Arla Foods has announced a 12-month investment programme valued at US$40 million to “boost production of dairy products for export to its strategic growth markets” and improve its environmental image. The programme will invest in “10 new… manufacturing expansions, and [in] projects to reduce the environmental impact of [the company’s] operations”. The investment programme is in support of Arla’s 5-year plan, “Strategy 2017…, designed to increase exports to Russia, China, the Middle East, and Africa – the company’s strategic growth markets”. According to Arla Foods vice CEO Poyl Krogsgaard, “[Arla’s] sales on growth markets outside the EU are growing at a fast pace,” and the investment is required in order to keep up with the growing demand overseas.
Almost 6% of the investment will take place at Arla’s Pronsfield site in Germany to increase production of UHT milk and milk powder for markets in both Asia and Africa.
A quarter of the investment is in “a new lactose manufacturing site in Denmark”, given the profitability of production of “whey-based ingredients for the global food industry”. This investment will produce “high-quality ingredients for child nutrition products” targeted at partners in Asia, where there is high demand. Chinese dairy imports in 2013 reportedly accounted for “more than the purchases of Russia, Mexico, Japan and Algeria put together”. Arla holds shares in China’s third largest dairy company, Mengniu Dairy, alongside Danone (which increased its stake in February 2014) and China’s largest state-owned food company, COFCO.
Competition on Asian dairy markets and across the globe is increasing. According to the US Dairy Export Council, US exports in the first 11 months of 2013 exceeded 2012 levels, reaching a record US$6.1 billion, with the expectation that 2013 exports will end some 30% higher than in 2012. This is seen as laying the basis for long-term growth in US dairy exports. The expansion includes exports of skimmed-milk powder (SMP), cheese, high-value whey protein concentrates, lactose and fluid milk. These exports are seen as increasingly playing a “critical role… in the health and growth of the US dairy industry”.
The US has stepped up collaboration with Chinese regulatory authorities to facilitate access to the world’s largest dairy importer. Establishing “an enforceable system of sanitary and phytosanitary measures to reduce non-tariff barriers to trade” is accorded a high priority by the US dairy sector.
This growth in US dairy exports has seen DairyAmerica discontinue its SMP marketing cooperation agreement with Fonterra, which had previously acted as Dairy America’s export agent.
The investment strategies of EU dairy companies in Africa need to be seen against the background of the growing importance of export markets to the profitability of EU dairy companies and growing competition on international dairy markets. Competition is particularly fierce in China, which is by far the largest global dairy importer. This accounts for why European companies are jointly collaborating with local Chinese companies in meeting expanding demand.
The situation in Africa is somewhat different. In Africa, compared to Asia, European companies do not face the same geographical disadvantages vis-à-vis major competitors such as New Zealand-based Fonterra. On the other hand, while some European dairy companies have a long tradition of trading dairy products into Africa, they are likely to face greater competition both from US exporters and other EU dairy exporters.
Against this background, establishing partnerships and joint ventures in African countries potentially provides an easier outlet for bulk exports than simply trading into these markets. Current European dairy sector investment interest in Africa appears to be driven by considerations of market position, in view of the growth of demand for dairy products.
The question arises: what scope is there for African governments to develop policies that link the growing European investment interests with national aspirations to develop local milk-to-dairy supply chains and to expand the range of local value-added dairy products?