Global dairy turnover jump 7.4%, Lactalis in top spot

Rabobank says in its annual review of the Global Dairy Top 20 that in euro terms, the combined turnover increased by a significant 21%. This was due to the combination of a stronger US dollar, inflation, and tight market conditions during most of 2022, with many companies reporting record-high revenues in their local currencies.

Overall, only 5 companies held the same position as last year, indicating a reshuffle along the entire list. Merger and acquisition activity was nearly on par with the prior year, with a total of almost 25 deals. A slowdown in activity was noted in the second half of the year, which continued into the first half of 2023.

In the first half of 2023, 8 deals were announced versus approximately 12 deals in the first 6 months of 2022. Currency developments contributed to the reshuffle, and were particularly unfavourable for dairy companies reporting in euros, New Zealand dollars, renminbi, and yen.

Lactalis – strong growth

According to Rabobank, an impressive jump of €4.6 billion – up 20.5% from 2021 – pushed Lactalis to €27.2 billion. The French company’s strong growth is underpinned by several large recent acquisitions, organic growth, and inflated dairy commodity prices in 2022. In US dollar terms, turnover increased by US$1.9 billion, up 7.3% to US$28.6 billion, keeping the company comfortably in the top spot.

Dairy Farmers of America, Nestlé and Danone

Dairy Farmers of America (DFA) secured the runner-up position on the back of the largest turnover gain by some margin, in both euro and dollar terms, surpassing both Nestlé (3rd) and Danone (4th) after losing the third position to Danone last year. In 2022, DFA’s turnover soared by US$5.2 billion (+26.9%) to US$24.5 billion, the equivalent of a €7 billion (+42.6%) rise to €23.3 billion. This was primarily due to elevated dairy product prices and organic growth.

Nestlé’s estimated dairy-related turnover increased in local Swiss francs after several years of dwindling revenues and divestments. Nestlé still holds a large (non-controlling) equity share in ice-cream company Froneri, which climbed to 19th position this year. Danone’s estimated dairy turnover increased by €2.4 billion (+13.6%) to €20.1 billion, or US$21.2 billion (+1.1%).

Yili and Mengniu

Chinese players Yili and Mengniu posted an estimated revenue growth of 5.2% and 10.1%, respectively, in renminbi. But due to currency developments, these gains were slashed to 0.8% and 5.4%, respectively, in US dollar terms. Yili retained the fifth position, while Mengniu slipped a spot to 8, just behind Arla and FrieslandCampina.

Arla, FrieslandCampina, Fonterra and Saputo

As foreshadowed last year, Denmark-based cooperative Arla (6th) moved ahead of Dutch cooperative FrieslandCampina (7th). Still, both companies managed to move up the ranking compared to last year, mainly at the expense of New Zealand-based cooperative Fonterra (9th), which fell 3 positions. Like its European counterpart FrieslandCampina, Fonterra continues to dispose of non-core assets while adjusting to pressure on milk volume growth. Saputo (10th) solidified its spot in the sub-top of the ranking, on the back of double-digit revenue growth.

Auction prices on Global Dairy Trade (GDT) plunged on 15 August. Overall prices slumped 7.4%, while key whole milk powder (WMP) prices plunged 10.9%. Both WMP and overall prices have fallen by a quarter over the past year. Looking over a longer period, WMP prices are now at a 7-year low. The auction result was weaker than expectations, according to Nathan Penny, Senior Agri Economist at Westpac NZ, noting, “Global demand is weak, notably from our key market in China.”

New Zealand dairy giant Fonterra has announced it plans to slash around US$598 million in costs over the next 7 years following the fall in global dairy prices. Chief executive, Miles Hurrell, says a focus on efficiencies will have implications for staff numbers.

Dairy was New Zealand’s biggest export commodity last year with milk powder, butter and cheese accounting for 28% of total exports, worth US$12.3 billion. Dairy prices fell sharply recently. Fonterra has twice cut its forecast for milk pricing in the past weeks.

RaboResearch expects China’s dairy sector will increasingly focus on productivity and cost-efficiency improvements. Milk supply in China could expand from 41.5 million metric tonnes in 2023 to 47.4 million metric tonnes liquid milk equivalent (LME) in 2032, with an average compound annual growth rate (CAGR) of 1.5% by volume.

Medium to long-term per capita demand growth is expected to remain healthy. Rabobank forecasts China’s demand growth to average 2.4% annually between 2023 and 2032, with dairy consumption reaching 62.2 million metric tonnes LME by 2032. As a result, China will continue to have a significant role in the global dairy industry, with a further widening of the import deficit expected. In 2032, imports are forecast to reach 15 million metric tonnes LME.