Europe's smaller processors fight for survival in the milk marketplace

Sunday, April 3, 2011

Amalgamation is continuing apace among dairy processors, but one Swedish co-operative is showing that it's possible to compete

by NORMAN DUNN

Like everywhere else, Europe is the scene of large-scale amalgamations within the dairy sector. With around a million dairy farmers supplying processors with some 135 billion litres of milk, 14 of the world's top 20 milk processors are at home here. And they're continually growing.

In 2009, Campina and Friesland Foods in the Netherlands merged to form FrieslandCampina, the fourth largest processor in the world with 15,300 supplying farmers in the Netherlands, Germany and Belgium delivering 10.8 billion kilograms of milk.

At the beginning of this year, French co-operative Sodiaal merged with Entremont to create a pool of 13,000 farmers supplying 5.2 billion kilograms of milk. In February, it was time for a giant merger in Germany with Nordmilch and Humana, the country's number one and two in terms of turnover, agreeing to tie the knot. The result – to be called Deutsches Milchkontor (DMK) – will process around 6.7 billion kilograms of milk annually.

Even bigger moves are being negotiated as the 2015 scrapping of the European Union's dairy quotas comes nearer. These quotas impose limits on the amount of milk produced per farm and per country. The expected flood of milk following their withdrawal should, the processors believe, make it easier for Europe to produce more dairy products for export. But the processors involved are going to have to do this cheaply if they want to be taken seriously on a global market. This is one of the reasons for the dairy expansion pressure now.

A real titan in this world is Swedish Arla, a dairy that already collects an annual 8.6 billion kilograms of milk from farmers in Sweden, Denmark, Finland, Britain and Germany and stands at number seven in the world league. This giant is already discussing a merger with Finland's largest milk processor Valio (in fact, this dairy processes 85 per cent of all milk produced in the country) and Hansa Milch, a 700 million kilogram per year processor in north Germany.

But there are also examples of smaller dairies fighting back against merger campaigns – dairies that think it's right to maintain independence, ensure that local milk is offered to local consumers and offer farmer suppliers an alternative to the multinational giants.
Here's the stirring story of the fight for survival of one such processor in Sweden.

Skånemejerier (Scania Dairy) is a co-operative, the second largest dairy in the country with 363 million kilograms of milk processed yearly, a long way behind the 1.9 billion kilograms of milk Arla obtains annually from Swedish farmers. Arla's dominance in the home market had increased to such an extent that leading stores were delisting Scania butter, yoghurt, milk and cheeses in favour of Arla products. Scania's chairman of the board, Anders Olsson, remembers that the biggest blow came in 2008 when two of the leading supermarket chains in the country took Scania products off their shelves.

That's when the fight back really got started under the command of Olsson and CEO Björn Sederblad. They invited consumers to ask their supermarkets why they were rejecting locally produced milk and its products (from Scania). Protest lists were started on Facebook. Some stores were boycotted. The leading stores backed down and relisted Scania products. Stores in neighbouring Denmark started listing Scania products, too.

Sederblad followed up this victory with a wave of innovative new products. A "gourmet" butter was launched, and quality yoghurt with real vanilla in it (instead of essence) was introduced. Organically produced milk was brought into the product range. Then Scania started Scandinavia's first drinking milk traceable right back to the farm of origin (via Internet and ID number on the carton).

After kick-starting sales, management announced immediate increases in the milk producers' price. From a low in mid-2009 of less than C$0.40 a kilogram this was bumped up to an average $0.44 within six months and it's been edging up since. More suppliers started signing contracts with Scania and milk deliveries had soared by 13 per cent at the end of 2010, with another 15 per cent, or 50 million kilograms, added at the beginning of 2011 when 57 new farmers signed up.

By 2016, the dairy aims to be paying its suppliers 13 per cent more per kilogram than at present. Over the same period, the dairy expects to double its turnover to the equivalent of 660 million Euros.

Maybe the merger movement involving huge multinational dairies is inevitable. The Scania experience shows, though, that there's still plenty of opportunity for smaller dairies with bright product ideas and the right consumer backing. BF

Norman Dunn writes about European agriculture from Germany.