Dairy can often feel like a dwindling industry in the UK. Declining milk consumption and promotion of vegan alternatives – amid allegations around the impact of cows on climate – have led to a sense of woe across the sector
But look beyond these shores and, indeed, Europe, and the picture is very different. In developing economies like Indonesia, Mexico and Nigeria, dairy demand is on the up as rising incomes underpin notable changes in diet.
According to a recent report by Kite Consulting, dairy demand across 90 countries grew 18% between 2011 and 2019 – and it shows no sign of slowing. The size of the growth each year is now equal to New Zealand’s entire annual output and is at such a level that local production in many countries is unable to satisfy demand.
For British producers looking to boost sales, this poses a tantalising opportunity. “The growth opportunity for an efficient dairy-producing country like the UK – which produces milk with a carbon footprint of half the global average – is enormous,” says Kite.
Some dairy companies are already capitalising on the chance, with exports rising from around £1.7bn in 2016 to £2.7bn last year, according to official data collated by Euromonitor, as the industry has gone bounty hunting. Nevertheless, more work will be required if UK suppliers want to make the most of the opportunity. In some cases, a focus on the most valuable markets may need to be a priority.
“Nothing will come easy for British exporters when setting up shop in some of the most complex markets in the world”
So, where does X mark the spot in this dairy-led treasure hunt?
First, as any good treasure hunter knows, it can be worth a bit of time identifying where to ignore before pressing on. Among locations to avoid is South America, where strong dairy industries in Argentina and Uruguay are well placed to meet rising demand.
Top of the ‘ignore’ list, however, is India. While its demand for dairy is greater than anywhere else in the world, so too is its production. That means opportunities for even the most export-savvy Brits will be limited. “We expect most growth there will be domestic,” says Richard Scheper, dairy analyst at Rabobank.
On the plus side, domestic demand in India, and indeed Pakistan, mean these “self-sufficient” producers have “not integrated into the international market” and are unlikely to compete even in nearby Asian economies, a recent OECD-FAO report concluded.
“The growth opportunity for an efficient dairy-producing country like the UK is enormous”
That’s reassuring for UK dairy, because it’s those nearby Asian countries that offer one of the most promising opportunities for exporters. According to Kite, one way to project sometimes hard-to-gauge potential dairy markets is to look at GDP size and growth and use this to assess possible future demand. On this measure, Asia looks strong, with S&P Global predicting the continent will account for 53% of total global GDP growth in 2022, and 62% in 2023 as western economies lapse into recession in the second half of this year.
In Japan, for example, despite two decades of slow growth, the economy is more than twice the size of the 46 sub-Saharan African nations combined, meaning there is a “big opportunity” to increase sales, says Fraser Brown, sales director for export & trading at First Milk.
China, which has a GDP twice the size of Japan’s, should also see huge demand, according to Mintel analyst Caroline Roux, who predicts retail sales of cheese will grow at a compound annual growth rate of 11% up to 2025. “The largest domestic dairy players, who until now had a small share of the cheese market, are investing in the category” Roux explains. “But the cheese market is far from established, and we believe there is an opportunity for new players to enter the [Chinese] market and build early mover advantages.”
Even Asia’s least developed economies could see strong growth in the coming years, suggests Sheena Flannery, Thailand-based director of group marketing, consumer goods & healthcare at DKSH. In that part of the world, consumption of cheese is forecast to continue to grow most in countries where it is not part of the traditional national diet, says Rebecca Wright, analyst at S&P Global Commodity Insights.
“Urbanisation and income increases have resulted in more away-from-home eating, including pizzas, in south-east Asian countries,” she says.
In nations such as Cambodia and Laos, for example, demand is already on the up but, given their GDPs remain small, it could be some time before consumer spending can catch up with middle-income neighbours such as Thailand. And while, for now, nearby New Zealand is able to meet demand in many of these markets, it may need some help if it grows as much as some expect.
Stateside markets
Now spin the globe again and cast your eye to the other side of the Pacific. For in the US, a treasure trove of dairy-hungry consumers awaits. The US is the exception to the rule among ‘mature’ western markets because, unlike those in Europe, both its demand and output are still growing. Some suppliers have already capitalised. Take Kerrygold. The Irish brand is now the second highest selling butter in the US.
That’s not to say the States is an easy target. It’s a competitive market, for cheese in particular, meaning new players need to fight hard to catch shoppers’ eyes. But such hard work can pay dividends, as Somerdale International can show. Last year, it reported a 3% year-on-year jump in cheese sales in the US – a trend the West Country producer hopes will continue. “From a specialist cheese viewpoint, there are certainly good growth opportunities in the US,” says Somerdale director Alan Jenkins.
While UK dairy has “name recognition” in the US, more needs to be done to push ‘Brand Britain’, insists Jonathan Cope of Cheshire’s Delamere Dairy.
“We believe there is an opportunity for new players to enter the Chinese market and build early mover advantages”
Lessons can be learned from suppliers elsewhere in Europe. “In the US, Italian food products have a strong brand identity. The Irish too,” explains Jose Saiz, dairy analyst at Mintec.
That being said, the UK could still steal a march if the government can thrash out a free trade agreement with the US. In fact, ahead of last month’s launch of an organic cheddar range in 2,400 shops across the US, Peter Andrew, business development boss at organic co-op Omsco, said he was “confident” UK dairy would be even more competitive if a US-UK trade deal could be signed.
Middle Eastern promise
The US is not the only trade deal that could unlock a chest of gold for British dairy exporters. In June, the UK announced the start of talks with the Gulf Co-operation Council, made up of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE.
The growth in the middle class is driving increased demand for dairy, particularly for high-quality imported foods. In the UAE in particular, the opportunities for dairy seem strong as it is now the country’s third biggest food and drink import. The nation has a strong hospitality and foodservice sector, with 16 million tourists a year and 70,000 hotel rooms in Dubai alone, opening the door to premium products such as speciality cheese.
Nothing will come easy for British exporters, however, particularly when setting up shop in some of the most complex markets in the world. Not only will they have to get to grips with regional customs, local bureaucracy and customer preferences but also, in many cases, with already well-established competition, particularly in the familiar form of the Irish and New Zealanders.
Both are high production countries with small domestic markets. But they’re not alone in exploring global opportunities. In recent years, US companies, for instance, have increasingly looked beyond their huge internal market to Asian economies , says Dalilah Ghazalay, the US Dairy Export Council’s regional director for south-east Asia.
Up against such players, it will be no small order for the British to compete in some of the trickiest foreign markets in the world. Many therefore hope not only for trade deals to cut tariffs and reduce trading frictions, but also that the government follows through on its promise to set up a food and drink exports council – a body that would place the UK on a par with rival nations to help promote exports abroad. In many cases, this will mean shouting about what Britain is most known for abroad – premium, high-quality, well-produced food and drink.
“The government needs to bang the drum about how high our standards are,” says Stephen Jones, MD of Somerdale International. Otherwise, the likes of the US and New Zealand will be ever more likely to pocket most of the treasure for themselves.
Sharp end: how exporters are coping with Brexit
The EU is the biggest market for British dairy exports. That means the start of post-Brexit border checks in January 2021 were an inconvenience, to say the least.
Just ask innovative cattle breeder Wessex Lowlines, which had £150k of orders placed on hold over the lack of border control posts within Europe.
And the small Dorset firm is not alone in losing business due to the new arrangements.
“Smaller companies, who might previously have been sending a pallet of goods across before, have since ceased to do so,” says David Swales, AHDB’s chief strategist.
Dairy exporters have found themselves at the sharp end of the Brexit stick, subject to the most stringent EU checks including sanitary-phytosanitary checks requiring sign-off by an official vet.
Yet, some companies are still making it work. First Milk, for example, has seen cheese sales in France jump by 300% over the past two years.
“People have been using cheese at home since the pandemic lockdowns. There has been less eating out, they’re using cheese as a cooking ingredient,” says First Milk sales director Fraser Brown.
Some observers argue there is a solution at hand if the government is willing to take it: a UK-EU SPS deal – something Brussels has in place with Canada, New Zealand and Switzerland.
This would align UK standards with the EU’s and reduce the paperwork and controls when moving goods across the Channel.
In the long term, however, it may be that export-minded dairy businesses in the UK need to look further afield.
The OECD and FAO both predict falling output and demand for dairy in Europe over the coming decade as environmental restrictions and what Ross McMahon, founder & CEO of Cumbria-based baby-milk maker Kendal Nutricare, calls the “vilification of dairy” by certain quarters of the wider public.
Indeed, as Swales at AHDB predicts: “Over a 10-year horizon, a lot of the bigger opportunities are not in the EU.”
Perhaps that’s why one of the continent’s dairy giants, FrieslandCampina, announced mid-year the sale of part of its Germany business and the building of factories in Indonesia and Malaysia.
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