According to Organic Monitor, product launches and increased investment have driven value-added milk sales increases of around 30 per cent a year, attracting the attention of large food companies such as Nestl and Unilever in addition to UK dairies.
A number of big firms, including Arla Foods and Campina, have said that capitalising on higher margin value-added products will be necessary to offset Common Agricultural Policy (CAP) reform and remain competitive in the wider world.
Indeed, CAP reform of the dairy sector will significantly affect the commodity end of the market. Dutch dairy Campina said aid it received from the EU dropped from 140m to 127m between 2003 and 2004, and was forecast to plummet to 58m in 2005.
Such considerations are driving product innovation within the sector. Although organic milk and flavoured milk comprise most revenues, the functional milk market is showing the highest percentage growth.
In contrast, the organic milk market is receiving low interest however because of supply-demand imbalances. Supply shortages is causing organic milk to be imported once again after years of oversupply, though sales continue to soar.
Functional milk sales escalated in 2005 due in part to the successful launch of Saint Ivel Advance. Marketed as 'clever milk', the milk is fortified with omega acids from fish oil.
Organic milk however still comprises most revenues in the value-added milk market. Sales have been strong since scientific research found organic milk to have superior nutrient content than non-organic milk.
Some retailers have reported sales growth in excess of 50 per cent in 2005 as consumers increasingly buy organic milk because of its health benefits.
Of all the product segments though, flavoured milk has the highest retail penetration. Fresh flavoured milk sales are expanding as retailers launch new products under their private labels.
These market shifts, largely anticipated by much of Europe's dairy industry, are expected as part of a general switch to the manufacture of higher value dairy products in the European Union.
The Organic Monitor report gives market and competitive information on the value-added milk market. Market sizes, revenue forecasts, and market trends are given for each product segment. Competitive information includes market shares and profiles of leading producers and retailers.