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Dairy industry statistics: growth stagnated but margins are on a rise

Mathieu Geuskens published on April 8, 2022

Based on financial data from more than 300 companies, we have published a new trend report on the dairy industry. This allows us to identify and quantify trends in the industry. In this edition, we look at the financial data for the 2020 corona pandemic.

Turnover growth stagnates due to on-trade closures, but no major sales declines

The European dairy sector saw its growth rate stagnate in 2020 as a result of the loss of demand from the on-trade: whereas turnover increased by an average of 5.9% per year between 2016 and 2019, it remained relatively stable in 2020 with a decline of 0.7%. This stagnation of growth is relatively evenly distributed across the various links of the dairy chain, although dairy product processors seem to have experienced pressure on turnover.

At the same time, the large dairy producers show that the economies of scale in the sector also applied during the pandemic, for example by making use of the better distribution of turnover across sales channels and, where possible, switching production for the catering and industrial sectors to the production of retail products.

Average revenue development per value chain link-1

There are also several standouts, which managed to achieve substantial turnover growth during corona. Examples are traders Numida and Farmel, who were able to translate the volatile market and the capacity expansion of suppliers into turnover increases of 34% and 15% respectively. Royal A-ware managed to achieve a 22% rise in turnover, partly due to the opening of a new mozzarella factory, with further growth expected through the acquisition of the milk powder factory in Aalter, Belgium, at the end of 2021.

Margins recover slightly after years of pressure on profitability

After years of pressure on profitability, margins in the European dairy sector will recover slightly in 2020: the EBIT margin will rise from 2.3% in 2019 to 2.7% in 2020. However, this means that the margins remain significantly lower than a few years ago, with average margins of around 3.3% in 2015 and 2016. Whereas the turnover development was relatively similar between the various chain links, the effect on the margin is significantly more diverse.

Dairy producers achieved the largest margin recovery: the average EBIT margin rose from 2.3% in 2019 to 2.9% in 2020. Producers were not able to fully pass on the low milk prices to customers and therefore saw the gross margin improve. An opposite effect can be seen in the processors of dairy products, who saw the average EBIT margin fall from 2.8% to 1.7% due to pressure on the gross margin.

Average EBIT as percentage of revenue per value chain link

A focus on added value also proved to be a key driver of success in 2020. For example, Italian Galbani, part of Lactalis, manages to translate its strong brand and retail share into a record EBIT of 13.6%. Other Italian cheesemakers, such as Latteria Montello and Deliziosa, know how to translate the protected origin of the various Italian hard and soft cheeses they produce into even higher margins. British company Crediton Dairy also uses the origin of the milk used in its dairy drinks to increase margins, achieving an EBIT margin of 11.3% by 2020.

Partial recovery of growth in 2021, but rising costs put pressure on margins

In 2021 the positive growth trend in the European dairy sector seems to be returning to pre-pandemic levels: the half-yearly figures of large cooperatives and listed dairy companies speak of sales growth and the total trade value of dairy products increased by 5.8% in 2021. However, it remains to be seen whether the dairy sector will be able to maintain the margin recovery seen in 2020.

Milk prices are on a steep upward trend due to a further decline in milk production from mid 2021 onwards, and in January 2022 are as much as 20.5% above the level of a year earlier at European level. If producers cannot pass on these price increases to their customers, this will put pressure on the gross margin, which in 2020 was still leading the way in improving operational results.

In addition, the milk price is not the only cost item that the dairy sector is experiencing cost inflation: high energy prices and transport costs are putting further pressure on profitability and will continue to lead to tough price negotiations with customers.

Want to read the whole analysis and find all the insights about the dairy industry? Download our newest trend report via the button below.

Trend Report Dairy Industry

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Mathieu Geuskens

Senior Analyst Food & Agri / mathieu.geuskens@a-insights.eu