Campina outlines CAP reform survival plan

By Chris Mercer

- Last updated on GMT

Related tags European union Milk Denmark

Coping with reforms to the EU's Common Agricultural Policy has
taken centre-stage for dairy firms across the bloc as Dutch group
Campina outlines a plan to swallow more than €80m of losses in aid
since 2003.

The statement from Campina reveals that the fallout from the CAP reform has become much more real for dairy firms in 2005. The Dutch group said aid it received from the EU dropped from €140m to €127m between 2003 and 2004, but is forecast to plummet to €58m this year.

This amount is expected to be halved within the next two years as the CAP reform really begins to kick in. EU moves are already underway to reduce subsidies and intervention prices, or minimum prices, to be paid for commodity products such as milk powder and butter.

Many dairy firms across Europe are under pressure from the EU aid cuts, aimed at creating a more competitive EU market by opening up access to outside producers and curbing export subsidies said to encourage dumping of surplus products on world markets.

The shake-up has spawned a number of strategies becoming increasingly common to all of Europe's big dairy firms, including expansion outside the bloc and a switch to higher value products away from commodities.

"Campina's strategy is aimed at reduced dependence on the European market and pricing policies, and on price movements for basic dairy products. This is achieved through international growth, innovation and cost control,"​ said the group in a statement.

Campina said it now wanted to push its desserts and dairy drinks across Europe and Asia, while growing its ingredients business worldwide. The firm has already moved into Russia, one of the world's most promising emerging dairy markets, and has also bought into markets in Thailand and Vietnam.

Scandinavian dairy processor Arla Foods has gone a similar way, recently signing a milk powder supply deal in China and announcing it would switch some processed cheese production from Denmark to Saudi Arabia.

Arla warned earlier that the EU's cuts in agricultural export subsidies would harm earnings from butter exports this year.

In Europe, rapid innovation is emerging as key, both to insulate against CAP reform and re-ignite dairy sectors by inspiring consumers.

From next week, Campina will merge its consumer businesses in Europe to form one Consumer Products Europe division, focusing on brand-building and innovation across the continent.

Company spokesperson Ria Feldman said Campina had spent a lot on research and development in recent years. Recent products to emerge from this investment include Campina fresh milk that stays fresh for a week as well as Campina Optiwell low-fat and low-calorie dairy and yoghurt drinks. The company even launched Valess, a meat substitute made from fresh dairy produce and fibre, earlier this year.

Feldman said such added value products offered dairy firms a chance to take their brands where private label could not so easily follow.

Campina's strategy in the face of CAP reform also reveals the importance of stringent cost-savings alongside product development. The group is set to invest €57m in a modernization plan for part of its production factory in Veghel, Holland.

The move is "aimed at saving costs and at enabling large-scale production of added value ingredients"​.

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