Tetra Pak Dairy Index 2009

8/14/2019 Tetra Pak Dairy Index 2009

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InsideLetter from the CEO

State of the industry:Global milk consumption

reaches all-time high

Six global trends

shaping the dairy industryMarket spotlight: India:

The worlds largest dairyproducer and consumer

Tetra Pak Dairy Index A biannual news and informationsource about the dairy industry

Issue 1 - June 2009

Focus on

Emerging Markets


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2

Dear Readers,Every day, millions of people around the world consumemilk. Its a basic food staple, which is considered part of ahealthy diet for all ages. Its also a commodity that continuesto experience steady growth worldwide, even with a recenthistory of price volatility and the current economic slowdown.

Despite the global economic crisis, consumption of liquid dairy products is expected to continue to growsteadily over the next three years with emergingmarkets driving much of this growth. At the same time,the current nancial turmoil is likely to encourage manyconsumers to economise when buying milk, for example,by purchasing budget brands and private label products.

Over the past four years, global consumption of liquiddairy products has reached a compound annual growth

rate of 2.4% with consumption hitting an all-time high of 258 billion litres in 2008. Leading much of this growth arehighly populated emerging markets such as India and China,where continued population growth and rising incomes,along with new dietary trends and preferences are fosteringawareness, demand for and consumption of dairy products.

Consumers drink more packaged milkAs milk consumption in these markets grows, concernsaround health and safety and the desire for increasedconvenience are fuelling a trend toward packaged milk particularly long-life packaged milk, which does notrequire refrigeration or preservatives. For example, milkconsumption in India has risen by a compound annualgrowth rate of 2.7% over the past four years, with packedmilk growing by a compound annual growth rate of 4.7% over the same period. Worldwide consumption of packaged liquid dairy products is growing faster thanthe entire liquid dairy category and is expected to reachapproximately 72% of total global consumption by 2012.

Of course, the dairy industry will not be immune fromthe global nancial crisis. Recession in many countries,less access to credit and volatility in the currency andcommodity markets will squeeze pro t margins for manyof us. Thats why we at Tetra Pak are more focused thanever on our strategy of designing cost-effective processingand packaging systems and continuously seeking waysto reduce our customers overall operating costs.

As part of our commitment to our partners in the dairy

industry, we are pleased to present the inaugural issue of the Tetra Pak Dairy Index, which is designed to help dairyproducers identify new opportunities for growth whileoffering all industry watchers information on the latest facts,gures and trends related to the global dairy industry. Ourrst issue focuses on emerging markets.These include India,both the worlds largest dairy producer and consumer, andChina, the worlds second largest dairy consumer, whichhas led growth in dairy consumption over the last fouryears with a compound annual growth rate of 13.4%.

We hope you nd this report useful and would welcomeyour comments at [email protected]. You can also ndthe Tetra Pak Dairy Index at www.tetrapak.com/dairyindex.

Sincerely,

Dennis JnssonPresident and CEO Tetra Pak Group

Letter fromthe CEO

About the Tetra Pak Dairy IndexThe Tetra Pak Dairy Index is a biannual report, whichis designed to help dairy producers identify newopportunities for growth while offering all industrywatchers information on the latest facts, guresand trends related to the global dairy industry.

The data contained in this report is collectedfrom a variety of Tetra Pak and external sources andanalysed by Tetra Paks dairy market experts. TheTetra Pak Dairy Index also includes Tetra Paks analysisof the industry based on its day-to-day work withdairy customers, governments, non-governmentalorganisations and local communities around the worldto support every aspect of the dairy value chain.


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Dairy consumption continues to grow Total 2008 LDP* volume: 258 billion litres

Packaged, long-life ready-to-drink milk drives growth as loose milk declinesSource: Tetra Pak, 2008

*Excludes soy and dairy alternatives

300

billion litres

Loose

2005 2006 2007 2008 2009 2010 2011 2012

200

242 248254 258 263

270 276282

100

0

PowderChilled

Ambient RTD

year

19.9%

38.6%

10.0% 10.3%

38.2%

20.9%

31.5% 30.7% 30.0%

10.3%

37.7%

22.0% 23.0%

36.8%

10.5%

29.7% 29.2%

10.7%

36.4%

23.7%

28.8%

11.0%

35.8%

24.5%

28.2%

11.2%

35.4%

25.2% 25.8%

35.1%

11.4%

27.7%

23

Global consumption of milk and other liquid dairyproducts (excluding soy and dairy alternatives) reachedan all-time high of 258 billion litres in 2008, accordingto new research from Tetra Pak.

When including soy milk and other dairy alternatives,such as rice, nut and seed-based milks, this gureincreases to 280 billion litres.

Consumption in 2008 was up more than four billionlitres or 1.6% from 2007 marking a 2.4% compoundannual growth rate globally over the past four years.This growth comes despite a sharp spike in prices overthe past two years, which saw milk prices increase by upto 75% in some markets before stabilising in late 2008.

Despite the global economic crisis, Tetra Pakforecasts that worldwide dairy consumption willcontinue to grow at a compound annual growth rateof 2.2% until 2012. However, this does not mean theindustry will not be impacted. According to currentconsumer trends, global consumers are increasinglylikely to economise as evidenced by the factthat milk sold through discounters and other non-grocery retailers, such as convenience stores, hasgrown by 9.6% globally over the last three years.

While consumers may not stop buying milk,they are more and more likely to go for valueoffers when feeling pressure on their budgets.For example, they will increasingly buy budget orprivate label brands when available. In WesternEurope alone, sales of private label products nowrepresent nearly 36% of total white milk sales.

Back to basicsMichael Zacka, Vice President of Marketing and ProductManagement, Tetra Pak, commented: Over the last fewyears, household incomes have increased in many partsof the world, and consumers concerned about healthand wellness have purchased a wide variety of dairyproducts from plain white milk to yogurt drinks andavoured milk. However, in todays dif cult economicclimate, we anticipate that most consumers may goback to basics for example, substituting white milk forhigher priced more value-added products or choosingbudget brands instead of more premium brands. Evenso, we expect the global market for dairy products toexperience steady growth for the foreseeable future.

Emerging markets lead growthDriving much of the growth in the global dairy industry 95.8% over the past four years are emergingmarkets such as India, Pakistan, the Middle Eastand China. In these markets, growth has been basedprimarily on growing populations and rising householdincomes, which in turn, in uence consumption habits.For example, in China and Vietnam, consumer dietscontinue to change as household incomes increaseand dairy products, which are not traditionally partof the Asian diet, become more widely available. Inthese markets, novelty as well as good nutrition ishelping drive demand. As a result, consumption of liquid dairy products in Vietnam has increased by nearly10% over the past four years to 984 million litres.

Global consumers drinkmore milk than ever beforeGrowth forecasted at 2.2% annually until 2012

State of the Industry


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World milk prices

After increasing by nearly 75% from 2006-2008, worldmilk prices settled back to 2006 levels in late 2008

*ECM is a way of standardising milk qualityfor measurement purposes.

Source: IFCN Dairy Research Center, 2008

1996-2006annual

p e r

1 0 0 k g m

i l k E n e r g y

C o r r e c t e

d M i l k ( E C M

) *

2006monthly

2007monthly

2008Jan-Nov

60

55

50

45

40

35

30

25

20

15

10

5

0

US $in Euro

4

category and is expected to reach approximately

72% of total global consumption by 2012.Consumption of ready-to-drink, long-lifepackaged milk (Milk that can be shipped andstored before opening without requiring eitherrefrigeration or preservatives.) has reached acompound annual growth rate of 7.9% over thelast four years, compared to a compound annualgrowth rate of 2.4% for the whole category.

In fact, worldwide consumption of Ultra HighTemperature (UHT) milk has increased to 23%in 2008 from 18.7% of total liquid dairy productsconsumed in 2004. Tetra Pak estimates that globalconsumption of UHT milk will grow at a compoundannual growth rate of 5.2% between now and 2012,reaching more than 70 billion litres by 2012.

Long-life packaged milk in mature markets

Consumption of long-life packaged milk is alsoon the rise in the advanced, mature marketswhere milk consumption is already very high.

For example, in Italy, almost 100% of all householdsconsume milk, with each household consumingon average more than 100 litres of milk per year.In this market, 60.4% of all milk consumed is long-life packed milk. In addition, in Spain, almostthe entire milk market (98%) is UHT milk.

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The milk-price rollercoasterWorldwide demand continues to grow despiteuctuating prices

From 2006 to 2007, world milk prices increasedby more than 75% before settling back to2006 price levels in late 2008. This was a resultof low supply in traditional milk producingmarkets and higher than anticipated demand,particularly in emerging markets such as China.

Among the factors that reduced global milk

supplies was severe drought in Australia, the worldssecond largest milk exporter after the United Statesand an end to European Union subsidies for dairyproduction, which diminished supplies in Europe.

At the same time, the price of commoditiesused in the dairy production process were onthe rise, which contributed to price hikes alongevery step of the dairy value chain fromcow to consumer. For example, fuel pricessoared, making it more expensive to transportand produce dairy products. Dairy producersalso saw a sharp increase in the price of corn-based cattle feed as farmers increasingly soldtheir crops for corn-based ethanol instead.

In the short term, milk prices are expected toremain stable, barring any unforeseen marketdisruptions in the global dairy supply chain.

2.7%

12%

10

8

6

4

2

0

-2India

10.6%

China

2.5%

PakistanGermany

0.7% 0.3%-0.1%

USA-1.0% -0.9% 0.0% -0.3%

CAGR in Top 10 milk* consumption markets(2005-2008)

In 2008, China replaced the US as the worlds second largest consumer of liquid dairy products.Source: Tetra Pak, 2008

*Includes dairy alternatives such as soy, rice, nut, grain and seed-based milks

Brazil RussiaMexico UK Japan


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There are six global trends that will help shape thedairy industry over the next few years, according toTetra Pak data and market analysis along with recentresearch from GfK Roper Consulting and EuromonitorInternational.* While these trends are more or lessprevalent in individual markets, together they will havea tremendous impact on how, when, where and whyconsumers purchase and drink milk and other liquiddairy products.

1. Economising: As the world economic crisis deepens,consumer con dence around the world is falling andpeople are increasingly concerned about losing their jobs and being able to pay their bills. According torecent consumer research by GfK Roper Consulting,the number three concern among consumers

around the globe is having enough money to livewell and pay their bills with 31% of consumersworldwide mentioning this as a top concern.

In addition, an October 2008 poll suggests that79% of Americans are at least somewhat worriedthat the current nancial crisis will have a majornegative impact on them. And 41% of consumersare putting offas many purchases as possible both big and small until the crisis is resolved.

Consumers seek more value, buy productsthrough different channelsAs a result, more and more people are economising.Theyre more willing to look around for thebest offer, and they expect more value for theirmoney. However, instead of cutting down on dairyproducts, consumers are now more likely to buyplain milk than forti ed milk, choose budget brandsover premium brands and buy their productsthrough different channels, like discounters.

For example, although Western European consumersbuy most of their milk in supermarkets or hypermarkets,the percentage of milk sold either in discounters orother non-grocery retailers, such as convenience stores,has grown by 7.5% over the last three years. And thistrend is expected to continue. Consumption of privatelabel products in Western Europe now representsapproximately 36% of total white milk consumption

Top global trends set toshape the dairy industry

as consumers look for more value for their money.It is important to understand that economising is a

relative concept. For one person, economising maymean ordering a pizza to be delivered to their homerather than eating in an expensive restaurant, whilefor others simply ordering a pizza may be a luxuryin itself. The extent to which people will economisewill depend on many factors, including the depthof the economic crisis, which is yet to be seen.

2. Anxious consumers:With the worldwide economic crisis, food-relatedhealth scares, terrorist attacks and diseaseepidemics regularly headlining the world news, anew consumer subculture is developing, which isboth more alert to and more nervous about seriousissues. This is called the anxious consumer.

According to a recent international poll, developingregions are particularly worried about food safety.More than 59% of consumers in developing countriessaid they worried about the safety of the food theybuy, compared to 49% in developed countries.

* Sources include Tetra Pak 2008 and 2009 data, GfK Roper Reports Worldwideglobal consumer research 2008, and Euromonitor International 2008


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In addition, 51% of consumers in developingcountries said they were concerned about whetherrefrigerated beverages had been properly storedbefore they bought them, compared to 31%expressing concern in developed countries.

Anxious consumers drive conversion to packed milkAnxious consumers around the world are helpingto change the way food, and particularly milk, isconsumed in their markets. More speci cally, they arehelping to drive conversion to packed milk, mainlyUHT milk. According to Tetra Pak data, worldwideconsumption of UHT milk has increased from 18.7%of total liquid dairy products sold in 2004 to 23% in2008 a compound annual growth rate of 7.9%.

This change in the way milk is processed andconsumed in developing markets has beendriven by increased consumer awareness of foodsafety. For example, up until the last few years,consumers in some developing markets believedthat the best milk came straight from the cow. Thisperception is changing quickly due to consumereducation campaigns sponsored by governmentsand dairy producers, well publicised food scaresaround the world, growing literacy rates andincreasing health awareness in these markets.

Consumers more aware of food qualityTodays consumer is much more aware thatmilk sold in loose form instead of in packagesdeteriorates quickly and can carry bacteria anddiseases, including tuberculosis, typhoid andsalmonella. In addition, they no longer want tospend the time to boil milk for 10 to 20 minutesbefore they drink it to ensure it is safe never mindboth the altered nutritional content and taste.

Even so, concerns around the production, qualityand protection of foods are likely to remain high onthe public agenda all around the world. This meansthe trend toward packaged milk and particularly

packaged UHT milk, which offers a long shelf lifewith no refrigeration required before opening andno need for preservatives is set to continue,both in developing and developed markets.

3. Stretched lives: All around the world, people arebecoming busier and busier, both with work and socialactivities. In fact, global consumers spend an averageof ve hours per week commuting up from 4.3hours in 2004. In developing countries, this number iseven higher at 5.8 hours per week spent commuting.

Todays consumers value their time and increasinglyexpect to be able to do the same things they oncedid at home no matter where they are fromwatching TV to checking emails to eating anddrinking. To these consumers, home is no longer alocation; home is wherever they happen to be.

Busy, mobile consumers seek ready-to-drink productsCurrently 20% of consumers worldwide sip adrink while walking or driving at least once aweek. This number is as high as 41% in the UnitedStates and 38% in Australia and tends to be evenhigher for younger consumers age 13 to 19.

In addition, active households have less time forcooking so they are looking for products that areconvenient, easy to use and easy to prepare. Thiscan mean, for example, switching from avouredmilk powder or baby formula in powdered formto liquid milk products. It can also mean favouringdrinking yogurt over eating yogurt with a spoon.

Over the last four years, consumption of avouredmilk sold in ready-to-drink liquid form has increasedby a compound annual growth rate of 9.6%. Thiscompares to an increase of 1.9% over the sametime period for avoured milk powder. During thesame time period, consumption of yogurt drinkshas risen by a compound annual growth rate of 9% compared to 4.5% for spoonable yogurt.

100%

60

80

40

20

Loose

Chilled and powdered milk

UHT

02002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Rise in UHT milk consumption expected to continueTotal liquid dairy product consumption split by segment

Source: Tetra Pak, 2009

year


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More consumers enjoying breakfast on the goConsider also that 28% of global consumers no longereat breakfast at home, traditionally an importantconsumption occasion for milk all around the world.Instead, 17% have breakfast on the way to work, 27%sip a drink while walking or driving and 42% skipbreakfast altogether in favour of a mid-morning snack.

Making breakfast available in the right format to meetthe changing needs of busy consumers whetherthrough yogurt drinks, avoured milk or white milksold in on-the-go packages will be essential movingforward. In fact, this is true across the full range of milkconsumption occasions. In the medium term, the mostsuccessful dairy producers will be those who make the

right milk products available in the right formats to caterto changing consumption habits in speci c marketsaround the world. However, in the short term, we maysee a slow down in the out-of-home consumptiongiven the challenging economic environment,but certainly the trend will not be reversed.

4. Health and wellbeing: Good health ranks number1 in 24 out of 25 countries as the core componentof a good life. In fact, all around the world,health is quickly becoming a consumer priority.

While developing markets worry about the safe,hygienic, production of food, mature marketsare more focused on issues such as obesity andnutrition. However, that doesnt mean theseconcerns are always translated into action.

Approximately 73% of global consumers say eatinghealthy and nutritious foods is very important totheir personal health and wellbeing. Yet, in practice,only 53% regularly eat healthy and nutritiousfoods. And while these same consumers agreethat their long-term health is important, only onein three do everything they can to maintain it.

Consumption of forti ed and functional

milk products rising globallyThis health and wellness trend has had a tremendousimpact on the dairy market as different healthysegments emerge to satisfy different needs. Forexample, forti ed and functional milk is the fastestgrowing segment among products that targethealth-conscious consumers, with global salesnow topping US$20 billion annually. Over thelast four years, sales of forti ed/functional milk inWestern Europe alone have grown by 12.5%.

At the same time, consumption of soy milk is

On-the-go solutions are important to consumers

Percentage of consumers who sip a drink while walking or driving at least once a weekSource: GfK Roper Reports Worldwide, 2008

20

T o

t a l G l o b a

l

41

U S A

39

C a n a

d a

38

A u s t r a

l i a

26

S o u

t h A f r i c a

25

T h a

i l a n

d

23

E g y p

t

22

M e x i c o

21

U K

21

A r g e n

t i n a

20

J a p a n

20

R u s s

i a

19

T a

i w a n

17

K o r e a

16

S w e

d e n

13

G e r m a n y

12

C z e c h

R e p u

b l i c

12

C h i n a

11

P o

l a n

d

10

S p a

i n

10

B r a z i

l

9

T u r k e y

8

I t a

l y

75

F r a n c e

I n d i a

3

I n d o n e s i a

Spending on healthy dairy products is on the rise

Fortified and functional milk is the fastest growing product segment for health-conscious consumers

Source: Euromonitor International, 2008Global Retail Sales

80,000

Organic

2006

200270,000

60,000

50,000

40,000

30,000

20,000

10,000

0Fortified/Functional

Better-for-you Naturally healthy Food intoleranceproducts

U S

$ m

i l l i o n

( f i x e

d e x c

h a n g e r a

t e )

2011


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Holy cowsMany of them wander along the streets of Indias denselypopulated cities and villages with not a care in the world.

Yet few would think to bother them. Thats because formore than 3,000 years, Indias 930 million Hindus haveconsidered the cow holy, one to respect, not to eat.

Respect for cows as the mother of civilisation,providing milk that nurtures life, is a common themein Hindu religious texts. So while its incorrect tosay that Hindus worship the cow, its fair to saythat most cows enjoy a revered life in India.

The way milk is sold aroundthe world differs by cultureAround the world, supermarkets or hypermarketsare the main sales channel for milk and other liquiddairy products, but other channels, such as smallgrocery retailers and other types of retailers, are

slowly gaining market share at their expense.In the worlds two largest milk consumption markets,China and India, supermarkets represent a relativelysmall percentage of overall milk sales. For example,in China, 42.5% of all milk and other liquid dairyproducts are sold through small grocery retailers.

In India, only 5% of all milk is sold throughtraditional retailers, 70% is delivered directly toconsumer homes through special milk agents and25% is sold through vending machines or smallstreet side kiosks in the more urban areas.

Every day: 70 million farmers milk 105 millioncows in 50,000 villages and the national milk gridtransports the milk (an average of 1-2 litres perfarmer) to more than 700,000 cities in Indiathey produce and receive a fair price for their milk. They alsohandle payment arrangements on behalf of dairy producers.

Currently 65% of all milk consumed in India is consumed inloose or unpackaged form whereby milk is poured from onecontainer to another. However, for reasons of health, safetyand convenience, milk is increasingly consumed in eitherpouches or cartons. Over the last four years, consumption of milk and other liquid dairy products sold in pasteurised plastic

pouches in India has grown at a rate of 4.5% annually whilemilk sold in cartons has grown at a rate of 24.6% annually.

As Indias population continues to grow and the countrynds solutions to its productivity issues, India is expectedto maintain its dual distinction as the worlds largestdairy producer and consumer.

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About Tetra Pak

Tetra Pak is the worlds leading food processingand packaging solutions company. Working closelywith our customers and suppliers, we provide safe,innovative and environmentally sound products thateach day meet the needs of hundreds of millions of people around the world. With over 20,000 employeesand operations in more than 150 countries, webelieve in responsible industry leadership anda sustainable approach to business. Our motto,PROTECTS WHATS GOOD, re ects our visionto make food safe and available, everywhere.

More information about Tetra Pak isavailable at www.tetrapak.com

Tetra Pak Dairy Index 2009

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