Milk and cereal products fortified with iron and a combination of other micronutrients are more likely to help reduce iron-deficiency anaemia in children than foods fortified with iron alone, according to a new study commissioned by Nestle. Researchers from the Winterthur Institute of Health Economics in Switzerland analysed the combined results of 18 published trials involving a total of more than 5,400 children.

They found consumption of milk and cereal products fortified with iron and other micronutrients – such as zinc and vitamin A – were associated with a significant increase in the level of haemoglobin in young children’s blood. Anaemia – the state of having too few red blood cells and therefore too little haemoglobin – is commonly caused by a lack of iron in the diet.

The researchers found single iron-fortified products increased haemoglobin levels significantly more than similar non-fortified products. However, multi-micronutrient-fortified milk and cereals produced even more significant increases in haemoglobin than their single iron-fortified counterparts.

The study, published in the Bio Med Central Public Health journal, is believed to be the first analysis of the combined results of published studies examining the effect of micronutrient-fortified milk and cereals on the blood haemoglobin of children from the age of six months up to three years. The researchers identified about 1,000 potentially relevant trials from the last 45 years to pinpoint those suitable to include in the study.

Young children and pregnant women are particularly vulnerable to iron deficiency because they need higher levels of the mineral for growth. The consequences of long-term lack of iron in the diet can include impaired mental development in children, decreased physical work capacity and impaired immune function.

The researchers’ findings help to explain in biological terms why multiple, rather than single, micronutrient deficiencies are responsible for a variety of health problems.

The study was commissioned by Nestle and the Nestle Nutrition Institute. Nestle has more than 140 years’ experience in improving the micronutrient profile of food products through fortification. The company’s first fortified product was an iron-enriched version of its founder Henri Nestle’s original infant cereal ‘Farine Lactee’, launched in 1867.

Today, Nestle offers a range of products around the world fortified with micronutrients including iron and vitamin A. The company’s dairy business makes fortified, affordable milks available in more than 80 countries around the world, where they are largely consumed by pre-school children.

A non-profit organisation based in Switzerland, the Nestle Nutrition Institute is committed to fostering ‘science for better nutrition’, by sharing scientific information and educational materials with health professionals, scientists and nutrition communities in an interactive way.

The Irish Dairy Board (IDB) has completed the refinancing of its existing €250 million syndicated banking facility replacing it with a new three year syndicated bank loan facility of €350 million at competitive pricing, to meet domestic expansion and international growth requirements. The participant Banks are Allied Irish Banks, Bank of America Merrill Lynch, Barclays, HSBC, Ulster Bank and Rabobank, with IBI Corporate Finance advising on the deal.

This new facility comprises two parts – a €160 million syndicated loan facility to fund IDB’s existing requirements and to invest in developing its international growth strategy; and a €190 million committed syndicated Reverse Invoice Discounting facility (RID) to fund the working capital requirements of IDB’s members. This will provide IDB’s members with an additional €50 million and greater security of funding, replacing the previous uncommitted working capital funding lines provided heretofore by IDB to its members.

The RID is a recent development in supplier financing by international banks to fund the working capital requirements of their international corporate clients. IDB and Rabobank, as lead bank and arranger of the RID, and the other participating banks, have developed a facility which accommodates the specific funding requirements of IDB’s members.

The RID will be used by IDB as the platform to develop a scalable funding solution to finance the increase in working capital requirements that will arise as a result of the anticipated increased milk expansion post the abolition of milk quotas in 2015.

Muller Dairy (UK) has made a £279.5 million recommended cash offer for Robert Wiseman Dairies and has effectively acquired almost 55% of its shares. Operating from six major processing dairies in Aberdeen, East Kilbride, Glasgow, Manchester, Droitwich Spa and Bridgwater, Robert Wiseman Dairies processes and delivers more than 30% of the fresh milk consumed in Britain, every day.

Muller Dairy (UK) is the overall market leader in chilled yoghurts and potted desserts in the UK. It is part of the Muller Group, a leading, family-owned European dairy company with annual turnover of.Eur2.2 billion in 2010.

Robert Wiseman, executive chairman of Robert Wiseman Dairies.

The offer of 390 pence in cash for each Wiseman share represents a premium of approximately 59.8% over the closing middle market price of 244 pence per share on 12 January 2012, the business day immediately prior to the commencement of the offer period. Muller has received irrevocable undertakings and a letter of intent over a total of 38,885,824 Wiseman shares, representing approximately 54.9% of the issued share capital of Wiseman.

“The combination of Muller and Wiseman makes strong commercial and strategic sense, creating a leading integrated dairy business in the United Kingdom with complementary positions in the yoghurt and potted desserts market and the fresh milk market,” comments Robert Wiseman, executive chairman of Robert Wiseman Dairies. “Wiseman has its origins as a family business and, since listing in 1994, my family has retained a significant stake in the business. It is heartening to know that the business will become part of another family-owned business in Muller.” Wiseman’s management will continue to lead the business alongside Muller.

Heiner Kamps, chief executive of Muller, says: “This is an exciting strategic move by Muller to enter a new market segment in the UK. The combination of these complementary businesses will form a leading dairy player offering a range of exceptional products to our customers across the UK.”

In response to the recent rise in its share price, British liquid milk specialist Robert Wiseman Dairies has confirmed that discussions regarding a possible cash offer are taking place with Muller Dairy (UK), a wholly-owned subsidiary of privately owned German dairy group Theo Muller. Robert Wiseman Dairies processes and delivers more than 30% of the fresh milk consumed inBritain, every day. Operating from six major processing dairies in Aberdeen, East Kilbride, Glasgow, Manchester, Droitwich Spa and Bridgwater, the company is listed on the London Stock Market. Muller is the leader in the UK yoghurt market.

Muller must either announce a firm intention to make an offer for Robert Wiseman Dairies or confirm that it will not do so by 10th February 2012. This deadline will not be extended other than with the consent of the Takeover Panel.

International dairy group FrieslandCampina has developed Triplet – three varieties of customised milk to suit three different age groups. Research shows that the nutritional needs of children change as they grow older. Milk is naturally rich in nutrients that children and adults need, but it is also suitable as a basis for further nutrient enrichment, a practice which is quite common in Asian countries.

For a number of countries in South East Asia, FrieslandCampina has launched three distinct types of enriched UHT milk for three different age groups: toddlers (1-3 years), children (4-12 years) and teenagers (13 years and older). The Triplet concept, was introduced in Thailand (Foremost) at the end of 2010, followed by Malaysia (Dutch Lady) and Indonesia (Frisian Flag). These are the three leading UHT milk brands in these countries.

With ‘3 Milks for 3 Ages’ FrieslandCampina is ensuring innovative segmentation in the market for UHT milk. Segmentation is the best way to promote the consumption of milk in the different age groups. It also leads to even greater appreciation of milk among consumers. With Triplet, FrieslandCampina offers people the opportunity to drink the milk which most closely meets their needs.

Astarta, the biggest producer of sugar and industrial milk in Ukraine, has entered a joint venture for the production and processing of milk with Danone, the world leader in dairy products, waters and baby nutrition.

Astarta’s high level of vertical integration in industrial cattle farming, own forage supply, as well as accumulated experience of industrial livestock business, will provide for a substantial increase of volumes and cost efficiency of milk production and further upgrading of its quality in the coming years. Operating a plant at Kherson along with eight regional offices, Danone is one of the largest producers of dairy products in Ukraine. Danone’s international experience will enable Astarta to take its dairy business to a new level of efficiency as it plans to double it milk production during the next five years.

Dairy co-operatives Arla Foods of Scandinavia and Hansa-Milch Mecklenburg-Holstein of Germany are set to merge. A merger plan put forward by the boards of the two companies has now been approved by the members of the two co-operatives. The decision is being implemented with retrospective effect for the full 2011 financial year, and is enacted for January 1st 2011. The merger is not unexpected as both companies have already been co-operating successfully for many years.

Owned by 7,200 farmers in Denmark and Sweden, Arla Foods is the world’s fourth largest dairy group and operates successfully in both domestic and international markets. It is well known for its speciality cheeses such as BUKO, Castello and Hohlenkase, and for Lurpak butter. Owned by 1,200 dairy farmers, Hansa-Milch has enjoyed sustained success in northern Germany, and with its Hansano brand is one of the main providers of regionally-produced fresh dairy products such as milk, cream and quark.

The dairy business of Hansa-Milch, until now owned by the Hansa-Milch co-operative, will transfer to the ownership of Arla Foods under the merger arrangements. Manfred Remus, chairman of Hansa-Milch, who developed the merger plans together with the executive boards at Hansa-Milch and Arla Foods, will continue to head up the company with his team. In addition, consideration will be given in the coming months to the possibilities of expanding the Hansa-Milch plant in Upahl.

Hansa-Milch will now be known as Hansa Arla Milch. It remains a co-operative entity with its own members, and joins Arla Foods in that capacity. This means that the democratic structures are still preserved under the new entity of Hansa Arla Milch. In addition, the northern German dairy co-operative will have its own representatives on the boards and committees at Arla Foods.

Peder Tuborgh, chief executive of Arla Foods.

Under the merger of the two co-operatives, the Hansa Arla Milch farmers are being given a milk purchase guarantee from Arla Foods with no time restriction. In addition, Arla is assuring Hansa-Milch of a milk payment price calculated on the same basis as is used for its Danish and Swedish members.

“In previous years, the price we paid for milk was generally higher than that given by Hansa-Milch. This means that Hansa Arla Milch members can expect a higher price in future,” points out Peder Tuborgh, chief executive of Arla Foods.

The Arla Foods strategy includes paying members the highest possible milk price. “To achieve this objective, we need to continue to grow in Europe, and particularly in the important German market,” explains Peder Tuborgh. “Together with Hansa Arla Milch, our aim is to be one of the top three German dairy companies.”

The merger still has to be approved by from the competition authorities.

French co-operative Agrial has strengthened its milk business by acquiring a minority stake in Delicelait, a producer of dairy ingredients, for an undisclosed sum. As part of the deal, Agrial will supply 70m litres of milk annually to Delicelait with a view to increasing this to 120m litres.

The move is in line with Agrial’s strategy of expanding its milk business, which currently accounts for about 10% of group turnover of Eur2.2b. Agrial is planning to merge its milk operations with those of Elle & Vire, the Normandy-based co-operative, in June. The combined business will have annual production of 900m litres of milk.

AB Holdings, which is one of Turkey’s largest food groups, is to build a new dairy products factory in Konya in the centre of the country, through its subsidiary Panagro. Construction of the new dairy, which will serve the Turkish and neighbouring markets, is scheduled to begin in early 2011.

The dairy is being designed by SPX, the provider of engineering, manufacturing and system solutions for the global food processing industry, under a $15m contract. The new dairy is expected to produce yoghurt and ayran (drinking yoghurt), as well as double cream cheese, cheddar, kashkaval and feta cheese, butter, milk produced with ultra-high temperature processes, demineralised whey, skimmed milk powders and fruit juices.

Plans include multiple solutions from SPX’s broad portfolio of branded processing technologies and solutions. Technologies include APV-branded automated thermal milk processing, fresh dairy processes, membrane and CIP (clean in place) technologies; Gerstenberg Schroder butter-making equipment; and Anhydro tubular evaporation and spray drying technologies.

The Panagro dairy will be designed from the ground up to be vertically integrated in a combined operation that includes an adjacent cattle farm and meat production facility.

“Nearly 30% of Turkey’s population of 70 million people are under the age of 30, and this is the highest percentage of young people among all European countries,” says Baydu Veznedaroglu, chief executive of AB Holdings. “To feed these children and young people with healthy foods, we should increase the number of dairy and meat plant investments in Turkey. Our country is also becoming a leading exporter of dairy products to the Middle East, and this dairy will play an instrumental role in our company’s plans for this region.”

The European Commission has adopted a proposal on ‘contractual relations in the milk sector’. The proposal aims to boost the position of the dairy producer in the dairy supply chain and prepare the sector for a more market oriented and sustainable future.

It provides for written contracts between milk producers and processors, the possibility to negotiate contract terms collectively via producer organisations in a way as to balance the bargaining power of milk producers relative to major processors, specific EU rules for inter-branch organisations and measures for enhancing transparency in the market. The measures are proposed to be valid until 2020 with two intermediate reviews. Appropriate size limits for collective negotiations and other specific safeguard measures should ensure the achievement of the objectives of strengthening the bargaining power of milk producers whilst safeguarding competition and the interests of SMEs.

The proposal provides for optional written contracts between milk producers and processors to be drawn up in advance of deliveries, which should include details of price, timing and volume of deliveries, and duration. Member States can make the use of contracts compulsory in their territory. Cooperatives, in order to take into account their specific nature, are not required to have contracts if their statutes include elements with similar effects.

In order to rebalance bargaining power in the supply chain, the proposal foresees allowing farmers to negotiate contracts collectively through producer organisations. Appropriate quantitative limits to the volume of this negotiation will put farmers on equal footing with the major dairies while maintaining an adequate competition in the raw milk supply. The limits are set at 3.5% of global EU production and 33% of national production, with specific safeguards also provided to avoid serious prejudice in particular to SMEs.

These measures are proposed to remain valid until 2020, with a review in 2014 and 2018; this timeframe should be sufficient for milk producers to adapt to the situation without milk quotas and to improve their organisation in view of a more market oriented environment. More clear and balanced relations and transparency in the supply chain should also lead to efficiency gains and allow for the EU sector to take advantage of new market opportunities inside and outside the EU.

The measures stem from the recommendations issued by the High Level Experts’ Group on Milk (HLG). The HLG was created following the 2008-09 dairy crisis with a view to looking at medium and long term measures for stabilising the market and producers’ income and enhancing transparency. The HLG found important imbalances in the supply chain, an increasingly concentrated industry dealing with many and dispersed milk producers and an uneven distribution of the added-value. This situation has led to a lack of transparency, rigidities and problems of price transmission in the supply chain.

Soft Landing On Track

The Commission has also adopted a separate report on the dairy market situation and the consequent conditions for smoothly phasing out the milk quota system. With only three Member States (DK, NL, CY) having produced more than their quota in 2009/2010 and milk quota prices now having a very low value, already zero in some Member States, the report concludes that soft landing is on track in an overwhelming majority of Member States.

Under these circumstances, it concludes that there is no reason to revisit the Health Check decisions with regard to the gradual increase in quotas and the end of the quota regime on 1 April 2015. In order to provide an additional safeguard, the report also suggests that, in exceptional cases and where existing policy measures are insufficient, the Commission could consider a mechanism that would allow milk producers to be compensated for reducing their deliveries in order to avoid serious imbalance in the market.

To further pave the way towards quota abolition, the Commission raises for consideration the organisation of meetings gathering experts of the Management Committee for the single CMO with the Advisory Group on Milk in order to assess market developments and prospects. A second report is scheduled for 2012.

New guiding principles on country of origin labelling to provide British consumers with clear, accurate information on the origin of their food have been published. The guidance, titled ‘Principles on Country of Origin Information’, has been developed by retailers’ organisation, the British Retail Consortium (BRC), in association with representatives of food manufacturers, commercial caterers and the hospitality trade.

Based on the labelling practices of the best performers in the food chain, it aims to bring others into line to ensure a higher quality and consistency of origin – information everywhere that consumers buy food.

The Principles apply to meat, processed meat products (sausages, bacon, ham etc) and milk, fresh cream, cheese and butter. They have been devised to ensure that the term ‘British’ can only be used for meat from animals born and reared in the UK, and dairy products made from milk produced here. Many British grocers already use this approach to origin labelling, with the overwhelming majority committed to going one step further, providing country of origin information on the meat in all ‘composite’ products – such as soups and ready meals.

“This guidance formalises an approach to country of origin labelling which Britain’s large retailers have already agreed. In fact, many grocers already go well beyond the high minimum standards set out in the document,” points out Andrew Opie, food director of British Retail Consortium. “We have taken leadership on this issue because we believe it’s important that all elements of the supply chain, from food processors and restaurants, right through to the catering firms working for Government and councils, give consumers the information they need to make informed decisions. Supermarkets are making it easy for those shoppers who want to buy British to do so. Other food service providers need to up their game.”

Dairy Crest has performed solidly during the first six months of the year, benefiting from being a broadly based dairy business with strong brands. Adjusted profit before tax (before exceptional items, amortisation of acquired intangibles and pension interest) was up 5% to £40.1m on the comparable period in the previous year. Reported profit before tax advanced 6% to £36.1m.

Mark Allen, chief executive of Dairy Crest.

Half-year revenue at the UK dairy group slipped 3% to £776.9m. Increased sales of its five key brands and of milk to major retailers were offset by lower sales of doorstep and middle ground milk and lower revenues following the sale of a controlling interest in Wexford Creamery.

“Dairy Crest has enjoyed another good six months. In line with our strategy, we have continued to grow our brands, reduce our costs and control our debt. At the same time the improvements we have made to our quality, service and cost base have paid off with new contracts to supply fresh milk to major retailers,” says Mark Allen, chief executive of Dairy Crest. “With operational efficiencies and selling price increases in certain categories limiting the impact of higher input costs, we are confident that we can continue to deliver profits in line with our expectations.”

Welsh dairy farmers, processors, and retailers have reached an ambitious agreement to further reduce the environmental impact of milk and dairy products. The Welsh dairy industry has published a ‘Dairy Roadmap for Wales’, which clearly sets out targets for reducing the industry’s environmental footprint over the next ten years.

The document builds upon the work already undertaken in England with indicators and targets purposely kept as similar to the England Milk Roadmap as is possible. “Having parallel indicators and targets will assist the industry in measuring the achievements, impact and outcomes of the Roadmaps, although I will stress that Wales’ targets obviously take into account regional differences,” says Delyth Davies, head of dairy development Wales at Dairyco.

The Roadmap sets out practical actions, including medium and long term targets, to deliver a vision for reducing the environmental impacts of the dairy sector without adversely affecting its long-term sustainability.

The Dairy Roadmap for Wales is a ‘living document’ and will be regularly reviewed by stakeholders to include an official review in 2012 and a full report in 2015. Targets for 2020 include:

* farmers will recycle or reuse 70% of non-natural waste

* 40% of energy used on farm comes from renewable sources

* 20-30% reduction in greenhouse gas balance from farms, compared with 1990 levels

* 20% absolute reduction of water use for all processors

* 10% of processors’ non-transport energy to come from renewable sources or Combined Heat & Power/Tri-Generation

* All tertiary packaging to be recyclable or re-usable

* retailers to ensure that all new stores emit less carbon than existing one

* mandatory energy benchmarking for processors.

Swiss dairy company Emmi has joined forces with MIBA, a group of milk producers in north-western Switzerland, to invest SFr2m to purchase and reopen the former Regio Milch beider Basel plant in Frenkendorf, which was closed in June 2010. Beginning in the spring of 2011, Emmi will produce a line of dairy products in Frenkendorf using local milk. The products will be sold by local retailers, in particular Coop. The acquisition enables Emmi to strengthen its domestic business in Switzerland, particularly in the north-west.

The first UK sector specific guidance for calculating the carbon footprint of all dairy products has been launched. Developed by Dairy UK, DairyCo and the Carbon Trust in collaboration with industry, the guidelines will be used by dairy processing companies to help them measure carbon emissions across their supply chain. As well as ensuring a consistent industry-wide approach to carbon footprinting the guidelines are designed to help those involved at every stage of production to understand the importance of carbon footprint measurement and explain how it is done in a clear and accessible way.

“Dairy products such as milk, cheese and yoghurt are found in the homes and shopping baskets of most UK consumers, so by working to reduce their carbon impact we can make a real difference,” says Euan Murray, head of footprinting at the Carbon Trust. “We are pleased to have helped Dairy UK and DairyCo develop sector specific guidance on carbon footprinting.”

Rising ingredients and input costs for food manufacturers are being reflected in a sudden rise in food retail prices but it is still a long way short of the hyper-inflation of 2008. According to the British Retail Consortium-Nielsen Price Index, food inflation increased to 3.8% in August from 2.5% in July, the highest since July 2009 when it was also 3.6%.

Non-food inflation slowed to 0.5% from 1.0% in July.

Bread and milk are particularly competitive battlegrounds.

“Non-food inflation continues to fall and is at its lowest since November 2009. But food inflation is up to a 13-month high,” points out Stephen Robertson, director general of British Retail Consortium. “Past rises in the cost of global commodities, such as wheat and sugar, are filtering through to food prices.”

He continues: “But we’re nowhere near the return of the double-digit food inflation of two years ago. Despite its recent increase, wheat is over a third cheaper than its peak in 2008, while oil prices are virtually half of what they were back then.

“In response, retailers are offering more deals. Milk and bread are particularly competitive battlegrounds. A third of groceries are now on promotion and customers are shopping around.”

Although Bongrain has significantly improved profitability and sales in the first half of 2010 compared to the corresponding period in 2009, the results are still below the French and international dairy group’s historic level of performance. Bongrain reported an increase in net profit from Eur13.2m to Eur37.3m in the first half of 2010 on net sales up by 4.1% on a like-for-like basis to Eur1.66b, thanks to the improvement in world prices for industrial products and despite the fact that the strong pressure on selling prices for the group’s major brands limited the positive impact of their sustained volume sales. However, Bongrain has warned that the improvement will not be maintained in the second half.

Current operating profit was Eur65.1m against Eur45.9m in the first half of 2009 with the increase being chiefly attributable to improved competitiveness as well as the enhanced performance of industrial products. The positive trend in Bongrain’s results was amplified by the reduction in non-recurring expense and by the fall in interest charages reflecting tight control of net borrowings.

The results are compared with a weak first half of 2009. Indeed, Bongrain has cautioned that for 2010 as a whole, it will not be possible to maintain the level of improvement in performance achieved during the first half of 2010. The outlook for the world markets in industrial products remains uncertain and a 10% increase in the price of milk, which has been agreed within the French dairy industry, will necessitate an increase Bongrain’s selling prices.

Global dairy markets recovered somewhat unevenly in the first half of 2010. Commodity prices declined in the early months, stabilised in March and improved throughout the second quarter. Markets now appear to have peaked and are expected to trend lower in the second half, according to Glanbia, the Irish and international nutritional ingredients and cheese group.

While volatility continues to be a feature of global dairy markets, the full year 2010 forecast is for pricing to be broadly in line with five year averages but in most instances below the market peak of 2008. While weak milk supply was a dominant feature in the first half, milk production is beginning to increase in the main producing regions and is expected to continue to do so for the rest of the year and into 2011, easing supply constraints. Demand is stable, with Asian demand a key sustaining factor globally.

Dairy farm incomes have recovered somewhat this year, although it may be sometime before farm balance sheets are fully repaired following negative returns in 2009.  

Growth in performance/sports nutrition, protein fortification and ongoing mainstream bars and beverages new product development are driving strong global demand for whey. This growth is underpinned by structural market drivers such as health and wellness (increasing link between diet and exercise, weight management, active ageing), global demographic changes (increasing Asian demand) and consumer awareness (healthier and more nutritious foods).

The European Commission has cleared the proposed acquisition by the French group Lactalis of Spanish group Ebro Puleva’s dairy business. The Commission concluded that the transaction would not significantly impede effective competition in Europe or Spain.

Lactalis manufactures and sells milk and dairy products, including a wide range of cheese, desserts and cream, in roughly 150 countries, under its own brand names and under those of distributors. Via its subsidiary, Lactalis Iberia, Lactalis operates on the Spanish market, where it sells cheese and long-life milk

Ebro Puleva produces and sells rice, pasta, sauces and dairy products.

The Commission’s investigation concerned the supply of raw cow’s milk in Spain and the downstream markets of sales of basic long-life milk, flavoured milk, health drinks, liquid cream and ‘horchata’, a drink made from tiger nuts.

The Eur630m deal increases Lactalis Group’s sales in Spain to Eur1.2b and consolidates its standing as one of the world’s leading dairy companies. Having last year disposed of its sugar business to Associated British Foods for Eur526m, Ebro Puleva is now focused on its rice and pasta activities.

The Food Standards Agency in the UK has confirmed that meat from a cloned animal has entered the British food chain and has been eaten. While there is no evidence that consuming products from healthy clones, or their offspring, poses a food safety risk, meat and products from clones and their offspring are considered novel foods and would therefore need to be authorised before being placed on the market.

The European Food Safety Authority issued an opinion in 2008 which stated that: ‘No clear evidence has emerged to suggest any differences between food products from clones or their offspring, in terms of food safety, compared to products from conventionally bred animals. But we must acknowledge that the evidence base, while growing and showing consistent findings, is still small.’

The FSA is continuing its work on tracing the offspring of clones claimed to produce milk for the UK dairy industry. The agency has traced a single animal, which is believed to be part of a dairy herd but at present it cannot confirm that milk from this animal has entered the food chain.

The FSA has reminded food business operators of their responsibility to ensure food they produce is compliant with the law. In order to produce food products from clones or their offspring, a novel food application must be submitted and authorisation granted at a European level before any such food is placed on the market. As the UK agency responsible for accepting novel food applications, the FSA has not received any applications relating to cloning and no authorisations have been made. The penalty for failing to comply with the Novel Foods Regulations is a fine of up to £5,000.

Changing demographics will have an impact on the types of dairy products people consume and how they consume them, providing new growth opportunities for the dairy industry, according to the latest edition of the Tetra Pak Dairy Index.

Ageing populations, urbanisation and an emerging global middle class are driving demand for new types of liquid dairy products (LDP) in both developed and developing countries, reports the Tetra Pak newsletter, which tracks worldwide facts, figures and trends in the global dairy industry. Among the trends the report details are:

* Ageing population drives demand for healthy products: The 60+ population is the fastest growing segment in every region of the world due to lower birth rates and higher life expectancy. Dairy producers in countries from Mexico to Greece to Indonesia are offering these consumers products such as milk fortified with calcium, vitamins and minerals that can help reduce cholesterol and protect against osteoporosis — all helping to maintain active lifestyles.

* Urbanisation changes consumer preferences and impacts distribution of LDP: The number of people living in cities is expected to reach more than six billion by 2050 and they are better educated, more brand conscious and have higher disposable incomes than their rural counterparts, according to the United Nations. Dairy producers are starting to cater their products to this group with value-added products such as enriched milk and drinking yoghurt. Urbanisation is also changing distribution models. In Saudi Arabia, for example, dairy producers are now delivering LDP from the countryside to growing urban populations.

* Emerging middle class enjoys new purchasing power: The global middle class is projected to grow from 430 million people in 2000 to 1.15 billion by 2030. These consumers want and can afford other liquid dairy products, such as flavoured milk, to satisfy new food and drink preferences. In China, for example, marketers exclusively target the country’s middle class with premium white milk products such as Milk Deluxe from MengNiu.

“The population in many countries will have more time, money and education than ever before. They’ll also be more active and vibrant. As people live longer, they also plan their lives differently. Dairy producers who can meet the changing needs of this demographic segment will realise significant growth opportunities,” says Tetra Pak president and chief executive Dennis Jönsson.

LDP Consumption Back on Track

Worldwide consumption of milk and other LDP is expected to grow at a compound annual growth rate (CAGR) of 2.4% from 2009 to 2012 — reaching 283 billion litres. This is up 0.2 percentage points compared to the previous forecast of 2.2% CAGR. Worldwide LDP consumption increased year-on-year by 1.8% to 264 billion litres and demand has continued to be strong through the first half of 2010.

Driven primarily by ready to drink (RTD) ambient (or long-life) LDP — with a forecasted CAGR of 5.4% from 2009 to 2012 — global LDP consumption is expected to reach 283 billion litres by 2012. The strongest growth in the RTD ambient LDP category is expected to come from Asia Pacific (8.7% CAGR), Latin America (7.1% CAGR) and Africa (6.9% CAGR).

Stronger-than-expected global consumption of ambient white milk — up 1.3% to 201 billion litres year-on-year — contributed to the improved outlook for LDP consumption overall. Eastern Europe and Africa led the increase in the white milk category, with year-on-year growth of 6.6% and 6.0% respectively.

“It’s a dynamic time in the dairy industry — with milk, as an affordable and nutritious staple, becoming part of the daily diet of more and more people around the world,” point out Dennis Jönsson.

India will need approximately over $30b worth of investment to completely restructure its processing-food industry to substantially lift up the share of its processed food trade, which currently stands at 2.2% in the case of fruit and vegetables, 26% for fisheries, 6% in poultry, 20% in buffalo meat and 35% milk by 2015, according to a study on ‘Emerging Opportunities and Strategic Thrust Areas for Food Processing’.

The study brought out by The Associated Chambers of Commerce and Industry (ASSOCHAM), also suggests that with projected investment, exports of processed foods could increase by over 70% in next 5 years to touch the targeted level of over $25b from the current level of approximately $15b. However, in spite of vast natural resources, import growth of food products in India is also expected to be strong over the forecast period to reach $13b.

The ASSOCHAM, has projected that $30b worth of investment can revolutionise the Indian food processing sector and take processing of food and vegetables to levels close to 10% by 2015. Fisheries has the potential to reach 40%, poultry close to 15%, while buffalo meat could reach over 40% with milk approaching 60%. Processing levels of fruit and vegetables in the USA, Philippines and China are currently 65%, 78% and 23% respectively.

Fisheries and poultry processing levels in the developed world range between 60-70% and between 60-75% for milk, reveals the ASSOCHAM study.

According to ASSOCHAM president, Dr Swati Piramal, India’s low level of processing is expected to change significantly in future fuelled by sustained economic growth and steady urbanisation.

Growth Drivers

Key growth drivers of the food processing sector in India will include the faster pace of urbanisation, the rise in disposable incomes and changing lifestyle and aspirations, which will lead to significant changes in the food habits of Indians. The key trends for the growth of processed food will include increasing spends on health and nutritional foods, the growth in nuclear families and working women and functional foods.

Consumers are now more focused on health. Any packaged food that has sugar, salt, oil, preservatives etc beyond a healthy level are becoming a unacceptable. Companies already are targeting this segment with numerous product launches. Secondly, increasing nuclear families, students and single employees staying alone on work/education and the increasing number of women employees are leading to a rise in consumption of processed, ready-to-eat, canned and frozen foods.

The number of upper and middle class Indians consuming packaged food is expected to rise to 200m in 2012 from the current level of 30m. Giants like ITC, MTR, Amul etc are quick to capitalise on this trend. Thirdly, changing lifestyle and increasing spend for snacks-on-the-go is responsible for a $3b and growing snack market.

Functional foods, fresh or processed foods that claim to provide health benefits apart from serving the basic function of nutrition, are on a fast-growth path in India.

Organised retail comprises less than 5% of the total retail market in India, but is growing at over 20%. Food retailing, which constitutes 14% of the organised retailing sector is also expected to benefit from the growth of organised retail and the demand for processed foods is expected to rise. With the increasing trend of major retailers towards private labels, the demand from the retail market for processed foods is also expected to increase significantly.

Change in demographics is the most important demand booster for processed food in India. The proportion of the productive age group (15-59 years) is nearly 80% in India. This age group’s propensity and ability to spend on quality processed food is higher. Higher incomes, as more Indians join the middle class and upper class, will also impact positively on the demand for processed food.

At an EU Commission meeting today where the future of the EU dairy sector was discussed, Copa-Cogeca, which represents farmers and their co-operatives in the European Union, called for long-term measures to reduce extreme market volatility and ensure that farmers get a fair return for their produce.

The move came at the EU Commission Advisory Group meeting in which the newly elected presidency of Copa-Cogecas’ Milk Working Party, who are all dairy farmers with a good knowledge of dairy cooperative issues, participated. Reacting to the recommendations made by the High Level Group (HLG) on Milk, Henri Brichart, chairman of the Working Party emphasised the need to maintain existing measures to manage the market, saying EU safety nets play a crucial role in EU dairy policy and must be the baseline for future policy.

“We reminded the EU Commission today that they must continue to exercise caution in managing EU dairy stocks, in order to minimise market disruption and contribute to a more stable market situation. EU buyers need to pay market prices for EU intervention products which contribute to a sustained increase in milk prices for farmers. The current market situation fully justifies further milk prices increases in the coming months, to enable farmers to pay a few of their many outstanding bills,” he said.

Mansel Raymond, vice-chairman of the working party, commented: “The HLG was right to take the issue of contracts seriously. Contracts, which can be voluntary, need to offer greater clarity and transparency on milk prices. Serious attention must also be given to the way milk is priced in the long term as dairy producers have not got a fair return in the past months compared to the price consumers pay for their produce. Immediate and substantial increases in farmgate prices are urgently needed. We consequently call for greater transparency in margins, profits and pricing arrangements throughout the supply chain.”

Tommaso Mario Abrate, vice-chairman of the Working Party, meanwhile stressed: “I must highlight the fact that the HLG confirms the important role of dairy co-operatives. The specific nature of farmers’ co-operatives must be taken into account when it comes to strengthening contractual relations and milk producers bargaining power in the food chain. I believe that the long-term sustainability of EU milk production will be better achieved through farmer-owned co-operatives. They not only directly link milk production to processing and offer high-value added dairy products to consumers, they also strengthen the social fabric in rural areas”. The HLG was first set up to find solutions to the crisis which hit dairy producers last year and Copa-Cogeca urgently calls on the Commission to act on these recommendations.

UK liquid milk specialist Robert Wiseman Dairies has increased the price paid to farmers for milk by 0.4 pence per litre to 24.72ppl. The price rise follows a 0.3ppl increase by Wiseman last August.

The move follows a recent call by the National Farmers’ Union for higher farmgate milk prices.

“Our intention is to continue building on our track record for offering producers a competitive standard milk price, and this increase reaffirms our position as a leading buyer of farm gate milk for the fresh milk sector,” says Pete Nicholson, milk procurement director at Robert Wiseman Dairies. “Our competitive positioning is of critical importance and it is essential that we continue to strike the balance between paying a leading milk price and retaining the ability to compete within our sector of the dairy industry.”

A YouGov SixthSense report into the dairy market reveals that 1 in 3 adults in the UK are confused about the health messages surrounding dairy products. Although 82% of respondents agree that dairy products are good for children, many are unsure where dairy ‘fits’ in their diet. Health perceptions of dairy vary widely, with 65% of respondents claiming dairy products are not bad for their health because they are ‘natural’. Women are more likely than men to acknowledge the negative effects dairy can have on one’s health. 37% of women in the UK try to restrict their dairy intake as it may affect their cholesterol levels, compared to 26% of men.

In the same report, milk is considered nutritious by 65% of respondents and 6 out of 10 believe that it is both healthy and natural. Just 10% of people associate the word fattening with milk – this compares to 66% who see cream as contributing to weight gain and 59% who see it as indulgent. Cheese is more likely to connote words such as tasty (74%) or traditional (59%) and versatile (50%), rather than indulgent. Yoghurt is rarely viewed as unhealthy, with only 5% of people associating it with the word fattening and 71% seeing it as healthy.

“Cheese, milk and yoghurt have benefited from the lasting perception that they are ‘traditional’ and ‘natural’ and are subsequently less likely to be seen as fattening or bad for your health. Cream is predominantly seen as being a treat, synonymous with indulgence,” comments James McCoy, research director for YouGov SixthSense.

In an era when consumers are increasingly concerned about what goes into their food, milk benefits from being seen as a natural product, with 60% describing it as natural and 29% of respondents associating milk with childhood. James McCoy continues: “Brands such as Cravendale are trying to exploit these trends by revamping their packaging to emphasise the ‘purity’ of their milk. This trend is unlikely to be diminished any time soon. More dairy companies are emphasising the natural properties of their products with words like pro-biotic and pre-biotic adorning the front of packaging in dairy aisles everywhere.”

Continuing progress in its international industrial markets and a generally increasing demand for milk have enabled Arla Foods to raise the price paid to its co-operative members per kg of milk – the so-called Arla price – by 7.5 Danish ore.

“Global market prices in the industrial area combined with exchange rate developments have resulted in a significant boost to earnings. At the same time, we’re seeing that the increased demand for milk is beginning to impact on prices in the retail sector which have remained low all through the economic recession,” says Peder Tuborgh, chief executive of Arla Foods.

This is the fifth time in succession for the Arla price to be adjusted upwards. The increases since October 2009 total 50 ore.

Milk Link has increased profit before tax to £10.6m for the year ended April 3rd last from £0.5m in 2009, when the British dairy co-operative incurred exceptional charges of £9.6m. EBITDA rose by 1.7% to £28.7m and turnover edged up 0.5% to £550m. The profit attributable to co-op members was £10.1m.

The amount of milk handled by Milk Link during the year increased by 13% to over 1.4b litres as the co-operative was successful in recruiting about 600 additional new members and ‘direct supply’ farmers

Despite the acquisition of the Llandyrnog Creamery in North Wales for £25.6m during the year, net bank debt at £80.9m was only £4.8m higher than the prior year. The acquisition reinforced Milk Link’s position as the largest producer of British cheeses.

During the year, Milk Link undertook a strategic refocusing of its long life milk and cream and flavoured milks business. This entailed the closure of its Kirkcudbright facility and consolidation of all milk production into its Crediton Dairy, which benefited from a major capital investment programme to create the most advanced production facility of its type in the UK.

Neil Kennedy, chief executive of Milk Link.

“Despite extremely difficult trading conditions, particularly in relation to the cheese market, where the impact of imports of cheap cheese combined with deep and sustained discounting by the major Cheddar brands served to erode value from the market, the group’s financial performance was strong,” comments Neil Kennedy, chief executive of Milk Link.

“Looking forward, over the next twelve months the trading and economic environment will continue to be extremely challenging, whilst global dairy commodity markets will remain highly volatile. At the same time, although there are some welcome signs that farmer confidence is improving across the dairy industry, we must ensure that this is developed and sustained. This will be vital if we are to give farmers the confidence to make the necessary levels of investment in their dairy enterprises and to encourage the next generation of dairy farmers who will be the lifeblood of the industry.”

Although 2009 was a tough year for UK dairy processors, the market fundamentals remain sound and reflecting this confidence in the long-term outlook, capital investment projects worth over £320 million are currently ongoing or just recently completed within the industry.

Encompassing liquid milk, cheese, yoghurts and chilled desserts, yellow fats (butter, spreads and margarine) and cream, the milk and dairy products market in the UK is worth over £7 billion. The UK dairy industry is dominated by three big processors – Arla Foods UK, Dairy Crest and Robert Wiseman Dairies – along with two large, vertically integrated farmer-owned co-operatives – Milk Link and First Milk. A third co-operative, Dairy Farmers of Britain, collapsed in June 2009.

These leading players are broadly based dairy processors active across a number of market sectors, with the exception of Robert Wiseman Dairies, which specialises in liquid milk and cream. The ‘top five’ are currently implementing or have just finished capital expenditure programmes with a combined worth in excess of £250 million.

Other smaller processors are also investing in expanding capacity or to improve efficiency, with projects valued at £69 million.

World Leading

Arla Foods is planning to invest in building a new one billion litres liquid milk dairy located on the outskirts of London as part of its UK growth strategy. The new facility is due to be operational in 2012.

“Incorporating the most sustainable building techniques the dairy will be the largest, most efficient and environmentally advanced in the world,” says

Peter Lauritzen, chief executive of Arla Foods UK.

 “We already have an industry leading site at Stourton, in Leeds, but our new, cutting edge, facility in London will be world leading and take dairy processing into the next generation.”

Arla Foods has also recently invested £70 million in expanding its UK flagship dairy at Stourton in Leeds, having already spent £100 million at the site, which processes milk for the major supermarkets as well as leading milk brand Cravendale. The additional investment at Stourton allows the site to process a range of fresh dairy products, including fresh cream and creme fraiche. It also permits Arla Foods to manufacture cottage cheese for the first time in the UK.

Improving Efficiency

Dairy Crest is to step up capital investment in its dairies division in order to improve the efficiency and infrastructure of its liquid milk operations and support its offering to key customers. The UK dairy group has earmarked £75 million over the next three financial years in addition to its normal replacement capital expenditure, to be funded from cash generated by the business.

“The increased investment in our liquid milk dairies will allow us to drive further cost efficiencies, remain competitive and maintain high levels of service to our customers,” says Mark Allen, chief executive of Dairy Crest.

Investment until now had been focused on the cheese business, where following the opening of the new Nuneaton packing plant, Dairy Crest has a world-class supply chain supporting its Cathedral City brand. Dairy Crest has also continued to invest in other parts of the business; for example, at Foston where a modern greenfield dairy has been created, readily capable of further expansion.

Glasgow-based Robert Wiseman Dairies is now proceeding with the final phase of expenditure at its new Bridgwater dairy to take the overall annual capacity at the site to 500 million litres at a cost of £10 million. The additional capacity when up and running later in the year will further improve operating costs and efficiencies at the site, as well as permit the growth in sales the company expects over the next few years. Last November, Wiseman opened a new £14 million depot at Amesbury which will be used to serve the south east of England more effectively. See ‘Sustained Capital Investment Pays Dividends For Robert Wiseman Dairies’ in this issue.

Dairy Co-operatives

Headed by new chief executive Kate Allum, dairy farmers co-operative First Milk is building a new £10 million state-of-the-art creamery on the Mull of Kintyre peninsula in Scotland. Milk Link, the UK’s other major dairy farmers co-operative and the country’s largest cheese processor, is investing about £5 million to expand and upgrade its dairy at Crediton. The project is part of the strategic refocusing of Milk Link’s long life milk and cream business, which entails consolidating all milk production at the Crediton dairy and closure of the smaller Kirkcudbright site in Scotland.

Regional Investment

Kate Allum, chief executive of First Milk.

The UK’s largest Stilton cheese producer, Leicestershire-based Long Clawson Dairy, is investing about £4 million, including grant aid from the East Midlands Development Agency, to expand production capacity by 25%. Long Clawson currently produces 6,700 tonnes of cheese a year and exports over 1,000 tonnes to 36 countries worldwide.

“The expansion will enable us to fulfill the growing demand for Stilton worldwide and to develop new products, penetrate new markets and create new jobs locally as well as enabling us to make significant savings on our water and electricity resources,” points out Martin Taylor, chief executive of Long Clawson Dairy.

Backed by a £5.7 million grant from the South West Regional Development Agency, Cornwall-based Trewithen Dairy is increasing its production by 80% from 25 million to 44 million litres of milk a year. The £11.5 million development programme will include an expansion of production capacity for fresh milk, clotted cream and butter milk, along with improved infrastructure, investment in new equipment and purpose-built new offices and staff facilities to replace the temporary accommodation.

Dairy Ingredients

Specialist dairy ingredients supplier Meadow Foods is investing £2 million to expand manufacturing capacity and improve efficiency at its site at Holme on Spalding Moor in Yorkshire. Meadow Foods has an annual turnover of £250m and handles 420m litres of milk and over 80,000 tonnes of cream each year from a network of 400 farmers nationwide.

It recently acquired Nene Valley, a subsidiary of the failed Dairy Farmers of Britain and a leading processor of packaged cream for the food ingredients market, for an undisclosed sum. “Our strategy is to develop our business to provide long term security of supply of critical dairy ingredients to the major food manufacturers in the UK,” says Simon Chantler, executive chairman of Meadow Foods.

Yoghurt Market

Having recently completed a new £60 million dairy at Telford in Shropshire and launched its first British yoghurt brand, NOM Dairy UK is .building a new £5 million refrigerated warehouse at the site. Part of NOM, the leading dairy products company in Austria, NOM Dairy UK was established in 2008.

According to David Potts, chief executive of NOM Dairy UK, over half of the £1 billion UK yoghurt market is supplied by imported product, which provides a massive opportunity for local supply.

Largest Ever Investment in Northern Ireland

In Northern Ireland, Dale Farm, which is owned by co-operative United Dairy Farmers, is investing £39 million across its three sites in support of its rapidly growing sales in consumer products and specialist ingredients. The expansion programme is the largest ever investment in the Northern Ireland dairy sector by a single company.

On the island of Jersey, work is underway on a new £5 million purpose built dairy at Trinity. Capable of processing all of the island’s milk, the new dairy will increase production and efficiency and help in the development of export sales for Jersey Dairy, the island’s sole dairy processor. Jersey Dairy manufactures a range of dairy products including milk, butter, cream, creme fraiche, yoghurt and ice cream. See ‘Work Starts on New Jersey Dairy’ in Food & Drink Business Europe, September 2009 issue.

Having been forced by the severe economic environment in 2009 to make cuts across its business, Arla Foods has substantially increased its investment budget for 2010 to DKr1.84 billion (Eur250 million) as the Scandinavian dairy giant again focuses on expansion.

In addition to marketing expenditure to drive sales growth, the investment budget has earmarked funds for significantly expanding capacity and ongoing efficiency improvement measures. Arla Foods will spend almost DKr920 million – nearly half of the total budget – on increasing capacity and making structural adjustments in 2010. This is double last year’s investment level and equivalent to about 4% of projected turnover. The dairy group is seeking to increase 2010 turnover by 2-3% to DKr47 billion.

The decision to invest in expansion this year makes a change from the retrenchment of 2009, when the focus was on cost reduction.

PederTuborgh, chief executive of Arla Foods.

“The objective is to achieve the highest possible milk price for our farmers in a very price conscious market with substantial and rapid fluctuations. During the past year, we have put considerable effort into the savings programme and have been dealing with the implications of the global economic situation. During 2010, we will again show our customers, and consumers, across the world what Arla stands for and what we can and want to achieve,” explains Peder Tuborgh, chief executive of Arla Foods.

Driving Sales and Profits

A 30% hike in marketing expenditure is designed to fuel sales and profits. Investment behind Arla Foods’ global brands, Lurpak butter and Castello cheese, will be intensified as will support for the Arla brand and the Closer to Nature concept, as the dairy giant continues to concentrate on shifting processing from industrial to value added products, so reducing its reliance on commodity markets.

Of course, the anticipated growth in sales and profits will require a corresponding increase in production of value added products and consequently an expansion of capacity.

New investments commencing during 2010 include the construction of a new drying tower at Denmark Protein Nr Vium and the expansion of yellow cheese capacity to 44 million kg per annum. The largest single amount, however, is the allocation of DKr182 million for the completion of the expansion to Arla Food’s Stourton dairy in the UK.

In conjunction with investing heavily in expanding production capacity and making associated structural adjustments, Arla Foods will also continue to implement the group-wide DKr1b cost savings programme, including 250 redundancies, launched in the spring of 2009 as it maintains its focus on efficiency. Indeed, it is imperative that costs are kept at 2009 levels.

Focus on Adding Value

As a co-operative, Arla Foods’ priority remains the price paid to milk producers, whose earnings are under pressure. In 2009, 31% of Arla’s raw milk went to industrial products but the aim is to cut this proportion to 27% as sales of processed products are crucial in order to achieve the highest possible milk price for dairy farmers. “Our focus is to continue to add more value to our milk and to continue to work towards achieving our growth target for 2015 of DKr75 billion, and we will not achieve this without significantly expanding our capacity,” says Peder Tuborgh.

Reflecting its strategy of adding value to its milk, Arla Foods has just formed a partnership with Starbucks, one of the world’s largest coffee brands, to enter the ready-to-drink coffee market in Europe.

Global Leader

Arla Foods was formed in 2000 through the merger of two dairy farmer co-operatives – Arla of Sweden and MD Foods of Denmark. Arla Foods has production facilities in 12 countries – Denmark, Sweden, the UK, Finland, the US, Canada, Argentina, Brazil, Poland, Germany, Saudi Arabia and China – and its products are sold globally, although its two main markets are Scandinavia and the UK. Arla Foods is one of Europe’s leading dairy processors and also ranks within the top ten globally.

Arla Foods has a broad product range and is active in all the main sectors of the dairy market. Fresh products, including liquid milk, cream and yoghurt, generate about 45% of turnover, followed by cheese at just over 25% and milk powder on 13%. Butter and spreads, including Arla Foods’ flagship Lurpak brand, account for 13% of turnover.

Development Strategy For 2013

Peter Turborgh recently unveiled Arla Foods’ five year development strategy, setting out clear global ambitions for the group by building on its strength in Scandinavia and the UK and by harnessing the potential of its strong brands. The strategy incorporates five key elements with the central aim of delivering the best milk price to Arla Foods’ co-operative farmer owners.

Arla Foods will continue to concentrate on developing its traditional core markets and aims to become the market leader in Denmark, Sweden and the UK, and number two in Finland. However, Arla Foods has added Germany and Poland to its core markets and will increase activity there as it aspires to be among the top three dairy companies in both countries.

The Netherlands is also now a new core market following Arla Foods’ recent acquisition of Friesland Foods Fresh in Nijkerk from Dutch dairy co-operative Royal FrieslandCampina. The Nijkerk business has sales of over Eur200 million. The acquisition is “in perfect alignment with our strategy to become the preferred dairy for consumers in Northern Europe,” says Peter Tuborgh.

Furthermore, Arla Foods, which is currently present in 80 markets worldwide, will prioritise its global activities to achieve the best return from resources. As part of this strategic shift, the US, Russia and China have been identified as special growth markets, and will be assigned a larger share of the group investment budget. Other markets have been defined as ‘tactical’ and business activity will be maintained at current levels.

“We cannot do everything in all markets. We must be extremely strong in some international markets – but not everywhere and not in all categories,” he points out.

Arla Foods will concentrate on developing three global brands – Lurpak butter, Castello cheese and Arla, which is both the corporate brand and the brand for the majority of the group’s other products.

The product development budget will be doubled with the focus on natural ingredients, health, taste and organic products. Indeed, Arla Foods has just joined forces with Danish neighbour Danisco to establish a new research partnership, which aims to develop infant formula more closely resembling mothers’ milk.

Another goal is to double sales of powdered whey proteins to become the global leader. Arla Foods purchases whey from other major cheese producers and has processing facilities in several locations across the world.

The fifth element of the development strategy has entailed setting a target of a 25% reduction across the group in greenhouse gas emissions from transport, production and packaging by 2020. This means working with its co-operative members, research institutions and industry associations to reduce carbon dioxide emissions at farm level.

Focused Approach

“The strategy focuses on what we excel at and on markets where we are, or can, be leaders,” comments the Arla Foods chief executive. “It is focused, ambitious and demanding. The next five years will be an enormous challenge for us all, but it’s not impossible for us to achieve our objectives and it is important for us to give our all and gain ground.”

The increase in the 2010 investment budget to DKr1.84 billion signals Arla Foods’ commitment to aggressively pursuing its five year development goals after a period of consolidation in 2009.

Difficult Year

Like other international dairy groups, Arla Foods had to contend with the effects of global recession and price pressures coupled with a major imbalance between supply and demand for milk throughout 2009. Consequently, 2009 was characterised by cost cuts across the business and a reduction in the milk price paid to co-operative members as Arla Foods adjusted to the changed market scenario.

Net profit in the first half of 2009 for the January to June 2009 period was DKr263m and turnover declined by almost DKr2b to DKr22.3b, of which DKr1.7b was due to the fall in the exchange rate between Swedish krona, sterling and Danish kroner.

Although the half-year results were in line with budget, Peder Tuborgh admits that the economic downturn was “more extensive and prolonged than expected and has impacted all Arla’s markets.”

Outlook For Prices

However, there were positive market signs as 2009 drew to a close. Peder Tuborgh expects that prices in the retail market will rise just as those for industrial products have, as Arla Foods continues to ensure that its farmer members are given the best price for their milk. “In recent months we have seen a rise in commodity prices, which have been mainly driven by increases in the price of industrial products, in particular bulk cream. As a result of these developments we raised the milk price paid to the members of the cooperative in October and again in December,” he remarks. “However, the overall price for raw milk is insufficient to ensure that dairy production is sustainable globally which is why there needs to be an improvement in dairy product prices in the retail sector.”

UK Growth Strategy

Accounting for over a quarter of group sales, the UK is central to Arla Foods’ future development. Indeed, the UK is the dairy group’s single largest national market. Arla Foods has invested heavily in its UK business and will continue to do so as part of its growth strategy for this important region.

Processing over two billion litres of milk annually, Arla Foods UK is on the Britain’s largest dairy companies. In addition to being a major supplier of liquid milk and cream to the top retailers, Arla Foods UK leads the butter, spreads and margarine sector, as well as supplying other added value products such as flavoured milk, cheese and yoghurt.

Although UK consumers have been trading down to less expensive dairy products, Arla Foods UK’s three major brands have continued to perform well. Two of these brands – Cravendale and Anchor – are each valued at more than £100 million, while Lurpak is worth over £200 million. Launched in 2001, Cravendale is now the number one milk brand in the UK and is worth £142 million, growing at 20% year on year. The Anchor butter and spreads brand is produced under licence from Fonterra, the New Zealand co-operative.

Anchor Deal

Peter Lauritzen, chief executive of Arla Foods UK.

Until recently, Arla Foods and Fonterra operated a joint venture in the UK but Arla has now bought out Fonterra’s 25% stake. “Anchor is a very strong, successful, brand in the UK and it is a good business in which to invest,” points out Peter Lauritzen, chief executive of Arla Foods UK. “The butter, spreads and margarine market is a key category for Arla and this is a logical step for us to take this brand forward and develop it further in the UK.”

In line with its co-operative principles, Arla Foods has built a close working relationship with British dairy farmers. Indeed, the Arla Foods Milk Partnership, a group of over 1,400 members, supplies 80% of Arla Foods UK’s total raw milk requirements and also owns a stake in the British dairy processing company.

Capital Investment

To support its ongoing development in the UK market, Arla Foods is investing £70 million (Eur80m) to expand its flagship dairy at Stourton in Leeds, having already spent £100 million at the site, which processes milk for the major supermarkets as well as leading milk brand Cravendale. The additional investment at Stourton allows the site to process a range of fresh dairy products, including fresh cream and Creme Fraiche. It also permits Arla Foods to manufacture cottage cheese for the first time in the UK.

In line with its strategy of improving efficiency, Arla Foods has embarked on a LEAN programme in the UK. A pilot is taking place at the Stourton complex where a robust LEAN model is being developed which will then be rolled out to other UK sites.

World’s Most Advanced Dairy

Arla Foods also plans to build a new one billion litre liquid milk processing facility on the outskirts of London as part of its UK growth strategy. The new facility will be the largest and most technologically advanced of its kind in the world.

Intended to create a platform for Arla Foods UK to grow its fresh milk business, the new dairy will be operational in 2012. According to Arla Foods, the new London dairy will set new world-class environmental and efficiency standards.

“Arla is totally committed to a long-term sustainable future in the UK and the construction of the new dairy demonstrates that commitment. Incorporating the most sustainable building techniques the dairy will be the largest, most efficient and environmentally advanced in the world,” says Peter Lauritzen. “We already have an industry leading site at Stourton, in Leeds, but our new, cutting edge, facility in London will be world leading and take dairy processing into the next generation.”