Emerging markets forecast to drive dairy industry boom
The fifth Tetra Pak Dairy Index, released last week, highlights the challenges and opportunities in meeting rising expectations of low-income consumers in developing countries. New research from Tetra Pak has identified 2.7 billion low-income consumers in developing countries as the dairy industry’s next big growth opportunity due to an expected rise in prosperity, purchasing power and desire for packaged liquid dairy products (LDP).
Consumption by low-income consumers in developing markets is forecast to increase from about 70 billion litres in 2011 to almost 80 billion litres in 2014, according to the Dairy Index, which tracks worldwide facts, figures and trends in the global dairy industry. Many of these consumers are expected to switch in coming years from drinking loose milk to packaged milk.
“Low-income consumers represent one of the biggest growth opportunities for the dairy industry. The key to tomorrow’s success is reaching these consumers today,” said Tetra Pak President and CEO Dennis Jönsson. “They make up almost 40% of the world’s population and live in economies driving our industry’s growth and they are growing more affluent.”
These low-income consumers live on $2-$8 a day and are virtually untapped by today’s dairy processors. Called Deeper in the Pyramid (DiP) consumers by Tetra Pak, they make up about 50% of developing countries’ population and consume 38% of LDP in developing countries. Half of these DiP consumers live in India and China. The Tetra Pak research focused on six countries which account for more than 76% of LDP consumption by DiP consumers in developing countries: India, China, Indonesia, Brazil, Pakistan and Kenya.
Many DiP consumers are expected to grow in affluence, shifting from low to middle incomes by the end of the decade, boosting their purchasing power and the range of products they buy. As they gain The increase in spending power along with greater awareness of food safety and a need for convenient, ready-to- drink solutions is expected to increase the demand for packaged products.
The global DiP population is forecast to fall by a compound annual growth rate (CAGR) of 3% a year from 2009-2020. The population living on more than $8 a day is set to rise by 4% (CAGR) annually, according to Boston Consulting Group, which helped Tetra Pak to develop the DiP classification.
“Today’s low-income consumers are tomorrow’s middle class,” said Jönsson, noting “this is a golden opportunity for dairy processors to cultivate consumer loyalty among a new generation of dairy consumers in developing countries.”
Tapping into this market is not without its challenges, according to the report. Tetra Pak has identified three key challenges for dairy processors seeking to reach consumers in this growth market. They need to make products which are affordable, available and attractive to consumers on limited incomes. That means dairy processors must produce healthy, safe and nutritious packaged dairy products without adding unsustainable costs. They must also make them available in small traditional stores in remote rural areas or congested cities where DiP consumers shop.
Innovation and efficiency will be vital in helping the industry to develop products, packaging and processing to meet the needs of these low-income consumers, according to the report.
“We must develop products differently, distribute them differently and sell them differently to extend the availability of good nutrition in developing countries,” said Jönsson.
Tetra Pak has identified a number of ways to make products more affordable. Among them is changing the way both milk products and packages are developed – with the price of the product driving development. By using alternatives to whole milk – such as whey or lactic acid – it is also possible to produce nutritious and healthy dairy products at lower cost. Another way is to reduce package sizes or opt for more basic packaging.
Figuring out ways to make packaged dairy products widely available to DiP consumers is another challenge. Around 70% of DiP purchases are in the so-called traditional trade, small-family run shops rather than modern supermarkets or convenience stores. Companies are coming up with innovative ways to reach these consumers. They are producing locally where demand for packaged liquid dairy is growing. They are teaming-up with distributors who have a track-record of working closely with traditional stores and they are using appropriate transport, like bicycles, to distribute products.
Making products attractive to DiP consumers, who focus on providing the best for their children and often reduce other expenses before compromising on basic nutritional food such as milk, is the final challenge. Companies need to generate significant sales to achieve the economies of scale required to provide value for money and quality nutrition to DiP consumers, according to Tetra Pak. They also need to create brand awareness and excitement around products for kids who buy dairy drinks and snacks with pocket money.
LDP growth to speed up in 2011-2014
Separately, Tetra Pak announced that LDP demand is set to accelerate in 2011-2014, led by Asia, Africa and Latin America. Global LDP consumption is forecast to rise by a CAGR of 2.9% in 2011-2014, accelerating from 2.5% in 2008-2011, led by buoyant demand in emerging markets, according to the Tetra Pak research.
Lactic acid drinks (LAD) , baby and toddler milk, and flavoured milk are forecast to record the fastest growth rates in 2011-2014, Tetra Pak analysis shows. LAD, which tend to be affordable beverages and a favourite among Asia’s DiP consumers, are expected to notch up the fastest growth rate with a CAGR of 11.9%, followed by baby and toddler milk with a CAGR of 9.0%. Flavoured milk, another affordable favourite among DiP consumers, is in third place and is expected to record a CAGR of 4.8%.
“Providing affordable, healthy and nutritious packaged LDP to DiP consumers is not just a business opportunity. It is an opportunity to transform lives by making safe and nutritious food available to a new generation of emerging consumers,” said Tetra Pak President and CEO Dennis Jönsson.
View/download the fifth Tetra Pak Dairy Index (pdf) and the Dairy Index presentation (pdf)
The South African perspective
While this index forecasts growth for the dairy industry from an expected rise in prosperity and buying power among consumers in emerging markets including Africa, the situation looks rather more challenging in SA.
According to the Milk Producers Organisation there were 30 000 dairy farmers in SA in the late 1980s, and only 2 600 today. Its chairman, Dean Kleynhans, blamed big milk buyers in SA for holding farmers to ransom by paying less than R3/l for milk while the retail price was well above R10/l.
Last year, the Overberg and the George district recorded the highest number of dairy farmers quitting the industry, some branching into other sectors, a factor some saw as contributing to higher milk prices.
However, Rae McGraw, communications cluster leader at Tetra Pak sub-Saharan Africa, told Business Day that report’s statistics showed that there was no longer a reason for milk farmers “to bail out or quit”.
Urban migration was driving the need for convenient and ready-to-drink packaged products.
Tetra Pak president and CEO Dennis Jönsson said low-income consumers represented one of the biggest growth opportunities for the dairy industry.
“The key to tomorrow’s success is reaching these consumers today. They live in economies driving our industry’s growth and they are growing more affluent,” he said.
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