FACULTY OF BUSINESS AND ECONOMICS
KATHOLIEKE
UNIVERSITEIT
LEUVEN
MASTER THESIS
THE DAIRY INDUSTRY
AN INDUSTRY RESEARCH
Laurent Vandenvelde
Thesis submitted to obtain
the degree of Master in
Business Economics
Promotor: Prof. Dr. R. De Bondt
FACULTY OF BUSINESS AND ECONOMICS
KATHOLIEKE
UNIVERSITEIT
LEUVEN
Laurent Vandenvelde
The Dairy Industry
An Industry Research
Abstract thesis:
In this thesis, we will analyze the dairy industry viewed from macro as well as a
micro perspective. We will investigate how this industry will be able to survive,
especially when you consider the fluctuation of dairy prices and costs to
produce and release dairy products into the market.
First there is a presentation of the global industry, including a Porter analysis.
Segmenting the market and taking a closer look at the interesting journey dairy
must make from farmers all the way to the end-market, will help us to
understand market problems and needs. Finally, case studies will help us to
make clear how the market deals (or can deal) with up- and downturns.
It turns out that certain (which one?) strategies which react fast on changes in
the market are the best way to survive in the dairy industry.
Promotor: Prof. Dr. R. De Bondt
Acknowledgements
Table of contents
General Introduction ......................................................................................................... 6
Chapter 1
1.1
Global Dairy Industry ................................................................................ 7
Information ........................................................................................................ 7
1.1.1
Importance of Dairy Products ................................................................... 7
1.1.2
Definition of the Dairy Market .................................................................. 8
1.1.3
Analyses of Numbers and Figures ............................................................ 8
1.1.4
A Porter Analysis ...................................................................................... 7
1.2
Heading level 2 .................................................................................................. 7
1.2.1
Heading level 3 ......................................................................................... 7
1.2.2
Heading level 3 ......................................................................................... 7
1.3
Heading level 2 .................................................................................................. 7
1.3.1
Heading level 3 .......................................................................................... 7
Chapter 2
Title chapter ............................................................................................... 7
2.1
Heading level 2 .................................................................................................. 7
2.2
Heading level 2 .................................................................................................. 7
General Conclusion ........................................................................................................... 8
General Introduction (2 pages!!)
The aim of this paper is to examine the situation of the global dairy industry. The main
question is how a company in this industry can survive in a very fast fluctuating price/cost
environment. Therefore, there will firstly be looked at the situation of the worldwide dairy
industry.
A Porter analysis of the industry will be provided in which an investigation of the five forces
will make clear how they influence the industry’s profitability in every stage of the sector,
from farmer to distributor of dairy products. In this Porter analysis there will also be a part
that is dedicated to the co-operation between industry members. Integration, both vertical as
well as horizontal, can strengthen the performances of each individual firm.
Afterwards, we will follow a more ‘local’ analysis in which the dairy industry will be
separately discussed into regions with more or less the same rules, e.g. the European Union,
the United States and the areas of China and New Zealand/Australia.
Including different case studies of every branch (which ones?) in the dairy industry will
provide this paper with the necessary information to demonstrate a successful way of dealing
with the current (which is?) situation.
Finally, completed with the needed theoretical background, the paper ends with a conclusion
and an attempt to give some recommendations for a successful strategy in every stage and
sector of the industry.
Chapter 1
Global Dairy Industry
The aim of this first part is to analyze the current situation of the global dairy industry. The
dairy industry falls under different NACE codes. E.g. A1.4 is the code of animal farming
including those animals used to produce dairy (A1.4.1), C10.5 is the code of dairy products
manufacturing with some subdivisions, at the end of the dairy industry chain we have the
wholesale and retail of dairy products with respectively G46.3.3 and G47.2.91 as NACE
codes.1
In this first chapter there will be drew attention to the importance of dairy products, a
definition of the dairy industry will be provided as well as a general segmentation of the
market. Also specific numbers for the industry, e.g. sales figures, profitability, etc. … will
clarify the importance of each stage, sector and territory.
Secondly, the Porter analysis will offer us a better (macro-) economic view and will present
us the basic information we need before we take a deeper look into the structure and
characteristics of the companies.
1.1
Information
This part will be divided into three subject. The first topic will highlight the importance of
dairy products, the second matter issues a definition of the dairy market, and this first part will
be completed as when some number and figures are placed under discussion.
1.1.1 Importance of Dairy Products
Dr. Bill Pritchard (2001) began his paper with the sentence: “the dairy industry is one of the
most important components of the world food system, and is undergoing dramatic change at
the current time”.2 However this is mentioned ten years ago, the dairy industry is still a very
important sector. It has everything to do with the addition of dairy products in the muchneeded diversified and healthy human diet. Beneath, a representation of the ‘Food Guide
Pyramid’ as created by the U.S. Department of Agriculture highlights the requirement of dairy
products. As such the importance of the dairy industry, which provides us with a collection of
dairy-based products, is once again emphasized and the following statement of the Harvard
1
NACE codes as stated by the European Commission; viewed 6 March 2010
<http://ec.europa.eu/competition/mergers/cases/index/nace_all.html>
2
Pritchard B. (2001). Current Global Trends in the Dairy Industry. Unpublished Manuscript. University of
Sydney.
School of Public Health declares why. “Dairy products have traditionally been the main
source of calcium and, through fortification, vitamin D.”3
Figure 1: A healthy Food Guide Pyramid; Willett W.C. & Skerrett P.J.; 2001; pp.16
For the reason that dairy-based products are very important for a healthy human diet, it is only
rational to strongly regulate and control the dairy industry, just like many other food and
beverage industries. These regulations could differ from country to country but most often
they are imposed by international organizations, e.g. the European Union.
It is not only theoretically so that a diversified diet with a daily dose of dairy is healthy, but
when we take a quick look at the market, we see that most dairy-based products are being
marketed as health improving products. Therefore it is back again quite important to control
the dairy market and more specific the quality of dairy. These quality inspections have to be
done in all stages, from a control of the cattle at dairy farms to the control of the end-products
consumers buy. As we will see later, quality of the milk will also be a variable in the pricing
system of dairy.
3
The Nutrition Source, Food Pyramids: What Should You Really Eat?; viewed 6 March 2010
<http://www.hsph.harvard.edu/nutritionsource/what-should-you-eat/pyramid-full-story/index.html>
1.1.2 Definition of the Dairy Market
There does not exist a better definition of the dairy market provided us by Saunders
Comprehensive Veterinary Dictionary (2007). It defines the dairy industry as “the farms, the
milk collecting and handling services, the processors, manufacturers and retailers and the
private and government organizations involved in a coordinating or controlling function with
respect to the harvesting and disposal of dairy products”.4 In other words, this dissertation of
the dairy industry is with respect to all facilities which are utilized for the extraction and
processing of animal milk for human consumption.
The definition above presents the chain dairy products need to go through, but which are
those products. Datamonitor (2009) – on which many numbers and figures are based –
describes the dairy market as it consists of cheese chilled desserts, cream, milk, spreadable
fats and yogurt.5 Annex 1 presents a figure which will give us an idea of how many
differentiated products are made by dairy.
1.1.3 Analyses of Numbers and Figures
As mentioned above, Datamonitor (2009)6, provides us with the necessary information about
the global dairy market. Numbers about the global industry but also of different segments of
the market will be explained in this part.
1.1.3.1
Basic Information
The most recent numbers made available by Datamonitor (2009)7 are those of 2008. In that
year the global revenues of the dairy industry amounted $280 billion. Within this industry the
milk sector proved to be the most lucrative with over $100 billion of total revenues,
representing more than a third of the market’s overall value. The cheese sector is the second
largest with a total revenue of over $75 billion, representing more than a quarter of the
market’s total revenue.
The past years the annual growth rate measured above 4% and this evolution is also being
forecasted for the next 5 years. But when we distinguish different geographical markets, we
4
Blood D.C., Studdert V.P. & Gay C.C. (2007). Saunders comprehensive veterinary dictionary. 3rd edition.
Elsevier Saunders.
5
Datamonitor Plc. (2009). Dairy Industry Profile: Global
6
Ibid
7
Ibid
observe apparently that the American market grew faster than the European market, 6% in
comparison with the European 3% growth. The forecast of this American industry is
decreasing to 5,5% growth for the next years while the European market forecast a continuous
growth of 3%.
1.1.3.2 Segmentation
1.1.3.2.1 Geographical
It will be very important to acknowledge the different legislation between certain countries or
supranational communities, like the European Union. Another distinction we have to make
here is the difference between dairy production and dairy trade. Annex 2 provides us with a
wealth of numbers, of which an analysis can be that
1.1.3.2.2 Products
1.1.3.2.3 Stages
1.2
A Porter Analysis
1.2.1 Heading level 3
Conclusion internalization and globalization
As international dairy companies recognize the potential benefits from
supplying milk and dairy products in differen
for demand growth, they are repositioning themselves to source milk and
products from multiple locations. This trend is spawning partnerships and
joint ventures among firms seeking to benefit by controlling all stages of
the production process.
Annexes
-
Annex
1:
Milk
Products
and
(http://en.wikipedia.org/wiki/Dairy_product)
Production
Relationships
Chart
-
Annex
2:
Milk
Products
and
Product
http://en.wikipedia.org/wiki/Dairy_product
Relationships
Chart
(source:
Figures
-
Figure 1: A healthy Food Guide Pyramid as created by the Harvard School of Public
Health (Willett W.C. & Skerrett P.J.; 2001; pp.16)
References
Books
-
Willett W.C., Skerrett P.J. (2001). Eat, Drink and be Healthy. Simon & Schuster INC.
Pp.: 16
-
Blood D.C., Studdert V.P. & Gay C.C. (2007). Saunders comprehensive veterinary
dictionary. 3rd edition. Elsevier Saunders.
Consulted Journals
Papers
-
Pritchard B. (2001). Current Global Trends in the Dairy Industry. Unpublished
Manuscript. University of Sydney
-
Datamonitor Plc. (2009). Dairy Industry Profile: Global
Interviews
Websites
-
http://ec.europa.eu/competition/mergers/cases/index/nace_all.html (06/03/2010)
-
http://www.hsph.harvard.edu/nutritionsource/what-should-you-eat/pyramid-fullstory/index.html (06/03/2010)
-
http://en.wikipedia.org/wiki/Dairy_product (07/03/2010)
Other sources
-
The Egyptian Center for Studies of Export and Import (2010). The global Dairy
Products Industry 2010. “Analysis report of the market’s crises”
-