Dairy processors access impact of accession
quotas, customs levies and export subsidies will be lifted between
existing and new member states. Will this open up opportunities for
the dairy sector in the east, or have western companies already got
the sector tied up, asks Anthony Fletcher.
"Dairy producers from the eastern part of Europe can begin exporting their goods into the west from tomorrow," Joop Kleiveuker, secretary general of the European Dairy Association told FoodProductionDaily.com. "It is possible that from where improvements have been made, we can expect to see exports to the west."
Some producers in the accession countries are certainly optimistic about the new opportunities. "I think it will it easier to do business with the west," said Egis Bardonis, manager of Lithuania's largest dairy firm Marijampoles Pieno Konservai. "There will be some customs, but this will not be a problem."
Bardonis believes that large private companies such as Marijampoles are in a good position to benefit from improved access to new markets. His company already does business with countries in Europe and Africa, and accession will simply mean that the last trade restrictions are lifted.
A recent Rabobank report, entitled 'The new EU; outlook for farmers, processors and traders' is also optimistic about the prospects of the dairy industry in the accession states. It predicts that the new member states are well positioned in the long term because of the low cost of labour and land.
But Kleiveuker questions whether this will really provide them with an advantage over the old Member States. "At the moment, there is a lower milk price in the east," he said. "But this will be phased out relatively quickly. And if you look at the high number of employees in the dairy industry over there, you have to ask whether there is a price advantage at all. What producers need to do is improve the efficiency of their production."
In any case, the situation facing large manufacturers such as Marijampoles is markedly different to that facing smaller producers, who make up the bulk of the dairy industry in the accession states. These processors do not have the economy of scale to benefit from access to new markets, and many are not in compliance anyway with EU requirements on food safety. It is these smaller practices that face the toughest challenges.
"Take Poland for example, said Klieveuker. "You have about 1.2 million of what you could call dairy farms, and only 380,000 of these deliver to the dairy industry. The others all produce milk that is consumed locally. This is totally different to the situation in the old Member States."
At present, few dairy operations meet the sanitary and hygiene requirements of the EU. According to a recent study of the Bulgarian dairy market, only two per cent of dairy companies managed to receive licenses to export to the bloc.
"Undoubtedly accession will mean a number of processing businesses will not be able to meet requirements," said Pär Söderlund, Tetra Pak's vice president of commercial operations for Europe and Africa. "These businesses will either close permanently or else be bought out by other related businesses. However, a lot of these players are very small or else the processing facilities are too outdated to make them viable business propositions."
Some eastern European dairies have managed to get up to EU standards quickly by being taken over by a western company, and businesses in the EU have certainly not been slow off the mark to capitalise on the liberalisation of trade in the former eastern bloc. In the last few years, numerous dairy companies have been snapped up by western corporations, and from their point of view, 1 May does not represent a sea change so much as a long-anticipated easing of trade restrictions.
"We don't expect a lot of changes on 1 May," said Friesland Coberco spokesman Rob van Dongen. "We've known for a long time that this was going to happen, and we are prepared for it. Big sections of the dairy sector in the east are already under the control of western companies."
van Dongen believes that this is a good thing for the dairy industry in accession countries. He said that eastern European dairy companies can benefit from western technology and equipment. The closure of production plants in Holland due to plant consolidation has meant that Friesland's Nutricia dairy plant in Hungary has been able to import western equipment and technology.
Other recent acquisitions in Hungary have included Nestlé's takeover of Schöller Budatej ice cream player, Globus' acquisition of Unilever's frozen food plant, and the purchasing of Mizo dairy by private investors.
van Dongen predicts that the accession will not dramatically alter the current state of Europe's dairy industry. Western co-operatives such as Friesland will continue to buy milk locally from farmers in their home country - last year the company bought 5.2 billion litres of milk from Dutch producers. Tied as the co-operative is to its Dutch members, he says that it would simply not be feasible or cost-efficient to transport the raw product to eastern Europe where production costs are cheaper.
Privately-owned companies such as Nestle have greater freedom to expand into the region. But it would appear that Eastern dairy producers will continue to supply their domestic market, albeit with western technology and, increasingly, under western ownership.
However, some western dairy processors do see manufacturing for export opportunities in the accession countries. Arla Foods is investing DKK15 million in a new mozzarella plant at the company's dairy in Poland, with the specific objective of supplying the product to a unified Europe. "There are some excellent opportunities for Arla Foods in the new EU countries," said Frede Juulsen, Arla's regional director. "However, it won't happen overnight - it's something that requires a good deal of hard work and investment."Under existing trade rules, the company is only allowed to export 10 per cent of Poland's overall cheese export quota to the old EU countries out of a total of 10,000 tons. This, of course, will all change come 1 May.
"Mozzarella consumption is on the increase in Europe and we want to take a greater share of the market," said Juulsen, "With our large mozzarella production in Denmark and the expansion in Poland, we will considerably strengthen our position as a mozzarella supplier in the new, enlarged EU."
From a western dairy point of view therefore accession does not appear to present any threats, only opportunities. Producers in the east are clearly not in a position at present to export in great quantities. Some western processors like Friesland see the further liberalisation of trade as simply a means of attaining a foothold in new emerging domestic markets; others like Arla see an opportunity to manufacture processed goods for export more cheaply.
For eastern processors, enormous structural challenges lie ahead. To benefit from increased access to the new markets, improvements in structure, productivity and knowledge will have to be made. "Dairy producers in the accession countries are in for a tough time," said Kleiveuker. "For sure, there will be a shake out, just like the one we've had to go through in the west."
