A new wave of consolidation is sweeping through Europe’s dairy industry, as Arla Foods and DMK announce plans to merge, creating the largest dairy cooperative in Europe. This merger comes on the heels of a similar announcement by FrieslandCampina and Milcobel, signaling a trend towards consolidation in the face of stagnant consumption and falling production in the European dairy market.
The new cooperative, which will carry the Arla name, is set to have more than 12,000 farmers across seven countries and a pro-forma revenue of €19bn ($20.75bn). The CEOs of both companies believe that by uniting resources, they can enhance their product portfolio, expand globally, and ensure stable food production in over 160 markets. This synergy will also strengthen their investment and innovation capabilities, driving new technologies and sustainable practices.
The European Commission’s forecasts for the dairy industry paint a picture of flat consumption within the EU, with opportunities for growth in areas like cheese, whey, and functional dairy ingredients. The Commission predicts a 0.1% annual decline in dairy consumption out to 2035, with a shrinking dairy herd and a slight decline in milk production. However, cheese and whey are expected to absorb a significant portion of the EU milk pool by 2035.
Mark Voorbergen, a dairy industry consultant, sees cheese and whey as key opportunities for the new Arla cooperative. The two companies have a history of collaboration in these areas, with the potential to create a strong cheese and whey combination. Cheese remains a driver of consumption growth in the European market, while whey has become increasingly popular due to the positive perception of consuming the right proteins.
Looking ahead to 2035, the EU dairy sector is expected to face increased competition to supply markets outside the bloc. This competition, combined with stricter environmental policies, could lead to a decline in the EU dairy herd and milk production. The merger of Arla Foods and DMK represents a strategic move to strengthen their position in the market and capitalize on opportunities for growth in key product categories. As the dairy industry continues to evolve, consolidation and collaboration will be essential for companies to navigate the changing landscape and remain competitive in the global market. The European Union’s dairy industry has seen a boost in recent years due to the increasing demand for dairy products in emerging markets worldwide. However, Brussels is now focusing on certain regions that are making efforts to become more self-sufficient in dairy production.
According to the Commission, South East Asian and North African countries are projected to increase their milk production by approximately 3% per year by 2035. Despite this growth, there will still be a need for imports to meet the rising domestic demand. The EU and New Zealand are expected to remain the top two exporters of dairy products, each accounting for around 24% of the market share.
The Commission’s report also highlights the need for the EU’s dairy exports to adapt to changing demand in trading partners by focusing on products with higher added value. Companies like Arla and DMK are already expanding their presence outside of the EU, with Arla looking at potential mergers and acquisitions in the Middle East and North Africa, including an interest in Egypt’s Arabian Food Industries.
DMK has found success in selling cheese in the former Soviet states of Central Asia, and there is potential for collaboration with Arla in this area. However, the current global trade volatility makes it difficult to predict where opportunities lie for international expansion.
Looking ahead, Voorbergen predicts further consolidation in Europe’s dairy industry, following major proposed deals in recent months. He believes that in a market where milk production continues to increase, consolidation is inevitable, especially in a market where consumption and production are stagnant.
Overall, the outlook for the EU’s dairy industry is positive, with opportunities for growth in emerging markets and potential for further consolidation within the region. The industry is constantly evolving, and companies like Arla and DMK are positioning themselves to capitalize on these changes.
