Dairy processors hit hardest by pandemic

Mathieu Geuskens
Published on
June 7, 2022

Financial data can reveal a lot about the performance of an industry. In our dairy trend report, we looked at the financial data of the top 300 dairy companies in Western Europe. We focus on the following themes: growth in net sales (CAGR), profitability (EBIT) and return on assets (ROA) across the different links of the value chain. What stands out is that dairy processors are the most affected by the pandemic. This is mainly due to dependency: because of their position in the value chain, they do not have a firm grip on the market. 

COVID-19-induced lockdowns stagnate sales growth in dairy industry 

Although the sector grew at an average annual rate of 5.9% between 2016 and 2019, a slight decline was recorded in 2020. While the retail sector did well, the effect of lockdowns on the restaurant trade severely reduced sales, especially for dairy processors and traders and less so for producers. Dairy processors were hit hardest by the effects of the pandemic, as evidenced by the decline in their net sales development. 

Net Sales Development - by chain link - index

Dairy processors most affected by disruptive market dynamics 

Our data shows that dairy processors have suffered the most from disruptive market movements. In 2020, milk processors saw their EBIT margins decline significantly (-1.1%) compared to producers and traders. These companies were hit hardest by the impact of the pandemic because processors tend to be more specialized and have less control over market dynamics due to their position in the value chain. Producers and traders are in a better position to benefit from lower price levels. Producers are larger in scale, which from a certain level (about 500 million euros net sales and above) leads to characteristic economies of scale and control over price development. Processors, on the other hand, are more dependent on both producers and buyers, and thus suffer more in a market with falling milk prices. As a result, dependence on both producers and buyers hampered processors in a market with falling milk prices and caused the steepest decline in sales and margin loss among all links in the value chain. 

Profitability (% EBIT) - by value chain link

Value-driven strategy proves to be the right path for dairy processors  

Despite these developments, there are also examples of dairy processors showing good results. A telling example is Vandersterre, a Dutch cheese processor and trader. The company focuses on value-added cheeses and has a good portfolio in terms of sales channels. Their growth is largely due to the acquisition of a company called DupontCheese, although organic growth has also been achieved.  

Fast Growers

In 2021, the value of dairy trade increased again compared to pre-COVID 2019, by +5.8%. Listed or cooperative multinationals that published on 2021 confirm recovery or growth, but all also point to challenging market conditions such as labor shortages, supply chain disruptions and cost inflation. Current cost inflation and supply chain disruptions underscore that a value-driven strategy is the future.  

Curious about our other findings on the dairy industry? Download our latest trend report using the button below. 

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