The combined turnover of companies in the Rabobank Top 20 Global Dairy grew by 7.4% in US dollars last year, following a gain of 9.3% from the previous year, according to the latest analysis published by Rabobank.

Growth of 21%

Rabobank says in its annual review of the Top 20 global dairy products (see opening image) that, in euros, the combined turnover increased by 21%. This was due to a combination of a stronger US dollar, inflation, and tight market conditions for most of 2022, with many companies reporting record revenues in their local currencies.

Overall, only 5 companies held the same position as last year, indicating a reshuffling throughout the entire list. Merger and acquisition activity was almost on par with the previous year, with a total of nearly 25 transactions. A slowdown in activity was observed in the second half of the year, which continued into the first half of 2023.

In the first half of 2023, 8 offers were announced compared to around 12 transactions in the first 6 months of 2022. Currency movements contributed to the reshuffling and were particularly unfavorable for dairy companies reporting in euros, New Zealand dollars, renminbi, and yen.

Lactalis - strong growth

According to Rabobank, an impressive growth of €4.6 billion - up 20.5% from 2021 - pushed Lactalis to €27.2 billion.

The strong growth of the French company is supported by several recent major acquisitions, organic growth, and inflated prices for dairy products in 2022.

In terms of US dollars, turnover increased by $1.9 billion, up 7.3%, to $28.6 billion, keeping the company comfortably in the top spot.

Dairy Farmers of America, Nestlé, and Danone

Dairy Farmers of America (DFA) secured second place based on the largest turnover gain by a certain margin, both in euros and dollars, surpassing both Nestlé (third) and Danone (fourth) after losing the third position to Danone last year.

In 2022, DFA's turnover increased by $5.2 billion (+26.9%), reaching $24.5 billion, the equivalent of €7 billion (+42.6%) reaching €23.3 billion. This was primarily due to high dairy product prices and organic growth.

Nestlé's estimated turnover for dairy products in local Swiss francs increased after several years of declining revenues and divestments. Nestlé still holds a significant (non-controlling) stake in the ice cream company Froneri, which moved up to 19th place this year. Danone's estimated turnover for dairy products increased by €2.4 billion (+13.6%) to €20.1 billion or $21.2 billion (+1.1%).

Yili and Mengniu

Chinese players Yili and Mengniu recorded estimated revenue growth of 5.2% and 10.1% in renminbi, respectively.

However, due to currency movements, these gains were reduced to 0.8% and 5.4% in US dollars, respectively.

Yili maintained its fifth position, while Mengniu dropped one place to eighth, just behind Arla and FrieslandCampina.

Arla, FrieslandCampina, Fonterra, and Saputo

As foreshadowed last year, the Danish cooperative Arla (6th) moved ahead of the Dutch cooperative FrieslandCampina (7th). However, both companies managed to climb the rankings from last year, mainly at the expense of New Zealand's Fonterra cooperative (9th), which dropped three positions.

Like its European counterpart FrieslandCampina, Fonterra continues to have non-core assets as it adjusts to the pressure of growing milk volumes. Saputo (10th) has consolidated its place in the sub-top of the rankings, driven by double-digit revenue growth.

Price developments

Auction prices for global dairy product trade (GDT) declined on August 15. Overall prices decreased by 7.4%, with key whole milk powder (WMP) prices falling by 10.9%.

Both WMP and general prices have fallen by a quarter over the past year. Looking at a longer period, WMP prices are now at their lowest level in the last 7 years.

The auction result was weaker than expected, according to Nathan Penny, senior agricultural economist at Westpac NZ, noting, "Global demand is weak, especially in our key market of China."

New Zealand giant Fonterra announced plans to cut costs by about $598 million over the next 7 years, following a drop in global dairy prices. CEO Miles Hurrell says the focus on efficiency will have implications for staffing levels.

Dairy products were New Zealand's largest export product last year, with milk powder, butter, and cheese accounting for 28% of total exports, valued at $12.3 billion. Dairy prices have recently dropped sharply. Fonterra has twice reduced its milk price forecast in the past few weeks.

China to streamline costs

RaboResearch expects China's dairy sector to increasingly focus on improving productivity and cost efficiency.

Milk supply in China could increase from 41.5 million metric tons in 2023 to 47.4 million metric tons equivalent liquid milk (LME) by 2032, with an average compound annual growth rate (CAGR) of 1.5% in volume.

Medium to long-term growth in per capita demand is expected to remain healthy. Rabobank estimates that China's demand will grow at an average of 2.4% annually between 2023 and 2032, with dairy consumption reaching 62.2 million metric tons LME by 2032.

As a result, China will continue to play a significant role in the global dairy industry, with further expansion of the expected import deficit. In 2032, imports are estimated to reach 15 million metric tons LME.