Global Dairy Consumption

August 1, 2004
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Global Dairy Consumption

INVENSYS
APV

The global and regional-based dairy industry is not isolated from or unique in the challenges faced for competitive and sustainable business into the 21st century.
In all dairy-related processes — liquid milk, crème, yogurt, cheese, butter,
ingredients — there is an increasing and relentless requirement to continuously seek business improve in productivity, yield, quality, repeatability, plant utilization, life-cycle costs and environmental and safety responsibility. The competitive pressure created by producers, manufactures, retailers and consumer alike are causing many dairy industry businesses to seek new investments in reliable process and control systems technology.
In addition, making the right CAPEX investment choices of equipment, software systems and technologies, proper servicing and routine maintenance programs of process production plant is now an essential and key component in achieving
competitive status in the industry.
During the past two years, particularly following September 11, there has been an increasing interest in protecting people all over the world from threats of food-borne bacteria and bioterrorism. This has resulted in tighter regulations and an increased demand for better automation and process control. From a global
perspective, we see all major sectors of the dairy and food industry moving toward safer processes that can be monitored and controlled at various levels ensuring safety and improved quality without increasing costs.
In addition to improving food product safety and quality, process designs must account for changes in consumer demand. Diet changes and demand for better
nutrition often require that processors monitor and record recipes for faster changeover and production run cycles.
To this end, APV continues to quietly lead the industry in quality products, fully automated systems, process design and innovation to help our customer’s processes perform with greater efficiency, safety and cost-effectiveness.
Greg Sturicz
APV Projects
North Americas
A world market in review.
In 2003, the global dairy products market saw value sales in U.S. dollar terms increase by 10.4 percent, largely due to the increasing strength of the euro against the U.S. dollar. As Western Europe accounts for almost 40 percent of dairy value sales, this currency trend proved highly favorable for the global dairy products market.
Other macroeconomic factors driving value growth in 2003 included the partial recovery of consumer spending in countries hit by recession in 2000 and 2001. These included Brazil and Russia, while an improvement in market conditions was also apparent in the second-ranked Japanese market. Rapid growth in emerging markets such as China, the Philippines, Saudi Arabia and Greece also gave impetus to value gains in 2003.
A consistent feature across the global market in 2003 was the consumer trend towards health-oriented products. This description encompasses functional dairy products, such as milk enriched with omega-3 fatty acids, A2 milk (a product that excludes the beta-casein protein known as A1), probiotic yogurts and non-lactose goat cheese, as well as reduced-fat variants of standard milk, cheese, yogurt and fromage frais products.
New flavors such as blueberry also claim to reduce the risk of certain diseases, while fermented dairy drinks are thought to aid digestion. In addition, the focus on health was a key factor in a number of influential public health programs in the Asia-Pacific region, particularly in China and Thailand, where school milk projects aimed to increase per capita consumption of dairy products in order to improve national standards of nutrition and diet.
A second key factor driving value growth in 2003 was increasing demand for consumer convenience. Manu­facturers such as Nestlé, Kraft and Danone responded with the introduction of single-serve cheese portions, smaller milk servings in resealable bottles and the highly successful development of probiotic drinkable yogurt.
But this trend tended to be limited to the more developed markets of Western Europe, North America and Australasia while demand for the extended shelf life of UHT milk was more in evidence in the emerging markets of Asia-Pacific and Africa and the Middle East. Lastly, although private label growth slowed in 2003 due to demand for value-added branded products in major Western European markets such as France and Italy, private label products still held almost 20 percent of global value sales in 2003, pushing down prices and inhibiting value growth.
Western Europe was the dominant region in the global dairy products market in 2003, accounting for over 39 percent of value sales. High per capita consumption in the region derives from a diet traditionally rich in dairy products, while value gains in 2003 were partly attributable to the increasing strength of the euro against the U.S. dollar. But Western Europe also experienced significant constant terms value growth in local currency terms in major markets such as France and Italy, as well as in less developed markets such as Greece and Turkey.
In France and Italy, value growth was stimulated by demand for health-orientated dairy products such as Danone’s lowfat fermented drink with reduced sugar content, Actimel allégé en sucre and Parmalat’s Fibresse UHT, which claims to aid digestion.
In Turkey, a key factor driving growth was the launch of convenient products such as Huptrik Yogurt Tupu, a fruit yogurt in a squeezable tube. In Greece, increased demand for functional cheese with added vitamins underscored prevailing health trends. Trends towards value-added health-orientated products also drove strong value growth in Australasia in 2003.
North America was the second-largest region in the global dairy products market in 2003 but suffered share erosion due to the weakening of the U.S. dollar. Slow growth in 2003 was largely due to price pressure in the milk and cheese sectors due to the incursion of private label. Lower raw-milk prices in the United States in 2003 also diluted value, following four years of high prices due to shortages in milk supply.
Key areas of growth outside of the major milk and cheese sectors included increased demand for refrigerated soymilk, such as Dean Foods’ Silk in the United States and in Canada, Parmalat’s Vitasoy Sensational Blends, a mix of soymilk and fruit juice. Probiotic drinkable yogurt and non-bovine products such as goat milk, also drove value growth in the region, particularly among health-conscious young women.
Asia-Pacific and Latin America form a second tier in the world dairy products market, accounting for just over a quarter of global value sales in 2003. The two regions experienced contrasting fortunes over the review period, however, with Asia-Pacific seeing consistently strong growth due to the development of markets with significant potential, such as China, Thailand and India.
In 2003, the region also benefited from a partial recovery in consumer spending in Japan due to strong demand for probiotic yogurt and soymilk, and receding fears over food safety. In China, Thailand and elsewhere in the region, large strides in per capita consumption of dairy products were made in 2003 due to the success of public health programs and private investment in domestic production.
In contrast, Latin America suffered from a series of economic crises over the review period, culminating in currency devaluation in Argentina and recession in Venezuela. To some extent, volume sales weathered the crisis due to the staple nature of dairy products in the region. Value sales tumbled, however, as consumers switched to budget brands or artisan products. Never­theless, signs of increased spending were evident in the latter half of 2003, driven by stable economic conditions in Mexico and rising demand for extended shelf life UHT milk in particular.
Three regions — Eastern Europe, Africa and the Middle East and Australasia — comprise the third tier of the global dairy market, accounting for a value share of just 11.4 percent in 2003. In Eastern Europe, growing consumer confidence in urban areas led to increased demand for UHT milk in 2003, as well as rising sales of probiotic yogurt in Russia and Poland. A downturn in the Polish economy in 2003 led to an overall slowdown in regional growth, although this was offset to a certain extent by the continuing transformation of the Czech dairy products industry due to privatization and foreign investment.
In Africa and the Middle East, strong value growth in 2003 was underpinned by increased per capita consumption in Saudi Arabia, Morocco and Egypt. Sales growth in Saudi Arabia was driven by the development of emerging subsectors such as fruit yogurt, chilled desserts and flavored milk drinks. In addition, new products with added value such as flavored milk drinks and powdered milk enriched with calcium, vitamins or iron, achieved increasingly wide distribution.
In Morocco and Egypt, there is a perception that products with a high fat content are healthier than lowfat products. For this reason, dairy products were increasingly consumed to compensate for the lack of vitamins and proteins in other foods that are popular in these countries, especially among low income groups.
Healthy value growth in the global dairy market in 2003 was underpinned by growth in the dominant Western European region. Two key factors contributed to this growth. The first was the appreciation of the euro against major world currencies, especially the U.S. dollar. The second was value-added growth in mature markets such as France and Italy, and rapid growth in lesser developed markets such as Greece and Turkey.
Value growth in 2003 also was driven by rapid expansion in developing markets such as Asia-Pacific and Africa and the Middle East. Successful public health programs, combined with the development of products adapted to the specific needs of these markets, were key factors driving growth. This included UHT milk with extended shelf life and smaller-sized packaging to suit the higher frequency of food shopping in developing economies.
China continued to present perhaps the greatest potential for growth in 2003. A double-digit improvement in value sales was underpinned by increased demand in UHT milk driven by increased consumer awareness of the nutritional benefits of such products. Demand for milk increased significantly due to government school milk programs designed to address widespread calcium deficiency in the Chinese population.
The increase in consumer demand for dairy products with functional properties was a key factor driving value sales growth in developed markets in 2003. This led to the promotion of value-added products such as reduced-fat and enriched milks, probiotic and natural yogurts, and organic cheese.
Reflecting prevailing health trends, soymilk was the fastest-growing product sector in 2003. Soy isoflavones found in soymilk were promoted as ingredients that could reduce the risk of an array of diseases, including breast cancer, prostate cancer, colon disorders, Alzheimer’s disease and heart disease.
Another rapid growth product subsector was probiotic drinkable yogurt. The beverage offers a winning formula that aids digestion in a portable format. Such a product concept was also reinvigorated by the blending of drinkable yogurt with fruit juice to produce smoothies, such as Dannon Frusion in the United States.
Continuing strong demand for product convenience also was a particularly strong force shaping product development in developed markets. Due to smaller households, longer working hours and less formal mealtimes, easy-to-use, portable and disposable products such as pre-shredded cheese in resealable bags and spoonless yogurts benefited from this trend.
The launch of Nippon Milk Community’s Meg Milk brand in Japan was a highlight of 2003 as it represented a significant attempt to brand milk and change the consumer perception of milk as a commodity product. In the long term, such branding efforts hold the key to adding value to the major milk and cheese sectors.
A direct beneficiary of increased consumer concern over food safety and production was the organic dairy industry. In addition to the small global market for organic milk, there was growth over the review period in organic varieties of cheese, yogurt and fromage frais as consumers chose to avoid dairy products derived from cows and milk cultivated with pesticides, herbicides and artificial growth hormones.
Increased segmentation of the market also added value in 2003. New products were targeted at discrete consumer groups according to such variables as age, gender, medical condition, and national culture.
Challenges and Strategies
In the past 30 years, the global dairy industry has been transformed. From a supplier of commodities such as milk and cream, the industry now provides lifestyle products with high added values such as probiotic drinkable yogurt.
Change has not come without a price. A major trend towards consolidation among leading dairy products producers such as Nestlé, Kraft and Danone has led to scores of smaller dairy producers and farmers leaving the industry. The rise of powerful retail chains such as Tesco in the United Kingdom and Carrefour in France has also changed the way consumers buy their dairy products, while putting heavy pressure on supplier prices.
In the wake of these changes the dairy products market faces key challenges in all areas of the industry, including operating environment, supply chain, competitive environment, retail development and consumer trends. The first and overreaching challenge is how to continue adding value to the mature dairy markets of Western Europe and North America. As rival products such as soft drinks and fruit juices compete to attract young consumers away from dairy products such as milk, how must dairy producers respond in order to maintain share of the packaged food market?
The key to long-term success lies in adapting to meet changing consumer lifestyles. Key consumer trends in 2003 that are likely to continue over the forecast period include rising demand for functional dairy products with value-added health benefits and the increasing popularity of convenient, ready-to-eat, portable dairy items such as drinkable yogurt. At the same time, manufacturers must acknowledge that not all consumers are the same and thus target their products at different groups according to age, gender or cultural type.
While responding to consumer demand for high-quality, low-cost dairy products, manufacturers also must take account of increasing consumer fears concerning food safety. This means spending more time communicating the authentic and safe nature of the supply chain for dairy products, assuring consumers the milk supply is as pure and wholesome as possible.
Global branding will also be necessary to expand the world market while benefiting from economies of scale in terms of production, distribution and marketing. At the same time, however, manufacturers must be aware of growing consumer dissatisfaction with global corporate entities and their bland homogenization of national cultures. This will mean adapting global brands to suit local tastes and sensibilities through strategic alliances and effective local market research.
In emerging markets such as China and India, multinational manufacturers face the challenge of significantly boosting per capita consumption. Cultural inertia or unfamiliarity with dairy products must be tackled via extensive educational and marketing programs. Manufacturers also must be aware of the kinds of retailing and household infrastructure that has a bearing on such markets like lack of refrigeration facilities. Longer-life dairy products must be designed accordingly. In addition, smaller packaging at lower price points are more likely to suit the high frequency of shopping habits in many developing economies than high price point family-sized packs.
Finally, dairy producers must combat the threat of value dilution posed by private label products. This will be achieved through a combination of constant new product development and effective branding of what are currently perceived as commodity products such as milk and some types of unprocessed cheese.
Nutritional Content
Consumers are increasingly aware of the nutritional content of packaged foods. A long-standing aversion to the wholesale use of artificial ingredients such as chemical preservatives is closely tied to concerns over the food safety of intensive methods of farming.
In response it is important that producers assure consumers of the natural and authentic provenance of dairy raw materials. In this respect, smaller farmers and dairy producers have a competitive advantage as they are thought to use time-honored, wholesome methods of production in comparison to the factory processing of multinational companies.
Organic products offer one way of reassuring consumers of the natural goodness of dairy products. Marketers must make the case that organic foods may contribute to reducing the risk of certain common modern ailments such as heart disease and cancer. The environmental benefits offered by organic products are likely to be of secondary concern to most consumers.
Manufacturers and retailers of soy milk must assure consumers of the GM-free status of their supply chain. In the current consumer climate, even the suggestion that products may contain traces of GM-foods may lead to extreme reactions such as consumer boycotts and public campaigns.
Functional products such as probiotic yogurts must more-effectively communicate the meaning of terms such as pro-, pre- and synbiotic. Considerable work still needs to be done to educate most consumers into the whys and wherefores of gastrointestinal health.
Similarly, fortified products must emphasize that vitamins and minerals and ingredients such as omega-3 fatty acids contained by the products are naturally occurring. The promotion of the benefits of such ingredients as soy isoflavones and the polyphenols found in blueberries and cranberries must be shown to be found in nature, not created in the laboratory.
Fitting Urban Lifestyles
An overwhelming trend towards lifestyle convenience will favor portable, disposable formats for dairy products. These include yogurt in squeezable tubes and soymilk and fermented dairy drinks in resealable, squeezable plastic bottles.
This trend towards integrated urban lifestyles where shopping and eating occurs in the midst of other daily activities will also result in the ongoing growth in sales of dairy products through convenience outlets such as service stations, and vending machines and foodservice on public transport.
Distribution via the Internet is also a growing, though fractional, part of making dairy products compatible with modern urban lifestyles. Packaging and products with longer shelf lives will facilitate home delivery of dairy products that may be unrefrigerated for short periods without harm.
Just as bottled water has become an essential portable accessory for many style- and health-conscious consumers, dairy products manufacturers must strive to make products such as drinking yogurt as ubiquitous as bottled water. Endorsement of products by trend-setters and celebrities is an effective way of raising the brand status of products such a branded milk.
Manufacturers also must make products compatible with the modern urban tendency to practice identity consumerism. This has arisen in reaction to the one-size-fits-all philosophy of much mass production of packaged food and can be addressed by segmenting the market to meet the needs of niche groups such as older consumers requiring calcium, diet-conscious female consumers, lactose-intolerant people, teenagers, children and even babies.
Threat from Private Label
Manufacturers must respond to the competitive threat from private label producers, which are expected to continue to closely follow dairy product trends such as portability and functionality while putting downward pressure on prices.
One strategy for competing with private label is to use deep price discounting supported by heavy promotional spending. In the United Kingdom in 2003, the cheese manufacturer Mclellands launched a £2 million advertising campaign for its Seriously Strong brand, supporting a price promotion. But while such a strategy builds volume in the short term, it has the deleterious long-term effect of eroding brand equity.
The best long-term strategy for combating the threat from private label is to reinforce brand loyalty through product quality and brand distinctiveness. In this regard the bright red packaging of Nippon Milk Community’s Meg Milk aims both to capture consumer attention and communicate high product values of food safety and good taste.
Key areas in which manufacturers may most effectively combat private label products are emerging sectors such as soymilk and fermented dairy drinks. The structural economics of such small sectors means that low volume sales make it less feasible for private label manufacturers to compete on price with leading branded products.
Yogurt is also a key area in which branded products are able to resist the threat from private label. This is because consumers perceive that brands such as Danone and Müller offer superior taste and health properties than private label brands, and because strong product development in the yogurt sector means that consumers no longer see it as a commodity item.
The implications of this are clear for the major milk and cheese sectors. Manufacturers must continue to develop products that offer more health, convenience and taste benefits than private label products, such as Parmalat’s UHT brand Fibresse, and for this fact to be effectively demonstrated in extensive advertising campaigns.
Think Global, Act Local
Globalization of the dairy products market continued over the review period with multinational companies increasing their penetration of emerging markets such as China and Thailand. One of the key benefits to global players such as Nestlé, Kraft and Danone of such international operations is insulation of revenues from regional economic fluctuations. A second is economies of scale in terms of production, distribution and marketing.
On the one hand, consumers in specific regions welcome the increase in product choice afforded by the presence of global dairy product brands.
On the other hand, there is a growing current of consumer mistrust and skepticism concerning the product quality and provenance of many global dairy product brands. Above all there is concern that regional or local tastes and traditions will be wiped out by the marketing power of global brands that may not, in reality, offer consumers best value or quality.
An aspect of this problem facing global manufacturers was reflected over the review period in widespread consumer antipathy towards genetically-modified food. This led to rapid manufacturer response in terms of assuring consumers that packaged food products were GM-free.
In the dairy products market, examples of the think global, act local strategy proved successful in 2003. In Mexico, for example, Danone launched Vitalínea flavored yogurt in Piña-Toronja and Manzana flavors to meet the taste expectations of local consumers.
Emerging Markets
Emerging markets with vast populations and low consumption per capita of dairy products such as China, India and Indonesia hold the greatest long-term potential for volume and value growth. Rising income per capita and increasingly liberal economies in these markets offer outstanding opportunities to international dairy products manufacturers.
But dairy products do not hold a central place in the traditional diets of many of these markets, especially not compared to markets in Western Europe. This has contributed, in markets such as Thailand and China, to a high incidence of lactose intolerance due to lack of exposure to dairy products in childhood.
As a result, any attempt to increase per capita consumption must be allied with a heavy strategic emphasis on consumer education into the health benefits of dairy products, as well as the culinary flexibility of such products. In Thailand and China over the review period, government school milk projects encouraged consumers to drink milk on a regular basis, and were aimed at improving the nutritional content of traditional diets. Manufacturers must be cognizant of the way in which such programs communicate dairy product benefits, and echo the most important aspects in branded advertising.
Other key strategies to increase per capita consumption include adapting product ranges and packaging to meet the needs of local consumers.
Source: Euromonitor International — The Global Market for Dairy Products, 2004
Chicago-based Euromonitor International delivers market insight on more than 60 countries to the world’s leading consumer product companies and their suppliers. For a full report and additional information on global dairy market data and analysis, contact Euromonitor at (312) 922-1115 or visit www.euromonitor.com.

Global Sales of Dairy Products: Value 1998-2003 US$ million
  Value sales % value growth
1998 208,599.7 -
1999 210,964.4 1.1
2000 207,828.6 -1.5
2001 207,861.4 0.0
2002 214,200.8 3.0
2003 236,533.7 10.4
Source: Euromonitor
Note: Global and regional historic market size growth is expressed in current data terms throughout this report. National market size growth is expressed in constant terms, i.e. excluding the effect of inflation, to facilitate cross-country comparability.
Global Sales of Dairy Products by Region: Value 1998-2003 US$ bn
  1998 1999 2000 2001 2002 2003
Western Europe 80.7 79.3 72.0 72.1 78.2 92.4
Eastern Europe 13.1 12.0 11.8 12.7 13.6 14.9
North America 44.6 47.7 49.1 50.8 51.6 53.5
Latin America 32.7 29.7 31.3 30.9 28.1 28.4
Asia Pacific 27.2 31.7 33.1 31.2 32.3 35.3
Australasia 3.6 3.9 3.8 3.5 3.9 4.7
Africa and Middle East 6.6 6.7 6.9 6.7 6.6 7.3
World 208.6 211.0 207.8 207.9 214.2 236.5
Source: Euromonitor
Value Sales of Dairy Products by Major Market: Value and % of World Total 1998-2003 US$ billion
  1998 % 1998
world total
2003 % 2003
world total
USA 40.3 17.0 48.4 20.5
Japan 16.7 7.1 19.3 8.1
France 12.8 5.4 15.2 6.4
Italy 13.6 5.8 15.2 6.4
Germany 12.5 5.3 13.8 5.8
United Kingdom 9.8 4.1 10.4 4.4
Brazil 13.0 5.5 8.7 3.7
Mexico 6.2 2.6 8.5 3.6
Spain 5.5 2.3 6.8 2.9
China 2.5 1.1 5.1 2.2
Canada 4.4 1.8 5.1 2.2
Turkey 4.3 1.8 5.0 2.1
Australia 3.1 1.3 4.0 1.7
Russia 3.7 1.5 4.0 1.7
Poland 3.3 1.4 3.9 1.7
Greece 2.5 1.1 3.7 1.6
Netherlands 2.9 1.2 3.6 1.5
Colombia 4.0 1.7 3.6 1.5
Sweden 2.8 1.2 3.0 1.3
Switzerland 2.6 1.1 3.0 1.3
Source: Euromonitor
Global Company Shares of Dairy Products 2001-02 % retail value rsp
Company 2001 2002
Nestlé SA 4.5 4.7
Kraft Foods Inc 4.3 4.2
Danone, Groupe 4.4 4.2
Parmalat Finanziaria SpA 2.8 2.7
Dean Foods Co 2.1 2.2
Sodiaal SA (Société de Diffusion Internationale 1.7 1.8
Agro-alimentaire) Arla Foods Amba 1.4 1.4
Morinaga Milk Industry Co Ltd 1.4 1.4
Meiji Dairies Corp 1.2 1.2
Lactalis, Groupe 1.0 1.0
Yakult Honsha Co Ltd 1.1 1.0
Bongrain SA 0.9 0.9
Friesland Coberco Dairy Foods Holding NV 0.7 0.8
(Zuivelcoöperatie de Zeven Provincien UA)Fonterra Co-operative Group 0.9 0.8
Tine Norske Meierier BA 0.7 0.7
Snow Brand Milk Products Co Ltd 0.8 0.7
Campina Melkunie BV, Zuivelcoöperatie 0.6 0.7
Valio Oy 0.5 0.6
Unibel SA 0.4 0.5
Alpina Productos Alimenticios SA 0.5 0.5
Private Label 18.7 18.9
Artisanal 1.5 1.6
Others 47.8 47.4
Total 100.0 100.0
Source: Euromonitor Note:Philip Morris, the parent company of Kraft Foods, changed its name to Altria Group in 2003.

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