Rabobank senior dairy analyst Michael Harvey gives an overview of changes to the global dairy landscape. This article first appeared in the October 2021 issue of Food and Drink Business.
French-based dairy company Lactalis has overtaken Swiss giant Nestlé to become the world's largest dairy company with its US$23 billion turnover placing it at the top of Rabobank’s latest annual Global Dairy Top 20.
Nestlé took second place for the first time in decades with US$20.8 billion in revenue while Dairy Farmers of America maintained its third placing with US$19 billion.
Organic growth, combined with its dedicated global merger and acquisition (M&A) strategy, has propelled Lactalis from ninth place just a decade ago into a commanding position in 2021.
The company has made several international acquisitions, adding around 60 deals and expanding its global footprint throughout the Middle East, Africa and North and South America.
With deals pending for the Kraft Heinz natural cheese business and Groupe Bel’s Royal Bel Leerdammer, Bel Italia, Bel Deutschland and Bel Shostka Ukraine – which have a combined annual turnover of about $US2.5 billion – it is likely Lactalis will extend its lead into the future.
The report showed the combined turnover of the Top 20 industry leaders fell by just 0.1 per cent in US dollar terms, following the previous year's 1.8 per cent gain, which demonstrates resilience in dairy consumption in most dairy markets in the face of unprecedented channel disruptions due to COVID-19.
The report also showed that while dairy-related M&A activity slowed in 2020, with about 80 announced deals compared to the previous year’s 105, activity picked up again in the first half of 2021 with more than 50 deals announced to midyear.
Changing demographics
With its international focus, Lactalis is well positioned to capitalise on global growth opportunities brought about by changing demographics.
Over the next decade more than 35 per cent of global population growth will occur in Africa, which remains a net and growing dairy importer, largely buying from international players in the Global Top 20.
There will be pockets of flourishing regional domestic production growth, such as in East Africa, based on the availability of natural resources and progress on social, economic and political stability. Indonesia will also remain a growing market for global dairy exporters.
China will continue to reign as the world’s largest dairy importer, however broader demographic changes including an ageing population will see their dominance in the infant nutrition market moderate while growth in the over-50s “Active Silvers” segment will intensify.
The US and EU-27 markets are expected to be ageing and affluent, attracting innovation and competition.
Sustainability and alternatives
Rabobank anticipates investment activity from the global dairy giants to stay robust in the on-trend channels and categories, including specialty cheese, innovative dairy ingredients like human milk oligosaccharides, dairy alternatives ranging from plants and fermentation to cell-based, and lifestyle nutrition.
The sales growth of liquid milk and yoghurt alternatives – especially oat- and almond-based alternatives – have not gone unnoticed.
Most significantly, Danone’s turnover in dairy alternatives, following its acquisition of WhiteWave Foods in 2017, grew by 15 per cent compared with the previous year.
Sustainability-marketed US milk sales grew by more than 20 per cent from 2013 to 2018, compared with negative growth for the category overall.
Sustainability-marketed natural cheese and yoghurt sales grew over 30 per cent and 20 per cent respectively compared with near 10 per cent growth for those categories broadly over the five-year period.
While natural dairy’s nutrient density will keep it a dietary staple, Rabobank anticipates that by 2030 climate-sensitive consumers will have the option to buy competitively-priced plant-based and cell-cultured dairy alternatives, with non-GMO-sensitive consumers opting for the plant-based protein alternatives.
Local industry
Lactalis has a significant presence in all Australian states with a strong market share in the liquid milk market after its acquisition of Parmalat in 2011. Further acquisitions of Harvey Fresh in 2014 and of Fonterra’s yoghurts and desserts business in 2015 have cemented its position across the local industry.
With its international focus, Lactalis is well positioned to capitalise on global growth opportunities brought about by changing demographics.
Two of Australia’s big three processors – New Zealand cooperative giant Fonterra and Canadian conglomerate Saputo – were placed sixth and tenth on this year’s list respectively. Fonterra held on to sixth place with a turnover of $US13.6 billion, though the cooperative has lost ground in the past decade, slipping from third place in 2010.
A recent global review resulted in divestment of some international assets in China and Brazil, with some additional more targeted offshore investments in Australia and China.
Saputo, which acquired Warrnambool Cheese and Butter in 2014 and Murray Goulburn in 2018, placed tenth with a turnover of $US10.7 billion.
Chinese company Mengniu Dairy, which has a stake in Gippsland processor Burra Foods, fell from eighth to ninth position with a turnover of $US11 billion.
Bega Cheese failed to make the Global Top 20 this year. However, its recent takeover of Lion Dairy and Drinks will see its milk processing business grow from four to 15 dairy factories, with significant increases in its flavoured milk, yoghurt and juice businesses moving forward.
Michael Harvey is senior dairy analyst for Rabobank in Australia. He is an experienced analyst, researcher and adviser, who has been actively involved in the dairy industry since growing up on a dairy farm in the northern Victorian.
