Dairy Industry
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Food & Agri
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Drivers of performance: market analysis of European dairy industry

Jeroen Lustig published on September 17, 2021

The European dairy industry is strong at its core with healthy prospects. Data proves that size is the way to go: it provides a grip on market dynamics and efficiency gains that help mute the cost increases that come from environmental regulations. With the remarkable growth of milk powder traders set apart, dairy-producing companies seem to be in the best position for future success in the internationalizing dairy industry. The biggest challenge lies in achieving coordination to maintain a growth balance that creates value instead of an oversupply. Read more about the latest developments and performance indicators in our trend report.

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A-INSIGHTS has developed a unique company classification system, which captures detailed information on the activities of each company in the Agri-Food industry. This allows us to perform multiple cross-section analyses that uncover driving dynamics in the European dairy industry.

Key insights into the European Dairy industry

The European dairy industry is a mature market that is well established and organized in terms of product arrays and distribution channels. A decisive driver for the sector is the price dynamic of raw milk – which is determined on a global market. Based on our in-depth analysis of publicly available data from 2016-2020, we identified key insights into trends and developments:

Dairy remains to be a growth market, but margins are pressured

The European dairy industry is financially healthy and there is room for growth. Polish companies and companies with a focus on milk powder stand out in terms of net sales growth with respectively a CAGR of 15.3% and 13.7% in 2016-2019. However, like many Agri-Food industries, the margins are pressured. The average margin of the European dairy industry is 2.7% over 2016-2019, but trending down from 3.3% in 2016 to 2.4% in 2019. This development is primarily caused by a deteriorating gross margin, pointing towards a critical challenge in the industry: increased sustainability requirements inflate the cost price of milk, putting pressure on the gross margin if this is not passed on through the value chain.

Consolidation pays off and producers strengthen their grip on the value chain

Large players (>€500 million net sales) in the European dairy industry enjoy higher margins and are more resilient. The data signals clear economies of scale that create a reinforcing cycle for large dairy producers:

  • Better ability to cope with milk price dynamics
  • Improving operation efficiency and automation
  • Better negotiation position, evident in a better cash conversion cycle
  • Stronger financial position to realize investments (the very large companies drive the majority of expansions)

European dairy industry is gearing up for the future

With an average solvency level of 37.6% in 2019, the dairy industry is financially healthy and ample investments are being made - Dutch dairy companies being the frontrunners. Overall, the investment levels are in balance with the pace of the net sales growth and exceed depreciation, which indicates the industry is expanding its asset base in a controlled fashion - gearing up for the future. However, that leaves us with the question: where do we sell our products?   

Perhaps, given the fragmented nature of the European dairy industry and individual company ambitions, the biggest challenge lies in achieving coordination to maintain a growth balance that creates value instead of an oversupply.

Read all about drivers of growth and other performance indicators in our trend report: "Drivers of performance: market analysis of European Dairy Industry". In the series Drivers of Performance, our analysts have also analyzed the following markets:

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Jeroen Lustig

Co-founder A-INSIGHTS / jeroen.lustig@a-insights.eu / +31 (0)6 39 855 600