Chapter 2 - Department of Agriculture

Transcription

Chapter 2 ‘Market developments and future market opportunities’
Contents
Page
1. Market development within the international dairy sector
55
2. Drivers for changing dairy demand within the zones
57
2.1 Product types
2.2 Changing population levels
2.3 Changes in distribution channels
3. International dairy markets
63
3.1 Trading zones
3.2 Fonterra: an example of a player using international trading zones
4. The Afro European zone
66
4.1 The north south divide within the zone
5. Changing market opportunities
5.1
5.2
5.3
5.4
68
Western European markets
Emerging markets of Eastern Europe
Middle Eastern – North African markets
Other international markets – Mexico, USA, China
6. Strategic market options for the Irish dairy processing industry
75
6.1 First step
6.2 Second step
7. Global market opportunities for Ireland
7.1
7.2
80
Key market opportunities for Ireland
Fast growing market opportunities
8. Summary of key messages from the international market
opportunity review
54
82
Strategic Development Plan for the
Irish Dairy Processing Sector
1.
Market development within the international dairy sector
Dairy products are one of the few foods that are consumed by all sectors of the international community.
That said, at the moment, the type of product varies greatly from one region to another, as does the per
capita level of consumption. In developing countries, the market is dominated by milk powders; in
developed markets, such as Europe and North America, a greater and ice cream, is consumed. As
economies develop and consumers become more affluent, however, the mix of consumed dairy products
will become more varied, and include an increased volume of value -added products. This is already
happening in Europe, where the volume of goods sold is decreasing, as consumers consume more
added value, luxury dairy products at the expense of fluid milk; but the value is rising.
The Northern Hemisphere markets are also home to the large players of the dairy food industry, including
companies such as Danone, Nestlé and Kraft. Local dairy industries, from producers to processors, have
developed within these affluent markets, and now produce a wide range of dairy consumer foods that
meet evolving market demands. While these products are high value, many of them, (e.g. yoghurt), are
made using much smaller quantities of milk than, for example, cheese, butter, or dairy ingredients. These
higher value products are usually required to be fresh, and in many cases have short shelf lives.
When reviewing international dairy markets over a period of time, it is possible to determine a series of
development cycles relative proportion/volume of added value dairy foods, such as yoghurts, dairy
desserts to dairy consumption, processing capability and production. To assist in the understanding of
this situation, the following framework has been constructed.
The level of demand for various types of dairy product tends to follow the nature of the consumer,
distribution and competition base in any country. These bases are closely related to the prevailing level
of economic development, as a major factor of consumer freed om and affluence. It is possible to argue,
for the purposes of this report, that all countries follow the same basic pattern of economic development
(albeit with regional variations) that takes place across five stages – from most economically
disadvantaged to the most developed. The process is a succession of lifecycles, as represented below:
Figure 6 International dairy sector development
Stage 1
Less developed
Dairy consumption
patterns
•Low dairy consumption
•Mostly liquid and fresh
•Low value-added
Stage 5
Re-invention
Key dairy
industry characteristics:
•Small fragmented herds
•Small individual holdings
•Cottage in nature
•Technologically deficient
Dairy consumption
patterns
•Value consumption
•Functional/ised
•Local supply mostly fresh
Major product lines:
•Local produce
Dairy consumption
patterns
•Increasing consumption
•Imported dairy products
•Powder
•UHT
•Luxury products
•Functional/ised
•Speciality and niche
Key dairy
•Indigenous industry is small
•Excessive fragmentation
•Stagnant herd numbers
•Cool chain developing
•Powder
•UHT
•Cheese
Stage 2
Developing
Key dairy
•Decline in local production
•Decline in local processing
•Imports of commodity
•Imports of ingredients
Dairy consumption
patterns
•Volume consumption
stagnates and even declines
•Value-added products
dominate
•Powder (decreasing)
•UHT (flat)
•Fresh milk
•Cheese
•Butter
Dairy consumption
Key dairy
patterns
•Increasing consumption •Sizeable dairy herds
•Added value products
•Large retailers emerge
•UHT
•Cool chain developing
•Fresh liquid
•Cow numbers decline
Stage 3
Developed
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Key dairy
•Increasing local
production
•Investment in processing
•Imports decline
•Cow numbers decline
while yields p/c increase
•Luxury products
•Value-added
•Fresh
•Some UHT in value-added
Stage 4
Advanced
©2002 Promar International
Stage 1 represents countries still in the very early stages of economic development.
These countries are typically less industrialised, with a very fragmented economy and prevailing rural
population. Dairy consumption may or may not be large (depending on the country), but is necessarily
local in terms of production. Importantly, cow milk may not be the basis of the industry, with large volumes
of milk available from other species including buffalo, goats and sheep. Dairy production is mostly
‘cottage’ in nature, with most basic processing to suit local needs (butter, cream, curds etc). Street trade
and ‘loose’ vending dominate. In most Stage 1 countries, consumption is concentrated almost exclusively
around centres of production; pan-national dairy trade is almost non-existent.
Stage 2 depicts industrialised market economies that are opening up to world competition
In these markets, systems and individuals have greater freedom, companies are often privatised and
restructured, and individuals are encouraged to set up businesses. The drivers of this intense phase are
political and social. Increasing affluence leads to an increase in consumption of dairy products, generally
based on liquid milk products with some increase in preserved dairy products, including cheeses. The
local dairy industry cannot normally cope effectively with this increase in demand (be it for reasons of
infrastructure, capacity or technology). A clear lag develops between growing consumption and undersupply by the local dairy productive sector. As a result, imports proliferate, especially in the form of
powder for reconstitution into liquid milk and UHT dairy products. In time, inward foreign investment in
technology and infrastructure at both a production and processor level encourages the domestic sector’s
growth.
Stage 3 represents markets that have successfully moved through stage 2, and need to refine
their industrial base as the level of competition intensifies
Accessing new technologies and new methods/systems to remain competitive is critical to avoid slow
down in the economy. Generally, these markets have cheap access to imports, and successfully sell their
products into markets that are not protected by tariffs or other trade barriers, or where they are able to
compete on cost against more expensive Western commodities. At this stage, dairy production becomes
industrialised, with volume output prevailing. At the same time, local consumers are becoming more
discerning as a result of increasing affluence, with a noticeable shift to value-added products.
Importantly, countries become mostly self sufficient in liquid milk.
Stage 4 markets are well developed economically, with a pronounced shift towards a ‘service’
economy (as opposed to a conventional ‘industrialised’ one)
At this stage, access to a new dairy product idea, concept and brand is more business crucial than simple
access to the ingredient base or processing capacity as such. This becomes particularly clear as volume
consumption stagnates, and food assumes new roles beyond basic nutrition. At this stage, dairy products
are particularly vulnerable to decline in volume consumption as substitutes proliferate. Excess production
of basic dairy commodities is exported, thus facilitating overseas expansion (NZ). In some markets, most
notably the EU, governments strive to limit dairy production in some shape or form. On a company level,
new product development in the areas of packaging, flavour and so on to maintain consumption,
underpins moves to increase the value-added components of basic dairy output. This is the area into
which the majority of Western European markets currently fall.
Stage 5 This stage is more difficult to characterise as it represents the future
It is envisaged that at this stage the population will be self reliant and assertive, having seen the
government withdraw most of its support. Economies will be totally driven by technology and service.
The mass market, as we currently know it, will disappear, with many fragmented niches emerging. In
particular, income disparities will increase, polarising the indigenous population into the ‘haves’ and the
‘have nots’.
Importantly for dairy products, overall consumption will continue to decline, while the total sector value will
continue to increase. Clearly, this means a massive shift to value-added products, away from commodity
ranges. Success within these sectors will be dependent on providing product solutions for consumers.
Within this solution provision aspect of the market, issues such as packaging and route to market will
become more and more important. It is likely that similar products will be increasingly differentiated, to
meet the demand of diverse consumers, utilising a range of distribution options (retail, foodservice,
vending, home delivery).
Running parallel to the increasing affluence of consumers is the increasing production costs of dairy
products within these markets. In many cases, the cost of resources to the productive sector – especially
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labour and land – result in higher priced base dairy products. This creates a situation where local
production of dairy products becomes uncompetitive. This can force a consolidation of the industry in an
effort to reduce per unit production costs through economies of scale. Another response is for the local
industry to concentrate on higher value dairy products, where margins are great enough to offset
production costs. This creates opportunities for the importation of base dairy products for use as
ingredients in manufactured food or unbranded (own-label) retail products.
2.
2.1
Drivers for changing dairy demand within the zones
Product types
As mentioned earlier, the primary driver for changing consumption patterns in dairy products is
consumer affluence
Increase in consumer spending power is generally closely related to increasing employment levels, and
decrease in the amount of leisure time. This includes time available for cooking. Living patterns are also
changing, with the rise in single occupancy households and a decline in cooking skills. The net effect of
these changes is a greater demand for convenience.
When this move towards convenience is combined with greater spending power, two results are seen: a
greater demand for higher value luxury items, as a greater number of consumers have the ability to pay
for such products, and a move towards more convenience orientated food products as consumers are
prepared to pay others to undertake food preparation for them. As a result, the dairy sector has
witnessed a growth in manufactured food items at the expense of base dairy products; for example, ice
cream consumption relative to butter.
Austria provides an example of how this transition occurs. Although westernised, it has experienced
significant consumer spending growth since joining the EU in 1995. The World Bank now rates consumer
spending at $US24,970, comparable with Ireland at US$25,520. In the period since 1995, there have
been significant shifts in the pattern of dairy product consumption. In summary, per capita consumption
of milk has declined by 1.2% from 65.29kg to 64.53kg (RTS Associates and US Census), while during the
same time total cream consumption decreased by 11.5% and ice cream grew by 1.8%.
When reviewing dairy product consumption changes with consumer affluence growth across a wide range
of markets, the following trends are identified:
Figure 7 Changes in product usage
Product usage
Cheese
Butter
SMP
WMP
Affluence growth
As consumer spending increases, cheese consumption appears to be the major dairy product
beneficiary
Even in markets that are considered to have high levels of dairy product consumption, for example
France, cheese consumption has continued to rise in the past decade. In fact, within the French market,
cheese consumption has grown by 10% to 21.6kg in 2001 (ZMP). However, when looking at the cheese
market in particular, its growth within more affluent markets appears to be limited to soft and fresh
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cheeses at a retail level, rather than semi-hard cheese varieties, including cheddar. This should be of
concern for semi-hard cheese producers.
There has also been growth in SMP usage, particularly as an ingredient in consumer dairy foods
Historically, large volumes of SMP have been used in the production of animal feeds in the developed
markets of the EU, even to the point where inclusion rates of the product in calf feeds was regulated by
central government. Apart from the widespread usage in animal feeds, SMP is increasingly used as an
ingredient in the production of consumer dairy foods, including yoghurts, dairy desserts and some cheese
production. Consequently, the growth in luxury and consumer foods has resulted in larger quantities of
the product being used in goods for human consumption. Increasing demand for added value dairy
products is driving the growth of SMP usage in affluent consumer markets. This is best demonstrated in
Denmark and the Netherlands, where high production and consumption of consumer dairy foods has
resulted in SMP production increasing, albeit from a low base, by 138% and 37% respectively over the
past decade, while at the same time exports have decreased by 14% and 38%. The increase in SMP
production in the Netherlands in 1998 to its current level may also be related to the reduction in cheese
production in that year in order to achieve an increase in cheese prices.
Butter consumption in western markets has been mainly static or falling
Butter has been the mainstay for many dairy industries, and is seen as a staple ingredient in Western
breakfasts. However, in recent years, changing eating patterns, including the increase in breakfast cereal
usage, has seen a reduction in retail butter sales across most advanced dairy markets. Also impacting
on the popularity of the product has been concerns about its higher fat content, and the suggested link
between butter and increased cholesterol levels. At the same time as these concerns were being
expressed, many margarine and butter-like spreads have been entering the market, and positioned
themselves as healthy alternatives to butter. A number of these products are also produced by leading
food companies (Unilever with Flora), and these products are supported with large advertising and
marketing (A&M) budgets. Margarine products have also been targeted at younger health-conscious and
time-constrained consumers who have welcomed the opportunity for a butter alternative. Even in
traditional butter markets like the UK and Ireland, consumption has fallen by 5% and 2% (ZMP 2002).
However, butter is fighting back, and after a decade of declining demand, the launch of lower -fat butters
is arresting this fall, and they are now taking sales from margarine. While this is positive, the actual
quantity of yellow fats in these products is reduced compared to traditional butters, and as such we could
expect to see butter sales remaining relatively flat in the future. Within the last year, the UK market alone
experienced a decline of 4% (to €1,184mn) in block butter sales, while dairy spreads increased by 5.4%
(to €317mn) and functional spreads by 18% (to €28mn). At the same time, margarine sales showed only
a modest increase of 2% to €907mn (Independent Retail News 2002). With the increasing focus on
healthy diets, lower fat, functionally based spreads can be expected to grow further.
Butter is increasingly being used as an ingredient product in the manufacture of bakery and confectionery
products (driven in part by the subsidies available for its usage), which are later sold through the retail
sales channels. This area of sales is expected to offset some of the loss in retail sales of block butter.
Declining WMP
WMP has primarily been used as a product for reconstitution into liquid milk products. The greatest use
of WMP is in ‘hot’ country markets where local production is unable to meet the demand of increasing
dairy consumption. In advanced markets, the usage of WMP relative to fresh liquid milk is small. As
consumers become more taste-conscious, there is increased demand for fresh liquid milk products, and
as a result the demand for WMP has declined.
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Key points
While absolute consumption values vary between markets, the trends in product usage remain
consistent, and it is these that are critical to the understanding of the market opportunities in the future.
The critical factors are that as markets develop:
•
Cheese consumption increases – especially in the softer and fresh cheese varieties
•
SMP increases, but at a slower rate than cheese
•
Butter consumption is static (at best)
•
WMP usage declines
2.2
Changing population levels
Changes in consumer affluence impacts on the relativity of the product mix within individual
markets
The change in population levels increases or decreases the total volumes of dairy consumption in the
individual markets. In Western European markets, most populations are not predicted to increase
significantly, in terms of total numbers. This is a result of declining birth rates, with the major trend being
the increase in the age of the consumer.
Table 36 Estimated changes in population
Country
Austria
Belgium
France
Germany
United Kingdom
Poland
Hungary
Czech Republic
United Arab Emirates
Saudi Arabia
Egypt
Population 2000
Population 2015
(Millions)
(Millions)
Average annual
population growth
rate (2000 – 2015)
8.1
10.3
58.9
82.2
59.7
38.7
10.0
10.3
2.9
20.7
64.0
8.0
10.3
61.6
80.0
59.7
38.8
9.4
9.9
3.8
32.1
80.7
-0.1
0.0
+0.3
-0.2
0.0
0.0
-0.4
-0.2
+1.8
+2.9
+1.6
Source: World Bank, 2002
From this comparison, the population growth in the Middle East and North Africa is dramatic, and will
provide an increased market for dairy produce. The growth in Egypt’s population and increasing
consumer affluence is expected to create demand for an additional 94,000T of cheese, 28,000T of butter,
2,300T of WMP and 3,700T of SMP annually in the next 15 years.
2.3
Changes in distribution channels
Further complicating market opportunities in the future is the changing market channels
In the past ten years, the role of foodservice distribution has grown, and is currently estimated to account
for between 30% and 40% of all food sales 40 within the almost €800bn Western European food market.
The growth in retail sales and foodservice are in response to changing consumer purchasing patterns that
result, on the one hand, in less time spent in the preparation and eating of food, and increased variety of
food recipes on offer. Factors driving this include the move towards greater female employment, the
increase in working hours, and the rise in single person households. This combination has resulted in a
greater demand for out-of-home eating and pre-prepared foods (for example ready meals). Growth in
convenience eating has meant that the sales of ingredient products at retail level have declined
significantly. For example, across the EU, the sales of culinary fats and oils used primarily for in-home
40
Promar International reports into the European foodservice market, 2002 estimates.
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preparation of meals has declined by 0.2% during the past 5 years (RTS Associates), while during the
same period, sales of processed and packaged foods have increased by 5.4%.
To demonstrate the impact of these changes the following table estimates the changes over the next 15
years in the relative strength of the various sales channels across some selected Western European
markets for cheese.
Table 37 Changes in sales channel by country
Country
Year
Industrial %41
Retail %
Foodservice %
United Kingdom
2002
2015
2002
2015
2002
2015
2002
2015
2005
2015
17
25
5
6
7
20
10
20
5
15
60
45
60
58
69
50
70
55
70
55
23
30
35
35
24
30
28
30
28
30
France
Germany
Sweden
Italy
Promar International trade estimates
Across all markets reviewed, there is a trend towards greater use of dairy products in industrial
and foodservice channels at the expense of retail
The speed of this transition away from retail is very dependent on the products and the markets
concerned. For example, in France 42, where cheese sales are steeped in tradition and dominated by
specialist cheese counters and retailers, change will be slow. Meanwhile, in the UK, where pre-packed
mild cheeses sold through multiple retailers dominate the market, change is likely to occur at a faster rate.
The changes in distribution by sales channel have a large impact on product usage, and in the case of
the UK, it is predicted that while there will be an overall increase of 87,000T annually over the next 15
years, the retail sales channel will actually lose 42,000T, while industrial use will increase by 65,000T and
foodservice by 64,000T. This has serious consequences for branded retail products, as they appear most
at risk from the changes to the market channels. The arrest of this decline in volume will be dependent
on gaining market share from other competing brands, with this most likely to be achieved through large
investments in A&M – a costly strategy.
2.3.1 Changes in retailing
Increasingly, retailing is being dominated by large multi-national players
These include Wal-Mart with its operations on both sides of the Atlantic, and pan-European operators
such as Auchan and Royal Ahold. The size of these operations results in the retailers having the ability to
exert enormous purchasing power, and place downward pressure on price. Together with this downward
pressure on price, most retailers are also keen to offload costs onto suppliers. Strategies to do this
include the requirement for joint funding of A&M, through to involvement in new product development
(NPD) to assist the retailer to achieve market differentiation.
With the scale of multi-national retail operations, suppliers into this format are increasingly asked to be
category managers, responsible for the provision of the full range of dairy products, from fresh milk
through to added value dairy products, often in branded and own label ranges. As a result of this
requirement, suppliers must have sufficient scale and product portfolios (or distribution access to
products) to meet this demand – 365 days a year. This poses difficulties for a number of dairy
processors.
41
Industrial uses of dairy include processing into food products for later sale. This includes pizza and bakery
products that can be sold later through retail. Retail is for direct product sales only.
42
Hard cheeses only (excludes soft and fresh cheeses)
60
Requirements for successful retail supply:
•
The ability to access a full product range, and ability to manage a dairy category
•
Sufficient scale to supply products required
•
Ability to innovate to create product solutions for retailers
•
Financial resources to assist in joint marketing campaigns
43
Retailers are also facing competition from foodservice outlets, with many looking to adopt formats that
enable them to access the growing out-of-home eating market through the provision of ready meals and
eating facilities.
Across Europe, there is a wide range of business formats being adopted to provide market
segmentation for multiple retailers
The growth of the hard discount format that dominates the German retail market is expected to spread
across Europe through the expansion of companies such as Aldi. At the same time, operators including
Wal-Mart and Tesco are also expected to expand their formats across European markets, while other
players will continue to move their offerings upmarket to capture the aspirational consumer who is
prepared to pay for quality attributes. The end result will be a repositioning of some individual retailers as
they attempt to carve out a market niche for themselves. There will be opportunities for existing (and
potentially new) suppliers to these multiples to supply products in their expanded markets.
2.3.2 Changes in foodservice
During the past decade, foodservice sales have increased at a rate of between 2.5% and 5%, with
some variation between countries, but on the whole at twice the rate of retail food sales growth
This has been in response to changing consumer demands for more convenience, and the rise in the
snacking or grazing food culture. The growth is now beginning to slow in some markets, in particular
Germany, while others such as Italy are growing rapidly. This variation is expected to continue into the
future.
It is often commented that the retail food sector is becoming increasingly consolidated and competitive;
the same is true of foodservice. Even countries with fragmented foodservice industries, for example
France, are seeing an increase in more organised distribution channels. This will create purchasers of
greater power, who will place greater demands on suppliers. Currently, suppliers to the foodservice
market need to concentrate on the following issues:
•
Flexibility – the ability to supply what is required, when it is required, to a service-demanding customer
•
Consistently high quality – product and service
•
Establishment of long-term supply relationships
•
Reliability
In the future, the bases of competition will be:
•
A focused approach – specific products for foodservice, not just another outlet for retail products.
(This is best demonstrated by the investments in new cheese technologies for foodservice by some
Irish dairy processors)
•
Targeting of key accounts with dedicated resources – this channel is expected to be larger than retail
by 2015, so requires at least as much effort
•
Push into high value areas. Suppliers will be increasingly asked to provide customised bespoke
solutions based on in-depth understanding of operators’ needs
•
The marriage of R&D with in-depth customer/channel understanding and commercial astuteness
•
Increased product flexibility.
43
Within the UK there is a trend towards the use of category management by large multiple retailers (e.g. Asda).
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2.3.3
Changes in industrial uses
Historically, the industrial and food manufacturing uses of dairy products were limited. However,
the rise in out of home eating has resulted in significant growth of the prepared foods markets –
up by 45.5% (RTS Associates) across Europe in the last six years
Other areas of convenience foods, for example sandwiches, have increased by 49.6% during the same
period, and pizzas by 12.4%. These products are accounted for by what is termed the industrial sector,
as they are manufactured by specialist food processors for sale as branded and own label products
through the retail channel.
Like foodservice, this channel is becoming increasingly specialised, with the requirement for product
solutions by dairy processors to meet the specific demands of the manufacturing processes involved.
In the future, the bases of competition will be similar to those of foodservice:
•
A realisation that this is a distinct market, with defined requirements, not repackaged retail products
•
Solution provision and a need to work closely with clients to match demands
•
Willingness to supply tailored and differentiated products that are customised for a particular
customer
•
Ability to supply consistent quality when and where required
When reviewing the market channel changes, one factor remains – retail is decreasing in importance in
volume terms, while industrial uses of products and foodservice continue to account for larger shares of
dairy usage.
Retail branded consumer goods
While retail branded dairy products is a key area, they are facing significant challenges. The mature retail
market for dairy products (in total) is resulting in the need for constant product innovation to drive
increased sales values. The resultant investment required for new product development (NPD) is large.
Conversely, suppliers of branded retail dairy products (butter, cheese) are being forced to spend ever increasing amounts on advertising and marketing to maintain sales volumes. As an example, it is
reported that Arla invests between €16m and €23m annually to support the Lurpak brand in the UK alone.
In future, the trade off will be between increasing investments in NPD, or ongoing A&M spend. This
decision will need to be made in light of the specific markets in which the product is positioned; for
example, the ongoing investment in weaker brands in declining markets may indeed be questionable.
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3.
International dairy markets
Despite the seemingly considerable value of the global dairy market per se, the intercontinental
trade in dairy products is fairly limited
Most trade takes place at the intra-regional level, often within the major trading blocs such as NAFTA and
the EU. This increasing trend in region trading of products is supported by a recent US Treasury Report,
stating that growth in trade between the US and Mexico has increased relative to that of the EU.
(Mexican imports are up 167% since 1994, EU imports increased by 86% during same period; exports to
Mexico have grown by 100% since 1994, while exports to the EU grew by 50%.) The major reason
behind dairy ‘regionalisation’ is the protection of the indigenous dairy industries by their respective
governments44. As a result, only around 7% of the global dairy production is moved around the globe.
Export-wise, New Zealand is a clear leader, exporting close to 95% of its dairy output (which accounts for
almost 30% of the internationally-traded volume).
Figure 8 International dairy markets and major trading blocks
The majority of dairy products are produced and consumed within domestic markets.
Table 38 Percentage of world dairy production and consumption
Dairy production
(% of total world production)
Dairy product consumption
(% of total world consumption)
39
16
1
37
20
1.5
European Union
USA
Japan
Source: Promar International 2001
This reflects a not uncommon trend in the food and drinks industry. Companies in large domestic
markets tend to remain domestic (US), while successful companies in small domestic markets eventually
outgrow these, and are driven internationally for growth. Examples of this include Nestlé in Switzerland,
the original Unilever food company in the Netherlands, Carlsberg in Denmark, and the Dutch pork and
dairy industries. The threat is that as domestic markets mature and the large domestic players outgrow
them, the large players need to look internationally to sustain growth, bringing extra scale and cash flow
to their operations, with the result that international competition increases.
44
Where trade is not regulated, such as in whey products, intercontinental traffic flows are greater.
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This relatively small trade in dairy products would appear to be counter to international trade liberalisation
initiatives advocated by organisations such as the WTO, and agreed to during the last round of talks in
Uruguay. However, running against these freer trade policies are the actions of large fir st world
economies to protect domestic dairy industries. The most recent example of this is the revised Farm Bill
in the US, which will effectively increase the support to US dairy producers through a combination of the
Dairy Exporters Incentives Program (DEIP) and the National Dairy Markets Loss Assistance Program.
These programmes have also been reinforced with a market price support package managed by the US
Department of Agriculture, for the purchase of milk powder, cheese and butter. Despite this internal
policy change, on the world stage the US continues to advocate a move towards freer international trade.
Given the slow progress on liberalisation through the WTO, it is difficult to see the US changing its
double-handed stance, although it is likely that as part of the Doha Round of talks, it will be placed under
pressure to reverse some of its local industry support measures.
While the US Farm Bill action is designed to encourage the well being of domestic producers, there are
other policy tools that are used on a wider scale to discourage a greater trading of dairy products
internationally. The EU, for example, is managed as a single market, with the free trade of products
between countries inside the Union, and less advantageous trading conditions for third country exporters
into the region. This policy has hindered the ability of other international producing nations to access one
of the world’s largest dairy markets. The NAFTA agreement in the Americas has also encouraged the
trade of product within the region, rather than the use of third country imports. While not on the same
scale, there are also flotillas of free trade agreements within Asia under the banner of APEC (Asia Pacific
Economic Area). Those countries not belonging to any particular trading bloc at the moment are engaged
in mutual bilateral trade arrangements, as is the case between Poland and the Czech Republic.
The combination of such agreements has led to a slowing of the trade in international dairy products
between the three trading zones (America, Europe and Asia). In part, this is due to the enhanced
productivity of a number of dairy industries within the zones, and a decline (in volume terms) in the
consumption of dairy products within some developed markets. This is particularly true of North America
and Western Europe. This drop in volume consumption has been countered by an increase in the value
of dairy products consumed, as consumers have become more interested in branded dairy products and
added value dairy goods, including yoghurts and dairy desserts instead of liquid milk and butter. For
example, the consumption of liquid milk across the EU has fallen by 2.3% since 1996, while during the
same period yoghurts, dairy desserts and ice cream have increased by 3.3%, 3.5% and 7.4%
respectively (RTS Associates data).
64
Through the combination of slowing global trade in dairy products and an increase in the number
of regional free trade agreements, the world is quickly developing into a three-zone market place
Figure 9 Emerging-trading zones
Region 1 - Americas
Region 2 - Afro-Europe
Region 3 - Asia
3.1 Trading zones
Free trade agreements and advantageous trading arrangements between nations are driving the
development of the zones
In many instances, these new trade relationships are similar to those that existed between European
countries and their colonies in the past – designed to supply low cost goods to higher value markets.
In addition to these trade arrangements, additional business factors are also hastening the development
of the process. Within each of the zones, there is a developing ability for self-sufficiency. In particular,
base ingredient products from South and Latin America are able to service the demands of the
manufacturing sector in the US and Canada. The same is true in Europe, with the developing production
systems in the East potentially able to supply shortfalls in products in the West. And also in Asia, with the
large natural resources of Australia and New Zealand being used to deliver raw products for increasing
numbers of consumers in Asia.
Reduced transportation costs
Within zone trading has the ability to reduce transportation costs for traders
This is of particular importance, as many of the products supplied are lower value commodity-type
products including grain, meat and dairy products. In the future, the direct costs associated with shipping
are expected to increase.
Decreased trading risks
Also supporting the creation of these three distinct trading zones are the decreased risks
associated with business transactions
Of particular concern are financial risks involved in the use of different currencies. Within each zone,
most currencies, although floating, tend to be loosely tied to each other. Also, events that impact on one
currency within a zone tend to impact on others, and any relative currency depreciation or appreciation
tends to be minimal in the short-term.
3.2
Fonterra: an example of a player using the international trading zones
New Zealand’s newly created integrated dairy processor and marketer has embarked on an ambitious
programme to consolidate its global position. However, the investments that have been made have
65
concentrated on one or two zones. While continuing to trade in Europe in some base dairy products, the
company has rationalised its investments in consumer foods by creating a joint venture with Arla Foods of
Denmark. Under this arrangement, a joint venture company 75% owned by Arla and 25% by Fonterra will
manage Fonterra’s Anchor butter brand. This will lessen Fonterra’s direct involvement with the UK butter
market, and possibly see the brand used on a wider range of consumer goods. Fonterra will profit
through an enhanced dividend stream.
Within the South American market, Fonterra has formed a joint venture with Nestlé for the production and
marketing of consumer dairy products. This will see Fonterra provide expertise in the running of largescale production facilities, and Nestlé will bring resources in the areas of brands and marketing expertise.
While the South and Latin American markets currently use large quantities of base dairy products from
New Zealand, in the future a larger proportion of local consumption will be provided by domestically
produced milk. As with the UK butter market, Fonterra is as likely to derive future value through dividend
streams as from direct dairy product sales.
In the meantime, the New Zealand based company has been consolidating its business operations within
the Asian region to utilise NZ produced milk. This has been done through acquisitions in Australia and
Asia in production and consumer goods manufacturing and distribution operations. (e.g. Britannia Foods
– India.)
The best opportunities in the future for Ireland could well lie within the Afro-European zone
Given the development of world trading zones, it is predicted that the best opportunities for the Irish dairy
processing industry could lie within the Afro-European zone. Despite this, there will be opportunities
outside of this zone for some differentiated or traded products, but these are unlikely to account for large
volumes of milk, and may be opportunistic in nature. Longer-term opportunities in other trading zones do
exist; however, they will require Irish investment with hands-on local involvement and even local sourcing,
rather than exports from Ireland.
4.
The Afro-European zone
Net dairy exporters like Ireland have the ability to supply products to most stages of the
development cycle, as dairy products are consumed at all points
This said, however, the type and range of products required will vary depending on the stage of
development of the different markets, and Ireland may be better placed to supply these markets due to
factors such as geographical position or cost. The summary market requirements and industry structures
for various products within the development cycle are profiled in the following table:
Table 39 Market requirement and industry structures
Stage
1
2
3
4
Consumption
Liquid milk products
Traditional preserved
products (ghee)
Liquid milk
Cheeses
Liquid milk
UHT milk
Cheeses
Butter
Some added value
products (yoghurt)
Liquid milk
Cheese
Butter
Added value dairy
Functional foods
Local production
Major distribution
channels
Liquid milk
Ghee
Fragmented door to
door
Milk powders for
reconstitution
Liquid milk
Cheeses
Milk powders
Liquid milk
Cheese
Butter
Powder
Added value
products
Liquid milk
Added value
Butter
Cheese
Local markets
Fragmented retail
Milk powders
Some cheeses
Consolidating retail
Direct sales
Smaller amounts of
powder
Cheese
Butter
Organised retail
Foodservice
Direct sales
Vending
E-commerce
Powder
Cheese
Butter
Functional additives
66
Import
opportunity
Stage
5
Consumption
Liquid milk
Cheeses
Butter
Added value dairy
Functional foods
Local production
Major distribution
channels
Liquid milk
High value dairy
products
Branded consumer
foods
Functional foods
Foodservice
Industrial
Organised retail
Import
opportunity
Powder
Cheese (industrial)
Butter (industrial)
High value
ingredients
Functional additives
Given Ireland's present product portfolio, the market's best opportunities at this moment in time appear to
be in countries within stage 2 of the framework, that are developing dairy product demand greater than
supply. Additional requirements for imported dairy products also exist within stage 5 of the framework,
due to the increasingly uncompetitive production costs of the local industry, which results in a move away
from the manufacture of lower value dairy products by domestic processors. As a result of this conscious
move away from base products by local processors, these countries will increasingly import greater
percentages of base dairy products for use within the food manufacturing sectors. The best example of
this to date is the increased imports of butter by France. During the next 10 years, other Western
European markets, including the UK and Germany, are expected to follow similar trends and develop
demand for products to substitute the fall in local production of some low value dairy ingredients.
However, while base dairy product opportunities also exist in stages 3 and 5, they are limited. Instead,
there is an increasing demand for added value dairy solutions in stages 4 and 5. The consumer trend
towards more differentiated products has dairy processors competing to deliver new and innovative
products that utilise milk. In many cases, these will involve the use of convenience-orientated packaging,
branding, or the use of food functionality (claim of additional health benefits from the use of the product).
In effect, the basis for competition in stages 4 and 5 is as much about being different to gain market share
- with many consumer dairy markets mature, product innovation and differentiation will be the key tools
available to processors to drive continued consumer demand. As a result, to capture opportunities in
these markets, Ireland will need to move away from product-oriented trading to market-oriented supplies.
4.1
The North-South divide within the zone
It is possible to further split the Afro-European zone according to the stages of the development cycle. In
particular, there is a distinct North-South divide, with the developed first world economies of Norway and
the EU and their demands for greater value -added dairy products rather than volume. In contrast to this
grouping, countries in the African area are generally less economically advanced, and food is still
consumed as a need, rather than being tailored towards convenience or indulgence. The greatest
requirements within these poorer markets for the foreseeable future will be based around base dairy
products for reconstitution into liquid milk. The same is true in the Middle East, albeit for climatic, rather
than economic, reasons.
In between these two extremes are the markets of Eastern Europe, which with their increasing social
development, are creating greater demands for added value products, while at the same increasing
consumer demand is enabling the domestic industry to gain critical mass, usually through outside
investment (for example, Campina’s investment in Romania).
This in effect creates three areas of interest for dairy processors looking for export market opportunities
within the Afro-European zone, Western Europe and Scandinavia (approaching stage 5), Eastern Europe
(between stages 3 & 4) and thirdly North Africa and the Middle East (stages 2 & 3). Other opportunities
may exist within the zone in stage 2 countries, however the majority of dairy produce trading is likely to be
accounted for within these geographical areas.
The opportunities within the Afro-European zone
Given the current economic viability, eating habits and distribution systems employed within the region, it
is unlikely that all of the zone will provide viable across-the-board opportunities for the Irish dairy sector.
In fact, given the present situation, there are likely to be few options beyond those presented by Europe,
the developing Eastern European markets, the Middle East and North Africa; but these can be maximised
through individual product-to-market alignment.
5. Changing market opportunities
While it is tempting to look at past developments and historical data on markets within this strategic
framework, it is critical to look at the developing trends within the market for dairy products within the
67
Afro-European zone and wider international market. It is important to consider what is changing, given
that within these changes lie the greatest opportunities in the medium term.
5.1
Western European markets
Includes current EU states.
These markets can be characterised by high levels of consumer affluence, and well developed
domestic dairy industries that have evolved to being able to supply a complete range of dairy
products, from base dairy ingredients to value-added consumer foods
In the main, the dairy industries are constrained by the production caps imposed through the EU’s CAP
legislation. As a result, milk production is static, and increased industry efficiency has resulted in falling
cow and farmer numbers. Most countries have undergone significant rationalisation of the dairy sector,
including both producers and processors. For example, in the Netherlands, dairy farmer numbers have
declined by 41% since 1990 to 27,926, and dairy processing sites from 95 in 1990 to 63 in 2001.
Across the markets, the high levels of consumer affluence (average US$24,000) are well above the
global average. This has translated into a very discerning consumer base that is increasingly prepared to
pay for convenience and service, with large growth in the foodservice and ready meal sector. It is
predicted that the market channels for dairy products will change significantly, with foodservice and
industrial uses for dairy products growing at the expense of retail, as consumers increasingly prefer meal
solutions to home cooking.
These changes in sales channels represent a significant shift in dairy market opportunity. In the past,
retail sales of dairy products have been dominated by the power of brands. With falling sales of dairy
products through retail, brands will come under greater pressure, and may need to be considered as part
of a product portfolio, rather than as a single stand-alone product within a market. In fact, a large supplier
of packaging solutions to the dairy industry predicts that the liquid milk market in Europe will be
dominated by one local brand in each country, with retailer own labels accounting for the remainder of the
market.
Specific market opportunities
Cheese
Consistent with the advanced markets internationally; the growth in the cheese market is
expected to be dominated by fresh and soft varieties – not a traditional strength of the Irish dairy
industry
Aside from this, a number of other market opportunities have been identified, including:
•
Opportunities exist in the UK for innovative products within the cheese sector, as this market
becomes more European in its eating tastes. Cheddar, with 4% sales growth in the period 1998 to
2002, is increasingly, losing out to speciality and continental cheeses, which have increased at a rate
of 26%. Success will be dependent on the building of a strong market position, based on positive
defendable values and technical attributes. Ireland already exports 90,492T of cheese to the UK, and
with an estimated market share of 13% is well established in the market, and ideally positioned to
take advantage of some of the predicted 87,000T increase in consumption. Given Ireland’s track
record in cheese technology and the UK’s taste for cheddar, this should make Ireland better placed
than most to build upon its market position.
•
The growth of regional foodservice operators in Germany could also provide opportunities.
The use of milder cheeses in this sales channel should also enhance the Irish offering of cheddar,
gouda and mozzarella into this market. At this stage, the growth in cheese through foodservice is
estimated to be 112,000T, but any opportunities are likely to be price sensitive, and based on
providing differentiated products specifically suited to customer needs.
•
The Scandinavian pre-occupation with animal welfare and wholesome foods could play into
the hands of the Irish. In addition, the size of the hard cheese market could well provide some
opportunities. The Scandinavian market is also very health motivated, and would appear open to
functional food opportunities with cheese. Success in this market will be based on NPD.
•
The growth of the French QSR market will require larger amounts of cheese. The wider
foodservice market is expected to grow by 41,000T, and industrial cheese usage by 59,000T. With
the move towards the production of more added value and branded consumer goods by the domestic
68
French dairy industry, opportunities could exist in this market for a lean low cost commodity cheese
supplier to French foodservice players. While it is possible that the indigenous industry players will try
to capture some of this hard cheese market by diverting resources from other branches of milk
processing (e.g. powder manufacture, etc.), the requirement for a highly efficient and competitive cost
structure could represent a challenge for local processors.
•
Organics is an important category across a large number of EU markets, most notably in the
North and Scandinavia. Its rate of growth far exceeds that of other foodstuffs; similarly, prices of
organic products may be as high as 150% compared to their conventional counterparts. In the UK,
for example, organics today accounts for just 1.5% of all grocery trade (with organic baby foods
rumoured to have a much larger share). However, its share is expected to increase to 5% by 2010,
and as high as 10-12% by 2015.
•
Functional foods are another potential area of application for the Irish dairy sector. The EU
functional food market today is estimated at €13 billion; it is growing in excess of 15% annually.
Importantly, most successful functional products so far have been based on dairy (yoghurts, pro-/pre/sym-biotic drinks, etc). Coupled with a strong research base available in Ireland, ‘green’ Irish dairy
may be in a winning position across many European markets.
Butter
The growth of foodservice and industrial uses of butter dominates the opportunities for Ireland. In
general, branded retail products will continue to be under pressure in light of the growth of own label
products45 (through hard discounters) and ongoing competition from non butter based spread, without
significant investments in NPD (to make them functional or health focused) or large ongoing A&M spend.
•
Specialist butters for use in the production of confectionery and bakery products would
appear to offer the greatest opportunities. This is particularly true in markets where local
production has moved towards branded retail products, away from more base dairy butters.
Unfortunately, this market will be dominated by price.
•
Organic butter is another opportunity to increase penetration of Irish dairy within Europe. As
in the case with cheese, Ireland is inherently in a very advantageous position to promote herself as a
key supplier of organic butter into many markets.
•
It is estimated that the market for industrial butters will grow by 29,000T in France, 19,000T in
Germany and 12,800T in the UK. At the same time, the total market for butter will grow by only
17,000T in France, on the back of increasing population and increased usage in French cuisine, will
remain static in the UK, and fall by 16,000T in Germany.
Powders
The majority of powders are used within the industrial sector of the market. In the next few years, this is
not likely to change. This said, however, the market for the sale of base milk powders will continue to be
very competitive.
•
Success will be based on the ability to provide specialised product solutions, often using
proprietary technologies. This is particularly true, of the baby food sector, where significant
opportunities exist for Ireland to capitalise on its clean and green image and build on its already
strong position in this market segment.
•
Other market opportunities will be based on price, particularly in Germany and France, as
none of the products supplied will be consumer facing, so will not represent any opportunity
to capture brand value. The ongoing viability of supplying these markets will be based on the ability
to provide product solutions to specific client-facing manufacturers.
•
Overall, powder growth is expected to be small in volume terms, with most of the increase in
demand for production of added value products utilising SMP that has in the past been used
for animal feeds. This volume used for animal feeds is likely to fall in response to declining cattle
numbers across Europe.
45
This is not the case in the UK, where own label butters have only a small market presence.
69
Table 40 EU – Opportunity matrix based on points of differentiation
Point of
differentiation
Cheese
Butter
Base powders
Value-added
powders
Natural
Germany
Scandinavia
UK
Scandinavia
UK
Not relevant
Whole of the EU
esp. UK
Technology
Scandinavia
Quality+
Culture/Affiliation
Cost
UK
UK
Germany
EU
UK
UK
Germany
France
Scandinavia
Location
Isolation from food
scares
Scandinavia
UK
UK
UK
Germany
EU
UK
UK
Germany
France
Scandinavia
Scandinavia
UK
UK
Scandinavia
UK
Whole of the EU
Not relevant
Not relevant
EU
UK
UK
Germany
France
Scandinavia
Not relevant
Whole of the EU
EU intervention markets
The EU’s market intervention policies have helped to underpin the production of butter and SMP in the
past. In years when it has been possible to sell products into intervention, Ireland has taken advantage of
this (see chapter 1). The Agenda 2000 reforms reduced the level of interve ntion price by 15% for SMP
and butter. This change is intended to reduce the cost and level of market intervention required in the
future. Agenda 2000 also confirmed the usage of the current quota system until at least 2006. As part of
the CAP review, the commission looked at a range of alternatives for dairy sector reform, and highlighted
the implications of these in terms of markets and policy 46. In general, the Commission suggests that if
liberalising reforms were introduced, it would almost certainly enhance the EU’s and Ireland’s export
potential.
While some within the Irish dairy industry do not believe that much will change in relation to EU policy in
the future, this view (although justified on the rate of change during the past 10 years) would appear to be
at odds with most market commentators in the long-term. Regardless of this view, international dairy
industries that have adopted a market-focused approach, and adapted to supply greater added value
products, have gained strength and competitive advantage relative to Ireland in the past ten years. This
is particularly true of the Danes (see chapter 1).
It is difficult to see a long-term future within the intervention markets. Ireland’s dairy industry must be
encouraged to develop new strengths to re-position itself on the European and international dairy
markets.
5.2
Emerging markets of Eastern Europe
These markets are characterised by lower levels of consumer affluence
For example, Poland, Czech Republic and Hungary have consumer spending levels of US$9,000,
US$13,780 and US$11,990 respectively, well below the EU average of about US$24,000.
Following accession to the EU, it is anticipated that consumer spending will increase, and while not
reaching the levels of other EU member states, will be much improved (World Bank). In terms of expected
dairy market developments (based on the market framework), we should witness increasing consumer
demand for all dairy products initially, then a switch from volume consumption increase to one of value
increase. While the local dairy industry will adapt to these changes (it is currently self-sufficient in basic
dairy products), production caps imposed as part of the accession process will limit milk output, and it is
possible that in the medium term, there could be opportunities for the importation of some base dairy
products to fill the gap between supply and demand.
46
The Commission have recently come forward with their proposals, which are currently under discussion at Council
level. These proposals would result in further price support reductions and an extension of the quota system until
2015 with further direct payments to farmers
70
Even given this opportunity, Ireland may be a little late out of the blocks, as a number of leading dairy
companies in Europe (for example Campina) have already invested in dairy processing facilities in the
region. Given that in the longer-term, consumer demand could well be based around added value dairy
goods, this investment should ensure that these players are well placed to supply these developing
markets with fresh liquid milk and processed products.
In addition to this, some Western European dairy processors believe that processing capability within
these markets could provide them with cheaper sources of raw milk for the manufacture of base dairy
products for use in manufactured food products within their own domestic markets. While the economic
development within Eastern Europe can be expected to increase the costs of dairy production in this
region, it is likely that they will remain less than those of the more developed dairy industries of Western
Europe for the foreseeable future. This represents a significant longer-term threat to base dairy product
producers such as Ireland.
Based on the experience of East Germany’s reunification, the rate of economic development could also
be varied across countries, resulting in pockets of affluence with quite different product demands.
Despite this range of demand, it is expected that the best opportunities in the short-term could be for the
sale of base dairy products into these markets to fill gaps between local demand and supply. In the
longer-term, the low production costs in Poland and other accession countries could pose a serious threat
to Ireland within the EU market for base dairy products. This will make it critical for Ireland to actively
seek a new market position within Europe to ensure its longer-term profitability.
Table 41 Eastern Europe – Opportunity matrix based on points of differentiation
Point of
differentiation
Natural
Technology
Quality+
Culture/Affiliation
Cost
Location
Isolation from food
scares
Cheese
Butter
Base powders
Value-added
powders
Not relevant
ü
ü
ü
ü
ü
ü
ü
Not relevant
Not relevant
ü
5.3 Middle Eastern – North African markets
These countries have consumer affluence levels well below those of the preceding countries (Egypt
US$3,670, Algeria US$5,040, Saudi Arabia US$11,39047) and, generally, have no well-developed dairy
industries, or high levels of per capita consumption of milk. Many of the region’s governments have
recognised this and implemented policies for the increase in milk consumption; for example, the Algerian
programme to increase milk consumption to 110 litres per capita. Given the present state of the local
dairy industries, such initiatives are expected to drive demand for milk powders in the future.
The economic development of this region is dependent on political stability, and this is far from
certain
Current information from the World Bank suggests that the economies (measured as GDP) are growing at
less than 5.0% (Algeria 1.6%, Saudi Arabia 1.6%, United Arab Emirates 2.9%, Egypt 4.4%). Despite this
rate of growth, the local dairy industries will be unlikely to be able to provide the necessary production to
meet growing consumer demand for basic liquid milk products due to a combination of production,
processing and logistical constraints. The modest GDP growth suggests that the growth in consumer
affluence will also be slow, resulting in the market for dairy goods being volume rather than value-based
in the medium term.
The lack of well developed and integrated cool-chains for the distribution of fresh dairy goods will
see a continuation of a market dominated by milk powder for reconstitution into liquid milk and
UHT products
47
While having a higher consumer spending power, this market is included in this area as it is reliant on supplies of
powdered dairy products for reconstitution into liquid milk. This is due to the fact that the country is unable to develop
its dairy industry to meet demands due to climatic constraints, so will remain reliant on importation of dairy products.
71
This is not to say that there are not opportunities within cosmopolitan centres for higher value goods, but
these opportunities will be limited, and will require large investments in branding and product support.
Other dairy industries have a strong presence in the region, in particular, New Zealand through Fonterra.
This position has been built around a series of reconstitution plants and associated distribution
businesses that are used to provide liquid milk products to the market using New Zealand milk powders.
The reliance of the market on milk powders is set to continue, and given predicted population increases
(5.1% in UAE, 2.9% in Saudi Arabia and 1.6% in Egypt), will continue to grow by 6,000T in Egypt,
40,000T in Saudi Arabia, 8,000T in the United Arab Emirates, 56,000T in Algeria and 7,600T in Bahrain,
Oman, Kuwait and Qatar.
These are significant opportunities, but they will be based on price, and could require investment
by processors in further processing facilities in these countries to maintain market access
Table 42 North Africa and the Middle East – Opportunity matrix based
on points of differentiation
Point of
differentiation
Natural
Technology
Quality+
Culture/Affiliation
Cost
Location
Isolation from food
scares
Cheese
Butter
Base powders
Value-added
powders
Not relevant
ü
ü
ü
ü
Not relevant
Not relevant
ü
ü
5.4
Other International markets
5.4.1
Mexico
The Latin American market is one of the few that is expected to develop significantly in terms of both
consumer affluence and volume during the period. As such, it offers opportunities for both base dairy
products and added value consumer foods.
When reviewing the opportunities in Mexico, the following were identified:
•
Growth in industrial and foodservice demand for cheeses (78,000T) as the market develops for
out of home eating. In the main, this growth is expected in harder varieties for QSR, and semi-soft
mozzarella for use in foodservice. Retail demand for cheese is expected to be static.
•
Milk powders will continue to be demanded to support government initiatives for the stateassisted supply of dairy products to schools and lower income families. The trend for
increasing powder consumption will primarily be driven by population growth, slowing in the longerterm in response to increasing local liquid milk production.
While this market would appear to represent a good opportunity for dairy exporters, the region’s
involvement in the NAFTA agreement means that many dairy exporters outside of this treaty will find in
increasingly difficult to compete with imports from the US after 2008. Initially, a tariff rate of 20% on
imported products will be applied on butter from 2003, and will be extended to milk powders from 2008.
Table 43 Mexico – Opportunity matrix based on points of differentiation
Point of differentiation
Natural
Technology
Quality+
Culture/Affiliation
Cost
Location
Isolation from food scares
Cheese
Butter
Base powders
Value-added
powders
Not relevant
ü
ü
ü
ü
ü
ü
ü
ü
Not relevant
Not relevant
ü
ü
ü
ü
72
5.4.2
The USA
The US appetite for dairy products is expected to continue to grow. This will be driven by economic
growth influencing dairy product consumption patterns, and a predicted population increase of 12.8%
from 281.6m to 317.8m in the next 15 years.
There are a number of counter trends within the US market; the nation is increasingly concerned about
diet, but is reporting increased rates of heart disease and obesity ; t he demand for health products and
dietary supplements is increasing at the same time as the fast food market
In the short-term, growth in out-of-home eating will continue to drive demand within the industrial
and foodservice sales channels
In addition to this, some sectors of America are expected to become more cosmopolitan in their eating
tastes, which will open up opportunities for more European-style foods. The following opportunities have
been identified in the market:
•
Cheese consumption is expected to increase by 25% (967,000T) during the next 15 years. This
will be driven by foodservice and industrial growth. The decline in retail cheese sales ( -45,000T) is as
a result of consumers switching to stronger flavoured cheeses, and a fall in volume sales of milder
cheese, as their use in home cooking is replaced by pre-prepared food products. Significant
opportunities may also be stimulated through the WTO’s Doha Round, where it is expected that the
US will be put under pressure to increase market access for semi-hard and semi-soft cheese
varieties. Contrary to most other markets, butter usage in the US has increased in the past few years
(up 14% since 1997 – ZMP). The majority of this growth has been in the industrial area, stimulated in
part by the changes in payment structure placing greater value on protein relative to fat. This has
effectively made butter (vis a vis other yellow fat products) more cost competitive. It is predicted that
butter sales will slow in the future, and actually decline on a per capita basis as consumers switch to
perceived healthier alternatives, including margarine spreads.
•
The powders markets in the US will grow on the back of industrial processing into addedvalue food products. While standard opportunities exist for yoghurts, ice cream etc, the US market
offers the greatest opportunities for high added value dairy powders for use as functional additives.
Access to this market will be based on new technologies and high R&D spend; however the rewards
should be high. Currently, Americans spend in excess of US$15 billion per annum on dietary
supplements, and this is expected to increase in the future. Historically, US dairy processors have
not been aggressive in this area, and have concentrated their efforts on volume milk sales and the
production of consumer foods.
Consumers in the US are becoming increasingly technology savvy, and this is increasing demand for
technology-based foods. In contrast with the Japanese market, Americans are inclined to look for dietary
solutions through a combination of standard food and dietary supplements, taken separately. The
Japanese and Europeans are demanding food-based dietary solutions – functional foods. This creates a
market in the US for high value dietary aids for inclusion into standard foods.
In the longer-term, functional foods are expected to grow; however, it may be a case of creating
functionality for American food, rather than dairy-based functional foods like yoghurts
Table 44 US – Opportunity matrix based on points of differentiation
Point of
differentiation
Natural
Technology
Quality+
Culture/Affiliation
Cost
Location
Isolation from food
scares
Cheese
Butter
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
73
Base powders
Value-added
powders
ü
ü
ü
ü
5.4.3
China
The Chinese dairy industry, although developing, will struggle to meet the expected increase in
demand for liquid milk
As a result, it is expected that China will remain a net importer of base dairy products for some time to
come.
The market is split between developed areas on the East Coast, the large cities of Shanghai and Beijing,
and the relatively undeveloped hinterland. This divide creates difficulties in predicting future product
demand, as added value consumption will increase in isolated pockets of affluence, while the majority of
the market will continue to be dominated by the need for milk powders. This difference in dairy
consumption patterns within the country is best demonstrated by a recent USDA report stating that fresh
milk consumption in urban areas is currently 11.9kg/person/year, while in rural areas it is only
1.2kg/person/year. This demand for milk powders will be underpinned by Chinese government initiatives
to increase milk consumption. The current strategy is to increase dairy consumption to 10kg in 2005,
16kg by the end of 2010 and 23kg by 2015. This would create a huge demand for milk products.
In reviewing the market, the following opportunities have been identified:
•
The market will be dominated by growth in milk powders for the production of liquid milk
products. The increasing consumption of liquid milk as a result of population (and to some extent,
consumer affluence) growth is expected to create demand for at least another 57,500T of WMP and
74,500T of SMP.
•
Some of the growth in demand for milk will be met by local production; however, this will be wel l short
of the demand. Most local milk will be used in fresh or UHT form.
•
There is expected to be continued growth in the use of yoghurts, while some affluent areas
could well follow the trend in Japan towards the use of dairy-based functional foods. This
market is likely to be dominated by branded products, manufactured locally using domestically
produced milk.
While the gross market opportunities in China are large, the ability of Ireland to capture large portions of
this is questionable. Geographically, other lower cost producers are better placed to supply base dairy
powders to this market, and the competition for market share will be price. The costs of transport (which
currently disadvantages European exporters) will become increasingly important if Europe’s subsidisation
levels are to decline. In addition to this, others, including New Zealand, have established relationships
with distribution partners within the market. There is likely to be demand within the Chinese market, but
in the foreseeable future it is expected to be a more opportunistic rather than long-term user of Irish dairy
products.
Table 45 China – Opportunity matrix based on points of differentiation
Point of
differentiation
Natural
Technology
Quality+
Culture/Affiliation
Cost
Location
Isolation from food
scares
Value-added
powders
Cheese
Butter
Base powders
ü
ü
ü
ü
ü
ü
ü
ü
ü
ü
74
6. Strategic market options for the Irish dairy processing industry
Given the market factors considered elsewhere in this report, it becomes clear that competing in the
commodity end of the dairy spectrum, at least as far as the Irish dairy processing sector is concerned, will
be an increasingly difficult proposition:
•
Trading in commodities is becoming less and less profitable due to the decline in many
commodity prices in real terms, and inherent price volatility associated with commodity trading, that
requires international competitiveness in raw material costs and processing efficiency to remain
viable. In addition, difficulty in predicting exact demand fluctuations in the target markets makes the
commodity export policy less manageable.
•
The New Zealanders (and other competitors) are managing to produce commodity products
48
cheaper through lower production costs and greater scale at production level, leading to lower raw
material prices paid by processors, and also through major scale at processing level to achieve
greater processing efficiency, which is an all important consideration in a commodity business.
•
Central and Eastern European countries, especially Poland and the Czech Republic, represent a
real threat of further depressing commodity trade through their cheaper production costs.
•
Subsidies and market supports are not guaranteed in the future, and any decline in these could
impact on producer prices paid for milk.
As a result, the longer term options for the Irish dairy seem to be limited – either stay largely in
commodities or base products as a proportion of overall product mix (and be eventually beaten at this
game by leaner and hungrier competitors with more rationalised and cheaper production base), or opt to
produce a far greater proportion of higher value-added and consumer oriented products and industry
ingredients.
6.1
6.1.1
First step
Development of a home market
In order to sustain (and hopefully, expand) market share, the Irish dairy industry would need to
consolidate its position within what it considers to be its home market. (Note: home market in this
sense is not just necessarily limited to the island of Ireland)
Trade value
Figure 10 Product value Vs distance to market (Step 1)
Full range
Selected products
Targeted markets
Base products
Distance to market
At its most general level, the graph above reflects this idea. This development will necessitate the
provision of a complete range of dairy products to support the demands of this market, from liquid milk,
fresh dairy products, powder, cheese and butter through to branded consumer goods and added value
ingredients. To create such a position would require access to liquid milk products, as they are still
critical to the support of a home market. This dominance of the home market is required in sufficient
scale to support market partners, especially in retail and foodservice, which require a one-stop shop for
the supply of goods.
48
On an unsubsidised level. Prices from the EU and US are currently competitive through export subsidy
programmes.
75
This home market, while naturally including Ireland, may need to be greater for reasons of market size.
The decision on what constitutes the home market must be based on two critical factors:
•
The ability to supply the complete range of dairy products (including liquid milk)
•
Markets that have an affinity with what Ireland has to offer, i.e., which appreciate the difference and
the value of the offering. This could be based on issues such as history, culture, clean and green, or
simply price. Ireland has already established the Kerrygold brand for some consumer foods. There
could well be opportunities to build a better defined product portfolio around the attributes of this
brand.
Admittedly, the question of the ‘home market’ is open to interpretation. In an ideal world, we would want
Ireland to be a dominant player in most European countries; however, this is clearly a very difficult task,
given the strong national industries of many European neighbours. At the very least, it would be
desirable to attempt to displace out-of-market importers (such as New Zealand and Ukraine) in the
commodity ranges in countries such as Italy, followed by advances on the traditional domains of
indigenous producers in Germany and the Iberian peninsula. Ireland is currently not very strong in
consumer facing products and this will need to be rectified in order to harness opportunities in France
and, especially, the UK.
But whatever the message, it must be consistent across all products within what is defined as the home
market. Dominance of this market is critical for the ongoing success of the industry. While the exact
market share is difficult to estimate given the different dynamics evident in every individual market, it
would certainly help if Ireland were to become the largest importing agent locally.
While the creation of a home market is the first step in the process, it is imperative that the Irish dairy
processing industry identifies what it actually is, and the attributes that an Irish dairy product has to offer.
Why is it different? Where is its value?
Clearly, the above step is built on utilising and enhancing the current mix of products. As a result, due to
their price sensitivities, the trade values of the more commodity type of products in the mix will decline the
further the distance to the target market (as the graphic above demonstrates).
6.1.2
Identification of key markets
Further away from its home markets, the industry must match products on offer with local market
conditions
Clearly, there may be less profit in the future from volume sales of WMP or SMP in Eastern Europ e, or
commodity cheddar cheese in the Middle East. Every market is a complex entity, which needs different
communication messages (even for the same product) to buy into a product or a concept. Furthermore,
the product portfolio available must be market-tuned to the specific needs and requirements of that
market (in terms of packaging, etc), rather than manufacturer-led:
•
Middle East – powders (or even liquid milk), value cheeses
•
Eastern Europe – quality butter and value cheese
•
North Africa – commodity powders and cheese
As we have indicated above, the long-term prosperity of the Irish dairy processing sector will be closely
dependent on its unique differentiation from other similar industries. In particular, we have identified the
following points of differentiation that may be used to positively distinguish Irish dairy produce from other
competitors:
Natural – the fact that Irish dairy products are produced from a less industrialised source, plus pasturebased feeding, is an important competitive advantage, particularly given the increasing organic
consumption and widespread consumer concern about environmental issues
Technology – this point is two-fold. On the one hand, the message of minimal use of contemporary
technology may be used with the product’s ‘naturalness’ above. On the other hand, utilisation of
substantiated technology (i.e. in functional foods) will be advantageous in more developed markets.
Ireland is very well positioned to take advantage of the latest functional food technology, as some
pioneering research is conducted in the country itself, and the research base is strong (e.g. UCC and
Teagasc)
76
Quality+ – Ireland has a widespread reputation as a quality dairy producer, often above that of its
competitors. This is a very important attribute that must be used extensively when marketing Irish dairy,
especially to higher-margin customers
Culture/Affiliation – the industry has long known that Irish produce has considerable recognition in many
European countries and the US. Part of this recognition is rooted in human migration (US), but the
importance of more famous Irish exports (such as Guinness, Irish salmon, Bailey’s, Irish whiskies etc)
must not be underestimated. The Irish dairy must simply build aggressively on this product awareness to
extend it into the dairy sector
Cost – Ireland is still one of the lowest cost producers in the EU. This message, while not unique in
itself, will provide some important competitive advantage in cost-driven markets, especially when coupled
with other points of differentiation discussed here
Location – as a member of the EU, Ireland is an integral part of the community. This means no trading
barriers within the market, while on the outside it allows the creation of an association with ‘all things
western’. Clearly, the Irish Sea is an expensive one to cross if you trade exclusively in commodity, but
the industry will find that this factor will diminish as the overall portfolio changes to include value-added
ranges
Isolation from food scares – is perhaps one of the most potentially valuable points of advantage for the
Irish dairy industry in today’s climate of consumer preoccupation with food sourcing. Ireland, like most
European countries, has had to combat FMD, BSE and similar, and it is vitally important for the country to
continue to take every possible measure to prevent a major food scare from occurring. This isolation from
food scares can then be used as an advantage in developed countries with high levels of consumer
concerns and/or purity expectations, especially the UK, Northern Europe and France.
However, while the opportunities may be diverse, and require different sets of supporting messages
depending on the market, it is critical that the points of differentiation for the products in individual markets
be tuned to the specific expectations of those markets. Effectively, this means that a limited number of
messages (a maximum of 3) must be used in every target market to support Irish products; the choice of
these points of differentiation will depend on the degree of market maturity and sophistication.
Different messages for different markets and different products, but all based around a similar
theme. After all, the Irish dairy industry needs to give its customers and consumers what they
want, rather than what it has to sell
The most important thing here is to make sure that profitability is built not on throughput alone, but also
on a portfolio management approach. In the conditions of commodity trading, one of the best trade
rationalisation tools available is a tight portfolio inventory. In other words, providing only ‘what is needed,
where it is needed’ may not increase price, but it will certainly help to decrease costs. This means that
product stockpiling must be avoided, with just-in-time deliveries introduced and internal supply
management tightened (although this may present significant challenges to Ireland’s dairy processors
due to the seasonal nature of milk supply).
6.3 Second step
It is our belief that if Ireland is to be a successful dairy player, it needs a ‘smart targeting’
approach, coupled with a strong consumer franchise built on a uniquely Irish, hard-to-emulate
competency
77
Figure 11 Product value Vs distance to market (Step 2)
Trade value
Value-added products
Selected products
Targeted markets
Full range
Base products
Distance to market
While the basic core approaches remain important to support volume sales (full range to protect and
expand in the home markets, tailored products to specific markets, and commodity exports for further
afield), a new dimension is added. Developing branded/ unique products (most likely te chnology driven)
will enable Ireland to build and maintain value sales. These could include technologies to add
functionality to cheeses, building on technologies already adopted by some processors for mozzarella
production for the foodservice market. Other examples include products to assist with oral hygiene, and
the extraction of specific proteins as enhancements to other food products. Because product
differentiation is a key to market protection, sales of such products should be more immune to fluctuations
in base dairy product prices, and will help to smooth out seasonality in sales volumes.
In addition, because cost of transportation is more easily accommodated by product margin, Irish
processors will be able to tap into markets previously unavailable to them due to prohibitively high
logistics costs. The use of high tech products could also open up opportunities across trading zones,
further insulating the Irish dairy sector from local market volatility.
In order to illustrate the importance of a differentiated product, consider the matrix below. In the section
on opportunities in some selected national markets, we would argue that commodity supplies represent
little potential profit (in some instances, due to strong competition from NZ or the Netherlands). Indeed,
there may be no opportunity at all in the longer-term in certain markets, as is the case in Central and
Eastern Europe, where strong local industries are expected to dominate the dairy sector. However, it
becomes apparent that opportunities do exist as soon as the points differentiating Ireland from other
suppliers are amplified.
Table 46 Opportunity matrix based on points of differentiation
Point of
differentiation
Cheese
Butter
Natural
Germany
Scandinavia
UK
Scandinavia
UK
US
Technology
Scandinavia
US
Japan
Scandinavia
US
UK
Quality+
UK
UK
Culture/Affiliation
Cost
Location
US
UK
CE Europe
North Africa
Middle East
Germany
EU
UK
Base powders
Not relevant
Japan
US
UK
Scandinavia
US
UK
Russia
Value-added
powders
Important globally,
especially in the
US, Japan, UK
Japan
US
UK
Scandinavia
Important in all
markets
US
UK
US
Not relevant
CE Europe
Middle East
North Africa
Middle East
Not relevant
EU
UK
EU
UK
Not relevant
78
Point of
differentiation
Isolation from food
scares
Cheese
UK
Germany
France
Scandinavia
Butter
UK
Germany
France
Scandinavia
Base powders
UK
Germany
France
Scandinavia
Value-added
powders
Crucial in all
markets
As the matrix above demonstrates, a switch from a product to a market mentality helps in identifying
potential niches to be exploited by the Irish dairy industry. It helps the industry to build not only product
opportunities, but also a portfolio of products that meet specific consumer demands within a particular
market.
Lower cost dairy producers and some retail formats are combining to erode the margins within the base
dairy product market (and in some cases consumer foods markets – due to own label). Higher margins
are to be made in the niche, rather than mainstream alone, and these should offer greater margin
opportunities in the future.
The table below demonstrates the overall increase in tonnage in selected markets over the next decade
and a half; Irish dairy producers may be in a position to successfully capture some of this tonnage. In
addition, there is a possibility that some of the competitors’ products in these markets can feasibly be
displaced by the application of the above points of differentiation.
Table 47 Opportunity size based on tonnage increase to 2015 (‘000T)
Country/Area
Cheese
Butter
WMP
SMP
European Union
+549.3
-1.6
+1.5
+52.2
US
+967.0
+105.8
-
+53.4
Emerging markets (i.e.
Poland, Czech Republic,
Hungary)
+130.4
+22.7
+2.0
+4.4
+78
+6.4
+3.8
+77.4
Middle East (i.e. KSA,
UAE and Gulf Cooperation Council)
+25.1
+22.3
+41.7
+14.7*
North Africa (i.e. Egypt
and Algeria)
+100.9
+143.1
+31.2
+31.0
Mexico
*excluding United Arab Emirates
As seen from above, the largest opportunities present themselves across different markets, and cover
different products. This gives Irish dairy producers the opportunity to mix and match product
opportunities and solutions, to deliver the best returns for the industry as a whole.
It is usually more profitable to trade in a niche market due to the relatively higher margins that can be
obtained, and reduced exposure to price fluctuations, although retention of market premiums will be
dependent on investments in NPD as today’s niche products can easily become tomorrow’s commodities.
Ensuring the industry continues to be at the leading edge will require ongoing investment, and it may be
appropriate for the dairy processing sector to look at combining resources in some areas to capture
economies of scale, especially in logistics, distribution and marketing matters, by clustering. In the case
of Ireland, a cluster may represent an amalgamation of products from a particular part of the country
(geographic cluster), or a complementary portfolio of dairy products. While it requires an initial effort to
create such a cluster, the benefits are usually apparent very soon after its inception.
In attempting to capture these opportunities, there is a requirement for the Irish dairy industry to work as
one towards achieving a market-led goal.
79
7.
Global market opportunities for Ireland
Based on the two-step approach detailed above, it is possible to revisit the market opportunities identified
earlier, and attempt to prioritise those that represent the best options in the future. The potential market
openings are estimated assuming that Ireland maintains its current market share (based on imports as a
percentage of total market consumption) within the individual countries. In this respect, the opportunities
can be considered as the base market, and it is possible that additional opportunities (as identified in the
previous section) could be achieved with correct market positioning.
The opportunities identified within the major markets for Ireland vary across the various distribution
channels, particularly in relation to cheese. The change in the relative importance of the various sales
channels (declining retail relative to industrial and foodservice) brings into play a different set of skills.
Table 48 Market opportunities
Tonnes
(‘000)
EU
Emerging
Europe
Middle
East
Americas
Asia
Total
Butter
SMP
WMP
Total
cheese
Semihard49
Semi-soft50
Other
cheeses51
120.6
73.8
20.1
-
7.9
6.7
13.0
1.3
3.4
9.5
30.0
-
129.7
113.8
42.6
(169.2)
62.8
7.0
1.1
2.7
-
73.7
36.1
55.5
-
-
1.6
2.3
-
37.7
57.8
Source: Promar Trade Estimates
Clearly not all these opportunities can be supplied simultaneously within the constraint of the milk quota.
As always, there is the need to prioritise market opportunities so as to maximise the return to the member
milk suppliers and the plc shareholders. Descriptions of the possible product mixes, which might result
from this prioritising process are given in Table 49 below.
7.1
Key market opportunities for Ireland
Given the issues with production quota levels, the best opportunities lie in playing to Ireland’s strengths.
These include markets close to home, and in products where the production system places the country at
an advantage.
In relation to this, Ireland is best placed to concentrate its efforts on opportunities within:
•
Developed European markets of the EU
•
Developing Eastern European markets
•
The Middle East and North Africa, and
•
The Americas,
with a product portfolio of butters, SMP, WMP, semi-hard and semi-soft cheeses. Included in these
volumes will be opportunities for enhanced value dairy products as solutions for various customers in the
industrial and foodservice markets. It is expected that up to 5% of butter, 20% of WMP, 30% SMP and
50% of cheeses52 could fall into this category. These opportunities would result in the following future
estimated product volumes.
49
Includes cheddar, edam, maasdam and gouda varieties
50
Includes processed mozzarella and feta varieties
51
Includes soft, fresh branded specialist cheeses positioned to trade on a point of difference u nique to Ireland.
52
Enhanced value cheeses, including, proprietary recipes used for the supply of specialised customers. It is
possible, that a large proportion of this market, while considered added value, will need to maintain cost
competitiveness in the market.
80
Table 49 Estimated Product Volumes (2015) 53
Primary
Processing
Secondary
Processing
Total Output
Butter
123.2
6.5
129.7
SMP
58.7
25.1
83.8
WMP
26.5
6.6
33.1
‘000 Tonnes
Total cheese
(111.2)
Semi-hard cheese
35.3
35.3
70.6
Semi-soft cheese
15.3
15.3
30.6
Other cheeses
9.0
1.0
10.0
Source: Promar Trade Estimates
The various market opportunities are dependent on Ireland being able to provide a range of
products and market messages to meet the various demands. These may not the same for each
market, and will require the industry to work together to ensure the delivery of products to meet
specific market opportunities.
7.1.1
Developed European markets
The greatest market opportunities identified for Ireland are in the developed EU markets. The success in
this area will be based on the provision of products to the various distribution channels within each
market. In the Irish market, opportunities for the complete ranges of dairy products need to be met, while
in more distant markets the growing foodservice and industrial ingredient markets could well be the most
attractive.
Key requirements for success:
•
A complete range of dairy products on the home market to supply all sales channels
•
Close working relationships with clients in the foodservice and industrial ingredients markets
•
A commitment to NPD for key market opportunities in both the Irish and wider European markets
•
•
The ability to develop new technology products to grow with functional foods markets – solutionbased NPD
Cost competitiveness in base product production
7.1.2
Emerging European markets
These markets, while providing some opportunities in the short-term, are likely to become competitors in
the supply of base dairy products to EU markets in the future. In the longer-term, there may be
opportunities for cheeses into these markets.
Key success factors will include:
•
Close working relationships with clients in the foodservice and industrial ingredients markets
•
A commitment to NPD for key market opportunities in both the Irish and wider European markets
•
Cost competitiveness
7.1.3 Middle East / North Africa
Continuing population growth will continue to drive demand for powders for reconstitution into liquid milk
products. Due to climatic issues, the local dairy industry is unlikely to develop sufficient scale to meet the
demands of the population. Internal distribution systems will develop; however, growth in the
consumption of dairy products is expected to be dominated by powders.
53
This table only relates to certain product types for which there are internationally available statistics. It does not
covers product areas such as high value dairy ingredients, which will need to form an important part of Ireland’s
future product portfolio. Estimated product volumes assume Ireland maintains its current market share in each of
these markets
81
Key success factors will include:
•
The ability to form strong relationships with key producers of liquid milk products using milk powders.
This is likely to require investment/joint venture arrangements in such facilities (as the New Zealand
Dairy Board has done in the past)
•
Relationships with major distribution agents in markets
•
Supplies of cost effective products
7.1.4 Americas
The Americas market is split between the increasing technology-savvy North American market and the
requirements for base dairy products by Latin and South American countries. The US’s ability to produce
base dairy products means that there may be few opportunities within this market. However, as
consumers become more health conscious, there are growing demands for health additives.
Technologies developed in Ireland for the extraction of key proteins from milk could well find a home in
this market, as food and beverage companies look to create functional and health foods from standard
fare.
Key success factors:
•
The ability to create novel product solutions
•
Some opportunities for Irish cheese and other consumer dairy products trading on the Irish ancestral
roots of a significant proportion Americans – but this will require significant investment in A&M and
may be regionalised
•
Commitment to ongoing NPD in functional foods areas
•
Low cost base product opportunities in Latin America in the short-term
7.1.5
Asia
The Asian market, as with the Middle East / North Africa market, will be dominated by powders, as
increasing dairy consumption demand is unable to be met by local production. However, due to the
geographical location of the major Asian markets, Ireland could well find it difficult to compete in this
market, as it will be doing so against low cost products from New Zealand.
Key success factors:
•
Cost competitiveness in base dairy products
7.2 Fast growing market opportunities
Within the various opportunities that exist for Ireland there are a number of opportunities within fast
growing market segments. Some of the key fast growing market opportunities include:
•
•
•
•
•
Functional and health foods
Protein fractionates
Customer solutions for food service and industrial ingredients e.g. blends
Private label manufacturing
New forms of food e.g. such as geriatric foods and life stage / life style specific nutrition
8. Summary of key messages from the international market opportunity review
The international dairy market continues to develop as both consumer tastes and distribution channels
change at different rates between the various international markets. Although dairy products are one of
the few goods that are consumed in every country, the types of opportunities that this presents for Ireland
vary considerably.
Trade in traditional dairy products will increasingly occur within regional zones
The development of free trade agreements across the globe have resulted in the creation of a number of
trading regions enabling an easier flow of products within, rather than across, zones. In addition to the
creation of preferential trading arrangements within the zones, the relatively high (and increasing) costs of
82
transportation of base dairy products when compared to their value, is making the global trade less
attractive, while the risks of dealing across currencies adds another complicating factor to the equation.
To secure and develop strong and strategic partnerships, major international processors are
investing in key growth markets
Those operators that are choosing to operate across regional trading zones are doing so through a
network of production and processing facilities. This is best demonstrated by Fonterra’s strategy of
investing in the Americas with processing and production facilities, while effectively exiting the consumer
foods market in the UK by forming a joint venture with locally-based Arla. The best opportunities for the
Irish dairy sector could well lie in a smaller number of markets, with closer relationships with key clients,
rather than a wider range of diverse and geographically dispersed countries.
The next 10 –15 years will see major growth in volume terms in the foodservice and industrial
channels, at the expense of retail
Currently, foodservice is growing at a faster rate than retail, and it is expected that by 2015 it will account
for a greater value of sales. However, success in the foodservice and industrial markets will be based on
the ability to supply specialist products to discerning end users requiring product support and solutions,
not simply repackaged retail products. This ability to provide solutions will require a close working
relationship between processors and their clients, and in many cases significant investments in NPD.
Retail in the developed markets will be dominated by a few multiples who will rationalise their
number of suppliers of own label and branded consumer goods
While foodservice and industrial markets will grow, there is likely to be further consolidation within the
retail sector. These larger, global players will be looking to form relationships with players that can
provide a wide range of dairy products and increasingly act as category managers, able to supply, source
and co-ordinate the portfolio of retail dairy products. This will require scale and locally based support
networks.
Success in the other channels will depend on the supplier’s ability to deliver cost efficient and
novel solutions
Retail, foodservice and industrial consumers are themselves operating within a competitive market, and
will be looking to establish cost effective product sourcing relationships. These same players are likely to
require the development of novel and proprietary solutions to meet specific market demands or product
positioning. For the Irish dairy industry this will require ongoing investments in NPD to deliver both novel
and cost competitive product solutions.
Establishment of a strong and dominant base in the home markets to leverage and build growth in
other markets (securing the home market focus)
The Irish dairy industry must consolidate its position within its home market of Ireland. This is achieved
through the delivery of the complete range of dairy products. The industry must have the ability to
capture the value from this market for base, consumer and added value dairy products. It must be the
product champion in Ireland.
Targeting proximate geographic markets with a selected range of products specifically targeted at
those markets (market driven focus)
Through the use of a planned approach, Ireland must develop a product portfolio for specific markets that
capitalises on the values that are uniquely Irish. There are opportunities for a wide range of base,
ingredient and some branded products into affluent European markets. Other opportunities exist for milk
powders for reconstitution in the Middle East and North Africa, and speciality cheeses in Eastern Europe.
Achieving cost efficient and competitive production of base products (production cost driven
focus)
At the same time as developing a strategy to enhance the product portfolio, Ireland must act to maintain
its position as a cost competitive producer of base products. The seasonal production pattern of Ireland,
while it could be improved, is likely to remain in the medium term. Therefore, the industry must retain this
cost competitiveness in order to ensure its ability to market base products competitively in the future on
the one hand, and secure greater margin retention on value -added products, on the other.
83
Development of specifically Irish (including branded) products marketed on unique Irish
competencies for wider exports within EU and selected overseas markets (market/ product
differentiation driven focus)
Due to a range of factors, Irish dairy products are seen as offering a set of attributes that have a wide
range of appeal to consumers and customers (both industrial and retail/foodservice). These attributes
include naturalness, technology, quality, cultural affiliation, cost, and the location of Ireland away from
some of the most recent food scares of Europe. This is a diverse set of attributes with a varying degree
of appeal to consumers, dependent on their market location, level of consumer sophistication, and
distribution channel development. Similarly, the strength of the Irish R&D institutions and their pioneering
research into functional foods make the domestic dairy industry a perfect vehicle to deliver these
innovations to their intended end-users in the industrial sector.
The Irish dairy industry must develop a clear strategy for what an Irish dairy product is, and tailor the
messages for specific markets and products to carve out a defendable position. In addition, it must invest
in a defendable dairy technology to protect its markets and retain old, and acquire new, business
customers.
Active pursuit of innovation is key to the future success of the industry
In this time of mass-market fragmentation and eventual marginalisation, any producer catering exclusively
for the commodity trade is risking its future. With many Irish competitors already strong in the market,
and yet more developing their industries, cost competition alone is not likely to be feasible. As a result,
Ireland must leverage its intellectual potential (in functional products, for example), to stay ahead of the
competition, while at the same time minimising its R&D curve and extending its products’ lifecycles.
84

Chapter 2 - Department of Agriculture

Transcription

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