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London 27 June 2011
Mark Voorbergen
Food & Agribusiness Research and AdvisoryRabobank International
Global developments in dairy- Implications for the UK dairy value chain
Contents
Section 1:
Section 2:
Global dairy market developments
Considerations for the UK dairy chain
Global demand growth is not driven by the Western world
• World market returns to an annual
growth rate of 2.5%
• Mostly driven by demand growth in
net importing regions
• Growth in the Western world is
mainly about value growth:– Product innovations targeting
health and wellness
– Convenience, snacking
3
Supply security has become an issue
• In 2010, China became the nr 1 importer of dairy in the world.
Majority of imports originate from New Zealand. Supply
concentration is a risk
• Large dairy buyers are changing their sourcing strategies (value
chain investments, jv’s with suppliers, less spot market buying)
• Entire value chain is looking for stable long term pricing structures
4
Returns on the global market are becoming more appealing
5
Traditional price premium for EU and US milk is declining
Global market moves to higher trading range
-0.20
-0.10
0.00
0.10
0.20
0.30
0.40
US
D/
litr
e e
qu
ivale
nt
Premium for US milk over NZ milk
Premium for EU milk over NZ milk
Market has become very volatile
• International prices pushed back to extreme highs in 2011
• Supply issues created the first spike in 2007/08
• The 2011 price developments are mainly caused by very strong import demand
Non dairy players creeping in
Christchurch
New Delhi
Mexico
City
New York
Sao PauloSydney
Singapore
Mumbai
Melbourne
Utrecht
Shanghai
Buenos Aires
London
Non dairy players creeping in
What’s driving new entrants?
Pull
Push• Health trends/risks of current product portfolios• Rising retail power• Anti-trust limitations
Synergies /
Synchronicity
• Processing, packaging, distribution• Overlap with juices, functional foods• Desire to expand in developing markets
• Dairy growth potential• Nature of growth: health, convenience
Contents
Section 1:
Section 2:
Global dairy market developments
Considerations for the UK dairy chain
• Revenues on the global market are increasingly interesting, but none of the UK processors seems positioned to benefit directly
• Convergence with European/global prices is increasingo Removal of the quota system in 2015 might cause a stronger push of products into the
UK market
o Reduced importance of liquid milk as the primary milk price driver
• Milk prices generally benefit from a milk deficit situation, but in the UK they don’t
• UK dairy sector lacks a dominant multi product multinational co-op that is capable of absorbing the impacts of volatility, or even benefit from it
• UK is seen as an attractive target market for new entrants, for domestic marketreasons as well as for export ambitions
Strategic implications for the UK dairy chain
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