Dairy sector Promoting the leadership of agro-food industry November 2007 Veijo Meriläinen, President EDA

EDA - European Dairy Association Contents 1.Dairy sector´s societal relevance 2.Global perspective 3.Dairy sector in EU 4.EU Dairy vision 5.Challenges facing the dairy sector Raw material Better regulation and simplification Route to market Innovations 6.Concluding statement

EDA - European Dairy Association 1. Dairy sector´s Societal Relevance The dairy sector is fundamental for the quality of life in Europe: –Contribution to health, responsible and safe nutrition for consumers –Economic importance for rural development and environmental sustainability

EDA - European Dairy Association 2. Global perspective Total world cow milk production is 550 mln tonnes EU is the world’s number one cow milk producer with 142 mln tonnes, far ahead of US ( 80 mln tonnes) and India (38 mln tonnes) Milk production is growing in China, India, US and South- America, EU is lagging behind Since 2003 global demand has outstripped supply and the stocks have been cleared. Today demand is definitely greater than supply! Only 7-8 % is traded globally. EU has lost it’s share and New Zealand is now the biggest exporter

EDA - European Dairy Association 3. Dairy sector in EU - characteristics –EU milk production is highly clustered – 6 member states (Germany, France, UK, Netherlands, Italy and Poland) contribute together more than 70% of the cow´s milk collected in EU –The dairy industry represents around 15% (EUR 117 billion) of the turnover of food and drinks industry in Europe –EU dairy industry in general is basically national and the structure is fragmented –Local SME´s are in a significant role – only a few companies position themselves as global and pan-european –Co-operatives and private enterprises have different approaches concerning expansion and milk procurement –Example of the versatility in the next slide

EDA - European Dairy Association Countries are different Example of versatility Milk yield per cow 1,485,7 Average number of cows per holding Holdings with dairy cows Number of dairy cows Milk collection 1000 tn Milk production 1000 tn 19 %97 % 19,0 361 Romania 30,4 67 Denmark Milk price €/100 kg Number of processing plants Source:Eurostat

EDA - European Dairy Association 4. EU Dairy strategy Dynamic Innovative Global player Healthy nutrition Sustainable Competitive

EDA - European Dairy Association 5. Challenges within the dairy sector Access to raw material is key to global position Milk production is highly regulated by quotas and mobility of raw material is difficult Raw milk is perishable and can’t be transported long distances Milk production is challenging: no compromises on food safety, labour intensive and milk is collected daily Seasonality of production leads to overcapacity Requires long term investments on farm and industry level Competitiveness of the dairy processors is increasingly decisive for the pricing of raw material milk to farmers

EDA - European Dairy Association 5. Challenges within the dairy sector Better regulation and simplification Flaws are identified, but results are not satisfactory Slow decision-making process Lack of predictability Horizontal regulations concerning feed, hygiene, claims and labelling New regulations for animal welfare and quality labelling? Milk specific regulation: drinking milk, spreads and preserved milk

EDA - European Dairy Association 5. Challenges within the dairy sector Route to market – Access to world market –Global players include different geographical regions in their business strategies, but SME´s have difficulties in approach. Specific support mechanisms could be helpful –Industrial policy is made too much on terms of agricultural policy –Technical and sanitary measures are barriers to trade: animal disease outbreaks, divergent analysis and sampling methods, zero tolerances, milk products and animal health standards

EDA - European Dairy Association 5. Challenges within the dairy sector Route to market – Access to consumer Source: Food Engineering & Ingredients, RLF, Planetretail Global net sales EUR billion Retailers´ influence is boosting Negotiation power Private certifications and standards Trade terms and conditions Private label

EDA - European Dairy Association 5. Challenges within the dairy sector Innovations –Innovations have been and are essential in improving the global competitiveness of dairy industry and creating value added products –Innovations in the future are more and more linked to the health and well-being of consumers. This means that more scientific evidence is needed for marketing of these products –EU should create and improve platforms to support such development in research. The Technology Platform on food research, called “Food for Life” is a good example of such development and creating science based innovations –Claims are essential and needed for marketing and consumer communication of these new products. This means that approval of claims should not prevent or slowdown this development –European level programs in science and research (7th framework program) are essential in boosting the science- based innovations in open environment. Probiotic dairy products are good examples of commercial success in this area –SME´s should have easier access to these programs

EDA - European Dairy Association EU dairy industry is world class: –Efficient processing plants –International brands –Superior product quality But also a market that needs rules; higher efficiency in EU policy framework needed. EU dairy competitiveness can be further enhanced if EU policy together with the industry addresses the challenges ahead. 6. Concluding statement

Thank you! Promoting the leadership of agro-food industry November 2007 Veijo Meriläinen, President EDA