cheddar, followed by Mozzarella, Havarti, Parmesan and Feta. Private label cheese makes up 33 per cent of cheese sold in Canada, mainly in cheddar and Mozzarella variants.
Combining an in-store presence with magazine insertions, giveaways of leaflets, cheese ice packs and free cheese-based magazine, has shown that generic advertising improves consumption and repeat purchases. However, some retailers have demanded that dairy farmers of Canada pay for all in-store promotions, and some supermarkets have started their own promotions. Noël notes that the products that do get promoted are branded, and so the ideal scenario is to develop a programme where awareness is created around the product and its attributes, and she also calls for partnership between brands and retails to move the consumer to buy both the idea of cheese consumption and products as a result.