Despite last year’s hot summer impacting production, Europe’s dairy industry is in a strong position, with production efficiency driving consumer demand. ESM reports. This article first appeared in ESM Issue 1 2019.
With consumers increasingly embracing ‘natural’, healthy products, the dairy sector is well positioned for growth as we enter a new full year.
Dairy is a sector that is traditionally driven by the twin pillars of health and quality, and such is the level of investment in state-of-the-art production facilities and new-product development that the European dairy sector has every reason to be optimistic about the category’s future growth.
The Macro Picture
Before we examine dairy’s role in the retail environment, it’s worth taking a look at the macroeconomic view of the sector, which, on a global level, has posted year-on-year growth.
Across the ‘Big 7’ dairy producing exporters (the EU, the US, New Zealand, Australia, Brazil, Argentina and Uruguay), market growth maintained, albeit slowed, in recent months, with the hot summer weather impacting feed production – and, therefore, milk quality – towards the end of the year.
As Rabobank outlined in its report for Q4 2018, Dairy Quarterly: Uncertainty Abounds, while the outlook is largely positive for 2019, the climate impact may continue to be felt into the start of this year’s pasture season, particularly in Europe, while other regions, such as New Zealand and China, reap the benefits of more favourable conditions.
Looking at Europe in particular, EU milk production pulled into a decline in the third quarter of the year (September was down 0.2%), bringing to an end 18 months of uninterrupted growth. However, some markets performed stronger than others.
Between September and October in the UK and Poland, milk production increased by 0.6% and 2.6%, respectively, while production rose by double digits in Ireland in the same period. In September in Germany and France, milk production went down by 0.2% and 1.7%, respectively, while new phosphate regulations impacted production in the Netherlands.
Other dairy categories have also seen fluctuations in prices – EU butter prices, for example, fell by €880 per tonne, to €4,710 per tonne, between September and November – a decline of 15.7%. Prices for skim-milk powder rose by 7.9% between October and November, helped by increased exports to China.
EU cheese production fell by 1.3% in the third quarter of last year. Overall, Rabobank expects dairy consumption growth to remain at a ‘stable pace’ of 1.0% in 2019.
Don’t Spill The Milk
Of more concern to the European dairy sector, however, is the threat of the UK’s disorderly exit from the EU – a dilemma that, at the time that ESM went to press, was still not resolved.
The European Dairy Association (EDA), which represents dairy processors across EU member states, recently described a no-deal Brexit as ‘a completely new dimension of a milk crisis’, saying that the potential shock to the sector would affect ‘the industrial and societal backbone of rural Europe’.
According to the EDA, the 2014 Russian ban on imports of EU dairy products triggered a crisis in the EU dairy market, the effects of which are still being felt today – new markets needed to be unlocked rapidly to deal with the increasing glut of dairy products in the EU, which led to sudden changes in dairy prices and urgent intervention by the European Commission.
Brexit, the EDA argues, has the potential to be a crisis on a completely new scale, with volumes of EU-27 butter sold in the UK three times higher than EU-28 butter exports to Russia, and EU-27 cheese sold in Britain twice that sold to Russia.
With this in mind, the EDA, alongside Dairy UK, established Brexit: The Future EU-UK Dairy Framework, the heart of which is the ‘main priority’ that the UK remain as close as possible to the status quo, both during and following Brexit negotiations, including maintaining – or, at the very least, aligning with – the EU Single Market and Customs Union.
‘This would secure the free movement of milk and dairy products between the EU and UK with no tariffs or quotas from either side for milk and dairy products, and limit non-tariff barriers to trade (SPS/TBT) as much as possible,’ the EDA noted in its statement.
‘The EU and UK should have no (significant) divergence in the regulatory sphere when it comes to policies affecting dairy and dairy products and a level playing field should be sustained,’ it further noted.
On The Ground
While the fact that the dairy market has managed to maintain stable growth in spite of macroeconomic factors is admirable, but when you get down to retail level, there are a whole series of additional factors to consider when establishing an effective dairy department, from logistics to private-label development, and from local sourcing to healthy options.
At Belgium’s Delhaize Group, for example, Marjan Decoster, filière/industry manager of fresh dairy, says that the retailer is looking to further develop its range of healthy options, as well as exploring better ways of enhancing the traceability of its dairy sourcing.
“We’re focusing on private label, as we were the first Belgian retailer to launch [the nutritional labelling scheme] Nutri-Score on all our ultra-fresh private-label products last summer,” Decoster says.
“In addition, we are further developing our ‘local’ range, meaning: products that are proposed to our shoppers are done so based on a particular area and a set number of outlets,” she adds.
“On a larger scale, Delhaize developed a direct collaboration with the biggest organic cooperatives. This is a long-term, win-win collaboration and an extension of our organic private-label range. All of our private-label milk is now of Belgian origin.”
While recent fluctuating dairy prices have led to an “increase [in] short-term contracts with our suppliers, and an impact on our margins,” Decoster does not believe that shoppers are shunning traditional dairy products for plant-based alternatives, such as soy.
“Actually, we find that soy drinks are decreasing, although other-ingredient drinks are still further developing their assortment and volumes,” she says. “Shoppers have seemed to abandon soy and [gone] back to cow’s milk.”
Embracing Natural
Similarly, in Ireland, shoppers are moving towards more natural products in dairy due to perceived health benefits, according to Michéal Donohoe, senior dairy buyer for Tesco Ireland.
“Generally, the trends in dairy are health and quality driven,” Donohoe says.
“We’re seeing a move to more natural products, like butter, rather than spreads, and natural yoghurts, rather than flavoured; a move from low-fat milk to full-fat milk, and growth of fortified milks; growth of dairy alternatives; a move to higher protein or lower fat in yoghurt and cheese; a move to more organic products; and a move to more premium products, for example, the Finest cheese range,” he adds.
All private-label milk sourced by Tesco Ireland is Irish, and the retailer has sought to expand its range in this regard, with the introduction of 11 new private-label milk SKUs this year, including the 1.75- and 1.5-litre variants.
Looking ahead to the coming year, Donohoe believes that health trends will continue to “drive most decision-making in dairy, be it lower sugar, lower fat, higher protein, or switching into dairy alternatives,” which, he says, are “witnessing strong growth”, albeit off a small base.
“Alternative dairy still accounts for less than 10% of dairy sales,” Donohoe says. “We do expect to see movement in this trend in the coming years, however, as plant-based/alternative dairy products become more mainstream.”
Elsewhere, across Europe, retailers in different markets are seeking to set new benchmarks in dairy, as ESM explores in more detail:
France
In January, E.Leclerc announced a partnership with Orlait, which will bring together various dairy cooperatives, including Sodiaal. The move is aimed at providing better remuneration to more than 26,000 livestock producers from French dairy cooperatives. It will also improve the quality of the milk offered under the retailer’s Marque Repère private-label brand. This agreement will enable dairy farmers to provide better living conditions and fodder for their animals. Some of the measures include a non-GMO diet and 150 days of pasture per year, on average, for livestock.
Germany
In a move to offer regional milk that meets high animal welfare standards, REWE group introduced the ‘Für Mehr Tierschutz’ (‘For More Animal Welfare’) label in its stores in Schleswig-Holstein and Hamburg in December.
Through this initiative, the retailer is seeking to highlight the source of its ‘REWE Regional Unser Norden’ (‘REWE Regional Our North’) dairy and encourage consumers to purchase more regional products. Exclusive to northern Germany, the milk is sourced from farms in Schleswig-Holstein that adhere to standards that add value to animal welfare.
Switzerland
In April of last year, Migros introduced a new programme to encourage the production of sustainable milk in Switzerland. It has formulated guidelines that will help Swiss dairy farmers to meet the demand for respectfully produced organic milk.
The Sustainable Migros Milk programme has been designed to benefit animals, humans, and the environment. According to the guidelines, around 50% of cow fodder should include pasture, which will improve the health of the animals and increase the content of omega-3 fatty acids in their milk.
As well as paying one of the highest milk prices to farmers, Migros will also pay dairy producers a sustainability surcharge from 2019. The programme also provides milk producers to conclude framework contracts with a minimum maturity of five years, which is well above the legal minimum of one year.
Also in Switzerland, last year Coop introduced a new range of private-label dairy products under the Heumilch (‘Hay Milk’) banner, sourced from cows fed exclusively on Swiss hay. Breeders supplying the range have to meet the requirements of the Swiss Federal Office for Agriculture’s animal welfare programme. This states that cows must spend at least 26 days a month on pastures in the summer and have access to outdoor areas all year.
Denmark
In August of last year, Coop Denmark celebrated 25 years of collaboration with Salling-based Thise Dairy, one of the longest-serving organic dairy farms in the country. The retailer offers around 175 SKUs sourced from Thise, selling more than 60 million units therefrom in 2017.
Thise was founded in 1988 by a group of organic farmers, at a time when other dairies did not sell organic milk as a specialty product.
Netherlands
Dutch retailer Jumbo has announced that it plans to increase the range of sustainable milk products offered under its private-label brand, with products bearing the Beter Leven Keurmerk (BLK), as well as the PlanetProof quality mark. The move is aimed at strengthening its position as a leader in sustainable and affordable dairy products. Most of the fresh dairy at Jumbo is already based on certified meadow milk from cows that feed on pasture for at least 120 days per year, for six hours a day.
The group noted that it will use these standards as a benchmark towards the production of a more varied, affordable range of dairy products. Jumbo has committed to sell exclusively sustainable dairy products by 2022, and it was the first supermarket in the Netherlands to make this commitment.
Elsewhere in the Netherlands, Albert Heijn rolled out a new range of sustainably produced own-brand dairy products in its stores in June of last year. Working alongside producer Royal A-ware, the dairy is sourced from farmers who offer optimal living conditions to their cows, including more rest, light, air, grass and space. The cows are also fed exclusively on regional fodder, and the farms use green electricity.
CATEGORY CHAMPIONS
MEVGAL – Dedication To Quality For Close To 70 Years
With a history of almost 70 years in the art of making dairy products, MEVGAL, one of the largest and oldest dairy firms in Greece, is constantly evolving, offering innovative products adapted to its consumer needs while at the same time staying true to its tradition and quality.
MEVGAL was one of the first dairy companies in Greece to export its products, commencing exports in 1985. Its export activity today extends to more than 30 countries all over the world, with a wide product portfolio that includes Feta Cheese PDO, Authentic Greek Yogurts and other Greek Dairy Products. For more information, visit international.mevgal.gr.
Cimcorp To Develop Order Picking System For Synlait
Cimcorp, a leading global supplier of turnkey automation for intralogistics, has announced it is to install its MultiPick materials handling solution for Synlait Milk at the group's new liquid milk production facility in Dunsandel, New Zealand. Working alongside packaging and processing integrator Tetra Pak, the solution will see the full automation of Synlait's order picking process, optimising material flow and throughput from production to dispatch.
The MultiPick system will enable Synlait to transport 1,800 crates from inventory to loading every hour and will feature Cimcorp’s Warehouse Control System (WCS) at its core, which will provide control over all inventory management, system functions and pick planning. For more information, visit www.cimcorp.com
© 2019 European Supermarket Magazine – your source for the latest retail news. Article by Stephen Wynne-Jones. Click subscribe to sign up to ESM: The European Supermarket Magazine.
