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Milk and Dairy Products Market Report
Key Note Publications Ltd, Jan 2001
The UK milk and dairy products market has shown only minimal growth in recent years, reflecting the commodity nature of many of its products and intense retail competition. In 2000, the total value of the market increased by just 0.4%, to an estimated £7.06bn.
This is an extremely diverse market, operating within the wider food industry. The main sectors are liquid milk, cheese, yoghurt and chilled desserts, yellow fats and cream. Generally, the commodity products, such as milk, cheese and butter, have continued to experience declining volumes, with the main growth coming from processed dairy products such as yoghurt, chilled desserts, flavoured milk and cheese snacks.
Health and taste are important influencing factors, as reflected in the recent success of organic dairy products, low-fat spreads and the relatively new functional milk drinks, such as Yakult. At the same time, sales of cream and butter have benefited by consumers moving back to taste and indulgent products.
2000 was an extremely difficult year for the UK dairy industry. Disastrous farm gate prices have seriously affected the livelihoods of many farmers. This was mainly due to the high value of sterling against the euro, which resulted in a sharp decline in support prices for UK producers.
The rationalisation of the industry continued in 2000, with the break-up of Milk Marque into three regional co-operatives. However, milk prices remain unsettled and the system by which farmers sell their milk to processors has yet to stabilise. At the same time, increasing consolidation of supplier contracts in the retail sector has served to lower milk prices to producers, as milk processors seek to retain margins.
The most significant corporate activity in 2000 was the £246m merger between two of the UK's largest dairies, Dairy Crest Group PLC and Unigate PLC (renamed Uniq PLC).
Doorstep deliveries continue to decline, as more sales are channelled through the supermarket chains. However, milk roundsmen have fought back by incorporating new technology, such as computerised and itemised billing, and by broadening their product ranges. It is hoped that Express Dairies' e-commerce (electronic commerce) scheme, in which online orders are delivered by milk floats, will raise the profile of doorstep delivery.
While there are challenging times ahead for the UK dairy industry, the outlook remains positive. Further consolidation of the industry is inevitable, and might lead to more stability in the supply sector. More strategic partnerships, which will help to develop new markets and create more added-value, branded products, are needed in the future. Strong product innovation will remain the driving force in future market expansion, with health and taste being the two main influencing factors.
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