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Abolition of EU Milk Quotas: How Can Ingredient Suppliers Take Advantage?

December 5th, 2015

On 31 March 2015, after 31 years, EU milk quotas were no more. Limits on the volume of milk which each EU member state could produce disappeared, along with the associated fines for overproduction. Dairies have already begun ramping up output, with Germany, the Netherlands and Ireland among several countries fined in the first months of the year for overproduction. This increase in milk volume will naturally lead to increased production of milk-derived ingredients. Dairy processors must be proactive in identifying the best markets for export, appropriate product categories and the most viable brand owners to whom they can sell their excess supply.

Whey powder makes a case in India

In looking to countries for export, the added-value milk derivative whey powder is a good example to consider. Whey powder use in nutritional supplements has boomed in recent times, thanks to its high protein content. Mass market products have cottoned on, with global whey powder consumption increasing by over 144,000 tonnes between 2008 and 2013. After China and Brazil, India has the largest absolute volume growth forecast over 2013 to 2018 at 9,400 tonnes. Additionally, despite a strong base, whey powder growth in India is forecast to accelerate, with a volume consumption CAGR of 5% between 2008 and 2013, forecast to increase to 7% between 2013 and 2018.

Product categories key to identifying brand owners

With a country identified, ingredient suppliers should consider the relevant product categories. This will enable identification of the best brand owners to target and give an indication of the long term prospects of the ingredient in the selected country.  In the case of whey powder in India, in 2013, 22% of whey powder found its way into milk formula products. Bearing in mind the function of such products, this is hardly surprising. Beyond milk formula however, whey powder use in India is incredibly diverse, with usage in flavoured powder milk drinks, biscuits, ice cream and chocolate confectionery. Between 2014 and 2019, these areas of packaged food are all predicted good growth.

Top categories for whey powder use in India and forecast CAGR

Whey-powder-in-india

Source: Euromonitor International

Domestic matters

In targeting overseas partners, EU suppliers should take care to consider local dynamics. For example, India is the world’s biggest producer of milk so imports of milk products into India are minimal. That said, by 2019, India will also be the world’s biggest consumer of milk and the rate of growth of domestic production is struggling to keep pace with the increased demand. EU suppliers need to trade off their experience and efficiency in dairy ingredients and emphasise that they are likely to provide better quality than local alternatives.

Completing the puzzle

To truly capitalise on the EU milk quota abolition, ingredient suppliers must take the final step and identify relevant brand owners. Returning to the example of whey powder in India, the above chart shows that for brand owners, the most interesting categories are chocolate confectionery and ice cream; the two with the greatest forecast growth. In terms of chocolate confectionery in India, the market is dominated by two multinational players in Mondelez International Inc and Nestlé SA.

Mondelez sales growth in Indian packaged food, 2012-2013

mondelez-growth-sales-indian-packaged-food

Source: Euromonitor International

Nestlé sales growth in Indian packaged food, 2012-2013

Nestle-growth-sales-indian-packaged-food

Source: Euromonitor International

The above treemaps, from Euromonitor International’s Competitor Analytics system, clearly show chocolate confectionery as the most important packaged food category to Mondelez in India, while being of less significance to Nestlé. Moreover, the treemaps show that, in 2013, Mondelez experienced greater sales growth in the Indian chocolate confectionery market. Logically, Nestlé will want to address this and take advantage of the growth of chocolate confectionery in India and bridge the gap to Mondelez. To do this, Nestlé will require an increased supply of chocolate confectionery ingredients such as whey powder, and this makes Nestlé a viable target for EU ingredients suppliers looking to benefit from the end of milk quotas.

Alongside chocolate, the notable absence of ice cream from Nestlé’s packaged food portfolio in India is telling. By contrast, Unilever – Nestlé’s main ice cream competitor globally – is India’s second biggest ice cream player and has been growing steadily. Indian ice cream represents a considerable market gap for Nestlé, which in turn presents significant opportunities for EU dairy ingredients firms after 31 March.

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John George

John George is an analyst in the ingredients industry at Euromonitor International. He is responsible for publishing research relating to the global ingredients industry as well as providing analysis on market trends and ingredient innovation. John has a degree in Biomedical Science (BSc with honours) from The University of Warwick.

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