Giant dairy processing companies have been "paddling hard in slow-moving water," faced with stagnant sales in many key markets, weak economies and supply constraints, according to Rabobank’s annual Global Dairy Top 20 report, released July 9.
Nonetheless, the world’s largest dairy companies remain reasonable entrenched, with Nestle, Danone and Lactalis again topping the list, said Tim Hunt, Rabobank analyst and co-author of the report.
With $28.3 billion in sales in 2013, Nestle again reigned over its 19 competitors, which posted a combined $184.2 billion in sales.
This year’s list contained the same 20 companies as last year’s, and 15 of the top 20 have been on the list in their present form or in earlier incarnations for the past 15 years. But some companies continue to outperform their peers in terms of sheer growth, triggering changes in their rankings, the bank reported.
Chinese dairy giants Yili and Mengniu, saw their sales expand by 14 percent and 20 percent, respectively, with Yili breaking into the top 10 global companies for the first time and being the first emerging-market player to cross that threshold, Hunt said.
Dairy Farmers of America — which held its spot as the sixth largest in sales — also saw strong growth, 22 percent, on the back of firm milk prices, the merger with Dairylea and the acquisition of Dairy Maid and Oakhurst.
In addition to Dairy Farmers of America, which posted $14.8 billion in sales, two other U.S. companies made the top 20 list: Dean Foods, with $8.6 billion in sales, dropped one notch to No. 9; and Schreiber Foods, with $5 billion in sales, kept its spot as 19th, the bank reported.
Most companies in the top 20 faced challenges in 2013, with stagnant growth in developed markets, slowed growth in emerging markets and declining currencies in emerging markets — which reduced the value of sales when reported in home currencies.
In addition, a surge in commodity price generated substantial cost pressure across the board. Passing on those rising costs generated revenue for many, but true value growth was hard to find, the bank reported.
The slower underlying growth has made mergers and acquisitions increasingly attractive. Fourteen of the top 20 companies merged, acquired or established a joint venture with one or more companies in the last 12 months, the bank reported.
Positioning for maximum effectiveness in the expanding Chinese market remains prominent, with several joint ventures between Chinese companies and those from other countries. Many other deals were focused on increasing footprints in emerging markets, such as India, South Africa, and Asia.
But domestic consolidation and restructuring remained the dominant driver of activity in 2013, the bank reported.
Rabobank expects underlying growth in the global dairy industry to pick up in coming years as retail price inflation subsides and improved supply growth helps unlock the potential of many markets. But many markets won’t return to the rapid growth rates seen before the global financial crisis, the bank reported.
With ongoing high milk costs, increased competition for branded players and billion-dollar deals harder to come by, dairy giants will have to acquire or incorporate new businesses to survive and thrive in the market environment, the bank concluded.
Global top 20 dairy companies
2013 2012 company country 2013 dairy sales
1 1 Nestlé Switzerland 28.3
2 2 Danone France 20.2
3 3 Lactalis France 19.4
4 4 Fonterra New Zealand 15.3
5 5 FrieslandCampina Netherlands 14.9
6 6 Dairy Farmers of America USA 14.8
7 7 Arla Foods Denmark/Sweden 12.5
8 9 Saputo Canada 8.8
9 8 Dean Foods USA 8.6
10 12 Yili China 7.6
11 11 Unilever1* Netherlands/UK 7.5
12 10 Meiji Japan 7.4
13 17 DMK Germany 7.1
14 15 Mengniu China 7.0
15 14 Sodiaal France 6.6
16 18 Bongrain France 5.9
17 16 Kraft Foods USA 5.8
18 20 Muller* Germany 5.0
19 19 Schreiber Foods* 5.0
20 13 Morinaga Milk Industry Japan 4.8
Note: 2013 dairy sales based on 2013 financials and M&A transactions completed between Jan. 1 and June 15, 2014.
Source: Rabobank, July 2014