Global Dairy Top 10
First published in Dairy Innovation Magazine The dairy world continues to cautiously get back to normal after the price shocks of 2008/9, it is interesting to note that the collective turnover of the Top 10 dairy companies in the world shrank by $13.5Bn between 2008 and 2009 an average of 10.5%, and that many of them have taken great care to strengthen their balance sheets as they recover from recession. In the near future, it seems highly likely that the process of globalisation will continue and again start to gain momentum. Dairy remains one of the fastest growing food sectors around the globe and there is a big gap to fill between the average consumption of dairy products in developing markets of 51Kg per year and the average of 268kg per year consumed in developed markets. As the trend in these markets for consumers to be more urban, wealthy and middle class, continues there is a growing acceptance of the nutrition and health benefits of dairy which coupled with a developing palate for western diets continues to drive increases in demand. As indicated by this years Top 20 list published in July by Rabobank, with notable exceptions it is multi national companies from developed markets who, through joint ventures and acquisitions, are benefiting from the growth in developing markets bringing their technical ability to quickly adapt to the changing desires and providing food safety reassurance to new these consumers. The Top 10 ranking has changed little from 2009 but there are some notable changes in those challenging to be in the list with Asian companies creeping up the list as the Asian markets continue to dominate world growth. The increase in international trade which increasingly fills the gap as demand outstrips supply in developing countries together with the ebbs and flows of supply and demand for products and inputs continues to lead to increased market volatility which in turn continues to encourage further consolidation another trend which is set to continue. Nestle (Dairy Turnover 2009 – 25.9BN USD) Expanding based on Health and Nutrition in developing markets Nestle continues to be the biggest dairy company in the world. During 2010 the reins of the dairy SBU (Strategic Business Unit) passed from the assured hands of Tom Coley, who had run the business since 2002, to Thierry Philardeau previously a senior player in Nestles water business . As the worlds biggest food company Nestle sets major trends in the way that the market is seen, Paul Bulcke (CEO) this year reaffirmed the companies commitment to nutrition and health as their key marketing thread. This has been particularly impactful in developing markets where the companies ‘Creating Shared Value’ initiative is seeking to provide improved nutrition to people in developing markets at affordable prices. Nestles focus on developing new markets is reflected in the recent announcement of an investment of $100m in co-operating with Fonterra in the building of a dairy plant in Chile. Danone (Dairy Turnover 2009 – 14.8BN USD) Biggest Fresh Milk milk supplier expanding though acquisition in Russia and CIS At number two in the overall dairy ranking Danone continues to be the biggest supplier of fresh dairy products around the world. Danone has also had a change in management during the year with Jordi Constans being named as Head of fresh dairy products. As an organisation in 2010 Danone have increased their focused on Health and Nutrition in which dairy plays a major part despite continued difficulties in getting claims regarding its probiotic products recognised by the European authorities. In addition, after a previous association with Wimm Bill Dann, owning an 18% stake which they quickly divested this year Danone have now acquired Unimilk, making Russia and the CIS their biggest market. Lactalis (Dairy Turnover 2009 – 12.7BN USD) French Dairy company aiming to be worlds leading cheese company through acquisition Although French, Lactalis now does most of its business (56%) outside France. This year the company has continued a steady international growth. The purchase of Spanish company Puleva Foods buy out is the latest in a string of acquisitions for Lactalis, including the Italian cheese company Galbani, U.S. company Rondele, Lubborn creamery and Spanish company Forlasa Alimentación. Lactalis has had a long term acquisition strategy aimed at making it the worlds leading cheese company, however more recently they have shown an interest in the French Yoghurt maker Yoplait. Friesland Campina (Dairy Turnover 2009 – 11.2BN USD) Dutch giant co-operative continues to consolidate assets after merger Friesland Campina have continued with the significant reorganisation of the business since the merger of the two major Dutch co-operatives continuing with the planned closure of 6 sites and the merger of R&D facilities at Wageningen. Despite the focus on re-organisation the company posted strong growth for the first half of the year mainly due to strong performance in its Asian and African markets which grew by 15.9% rather than Europe where growth was disappointing. Cee’s t’Hart the CEO in setting out the companies strategy until 2020 envisages growth in dairy-based beverages, branded cheeses and infant and toddler nutrition ingredients as it plans to target previously unexplored markets in the Middle East, North Africa and South East Europe. Fonterra (Dairy Turnover 2009 – 10.2BN USD) Revised capital structure and reduction of debt put co-op in strong position Fonterra have had a successful year making the second biggest payout to farmers in its existence. The Board have also been able to persuade members to adopt a new capital structure allowing share trading between farmers requiring the co-op to have less capital on hand to manage this, and during the year have significantly reduced their gearing through further farmer investment. This will allow Fonterra to invest further in infrastructure to support its global business for example the $100m joint investment with Nestle in Chile. However, while becoming one of the most competitive global players, Fonterra complain that they still have to supply domestic competitors some of whom are foreign owned, with milk from their producers under the Dairy Industry Restructuring Act Dean (Dairy Turnover 2009 – 9.7BN USD) Increasingly difficult trading conditions impact biggest US player While maintaining its position as the biggest US dairy company Dean, which owns Horizon, Alta Dena, Garelick, McArthur and other dairy brands nationwide, is struggling with a shift toward private-label milk consumption, excess capacity in the industry and price cuts it made to appease consumers and retailers. Both Fitch and S&P the two big credit rating agencies have downgraded Dean’s credit rating recently and the company has seen third quarter profits drop by three quarters. The companies Fresh Dairy Direct-Morningstar businesses have been particularly hit as supermarkets have sought to reduce prices throughout the current recession. Interestingly the company’s soya beverage subsidiary Whitewave which successfully acquired Belgian company Alpro last year bucked this trend continues to generate respectable profits. Arla Foods (Dairy Turnover 2009 – 8.7BN USD) Danish co-op saves its money to strengthens investment in developing markets Arla’s key approach to recovering from the recession and market turmoil has been to save money and build its balance sheet strength. By it’s own admission the company has paid a lower milk price than many of its members would have liked. However the company is now well positioned and starting to make investments in key markets such as the Netherlands, Sweden, South America and the UK, announcing a £150m dairy in Aylesbury and investment at the UK Westbury powder plant. Such investments are designed to maintain their position as a world player. The prudent approach to finance together with the companies strong branding linking them ‘Closer to Nature’ has been very positive throughout the year. The company has also changed the basis by which Swedish milk prices are paid to try to overcome their lack of competitiveness caused by currency changes to maintain one of its key home markets. However to remain in the global league, at some point Arla may have to address its capital structure in a similar way to Fonterra to provide the level of investment required. DFA (Dairy Turnover 2009 – 8.1BN USD) US co-op morns loss of leader while looking at the future market Dairy Farmers of America, Inc. overcame the sad news in December 2010 that its Chairman, and industry titan Tom Camerlo had lost his fight with cancer with Randy Mooney, previously Vice Chair elected as Chair. The company retains about 30 processing sites after the sale of its National Dairy Holdings business to Mexican company Lala during 2009. In 2010 DFA have expanded into the growing Hispanic cheese market with the purchase of Houston based Castro Cheese. DFA which is responsible for the purchase of about one third of all milk in the US and is a major supplier to Dean Foods has spent much of the year in 2010 recovering from the very difficult year experienced by members in 2009 when market volatility led to poor prices. As a result of this DFA have a major interest and involvement in the ’Foundation for the Future’ proposals from National Milk Producers Federation to change the basis for the market of raw milk in the US. Kraft (Dairy Turnover 2009 – 6.8BN USD) US food giant recovers from difficult time with cheese Kraft is the biggest U.S. manufacturer and marketer of food products, second to Nestle around the globe. It grew out of a wholesale cheese delivery business established in Chicago in 1903 and growing rapidly by supplying American forces in both World Wars. Kraft have focused on the controversial takeover of UK chocolate maker Cadburys recently moving the holding company of the business to Switzerland to avoid paying UK tax. US Cheese revenues, representing 6% of Kraft’s total turnover were down by 10,1% in 2010 leading to more than an 18.1 drop in operating margin from US cheese indicating the difficulties which the market has been through over the last couple of years. However, the US cheese market is showing signs of recovery, and the re-packaging of its Philadelphia brand may lead to an improvement in Kraft’s performance in this area next year. Unilever(Dairy Turnover 2009 – 6.4BN USD) Anglo-Dutch conglomerate continues to indulge itself with ice cream The Anglo-Dutch giant Unilever while being one of the biggest dairy companies in the world by merit of its Ice Cream businesses sometimes has an uncomfortable relationship with the rest of the sector with its approach to such issues as trans fatty acid labelling and claims made about its yellow fat products. Unilever compete aggressively with Nestle in the $59Bn global ice cream markets with brands such as Ben and Jerry and Magnum, investing in R&D to provide healthier options for indulgence. Together Unilever and Nestle control over one third of the global market for Ice cream. With the ice cream market in countries such as India expanding at around 20% per year Unilever are well placed to take advantage of this key indulgence market.