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Cream at the crossroads ?

Hamish Renton | Managing Director

18th September 2014

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A quick word about us

Consultancy Category Management

Marketing & Branding Sales & Distribution

Market Research Packaging

• 20 year career including Head of Own Label for Tesco and two long stints on Board of both St Ivel and Milk Link (Arla).

• Specialist adviser to UK Government on Dairy Exports.

• Run a growing Dairy agency business:

Who do we work for ?

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Dairy has had an unfair bashing by the media & health lobby recently……….

Actually, most health organisations recommend 2-3 servings of dairy a day.

It is a “good source” of various vitamins and minerals including:

• Calcium• Protein• Potassium• Vitamin D• Phosphorus• Selenium• Zinc• Magnesium,• Vitamins A, B1, B6, B2 & B12.

Under Attack!

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• Dairy is often criticised for its high salt and saturated fat content.

• Saturated fat is thought to raise cholesterol which can increase the risk of heart attacks and strokes.

The supposed “Charge Sheet”

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• However, recent studies have found no link between saturated fat and heart disease in most people.

• Furthermore, the composition of dairy fat is complex and many of the fatty acids contained are bioactive and can be beneficial for health.

The Truth is Out There

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Recent Harvard study found participants consuming more full-fat dairy had less belly fat and a 62% lower risk of type 2 diabetes*.

Diabetes Prevention

* (Mozaffarian et al., 2010).

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• One review shows an association between full-fat dairy and reduced cardiac events and strokes. There is also a trend for a reduced risk of heart disease*.

• Dairy consumption has also been linked to a reduced risk of colorectal cancer**

*(Elwood et al., 2004). ** (Aune et al., 2012).

Cardiac Events & Cancer

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Low fat

Health

Reduced Sugar

High protein

Fortified products

Dairy product trends

Milk: Low % fat & skimmed.Cheese: Cottage & soft.Yogurt: Greek & frozen.

Yogurt: Milder strains make less acidic so less sugar required

High protein offers benefits of satiation and muscle maintenance

which is of appeal to ageing population and active audience

Health benefits such as added

vitamin D3,Omega 3 and

B vitamins becoming increasingly important

New rivals for Dairy

• Almond Milk – Due to both high investment and a marketing push, this is seeing success in USA & UK in particular.

• Coconut Milk – Fewer calories than dairy, 50% more calcium, rich in vitamin E and medium chain fatty acids.

• Vegetable Yogurt – Seen success in USA with flavours such as sweet potato and beetroot partly due to reduced sugar levels.

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So what about cream?

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v• UK milk production had been growing which has helped increase confidence in the

industry. This has been partly due to favourable weather conditions and partly milk price.

• Cream production in particular had been growing – up some 22% in volume from 2012-2013.

It was looking so good..

Source: DairyCo

1-Ap

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22-A

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13-M

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3-Ju

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24-J

un

15-J

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5-Au

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26-A

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16-S

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7-O

ct

28-O

ct

18-N

ov

9-De

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30-D

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20-J

an

10-F

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3-M

ar

24-M

ar

30,000,000

32,000,000

34,000,000

36,000,000

38,000,000

40,000,000

42,000,000

44,000,000

46,000,000

UK Daily Milk Deliveries

UK Milk Deliveries 2012/13 UK Milk Deliveries 2013/14 UK Milk Deliveries 2014/15

Litre

s / D

ay

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Good growth in home demand seen

Product yoy % difference in volume

yoy % difference in value

yoy % difference in price

Milk 1.6 2 0

Butter 2.7 5.2 2.5

Margarine/ spreads

-5.3 -8.2 -3.1

% increase in commodity volume, value and retail price for 52 w/e Mar 2014

Source: DairyCo

• Total liquid milk market value continues to grow, driven by more households purchasing milk and buying more per visit.

• The domestic use of cream in volume increased by 33% last year:

212,000 tonnes (2012) 282,000 tonnes (2013)

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• The Russian crisis has worsened the EU market…• Just at the time the global market was oversupplied..• …And the Chinese buyers have been staying away from the market..• Farmgate returns have fallen sharply..• …And Scottish independence could usher in 18 months of confusion

But have the wheels come off ?

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• In April 2014, UK dairy imports had increased by 18% compared to April 2013.

• Butter imports over this period had decreased by 41.9%.

• Cream imports have also been declining. From 2012 to 2013 – down by 29%.

What about Imports ?

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And Exports ?

Source: DairyCo 2013

2011 2012 2013

Raw Milk 481 466 473

Butter 36 38 45

Cream 73 69 44

Milk Powders 80 89 86

Dairy Exports from UK (‘000 tonnes)

After years of decline, there are some signs British Dairy is starting to see slightly increased exports in some products.

2009 2010 2011 2012 2013640

660

680

700

720

740

760

780

800

820

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Record Investment by the ‘big 3’Company

Year Site Investment (£)

Details

2012-2014

Aylesbury £150m 115 Acre dairy

2010-2011

Westbury £30m Extension of site with a retail butter packing facility

2012 Lockerbie £20m Extension of cheese making site- extended fresh milk capacity. Increased production by 50%

2011 Davidstow £3.2m 2 biomass boilers. Led to reduction in CO2 emissions by 9.3% over 10m.

2010/2011

Severnside £13m New potted cream equipment, Frijj automation, milk processing and end-of-line capabilities

2010/2011

Chadwell Heath

£4m Processing and cold storage capacity

2014 Davidstow £65m Will allow the manufacture of demineralised whey powder for infant formula to be sold and marketed by Fonterra.

2013 Market Drayton

£17m New butter plant which allows capacity to produce 45,000 tonnes of butter

2012 Minsterley £4.3m Acquisition of 16-acre chilled desserts facility in Minsterley, Shropshire from Greencore.

2014 Telford £5m Expansion

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Aim: CAP reformation to eliminate remaining production and export subsidies and fund research into more sustainable models of agriculture.

The General Election – May 2015

Aim: secure export opportunities for farmers and economic independence by saying no to the euro and reforming the CAP.

Aim: reform the CAP and invest in infrastructure, energy & innovation. A report commissioned by them recommends the scrapping of business rate exemption for agricultural land.

Aim: modified single farm payment scheme and “get rid of unnecessary regulations that make farmers’ lives more difficult”. They also claim EU independence will mean more financial support for farmers.

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In Summary• Dairy is well placed to see off the attacks of the naysayers on health.

• Some signs the British dairy industry is coming together to put aside the differences and arguments of the past.

• Recent milk price reverses have rapidly eroded much of the confidence built up this last 15 months.

• But the Chinese buyers will come back into the market and there are some positive signs in the Russian situation.

• We need to look to exports in order to develop and grow – quota abolition will see EU exports double and the UK needs to have its share of that.

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Thank You

If you’d like a copy of these slides or more information..

please drop me a line on hamish@hamishrenton.com.