Special Edition: Climate change

Dairy groups forced to face climate change responsibility

By Neil Merrett

- Last updated on GMT

Related tags: Milk

Major players within the dairy industry are beginning to witness
unwanted reminders of the high cost climate change could have on
their operations, as prices for raw materials like milk continue to
soar.

Over the last year in the UK alone, the price of wholesale milk has doubled, while the value of cream has also shot by 23 per cent, according to figures by the national milk council. These increases are mirrored in supply chains across the world with the typical price in Australia of skimmed milk powder, a major ingredient in dairy processing, rising during the last 12 months from AUS$2,000 (€1,262) per tonne to AUS$4,800 (€3,030) per tonne. So drastic have these rises been that Arla foods, a major Scandinavian dairy group last week announced it was no longer producing emmental cheese in order to focus on more profitable products like mozzarella and milk powder. While increased demand, particularly form emerging markets like Asia and Eastern Europe is undoubtedly playing a role in this price change, ongoing drought within the agricultural heartlands of Australia has compounded the problem. Australia, which is one of the world's most important suppliers of dairy products, has seen demand tighten as drought continues to cripple the supply from its major production regions. Earlier this year, the country's government announced that dairy exports from the country are expected to drop by more than 24 per cent to under Aus$2 billion (€1.2bn) during the 2006-07 season. Though the problem of global warming may currently appear specific to just the southern hemisphere, the effects are being felt on an increasingly global basis. While the argument over whether or not the drought is part of a natural hot weather cycle or the ongoing process of global warming, the attention of processors is shifting. From simply focusing on how climate change may be affecting the dairy industry, companies now have to ask how the dairy industry in return is affecting climate change. With some of the industries largest players experiencing growing demand for dairy, the pressure to ensure its supply remains sustainable has never been so great. UK-based group Dairy Crest, as one of Europe's largest national operators, stressed that it met with both UK and European legislation on protecting the environment. As part of this environmental strategy, to further ensure it is meeting its environmental responsibility, the group outlined a number of areas for reform that it hopes will, by 2010, significantly reduce its emissions. In terms of these emissions, the company said it was working with the Department for Environment, Food and Rural Affairs (DEFRA) to introduce cost effective energy saving measures. Under the conditions of the EU Emissions Trading Scheme, any of the group's operations which exceed 20MW of thermal input also face financial penalties. Within its packaging, Dairy Crest has signed up to the Dairy Industry Association's Wastepak scheme, which calls for the recovery and recycling of set amount of any materials used by the group. However, the concern is not just to be specific to not just UK or European based dairy production. International players like Unilever, are also keen to play up its efforts. Speaking just last month, the company's chief executive Patrick Cescau stressed that his belief that simply ensuring a company simply comply with legislation was no longer enough in the battle against climate change. "Heightened consumer concerns about social justice, poverty and climate change are raising expectations that companies should do more to tackle such issues,"​ he told a recent conference. "The brands that see these challenges as opportunities for innovation, rather than risks to be mitigated will be the successful brands of the future." ​ Of Unilever's own operations, he put forward the Ben & Jerry's ice cream brand as what he believes to be a perfect example of a unit addressing environmental concerns. Cescau pointed to its recent decision to attempt to become one of the first major European dairy based labels to operate as a "climate neutral brand".​ This drive to be climate neutral has resulted in the company re-evaluating all aspects of its supply, production and distribution chain to reduce the impact of its operations. This has resulted in a variety of steps from more obvious moves like adopting renewable materials within it 90 per cent of its packaging, to initiatives to reduce the effect of shipping its goods by cutting down distribution routes. It has encouraged its dairy suppliers to adopt greener energy sources during production, and also claims to have incorporated similar technologies within its own production plant. According to the company this move alone has reduced its carbon impact by 89 per cent. The company claims it will aim to further reduce these impacts by adapting technologies like solar and wind turbines as well as increasing its reliance on "bio-gases"​. The company also boasted of its reforms to how its transports ingredients and products, ruling out the use of air freighting altogether. Despite a greater number of dairy group's adopting such measures, NGO's and environmental group's still believe that business as a whole is not fully putting its weight behind climate change. Though these dissenters may not phase the industry as much as they would hope, the real test of the effectiveness of the dairy industry reforms is likely to be felt most over the next few years where it will hurt most - prices.

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