Global dairy industry needs to improve supply chains to ensure growth

31 August 2016

The global dairy industry is looking to developing markets to provide greatest growth but its future in these countries might be limited by the lack of a “cold chain”.

A study by Boston Consulting Group has warned the $500bn dairy industry’s most promising markets are also its least developed and may not be able to guarantee supply chain freshness.

In 2015 dairy was the biggest and fastest revenue-generating category in the food and beverage sector, but an undeveloped supply chain could hold back growth.

Analysts predict sales of $800bn by 2020, though between 2009 and 2014 annual profits growth of dairy companies was almost half that of food and beverage companies overall (5% versus 9%).

The report said no company can expect to win on rising demand alone.

“Dairy is still a two-speed world,” said Marc Gilbert, a BCG partner and co-author of the report. “In mature markets, overall growth is anaemic (though certain subcategories are gaining ground). But in developing markets, consumption is growing faster than GDP.”

China, the Middle East and Southeast Asia will account for 75% of growth over the next five years, but the report says many of these markets lack a so-called cold chain to ensure freshness and safety in the supply.

Lack of fully developed retail channels and a hard-to-reach rural consumer base are also likely to restrict growth.

For any dairy company one of the essential elements to success is upstream supply management.

“Whether it’s ensuring quality feed for dairy cows, importing powder, or instituting rigorous quality controls, quality supply is critically important,” said the report. “Lack of it can hurt consumers and brands, as the 2008 melamine contamination did in China.”

It adds that because margins in dairy are so thin cost controls are essential.

This means companies must streamline operations by improving plant operations, reducing business complexity and using technologies such as robotics and warehouse automation systems to make the supply chain more efficient.

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