New markets and premium products are key says Euromonitor International

By Jim Cornall contact

- Last updated on GMT

According to a Euromonitor food analyst, emerging markets and value added products are key strategies to tackle milk over-production. Photo: iStock - Picsfive
According to a Euromonitor food analyst, emerging markets and value added products are key strategies to tackle milk over-production. Photo: iStock - Picsfive

Related tags: Latin america, Milk

New markets are the key to responding to current over-production of milk, says Raphael Moreau, Food Analyst at Euromonitor International.

Moreau told DairyReporter that focusing on emerging markets that are not yet saturated, including in Africa and Latin America, was important, with Egypt and Nigeria among the large markets targeted by companies such as Danone and FrieslandCampina.

FrieslandCampina, whose results were published today, is interested in purchasing a company in Pakistan to add to its international operations, which includes Nigeria.

Latin American market strong

Danone’s recent financial results show Latin America emerging as a particularly strong market for the company.

“Latin America has emerged as an exciting market for Danone, underpinned by several mega brands including Activia, Danonino, Paulista and Actimel. Activia doubled its sales over the past five years, reaching $1.3bn in 2015,” ​Moreau told DR.

“Among all Danone’s Health and Wellness dairy brands in Latin America, Actimel was the best performer in 2015 according to Euromonitor International’s Health and Wellness database.”

Value added milk

Another way companies can tackle the current market issues, Moreau said, is to focus on more value added milk, such as A2 Milk or flavored milk drinks.

“Focusing on added-value milk derivative such as whey powder could also help dairy producers, as whey powder use in nutritional supplements has increased over the past few years,”​ he added.

Moreau said that dairy-focused companies can still perform relatively strongly compared to other companies in packaged food, thanks to the growth potential in core categories such as baby food and yogurt. 

Strong growth in baby food

Over the 2010-2015 period, he said, Euromonitor International statistics show that growth rates for these categories were higher than for total packaged food at world level. Baby food, for example, showed a CAGR (compound annual growth rate) of 7.9% from 2010 to 2015.

While more modest, dairy’s CAGR over the same period was 2.7%, compared to packaged foods growth of 1.8%. In the yogurt and sour milk products category, growth was 3.1%.

Among cooperatives, Moreau said, “FrieslandCampina has recorded a particularly strong performance, thanks to its own baby food brands present in China and Indonesia (Friso Gold and Frisian Flag respectively), and also has major growth prospects through its joint venture with Huishan Dairy in China.”

Asian trend not exponential

The recent sale of Australia’s largest dairy farm, Tasmania’s Van Diemen’s Land Company, to Chinese interests, has sparked some fears in Australia that not only will exports suffer as a result, but so will domestic supplies.

Moreau warned that the trend of major growth in Asian markets cannot continue to rise exponentially.

“Imported milk formula in China is likely to see a decline in the long term as local companies improve quality standards, with the government encouraging consolidation in the industry in order to create a more competitive domestic industry, and with joint ventures between local and global companies setting,”​ Moreau told DR.

“However, premium imported products remain competitive, as Chinese consumers are still prepared to pay a premium for imported brands such as Danone’s Nutrilon.”

Danone results solid

Moreau said that the recent financial results from Danone showed sales growth remained solid in 2015, at 4% in like-for-like terms, driven by a solid performance in bottled water.

“It saw a strong rise in operating profit, thanks to historically low milk prices. Baby food sales remained driven by the strong demand for premium international brands such as Nutrilon in China, but was also sustained by growth in Latin America and Africa.

“However, like-for-like sales in dairy declined during the year. Danone was particularly active in Africa in 2015, notably with the acquisition of the cheese manufacturer Halayeb.

“Echoing its rival Nestlé, Danone is cautious in its growth forecast for 2016, noting continued weaknesses in demand in Brazil and Russia and lower growth in China, whilst it anticipates higher milk prices to undermine profits. Therefore, prioritising expansion in new emerging markets and cost reduction in Europe may not suffice in maintaining its profit margin in 2016,” ​Moreau concluded.

Based in the UK, and with offices worldwide, Euromonitor International is an independent provider of strategic market research. The company creates data and analysis on thousands of products and services around the world.

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