COVID-19 IMPACT ON DAIRY IN THE FOOD AND BEVERAGE INDUSTRY

COVID-19 IMPACT ON DAIRY IN THE FOOD AND BEVERAGE INDUSTRY

  • Food & Beverage
  • Jul 22, 2020

COVID-19 IMPACT ON DAIRY IN THE FOOD AND BEVERAGE INDUSTRY

The coronavirus disease (COVID-19) pandemic outbreak has created extreme uncertainty in market growth globally. The pandemic outbreak has affected factors and changes the complete dynamics of the market in ways that are hard to believe. The efficacy and intensity of containment efforts to the extent of supply disruptions, shifts in spending patterns, behavioral changes (such as avoiding purchasing), the repercussions of the dramatic tightening in global market conditions, confidence effects, volatile commodity prices and increasing debt burdens are the factors which have affected the market negatively.

The COVID-19 has led the lockdown in Europe and internationally has impacted the dairy industry tremendously. The stream of dairy-based products is stable whereas due to the disruption in the production of dairy products have faced crises. Longer lockdown in the dairy industry in the different countries has disrupted the supply chain of dairy milk by the farmers.

The sales of dairy-based products such as ice cream, cheese, flavored milk, yogurt, and frozen desserts comprised the highest market revenue in the overall dairy sector which is approximately more than a third of the organized dairy sector’s revenue which has declined up-to 2 to 3% CAGR in the first quarter of 2020, whereas, the reduction in the prices and lockdown of the foodservice sector has drastically impacted the local dairy farmers and have stalled overall dairy industry up to 10%.

Due to the apprehension about consuming cold products such as ice cream, flavored milk and yogurt have shown a drastic declination in their consumption pattern.

To support the local farmers various government authorities have taken strict actions to recovers the crises happened in the dairy sector, for instance,

Table: Action taken by Government Authorities in Dairy Industry

Country Government Authority Action
U.K. Department for Environment, Food and Rural Affairs • Government sets up dairy response fund for local dairy farmers
• Fund to farmers aimed to recover the demand
• Farmers can apply for the fund if they supply milk to a wholesale purchaser and have had a reduction in the average price paid for milk of 25% or more in April 2020 compared to that paid in February 2020.
Scotland, U.K. National Farmers Union of Scotland • The priorities dairy farmers have been identified and include engaging on all discussions relevant to government support options for dairy farmers.
• Working with processors to ensure any adverse impacts on producers are minimized and returns to farm businesses are maximized.
Ireland Irish Creamery Milk Suppliers Association's (ICMSA) • The prices of the milk need to be declared only by the processors to upsurge the index of dairy farmers in surging recovery
U.S. Wisconsin Dairy Alliance (WDA) • U.S. government to use disaster funds to buy cheese inventory that is in storage and package it into consumer-sized portions

Source: Press Release, News, Articles, Journals

The pandemic has broken down the price growth pattern due to the stable consumption growth of cows and other milk specifically in food service sector. In Untied States due to the crises farmers have struggled with the prices and due to the supply chain disruption farmers have dumped out their fresh milk. These actions led the by the farmers have led government authorities to take action towards it and various fund have been suggested to recover the downtime of dairy sector.

Various interviews with the dairy product processors have been conducted by farm animal investment risk and return (FAIRR) in which they have stated that the dairy processor companies at are high risk due to the pandemic and stalled demand of the diary products.

Various giant dairy products processors have participated in the scale on the basis of high risk, low risk, medium risk and ranked out of 60 which shows their potency, for instance,

Table: Response of the companies

Company Name Score
Fonterra Co-operative Group Ltd 56 ( Low Risk)
China Mengniu Dairy Company Ltd 26 ( High Risk)
Vietnam Dairy Products JSC (Vinamilk) 21( High Risk)
Almarai Co JSC's s 16( High Risk)
Inner Mongolia Yili Industrial Group Ltd 15 ( High Risk)
Sanyuan Group 13 ( High Risk)
China Modern Dairy Holdings Limited 11 ( High Risk)

Source: Farm Animal Investment Risk and Return (FAIRR)

Most of the companies have come under the scale of high risk which have ensured in the reduction of total volume of sales of dairy products due to the disruption in consumption, production and supply chain of raw milk.

Local initiatives make the dairy sector stronger. The uncertainty of COVID-19 makes it even more important to follow the developments in the dairy based products such as cheese, cream, flavoured milk market. The affected demand of the dairy products is temporary in region such as Europe, USA and others. The economic impact of chocolate industry was estimated timelines of three months while it will take approximately six months.

DAIRY INDUSTRY: PERSPECTIVE & INITIATIVES

Since last year, the novel coronavirus (COVID-19) pandemic from China has reached to worldwide with infecting more than 1 million people and has caused more than 50,000 deaths. This pandemic has also caused economic devastation. In spite of the shutdown of businesses, the social distancing, and other initiatives taken which are being taken by the governments to stop the spread of COVID-19, the dairy industry has persisted as one of the nation's critical industries in producing, processing, packaging, transporting, selling and serving fresh, nutritious and safe dairy products to the nation and the world.

This has happened as the dairy manufacturers have taken various initiatives in order to provide the products in market. For instance,

“Nestle said it was launching a 500 million Swiss franc ($512 million) program to help the cafes and restaurants it supplies by extending payment terms and suspending rental fees for coffee machines. It also agreed to maintain orders from its dairy suppliers who have faced "significant demand disruptions."

- Nestle

“As a major food company Arla Foods moved quickly to safeguard its people and operations to maintain continuity of supply to customers and meet increases in demand from retail and e-commerce customers in markets around the world. The Company’s crisis management plans have ensured that the supply of milk from Arla’s farmer owners has been uninterrupted and all volumes received have been processed. The supply chain of Arla has implemented strict Covid-19 related measures to secure the safety of employees and uninterrupted production. With these measures, together with a huge commitment from the employees and a strong internal cooperation, Arla Foods has continued production at full capacity with very few interruptions.”

- Arla Foods

“With job losses, food insecurity and the need for additional supplies at food banks at all-time high, we’re grateful for our family farmers, employees, industry partners and friends in the community for all they are doing in the midst of this pandemic to get dairy from the farm to the tables of those in need.”

- Monica Massey, DFA executive vice president and chief of staff, Dairy Farmers of America

Dutch multinational dairy cooperative FrieslandCampina has announced that it is taking all the safety and precautionary measures to slow down the spread of coronavirus (Covid-19).

“I would like to briefly set out how we are working on making sure that you as our customers and business connections can keep relying on us for your daily high-quality nutrition.”

- Hein Schumacher CEO, FrieslandCampina

“Cheese maker Saputo Inc. is eyeing takeover opportunities amid the current market carnage as it works through a “massive shift” in demand away from restaurants and other food service customers to retailers such as supermarkets.”

The company also said: “Saputo factories serving retailers are “running hard,” in some cases at more than full capacity.”

- Saputo, Canada’s biggest milk processor

CONCLUSION

From the wrath of COVID-19 across all industries, its impact has not remained unscathed in the dairy industry as well. Though milk production across the world has been rising, but the demand for dairy products has been varying across the various regions. Being one of the daily essentials, the demand in developing countries have been on a rise, while in the developed countries, a significant shift can be observed towards plant-based dairy products.

The pandemic has taxed dairy farmers in a number of ways, the first being management of dairy animals and second the marketing and sale of milk and other by-products. There has been a drastic fall in milk prices across Asian and European countries, which has been further affecting the industry. However, national governments have been taking measures to mitigate the negative impact of the pandemic, for instance, the Canadian government has amended the Canadian Dairy Commission Act to support dairy producers and processors and ensure Canadians maintain access to affordable food.

The performance of the national farm gate milk price can be used as an indicator for the impact of dairy crisis, and across the globe, the U.S. and India are the major epicenters for dairy crisis, wherein large drops of -29% and -19% were observed respectively.

The dairy industry, which experienced a stable growth across all the regions since the past few years, has been experiencing a slower growth in 2020. However, the industry experts forecast a possible growth in the coming years, owing to the consumer’s potential shift from meat protein to diary protein. However, the major threat for growth of the industry lies in the growing demand for plant-based substitutes across the developed nations. In addition, government has been investing huge funds to support increase in consumption of dairy industry. For instance, USD 1 million campaigns were launched in the UK to promote milk and other dairy products in a bid to increase consumption.

Considering these developments and also the impact of COVID on dairy sector, industry experts have been foreseeing a U-shaped growth curve for the industry, wherein the growth of dairy sector is expected to regain its stable growth by second half of 2021.


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