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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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    New spray-drying tower to help Arla exploit Latin opportunities By Guy Montague-Jones, 28-Apr-2010

    Arla Foods Ingredients has inaugurated a spray-drying tower in Argentina as the company looks to invest in South America and add value to its whey processing by-products.

    Built at a cost of $35m, the new tower will be used to convert permeate left over from whey protein concentrate production into a non-hygroscopic ingredient for dairy and other food products.

    Henrik Andersen, head of whey activities at Arla Foods Ingredients, told DairyReporter.com that permeate had previously been disposed of for use in animal feed products.

    Adding value

    By building a second spray-drying tower at its whey processing facilities 600km northeast of Buenos Aires, Arla Foods Ingredients will now be able to add more value to its existing materials.

    Explaining the potential of the permeate to be processed at the site, Bjarne Schack Pedersen, managing director of Arla Foods Ingredients, said: “Permeate has a lactose content of 90 per cent, making it a cost-effective alternative to lactose in food products,”

    In addition to permeate, the new tower, which will have an annual capacity of 25,000 tonnes, will process functional milk proteins for use in food applications such as ice cream and chocolate.

    Business growth

    Arla Foods Ingredients has been based in Argentina for 10 years, operating through a joint venture with the local dairy cooperative SanCor, which is its primary supplier of whey in the country.

    The joint venture has grown successfully since then and now has an annual turnover of $50m.

    Anderson said the latest investment should help grow the business further. He added that having very good access to the fast expanding Brazilian market is particularly advantageous.

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    Glanbia shares jump on Irish dairy disposal (By Guy Montague-Jones)

    Shares in Glanbia Plc skyrocketed yesterday on news that an agreement had been reached to sell the company’s Irish dairy business.

    Although farmers could still pull the plug on the deal, shares jumped over 7 per cent yesterday as investors welcomed the move to turn Glanbia into a smaller business focused on nutrition and the US cheese market.

    Under the terms of the deal, Glanbia agreed to sell its Irish dairy business to its majority shareholder Glanbia Co-operative Society for about €343m.

    The farmers behind the co-op had originally created Glanbia Plc to raise the equity necessary to find new markets for their milk.

    Now, through the sale of shares and €49.7m in cash, the co-op has conditionally agreed to buy the Irish dairy business and leave the Plc to concentrate on its nutrition and US cheese businesses.

    Voting question mark

    Joe Gill, an analyst from Bloxham Stockbrokers, said the agreement makes “perfect logical sense” for the Plc but he warned that it is not a foregone conclusion that the co-op members will approve the deal.

    For it to go through, 75 per cent of members will have to agree to the plans in a ‘one member, one vote’ ballet, to be held in two weeks time.

    Especially given how the share price has responded to the news today, Gill said farmers may question whether the agreement is as good for them as it is for the Plc.

    Nevertheless, prominent members of the Irish farming community have backed the agreement. When a deal was mooted a few weeks ago, Kevin Kiersey, the national dairy chairman at the Irish Farmers’ Association said: “I see positives in this move by the Co-op because it would end Plc decision-making on the milk price, which farmers believe has not worked in their favour, and would bring under direct farmer control over 80 per cent of the national milk pool.”

    Meanwhile, for Glanbia Plc the advantages of distancing itself from the Irish dairy business appear to be both significant and various.

    A glance at the full year financial results published in March shows how the move would be beneficial from a margin perspective.

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    The US Cheese & Global Nutritionals, which is what would remain of the Plc after a deal, delivered an operating margin of 11.4 per cent on revenue totaling €792.4m, while Dairy Ireland posted an operating margin of 2.3 per cent from a turnover of €1,028.8m.

    But a deal is not just a question of margins. Bell said nutrition has better growth prospects and disposing of Dairy Ireland will give the Plc the opportunity to really go after these.

    Nutritional acquisition

    If the deal does go ahead, he said we can expect to see an acquisition in the nutrition space by the end of the year.

    Glanbia itself said in a regulatory statement today that for the Global Nutritionals business, which will be formally separated from Cheese after the Irish dairy sell, one of the key strategic objectives would be “continued expansion both organically and by acquisition.”

    The principal reason for this is that disposing of the Irish dairy business will give the company the financial freedom to grow.

    In addition to a short term gain in proceeds from the deal, it will reduce long-term debt and release working capital at Glanbia.

    Liam Igoe, an analyst at Goodbody Stockbrokers, explained that the dairy business is very seasonal and therefore puts a strain on working capital (current assets – current liabilities). By disposing of Dairy Ireland, Glanbia will improve its working capital position and therefore improve its borrowing capacity.

    John Moloney, the CEO of Glanbia, has already made it clear that acquisitions will be a priority. In an article in the Irish Independent, Moloney is quoted as saying that the company is eyeing up a pipeline of targets overseas with turnovers in the $120m to $150m range.

    Commenting on where an acquisition is likely to take place, Gill said the purchase of US-based whey and sports nutrition specialist Optimum Nutrition in 2008 is likely to be a model for future buys.

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    Hydrocolloids show the ‘whey’ to cheaper dairy drinks

    Food gums like gellan gum and pectin may hold the key to success in the growing market for whey-based beverages, as manufacturers look to offer dairy beverages at competitive prices.

    Whey has long been viewed as a secondary product within the dairy industry, used simply as a means of feed for animals and not as an added-value ingredient. That, however, is changing, particularly with the impact of high milk costs on the industry.

    According to a 2008 report by 3A Business Consulting, the market for ingredients such as whey protein concentrate was expected to experience three to five per cent annual growth between 2007 and 2010.

    Speaking to FoodNavigator, Bruce Hein, positioning manager, marketing-EMEA for hydrocolloid supplier CP Kelco, said interest in whey-based drinks is increasing around the globe, be it in Eastern or Western Europe, or in Asia Pacific.

    “Companies want to find new value added ways to use their whey, and whey beverages are an excellent way,” said Hein. “As far as finished product applications, both neutral pH and acid pH beverages are showing excellent potential for growth.”

    CP Kelco does not supply or manufacture whey, but Hein noted that company leverages its expertise with hydrocolloids to provide solutions for whey-based beverages. “I would say that CP Kelco is at the forefront in this field by offering a complete range of stabilizers and texturizers for whey based beverages – both neutral and acid pH.”

    Hein also stressed that the company has enjoyed fruitful collaboration with a Danish company called Lact Innovation.

    Proof in the pudding

    The type of hydrocolloid used depends on the pH of the beverage and the required stability and mouthfeel, with whey based beverages formulated using gellan fum (Kelcogel), pectin (Genu) or cellulose gum (Cekol) as stabilizers, said Hein.

    A neutral-pH chocolate milk-type drink can be used to illustrate the issue, noted the company, with a whey drink based on 0.5 per cent protein, compared with 3.4 per cent protein when milk is used. For milk, carrageenan can be used as this requires casein to form a fluid gel network to stabilize the cocoa. However, “carrageenan is not the ideal stabilizer for a neutral pH chocolate whey drink”, said Hein, since whey contains no casein.

    Gellan gum, on the other hand, “can form a fluid gel network independent of casein/proteins, thus, providing excellent stabilization of cocoa or other insolubles”, said Hein. Options also exist for acid pH whey beverages, he said, with pectin or cellulose gum acting as protective colloids to inhibit the aggregation of protein. The end results is a smooth and stable beverage, he added.

    “Any type of whey proteins can be used,” said Hein. “[In our test applications] we have used a standard whey powder, however, these formulations can be adjusted to use liquid whey, WPC or whey protein isolates. In addition, we are also seeing interest in combinations of whey plus milk and whey plus yoghurt,” he added.

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    Carbery attributes profitability growth to ingredients

    Carbery has insisted that its ingredients division performed strongly in 2009 despite a sharp reduction in group turnover.

    The Irish manufacturer of cheese and food ingredients, including flavours and whey-based dairy ingredients, reported a 9.9 per cent drop in overall turnover to €183.6m for the year ending 31 December.

    Carbery attributed the decline to a range of factors including lower commodity prices caused by continued dairy market volatility, a more challenging demand environment, and currency fluctuations.

    Nutritional growth

    Despite this, the company was upbeat about the performance of its ingredients. Carbery said the dairy ingredients business performed robustly in sectors such as infant nutrition and performance nutrition across the globe.

    Along with Dairygold, Glanbia, and Kerry, Carbery is investing in the long term potential of this market through the Food for Health Ireland (FHI) initiative.

    Carbery is one of the founding members of the Irish group, which brings academic and government research organisations together with industry to mine milk in search of new functional food ingredients.

    Flavours division

    As for the flavours side of the Carbery business, which operates through the Synergy division, the dairy co-op said performance was strong in established EU and US markets as well as new markets in South East Asia and South America.

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    Investment in research and development has also been maintained in flavours, as Synergy continues its work with the North Carolina State University (NSCU).

    Carbery said the results of this research will prove invaluable in the development of clean tasting whey protein products and in providing a “unique toolkit” for Synergy in flavour engineering.

    Profitability

    Commenting on the results for 2009, Carbery CEO Dan MacSweeney said the ingredients division as a whole drove profitability growth in 2009.

    In addition to recovering from a pre-tax loss of €0.8m to profits of €2.7m, EBITA was up from €2.4m in 2008 to €6.2m last year.

    MacSweeney said: “Carbery Group is now a strong and diversified food business with a large international focus. This strategy, pursued over the last ten years, has reduced our dependence on the volatile dairy market.”

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