Eastern Europe: a value-added dairy playground

The world's major dairy manufacturers need to do more to expand their geographic coverage beyond highly developed, competitive markets if they are to exploit a high potential in emerging regions, says a new global dairy products report from Euromonitor​.

The Russian dairy sector is considered to be the most innovative within the country's food industry, and recent research showed that dairy was the main sector in which the majority of Russians understood the idea of functional foods and value added foods.

A number of firms have already tapped into this trend. For example, the Lebedeanskii dairy company has begun producing bio-ice cream with orange punch under its Belaya Corova trademark.

Euromonitor believes a combination of growing retail networks and population shifts to big cities puts big dairy firms in a great position to capitalise on trends and build up strong brand recognition.

One of Russia largest dairy firms, Wimm-Bill-Dann, has spent the last two years investing heavily to modernise its dairy plants so that they will produce more products meeting world quality standards.

Ingredients firms too are increasing their focus on Eastern European dairy markets. A recent promotional tour across the region by Danish natural ingredients firm Chr Hansen revealed an array of new product ideas.

Maike Lisberg, Chr. Hansen's development manager, offered a kefir product that was specially adapted for the Russian market; using lactate products and yeast instead of traditional funguses. It tastes like usual kefir but also contains fruit aromatisers.

The firm also displayed a variety of value-added product prototypes, such as sintered cheese with cheddar flavor, a liquid drink yoghurt based on 30 per cent whey, a yoghurt desert with chocolate bits and mint flavour as well as a soft cheese with Roquefort cheese flavour and Italian herbs.

Yoghurt is a sub-sector that holds particular promise for dairy producers.

Volume sales of premium yoghurts increased more than 10 per cent in Russia during 2004, and experts estimate the volume of this market to be 600 tons per month. The leading brands are Danone (20 per cent) and Wimm-Bill-Dann (27 per cent).

Russia's Dairy Union said that "the market of premium milk products is very young and is not saturated - so far, it has less than 1 per cent from the total turnover of dairy market"​.

Premium products also enable firms to alleviate pressure on margins from raw material costs and retailers alike. Wimm-Bill-Dann's (WBD) operating margins dipped two per cent in 2004 mainly due to rising raw milk prices.

Sourcing locally, and therefore cheaply, is also a problem. WBD said it had to go abroad for many additives and value-added ingredients because there were simply not enough of the quality it needed in Russia.