Global dairy consumption

Dairy Field, Aug 2003

A world market in review.

A key trend in the global market for dairy products during the 1998-2002 period was the widening range of dairy products available to consumers, both in developed and less-developed markets, according to a study by Chicago-based Euromonitor International.

Cheaper production and storage technology, combined with higher levels of disposable income, resulted in the development and distribution of niche products such as probiotic yogurts, soy milks, chilled desserts and snacks.

Growth in the world dairy products market was driven by increased consumer demand in developed markets such as North America and Western Europe for products offering added-value benefits such as convenience, functionality and indulgence; and increased availability of dairy products in developing markets such as Eastern Europe and Asia-Pacific due to market liberalization, improved distribution networks and global manufacturer consolidation.

Currency movements also affected the market over the review period. Due to the strength of the U.S. dollar in 1998-2000, regional sales figures outside of North America appeared to be poorer than they were. However, in local currency terms, particularly in the Western European market, value sales growth was actually significantly more positive.

In terms of supply-side trends, the continued launch of new products by major players underpinned much of the sales growth in developed markets. New product development focused chiefly on meeting the three key areas of consumer demand in the review period- convenience, health and indulgence.

The increase in consumer demand for convenience was a particularly strong force shaping product development in developed markets. Due to smaller households, longer working hours and less formal mealtimes, easy-to-use, portable and disposable products such as yogurt, chilled desserts and individually portioned cheeses and milk all benefited from this trend.

Rising levels of consumer health concern also led to manufacturer development of "functional" dairy products such as low-fat and enriched milks, probiotic and "natural" yogurts, and organic cheese. Consumption of products such as soy milk also rose as consumers sought ways of reducing levels of saturated fat and cholesterol in their diets. Whilst this trend towards health was found most commonly in mature markets, "functional" products also increasingly became available in developing markets as incomes rose and the middle classes grew. Another factor driving development and sales of "functional" dairy products was consumer anxiety regarding the safety of food production, including a series of animal health crises (BSE, foot-and-mouth, swine fever) and ongoing skepticism regarding genetically modified food. A direct beneficiary of increased consumer concern over food production was the organic dairy industry, as consumers chose to avoid dairy products derived from cows and milk cultivatred with pesticides, herbcides and artificial growth hormones.

Consumer demand for indulgent or luxury food was another key trend over the survey period. This tendency, most clearly visible in the developed markets of North America and Western Europe, was driven by consumer desire for higher quality products in lieu of larger amounts, and by increased consumer sophistication. Cheese was the main dairy product to benefit from this, with consumers prepared to pay extra for specialty products.

A key trend limiting real-terms growth in the major developed markets was the commodity status of staples such as milk, cheese and cream. In addition, the strength of private-label sales in these products increased over the review period, further depressing price per unit. In response, manufacturers at the end of 2002 set out to "brand" dairy staples such as milk by following the successful business model of branded bottled water.

Another way in which dairy products manufacturers attempted to distinguish their products from private label was by increasingly segmenting the dairy products market. New products therefore targeted adults, children, teens and "tweens," as well as dairy product items aimed specifically at men, women or the elderly. In the teenager's segment of the dairy products market, one of the most significant trends over the review period was the emergence of new packaging formats that focused on portabality. In North America and Western Europe, drinkable yogurt was a key area of product development that emphasized product convenience and disposability.

Ongoing consolidation of national and international dairy producers contributed significantly to growth in emerging markets such as China, the Philippines, Poland and Russia. As a result of this consolidation the global dairy industry was characterized by a two-tier structure of global and regional dairy producers. The majority of leading global producers in 2002 were Western European, with manufacturers typically having a wide sectoral presence. However, specialization on discrete sectors was more pronounced in the key North American market.