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  • Archives for May 2010

    Release of SMP intervention stocks could deflate prices By Guy Montague-Jones, 25-May-2010

    The EU Commission has agreed to start releasing intervention stocks of butter and skimmed milk powder (SMP) sparking some concern that the price recovery could be jeopardised.

    Last year the EU bought up stocks of butter and SMP to help out farmers struggling to cope with the sharp fall in dairy prices. Now that the market has recovered significantly, the CMO Management Committee has voted to open tenders for the two dairy commodities.

    The release in stocks comes on top of the amounts already agreed under the Deprived Persons Scheme.

    Intervention stocks

    So in the case of butter, 76 000t are in stock, of which 51 000t have been set aside for the most deprived and 25 000t are now to be opened up for tender.

    As for SMP, there is 257 000t in stock and 65 000t have been committed for the most deprived leaving 192 000t, of which 65 000t are to be tendered.

    Arnaud Haye, senior analyst from the Agriculture and Horticulture Development Board (AHDB), told DairyReporter.com that the decision to release the stocks was not “entirely surprising” given the amount in stock and that prices are quite high at the moment.

    Market impact

    In terms of the impact the move is likely to have on the market, Haye said the situation is quite different for the two dairy commodities in question.

    The analyst told DairyReporter.com that it is unlikely that the release of butter socks will have much of an impact on the market. The move may release a little pressure as prices continue to rise but the amount being released is relatively low in relation to total European production.

    In the case of SMP there is the potential for a more significant impact because the quantity being released is larger and it is a much higher proportion of EU production. Last year the EU bought up around a quarter of EU production of SMP so trying to feed much of that back into the market could put significant downward pressure on prices.

    However, Haye said that a lot of EU produced SMP is exported so its price going forward depends a lot more on world demand and supply. This makes it harder to predict how prices will evolve as result of the release of stocks.

    The first tenders have to be submitted by 1 June 2010, before being assessed by Management Committee on 3 June. The Commission said it will fix the price and quantities to be accepted after each tender taking into account the market situation at that moment and avoiding market disturbances.

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    Fonterra prepares for sharp organic dairy growth By Guy Montague-Jones, 21-May-2010

    Fonterra expects to see the organic side of its dairy ingredients business grow 140 per cent over the next five years.

    Driven by the ever increasing popularity of organic dairy products, Fonterra said its organic dairy ingredients, which are used in cheese, milk powder, proteins, and butter, are set to enjoy continued high growth.

    Fonterra has more than doubled its organic milk supply over the past year to help meet demand and has accredited manufacturing sites at Hautapu, Waitoa, and Morrinsville.

    Room to grow

    The rate of progress partially reflects the small starting base – Fonterra said organics currently account for only one per cent of its revenues.

    However, Rick Carmont, head of organics at Fonterra, said: “Although organics is a small part of Fonterra’s milk supply and production, dairy is the fastest-growing category in the international organic market, and having seen 60 per cent growth over the last two years we are well placed to build on this.”

    Carmont added that Fonterra is actively recruiting farmers to its Organics Conversion Programme to help the company deliver on its growth expectations. He highlighted the advantages of turning to organics, including a three year support system guaranteeing premium payments from day one of the contract and no cap on volumes supplied.

    Mixed signs

    The comments from Carmont came as the New Zealand trade minister Tim Groser published a report on the organic sector, highlighting continued rapid growth, especially in high-value markets such as the United States and Europe.

    Despite the optimism about the potential in the organic sector, there is some evidence that the category has come under pressure during the recession.

    A recent Soil Association report said that while demand grew across Europe as a whole in 2009, organic food and drink sales in the UK were down 12 per cent. But the certification body and lobby group said organic milk did perform a lot better than other organic products in the UK, with sales up 1 per cent compared to 2008.

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    FrieslandCampina plans further expansion in Vietnam 19-May-2010

    FrieslandCampina is investing €8.8m to expand production capacity in Vietnam following three consecutive years of double-digit annual sales growth.

    The expansion is due to take place at the Binh Duong facility which was the first factory that FrieslandCampina opened in Vietnam back in 1996. This initial investment was then followed by the opening of a second factory in Ha Nam last year.

    Maximum production capacity has now been reached at both facilities so plans have been drawn up to complete a “hefty expansion” of existing facilities in Binh Duong.

    The new facilities are to be built to meet growing demand for dairy products under the Dutch Lady, YoMost and Friso brands

    Jan Bles, managing director of FrieslandCampina Vietnam, said: “In the past three years sales grew by an average of 10 per cent per year. Sales also showed robust growth in the first few months of this year. We’re therefore delighted that the executive board has given the green light for the realisation of the expansion.”

    The rate at which the expansion project will develop depends on how demand levels evolve but it is expected to be finalised by the end of 2012 at the latest.

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    Danone beats Unilever and Nestle in food category dominance By Lorraine Heller, 14-May-2010

    Dairy giant Danone comes out top of the list for category dominance in the European food sector, followed by Unilever and Nestle, according to a new report.

    US research firm Sanford C. Bernstein, which issued the report, identifies a ‘sustainable top-line growth’ pillar, made up of four drivers of growth: categories, markets, category dominance and execution.

    The current report drills down into which food firms dominate in various product categories, which particular focus on the industry’s three big players – Nestle, Unilever and Danone.

    “We consider that category dominance is important for top-line growth and margin growth. We believe that dominance allows a company to grow faster and be more profitable than smaller, less dominant players in a category’” write the report authors.

    Holding the top position in a category is considered a major business advantage, not only because of higher sales volumes but also because it allows for improved negotiations with retailers and better pricing power, according to the report.

    “Being number one or number two in a category “frequently enables ‘Category Captain’ status, which allows the company to work hand-in-hand with retailers on consumer insight and shelf space/positioning.”

    “It also protects against a growing trend by retailers to reduce SKUs and have a more focused offering of ‘Top 2’ and value/private label products.”
    Danone dominates

    Bernstein judged category dominance on a category/country level, using 100 food categories in 80 countries.

    It found that Danone takes the top slot in category dominance, prompted by the fact that it is a very focused company that only largely operates in four businesses.

    “Danone is the number one player in categories/markets representing 71 per cent of sales, and is Top 2 in 91 per cent. More specifically, in yoghurts it is number one in categories/markets representing 84 per cent of sales, and is Top 2 in an exceptional 96 per cent,” writes Bernstein.

    Unilever came in “a strong second place”. The report estimates it coming in at number one in 63 per cent of sales and Top 2 in 85 per cent. In certain categories, such as ice cream, Unilever was found to be dominant in many of the European markets in which it operates.

    Nestle came in at third place, being number one in markets representing 59 per cent of sales and Top 2 in 82 per cent. “It is interesting to note that one of the categories that drags down its dominance measure is chocolate confectionery, even when calculated on a country by country basis,” said Bernstein.

    The research firm notes noted that despite being behind its other two competitors in measurements of category dominance, Nestle is “certainly still strong”.

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    Risk management: Cheese joins CME futures market By Guy Montague-Jones, 07-May-2010

    CME Group is launching cheese futures and options on its Globex trading platform to help processors and manufacturers protect themselves from price volatility.

    Dairy prices over the past few years have been subject to considerable volatility making it hard for participants in the market to plan ahead with confidence. Futures are one market tool that is open to processors and manufacturers to help them better manage price risks.

    Industry participants can already trade in futures for Class III milk and Dry Whey with CME Group. The derivatives marketplace is now adding cheese in a move that will complete its coverage of the products in the chain or ‘dairy crush’. In other words, the original commodity, Class III milk, can be hedged as well as its product and by-product.

    Risk management

    The new cheese contracts will enable companies to lock in future prices for cheese. Price will reflect the market expectation of the value of cheese at a forward date and allow both processors and food companies to reduce risk from price shocks.

    Based on US domestic cheddar cheese, these new contracts will be cash-settled, traded electronically on CME Globex, and block trade eligible.

    Mary Haffenberg, associate director, commodities, told DairyReporter.com that

    CME Group had decided to launch cheese futures because of increased global demand for cheese. Similarly CME Group had decided to begin trading in dry whey futures in 2007 as the market for the by-product in nutritional products such as protein bars really took off.

    Customer requests

    Tim Andriesen, CME Group managing director of agricultural commodities said: “This contract was requested by our customers such as manufacturers and processors of cheese to better fit the needs of their risk profile.

    “Many of these customers already participate in our Class III milk and Dry Whey futures and options markets.”

    The size of the domestic cheddar cheese market is estimated at between $5.5 and $6.3bn according to CME Group.

    The new contracts will be listed monthly with each contract representing the equivalent of 20,000 pounds of cheese and the tick size of $0.001 per pound. Trading hours are Sunday through Thursday, 5:00 p.m. to 4:00 p.m. Chicago time, and Friday until 1:55 p.m., with daily trading halts from 4:00 p.m. to 5:00 p.m.

    Trading is scheduled to begin on June 20.

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    Mocon inks distribution deal on growth in Southeastern Europe By Rory Harrington, 05-May-2010

    Growth in the emerging economies of southeastern Europe has spurred Mocon to sign an exclusive deal with Greek company Morenos Ltd to distribute its instrumentation in the region.

    The US-based company announced that the agreement had been inked by its wholly-owned German subsidiary, Paul Lippke Handels-GmbH, for Morenos to sell Mocon and Lippke equipment in the Balkan countries of Greece, Bulgaria, Romania, Serbia and Macedonia.

    The instrumentation to be distributed by Morenos will include barrier and headspace analysis, leak detection and burst testing for food, beverage and medical packaging.

    Economic expansion

    Until now, the area had been serviced out of Lippke’s headquarters in Neuwied, but burgeoning economies in the Balkans “prompted the company to enter into an agreement which would provide enhanced service to manufacturers in the region”, said Mocon.

    “Morenos is one of the most experienced food processing and packaging machinery sales agencies in the Balkan region,” said Franz Sturm, managing director, Lippke. “The new partnership will enable the Mocon/Lippke organisation to provide more customised attention to food, packaging, and medical device manufacturers in southeastern Europe via Morenos’ offices in each of these countries.”

    Sturm said having a partner with offices close to manufacturing facilities would help the company boost its level of service.

    “Our objective is to help brand owners quickly and accurately address issues related to permeation testing, package integrity, shelf-life evaluation, cost reduction and safety,” added the Lippke chief.

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    Food leads EU manufacturing industries By Lorraine Heller, 21-Apr-2010

    The European food and drink industry is the largest manufacturing sector in the bloc, coming ahead of the automobile and chemical industries, but R&D investment remains “insufficient”, according to a new report.

    Published last week by CIAA (the Confederation of the food and drink industries of the EU) the report collates the latest available statistics on the industry, which provide a snapshot of its structure and economics and helps evaluate trade activities.

    Data & Trends of the European Food and Drink Industry 2009, available here , places the industry’s 2008 turnover at €965bn, a 3 per cent increase on 2007. This positions it as the single largest manufacturing sector in Europe, making up almost 13 per cent of the overall manufacturing industry, with the automobile and chemical industries following with 11 and 10 per cent respectively.

    The food and drink industry also leads the way in terms of employment, but labour productivity is lower than for manufacturing as a whole, reveals the report. The latest statistics available, for 2008, show that the industry employs 4.4m people, making it the leading employer in the EU at 13.5 per cent of the employment market.

    CIAA highlights 2006 statistics on labour productivity, which indicate €7,500 investment per employee in food and drink manufacturing, compared to €11,500 in automobile and €14,000 in chemicals.

    ‘Insufficient’ R&D expenditure

    When it comes to investment in research and development, the report again reverts to 2006 data, which places expenditure at 0.37 per cent of food and drink output. This is lower than other industries, but also lower than the food manufacturing sector in other developed countries outside Europe.

    “The food and drink industry’s R&D expenditure (R&D investment as a percentage of output) in EU-15 [data is from 2006] has been the lowest when compared to a majority of developed countries. The R&D expenditure levels are higher and continue to increase in Japan, the USA, Australia and South Korea, while EU-15 has experienced a relative stagnation at 0.37 per cent in 2006, close to 2005 levels (0.38 per cent),” writes CIAA.

    “Similarly, the level of R&D intensity from large food and drink companies (ratio of R&D investment on a company’s net sales) within the EU is much lower when compared to non-EU companies. This gap is narrowing since 2007, mainly due to a relative decrease in intensity outside the EU.”

    Limited but stable growth

    In terms of industry growth, the report identifies “relatively limited but stable annual growth” over the last ten years, both in terms of production (1.8 per cent) and value added (1.1 per cent).

    European food and drink exports in 2008 accounted for 18 per cent of the global export market, although this is well below the 25 per cent recorded a decade earlier. Total industry exports in 2008 came in at €58.2bn, while imports accounted for €57.1bn.

    CIAA says the European food and drink sector includes over 310,000 companies, with 99 per cent of the food and drink business population made up of SMEs.

    These companies generate 48.7 per cent of food and drink turnover and employ 63 per cent of the sector’s workforce, it said. Large companies account for just 0.9 per cent of all food and drink enterprises but they provide 51.3 per cent of the turnover, 52.8 per cent of the value added and contribute to 37 per cent of the sector’s employment.

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