What is in this article?:
- Attractive but unbalanced dairy growth creating challenges
- High and volatile input costs
- Solid market growth, supply constraints and a structural shift in the costs of producing milk may sustain high milk and dairy commodity prices over the medium term. But this won't translate to increased profits for all.
- The unprecedented leap in farm gate milk prices in recent years has caused the position of dairy farmers to generally improve, but less than many outsiders might imagine.
High and volatile input costs
Downstream, the processing sector is also confronting enormous challenges from high and volatile input costs, difficult economic conditions and retail power. In general the processing sector has managed to maintain or improve their margins, through a combination of stripping costs, trading to higher value-added products and passing through cost increases to consumers. But experience has varied greatly by sector, with Fast Moving Consumer Goods (FMCG) players like Nestle and Danone faring well, cheese makers also improving their returns, while liquid milk players and major Chinese processors have seen their returns decline.
"In reality, an era of strong demand and heightened prices for dairy has, and will continue to, bring as many challenges as opportunities for the sector" said Mr Hunt. "Outsiders looking to enter what may in some regards appear to be an industry that has entered a golden age will need to carefully choose their investments, while those already inside need to continue to closely track industry direction and competitor moves to ensure they manage the risks adequately to position themselves to prosper".