German dairy sector must milk further consolidation benefits, DMK

By Ben Bouckley

- Last updated on GMT

Related tags Dairy European union

German dairy sector must milk further consolidation benefits, DMK
The German dairy sector needs to pursue further consolidation to make inroads into lucrative international markets for dairy products, according to the nation’s largest processor DMK.

A DMK spokeswoman told that the company supported further integration amongst processors to compete for lucrative dairy export markets in the developing world.

Although DMK controls 20-25 per cent of Germany’s milk production, its European rivals Arla Foods (Denmark) and FrieslandCampina (Holland) are responsible for higher local milk output levels.

The DMK spokeswoman said: “In neighbouring countries dairy is a lot stronger, which means they have a lot more bundled know-how to step into new markets.”

Mining developing markets

DMK believes that processors other than DMK should drive consolidation within the German dairy sector, and that such recent activity within Germany should alert local dairies to this need.

The company said its formation – it only began operations this May via the merger of Humana Milchindustrie and Nordmilch – meant it now had the ability to formulate new products for customers in developing markets and expand operations overseas.

Danish-Swedish giant Arla’s takeover of Hansa Milch in March and its recently announced deal – subject to regulatory approval – to takeover Allgaüland Käsereien, also testify to a German consolidation trend.

But earlier this week the European Milk Board (EMB) challenged the EU council for what it said was its ‘ignorant’ attitude​ to dairy reform within the union.

One of the EMB’s concerns – expressed at its conference in February – is widespread consolidation within the sector, which means that dairy processors are able to monopolise national markets, and have undue power when negotiating milk supply deals with farmers, despite ‘guaranteed’ prices.

Challenged as to whether EU dairy farmers would welcome DMK’s call for further consolidation, the spokeswoman drew a distinction between the EMB’s position and the firm’s own dairy farmers.

She said: “What we [DMK] need to think of is the need to market our products to the benefit of our farmers. That’s the most important thing for us.

“We have more than 11,000 farmers behind us who do support our strategy, and that’s the most vital thing.”

Dairy farmers in favour?

And when Arla’s takeover of Hansa Milch was announced in March, Arla Foods ceo Peder Tuborgh said: “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.”

Asked how important he believed EU dairy consolidation in regard to world growth, Euromonitor analyst Francisco Redruello said: "Maturing consumer demand is driving western European dairy manufacturers to invest in added-value lines. This is a costly strategy but is crucial to achieve differentiation from retail brands and maintain volume growth.

"In milk, for instance, private label sales in Western Europe are predicted to account for 42% of total retail value in 2011. Retail volume sales of milk in the region are predicted to rise by just 0.3% in 2011," ​said Redruello.

He added: "It is within this context that European medium-sized manufacturers will need to progressively merge and form larger companies. In doing so, they will strengthen its distribution networks and benefit from economies of effort. This strategy should allow them to increase its investment in product innovation while remaining competitive in terms of price.

Another recent large-scale merger within EU dairy processing was Friesland Foods and Campina’s December 2008 merger to form Dutch giant Friesland Campina.

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