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
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
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
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.
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
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.
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
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.