This year, privately held Lactalis outpaced long-time industry giant Nestlé as the world’s biggest dairy player, according to new Rabobank analysis. Lactalis’ attention to organic growth, as well as its dedicated global M&A strategy, propelled the company from ninth place in 2000 to a dominating lead position in 2021.
“We think that it’s a combination of factors [contributing to Lactalis’ acceleration], organic growth being the first. However, the aspect that differentiates Lactalis from other dairy companies is their dedicated global M&A strategy,” Richard Scheper, analyst dairy RaboResearch Food & Agribusiness, tells FoodIngredientsFirst.
In M&A activities over the past ten years, Lactalis has been involved in several international acquisitions. “With this global focus they can also focus on regions and markets where there are opportunities for growth in dairy sales and consumption, such as the changing demographics,” says Scheper.
“Other dairy companies could be more restricted since they are more focused or bound to their domestic market for milk supply or sales,” he notes. “This could limit their possibilities to increase turnover. For the future, they will likely focus more on a value strategy.”
“If the currently pending deals for the Kraft Heinz natural cheese business and Groupe Bel’s Royal Bel Leerdammer, Bel Italia, Bel Deutschland and Bel Shostka Ukraine will be included in next year’s ranking, Lactalis will most likely extend their lead.”
Over the next decade and beyond, changing demographics are expected to drive opportunities across the dairy sphere. Rabobank states that over 35 percent of global population growth will occur in Africa, which remains a net – and growing – dairy importer, largely importing from international players in the Global Dairy Top 20.
Flourishing in Africa and China
Rabobank data indicates there will be “pockets of flourishing regional domestic production growth,” such as in East Africa, based on the availability of natural resources and social, economic and political stability.
Similarly, Indonesia remains a growing market for global dairy exporters.
China will continue to reign as the world’s largest dairy importer, highlights Rabobank. Rather than being dominated by the infant nutrition market of the past two decades, China’s dairy sector will find growth in the “Active Silvers” (i.e. people aged 50 and over) market.
Meanwhile, the US and EU-27 markets are expected to be aging and affluent, attracting innovation and competition.
“By 2030, we anticipate that consumers will have the option to buy competitively priced plant-based and cell-cultured dairy alternatives, with non-GMO-sensitive consumers opting for the plant-based alternatives,” comments Mary Ledman, global dairy strategist for Rabobank.
“Natural dairy’s nutrient density will keep it a dietary staple. But, it is also imperative that the dairy sector be part of a global carbon-reduction solution that resonates with climate-sensitive consumers and prevents food manufacturers and foodservice operations from taking natural dairy out of their products and off their menus.”
In 2020, dairy companies faced significant challenges due to the COVID-19 pandemic, but overall, the sector fared better than expected, the researcher highlights.
Slowing of merger and acquisition activities
Rabobank’s annual Global Dairy Top 20 report shows that the combined turnover of the top 20 industry leaders fell by just 0.1 percent in US dollar terms, following the prior year’s 1.8 percent gain.
In euro terms, the combined turnover decreased by 1.9 percent. Merger and acquisition activities slowed in 2020, with approximately 80 announced deals versus the prior year’s 105. Such activities picked up this year, with over 50 deals announced through mid-year.
In the past two decades, the Global Dairy Top 20 saw consolidation as a constant, and this is expected to continue. From 2001 to 2020, the combined turnover of the top 20 companies more than doubled, expanding by 3.8 percent annually.
From 2010 to 2020, China rose, evolving as a dairy-consuming nation and the world’s largest dairy importer. The two Chinese dairy giants – Yili and Mengniu – have ambitious growth targets and are proactively looking for overseas growth opportunities.
Sustainability as a growth driver
Consumer sentiments are being heard, and many companies included in the Global Dairy Top 20 have made sustainability commitments for 2030 and carbon-neutrality commitments for 2050, highlights Scheper.
According to NYU Stern Center for Sustainable Business, sustainability-marketed US milk sales grew more than 20 percent from 2013 to 2018, compared to negative growth for the category as a whole.
Meanwhile, sustainability-marketed natural cheese and yogurt sales grew over 30 and 20 percent, respectively, compared to nearly 10 percent growth for those categories broadly over the five-year period.
Dairy alternatives blur the definition of milk
The sales growth of liquid milk and yogurt alternatives – especially oat- and almond-based alternatives – have not gone unnoticed.
Most significantly, Danone’s turnover in dairy alternatives, following its acquisition of WhiteWave Foods in 2017, was recorded at €2.2 billion (US$2.5 billion) in 2020, a gain of 15 percent compared to the previous year.
Adding these sales would lift Danone to third position. Dairy alternative du jour Oatly surged in market capitalization, to more than US$10 billion, after its IPO debut in May 2021.
“The designation of dairy is also becoming more blurred as hybrid products, containing both dairy and plant-based ingredients, enter the marketplace,” says Scheper.
Dairy markets expected to “remain in balance”
Rabobank anticipates investment activity to stay robust in the on-trend channels and categories, including specialty cheese, innovative dairy ingredients like human milk oligosaccharides, dairy alternatives ranging from plants and fermentation to cell-based, and lifestyle nutrition.
In addition, acquisitions in adjacent sectors, such as logistics and inventory management, are likely.
At the farm level, the rising cost of production due to drought-induced higher feed costs and inflationary pressures will keep margins tight, limiting milk production growth in the Big-7 exporting regions to less than 1.2 percent.
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