FEED Business Worldwide - April, 2012

 

More milk and less cheese - except on cheeseburgers 

 

by Eric J. BROOKS

 

 

Gone are the late 20th century days when dairy surpluses inspired writers to talk about "lakes of milk" or "mountains of cheese." Dairy is now a fast growing protein and after several slow years, growth is again picking up.

 

 

However, with developing countries responsible for over 80% of the annual increase in world dairy demand, their preferences are redefining this line's characteristics. It means that it over the next decade; traditional high-end, high-margin products such as cheese will have a rough time.

 

After growing by 1.6% in 2011, Rabobank expects world dairy demand to increase at a 3% annual rate from 2012 to 2015. But with wealthy country demand only rising at a zero to 1.5% annually, this means that across Asia, Africa and Middle East, demand is rising at 5%+ annual rates, making for huge opportunities in untapped markets. Even so, the dairy sector's growth's characteristics may prove to be highly asymmetrical, both geographically and across different products.

 

For one thing, 82% of the growth will come from developing countries - with 42% of that 82% coming from just China and India alone. With ASEAN accounting for much of the remaining growth and world dairy's future prospects are mostly an East Asian affair - and reflect their preferences.

 

Foremost among these is the following: Developing countries consume more of their dairy in the form of liquid milk and are far less likely to consume cheese or butter.  With cheese's consumption mostly concentrated in wealthy developed countries, this means that world cheese and milk demand will go in different directions. The countries that consume cheese have low population growth and per capita dairy consumption close to saturation levels.

 

 

 

On the other hand, except for India, Argentina and the Middle East, most developing countries with fast rising dairy consumption do not have a cultural tradition of consuming cheese. This will create a situation where over the next five years, world dairy milk consumption will rise by well over 5% annually, Rabobank expects cheese consumption to lag at a 1.6% annual pace.

 

Indeed, developing country consumption of higher-end dairy goods will be mostly keynoted by near-milk products. These include milk-based beverages, infant formula, condensed milk, creams used in coffees, yogurts and most especially infant formulas.

 

Indeed, the only high-end, traditionally high value product that will experience fast growth are those cheeses used by b2b end-users, rather than consumers. For example, cheeses used in fast-food products such as pizzas and hamburgers, or milk/cream combinations used by high-end coffee outlets.

 

 

 

This B2B driven growth of high-end dairy products will most especially boost demand for whey, which is used by many processed foods and baked goods whose developing country consumption is rising rapidly. As a low-fat substitute, whey's future is assured, as it will be increasingly consumed by the rising number of health conscious consumers in developing countries. Whey's use in infant formula will further spur its demand, as the latter's consumption is growing strongly throughout the developing world.

 

Beyond whey, demand for many higher-end dairy products will be spurred by alliances between multinational fast food retailers such as McDonalds or KFC, multinational integrators such as Cargill or CP and local farm suppliers. The specific processed cheese lines used by fast-food retailers can experience growth of 10% or more in certain national markets.