Dairy market watchers perplexed over the industry's prospects are in good company. Even the sector's majors are at a loss.

FrieslandCampina, the Dutch dairy giant, said it "cannot make any concrete statement regarding [its] expected result for the whole of 2012".

The failure reflected in part the "uncertain" uneconomic outlook, but also doubts over the world milk production outlook, including in the US, where high feed prices are forcing a slowdown in output growth, and the European Union, where farmers have suffered a mix of too much rain and too little.

"As a result of the drought in the US, rising animal feed prices and the lagging behind of milk production in the European Union, the worldwide supply of milk could come under some pressure," FrieslandCampina said.

'Small fluctuations…'

However, the co-operative stopped short of making any forecast for prices.

"Small fluctuations in supply and demand on the world market can have major consequences for the price development of dairy products," the group said.

The comments follow a non-committal outlook statement by New Zealand's Fonterra, the world's top dairy exporter, even as it cut forecasts for the prices it will pay its farmers in 2012-13.

"Our forecasting anticipates some recovery in global dairy prices but we don't know how strong this recovery will be or when it will kick in," Fonterra chief executive Theo Spierings said.

'Under pressure'

For the first half of 2012, FrieslandCampina chief executive Cees 't Hart flagged "difficult market conditions in Europe", besides a "steep drop in the market prices for butter and milk powder" which prompted it to cut by 6.0%, year on year, to E34.14 per 100 kilogrammes, excluding bonuses, its milk-buying price.

In Europe, sales of dairy products dropped 1.1% to E1.42bn "due to volumes falling as a result of reduced consumer spending", the group said, acknowledging that the "market share of several brands was under pressure".

Efficiency improvements allowed the division to raise operating profits five-fold to E40m.

Asian growth

Even so, the division's profits remained well behind the E224m achieved in foreign and export markets, a rise of 22%, and on revenues which rose 24% to E1.50bn to overtake Europe on sales too.

"Asia, where FrieslandCampina achieved a quarter of its total revenue, made a major contribution towards the revenue growth and improved result," Mr Hart said.

The result included the first contribution from the co-operative's Philippines acquisition, Alaska Milk.

Group profits rose 8.7% to E138m, on revenues up 7.6% at E5.09bn.

Merger wave

The co-operative also clocked the impact of Europe's tough economic climate in fostering consolidation, evident in particular in the UK market, where Robert Wiseman Dairies has been bought by Germany's Theo Muller, and Milk Link merged into the Arla Foods empire.

FrieslandCampina, identifying a "new dynamic in the global dairy market", said it was "seeing an acceleration of the international consolidation of dairy companies", in which positioning ahead of the 2015 removal of EU milk production quotas was also playing a role.

"In the coming years the markets will become even more volatile," the co-operative said.

On Wednesday, Irish-based Glanbia flagged the potential for Ireland' grass-based milk producers to exploit the ending of quotas.