Mark Voorbergen, from Rabobank International, presented to the Dairy2020 project the global developments in the dairy industry and implications for the UK.

1. Global developments in dairy
- Implications for the UK dairy value chain
Mark Voorbergen
Food & Agribusiness Research and Advisory
London 27 June 2011 Rabobank International

2. Contents
Section 1: Global dairy market developments
Section 2: Considerations for the UK dairy chain

3. Global demand growth is not driven by the
Western world
• World market returns to an annual
growth rate of 2.5%
• Mostly driven by demand growth in
net importing regions
• Growth in the Western world is
mainly about value growth:
– Product innovations targeting
health and wellness
– Convenience, snacking
3

4. Supply security has become an issue
• In 2010, China became the nr 1 importer of dairy in the world.
Majority of imports originate from New Zealand. Supply
concentration is a risk
• Large dairy buyers are changing their sourcing strategies (value
chain investments, jv’s with suppliers, less spot market buying)
• Entire value chain is looking for stable long term pricing structures
4

5. Returns on the global market are becoming
more appealing
Global market moves to higher trading range Traditional price premium for EU and US milk is
declining
0.40
0.30
USD/litre equivalent
0.20
0.10
0.00
-0.10
-0.20
Premium for US milk over NZ milk
Premium for EU milk over NZ milk
5

6. Market has become very volatile
• International prices pushed back to extreme highs in 2011
• Supply issues created the first spike in 2007/08
• The 2011 price developments are mainly caused by very strong import demand

7. Non dairy players creeping in
London
Utrecht
New York
Shanghai
New Delhi
Mexico Mumbai
City
Singapore
Sao Paulo
Sydney
Melbourne
Buenos Aires
Christchurch

8. Non dairy players creeping in

9. What’s driving new entrants?
• Dairy growth potential
Pull • Nature of growth: health, convenience
• Health trends/risks of current product portfolios
Push • Rising retail power
• Anti-trust limitations
Synergies / • Processing, packaging, distribution
• Overlap with juices, functional foods
Synchronicity • Desire to expand in developing markets

10. Contents
Section 1: Global dairy market developments
Section 2: Considerations for the UK dairy chain

11. Strategic implications for the UK dairy chain
• Revenues on the global market are increasingly interesting, but none of the UK
processors seems positioned to benefit directly
• Convergence with European/global prices is increasing
o Removal of the quota system in 2015 might cause a stronger push of products into the
UK market
o Reduced importance of liquid milk as the primary milk price driver
• Milk prices generally benefit from a milk deficit situation, but in the UK they don’t
• UK dairy sector lacks a dominant multi product multinational co-op that is
capable of absorbing the impacts of volatility, or even benefit from it
• UK is seen as an attractive target market for new entrants, for domestic market
reasons as well as for export ambitions