Key points
For the first time in over 30 years, the dairy industry in Europe is not subject to quotas for milk production. While this leaves dairy farmers vulnerable to price volatility, some of the shock should have been cushioned by a deliberate EU ‘soft landing’ strategy that has been boosting production for the past decade.
The strategy may have paid off, according to Libby Costin, vice president of marketing at Tetra Pak: “In Europe, the concerns around an economically-disruptive surge in milk production in the post-quota era have not materialised. The largest EU milk producing countries are currently tracking behind last year in terms of production volumes.”
In fact, at the time of writing, the two biggest producers, Germany and France, are so far producing 1% and 4% less milk than last year respectively, which could change later in the season.
The soft landing expansion enabled EU dairy exports to increase by 45% in volume and 95% in value over the past five years.
Even so, Europe’s producers have effectively had to stand and watch exports from New Zealand and the US surge ahead even faster to meet growing global demand. The EU predicts that the new, quota-free environment is set to change all that and Europe will be the region generating almost all of the annual growth expected in global dairy exports until 2024.
That’s partly because New Zealand’s production and exports are already close to their natural limits, while rising US domestic consumption will limit the capacity remaining for export.
Demand growth (Return to top)
On the demand side of the equation, dairy consumption is expected to grow most rapidly across Africa and Asia over the next 10 years, although the rocketing growth witnessed in China up until now is expected to slow down significantly.
EU Commissioner for Agriculture and Rural Development, Phil Hogan, acknowledges that the new, quota-free environment is a worry for farmers. However, he argues it should lead to growth and jobs, especially in value-added products such as cheese. “Through focus on value-added products as well as ingredients for functional food, the dairy sector has the potential of being an economic driver for the EU,” he says.
This focus on added value will help cater for the ballooning middle class in the growing export markets, but it's also likely to be the key to sustaining healthy sales closer to home, as some of the more traditional dairy consumption patterns come under pressure.
While the biggest producers have not seen a post-quota production boom yet, Ireland in particular is showing itself to be a small player with big ambitions. “Interestingly, we have seen major production growth in Ireland, which is currently up 13% in production terms in May year-to-date,” says Costin. “Nonetheless, as Ireland accounts for only 4% of total EU milk production, its overall impact is limited, although it is of course having a potentially big impact on the Irish dairy industry.”
New site openings (Return to top)
One of the best examples of this is the opening in March of Glanbia’s 235M processing plant at Belview, which is the largest indigenous infrastructure programme carried out by an Irish company in 80 years.
The rewards are expected to be substantial, generating an estimated 400M per year and 1,600 jobs in the rural economy. Everything produced at Belview is destined for export markets. The facility will allow for the manufacture of specialised milk powder products and nutritional ingredients to meet the demands of multi-nationals in infant formula and other industries operating in Asia, the Middle East, Africa and the US.
Chief executive of Glanbia Ingredients Ireland, Jim Bergin, described the opening as “…the realisation of the global opportunity presented by the removal of EU dairy quotas. This modern facility is primed to meet the global demand for the highest quality, sustainably manufactured nutritional ingredients.
“Currently this small island supplies 10% of the world's infant milk formula. With the capacity enabled here at Belview, working closely with the world’s leading infant formula manufacturers, we hope to increase milk production by 63% in five years.”
Meanwhile, Glanbia’s consumer products division – part of its Dairy Ireland business – also opened an UHT (ultra-high temperature) facility in County Monaghan last year to produce long-life liquid milk and cream suitable for export.
In Dairy Ireland’s home market, Avonmore is a good example of growing interest in functional milks in Europe, with Avonmore Heart Active (with plant sterols); Avonmore Protein Milk (with 50% extra whey and casein); Avonmore Lactose Free (easy on the digestion); and Avonmore Super Milk (fortified with vitamins and calcium) all sitting alongside more standard products in an effort to bolster market share.
Fellow Irish processor Dairygold Food Ingredients is going down the powdered ingredients route, with a massive redevelopment underway at its site in Annabella, West End, Mallow. The project is expected to have a 7.5t per hour milk dryer running by March 2016 and a second unit in place by 2019 or earlier, depending on the rate at which the surrounding milk production scales up. With both dryers in place, the complex will be able to manufacture over 450t of milk powders daily in various specifications.
Of course, Irish processors are not the only ones gearing up for export growth. In another example, the ArNoCo joint venture between Arla Foods Ingredients and DMK Group officially opened its new whey processing facility in April last year at DMK’s Nordhackstedt site in Northern Germany. The plant uses whey from DMK’s cheese production to make whey protein concentrate and lactose for Arla’s global ingredients business.
ArNoCo was established in 2011 and the new facility is working at full capacity. The site processes around 700,000t of whey, which is made into 25,000t of lactose and 12,000t of whey protein concentrate a year.
Strategic growth (Return to top)
DMK describes international ingredients as one of its “strategic growth areas”, while Arla Foods boss Peder Tuborgh says: “This new joint venture will enhance Arla Foods Ingredients’ position as one of the world’s leading suppliers of the highest quality whey protein and lactose ingredients. The market for these products is growing fast, so we are pleased to get started on this new production.”
Arla Foods Ingredients has been very active in the area of ingredients for “recombined” products too. Recombination enables manufacturers in markets where there is limited access to fresh milk to make value-added foods, such as speciality cheese, yogurt and ice cream with powdered ingredients, such as Arla’s Nutrilac functional milk proteins. Big markets include Latin America and Russia.
The latest addition to the portfolio arrived at the end of last year and targets speciality cheeses. Category manager Claus Andersen says: “Shoppers in emerging markets are now seeking more sophisticated dairy products, such as speciality cheeses, bringing their tastes more into line with western consumers.”
To meet this demand without access to fresh milk is not an easy job, he claims. But the Nutrilac recombined cheese concept means it’s possible to produce the high-quality and nourishing speciality cheeses that consumers in these markets want.
He adds: “Overall, as a result of increasing affluence in emerging markets, demand for cheese alone is expected to rise by up to 25% in the next 10 years, compared with 2012, according to figures from the International Dairy Federation.
“Nevertheless, access to fresh milk in these countries will remain difficult so the importance of recombined dairy products will continue to grow,” Andersen says.