Dairy industry braces for future challenges

By Neil Merrett

- Last updated on GMT

Related tags: Dairy, Dairy products, World trade organization

Health claims, sustainable production, and trade reforms are all
vital challenges to be faced by the industry during the second half
of 2007, according to the European Dairy Association (EDA).

As part of a review of the first half of 2007, the EDA called on companies to leverage dairy's reputation as a health food to take advantage of the demand for more nutritional products. "In the coming year we will have to work hard to ensure that milk and milk products can be marketed as an essential part of a healthy diet,"​ the review stated. In a joint statement EDA secretary general Joop Kleibeuker and president Veijo Meriläinen said that the issue of health and nutrition was a particularly important area for future focus and growth. With recent legislation regarding nutritional claims coming in place from 1 July designed to tighten the classification of a healthy diet, dairy producers will need to ensure they are meeting the legal requirements, they added. The report adds that milk, and products derived from it, can benefit from their reputation as a healthy food rich in proteins and calcium. At the same time, the presence of saturated and trans-fats in some dairy products could have the opposite effect on the health-conscious consumer. The industry will also have to review the effects that production and processing has on the environment , they said. To this end, the EDA expects the issue of sustainable consumption and production will also require more consideration by companies going forward. Pointing to recent studies by the European Commission, the report adds that throughout the production cycle "from farm to fork"​, food and drink products like dairy are seen as equally damaging to the environment as cars and housing. Meat and dairy products in particular were found to be major contributors to climate change. In May, the EDA entered into discussion with the Commission on a green paper recommending ways to reduce industry impact on the environment. The paper, expected this month, will be followed by an action plan to be released in 2008 on measures needed to address the industry's impact on climate change. The strategy is expected to suggest greater use of eco-labelling, eco-design and taxes as main policy tools to encourage sustainable dairy production. Discussion with the World Trade Organization will be another key factor affecting Europe's dairy companies, particularly in relation to export barriers and quota reforms. The reports highlights the Doha round of negotiations in particular as a key priority towards creating more stable global dairy production. The Doha Development Agenda was launched in November 2001 in the Qatari capital, Doha, designed to free up global trade, with a particular focus on achieving concrete benefits for developing countries. The talks had stalled in July 2006, as WTO members refused to budge on certain issues. The issues that remain on the table - and have indeed been there for some time - concern agricultural subsidies, agricultural tariffs, industrial tariffs, services, and market openings. While the last round of talks at World Economic Forum summit in Davos lacked progress on key technicalities, there were some positives in the "reiteration of political will from all parties"​ to complete the negotiations, the report said. However, the findings added that the industry faces equally seismic changes in its own domestic markets. With reforms to the Common Agricultural Policy (CAP) continuing through the year, the commodities market continues to ensure processors face higher prices for their goods, amidst decreasing global supply. In June, export refunds in place since 1968 to ensure European dairy products remained competitive with rivals, were temporarily revoked for the first ever time. Unprecedented price increases for raw dairy materials meant they were no longer required. Though industry and official figures vary over the level of export subsidies given to the dairy industry, estimates suggest that about €1.1bn to €1.4bn were handed out in 2005 alone. Geographic changes to the market have also begun to affect dairy production. The report added that the ascension of Bulgaria and Romania to the European Union has added another 30m consumers to the European market, while creating an additional 5m tonne capacity for milk. Though the development in terms of market opportunities is expected to benefit the industry, the reduced purchasing power of the 12 new members compared to the original EU 15, could create difficulties for trade in the bloc. The report suggests that revaluation of currencies in these member states could help reduce the impacts of the pricing on dairy products.

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