UK firms fail to tap into added value dairy trend
in crucial added value markets, jeopardising future prosperity
because it has failed to innovate at a fast enough rate, says a new
report.
Britain's trade deficit in dairy products grew by eight per cent to £744m during 2004, as the country continues to import large amounts of value-added products while exporting low-value commodity goods like powders and bulk cream.
The figures, published in the Milk Development Council's (MDC) Dairy Supply Chain report, show that this trend has widened Britain's dairy trade deficit by £300m in five years.
The report says this growing deficit shows Britain is still falling behind other EU countries in increasingly important value-added dairy markets.
One example is butterfat, where "the UK exports large amounts in the form of low value cream and then imports more butterfat in the form of expensive branded butter," says the MDC, highlighting imports of Anchor from New Zealand and Lurpak from Denmark.
"This is a clear example of where a lack of innovation and marketing has allowed other countries to dominate our domestic market." A similar picture has emerged in cheese and yoghurt.
The UK only increased production of fresh dairy products by three per cent between 1996 and 2004, compared to an EU average rise of 56 per cent. UK cheese production remained flat, well below the 14 per cent EU average increase.
Ken Boyns, MDC market analyst, told DairyReporter.com that Britain had been hampered by a lack of emphasis on innovation among the country's old milk marketing boards, abolished in 1994.
He said that more recently some firms had maybe "focused instead on doing the same things as cheaply as possible instead of innovating".
One factor within this may be the pressure processors are under to maintain margins, with retailer price cuts and hefty price rises in energy and packaging. "Often new products take a long time to develop and become successful, so if you are under pressure it can be difficult," said Boyns.
In the meantime, the report says production of value-added dairy has been moved out of Britain, such as Danone relocating its Shape yoghurts to France.
If Britain does not begin taking greater advantage of added value trends, it could weaken the country's whole dairy sector by keeping farmgate prices down and exposing the UK to insecurity of the commodity market more than other EU countries, says the report.
Another recent report supported by UK agriculture ministry DEFRA said Britain's dairy industry was now facing a 'worst case scenario' as more producers had left the sector than originally expected. Milk volumes may drop to more than 1bn litres below quota by 2008, it said.
Boyns, however, believes that changes are afoot in added value. "We are turning things around and there is some good news out there, but we probably have a fair way to catch up," he said, adding that it must be commercial processors leading a recovery.
Some positive signs include efforts by the UK's top dairy processors to move out of commodity markets.
Arla UK, subsidiary of Scandinavian dairy Arla Foods, has reported increasing sales of its Cravendale (one per cent fat) fresh milk brand in 2005, and said it planned to launch 'one-shot' varieties later this year.
And Dairy Crest, another of the UK's top processors, launched its St Ivel Advance milk fortified with omega-3 Polyunsaturated fatty acids earlier this year. The firm claims the milk can enhance learning and concentration.
Branded milk sales grew 23 per cent in Britain between 2003 and 2004, while branded cheese went up 11 per cent.
