Challenges to the organic dairy sector

A second dairy report released this week reveals that European sales of organic dairy products grew by 26.2 per cent in 2001 to top €1.2 billion in 2001.

According to market analysts Organic Monitor, consumer demand for organic dairy products remains strong in Europe with many countries reporting sales growth in excess of 30 per cent in 2001.

The Italian and German markets saw the highest growth last year, a direct result of the BSE crisis that elevated consumer demand, claims Organic Monitor. Furthermore, the report adds, the BSE crisis was responsible for a large rise in organic food sales at mainstream food retailers in Germany and Italy.

Supermarkets accounted for 63 per cent of organic dairy revenues in 2001 and they are the most important marketing channels for organic foods in most European countries. In Scandinavia, the supermarkets have the highest market share where over 90 per cent of organic dairy products are sold via the major retail groups. The Scandinavians are also the highest spenders on organic dairy products with Danish consumers spending over eight times as much as German consumers.

The largest organic milk market is in Denmark where organic milk accounts for a third of all milk sales in leading retailers. However, according to the report, the Danish market will show the lowest growth in the coming years due to the market reaching maturity. Denmark had the fourth largest organic dairy products market in 2001 but will become one of the smallest by 2005.

The Italian and German organic dairy product markets are forecast to show the highest growth between 2002 and 2007. The marketing efforts of the major retailers are projected to raise revenues by over 20 per cent per annum in the short term. The German market is forecast to represent a third of European organic dairy revenues in 2007. The British and French markets are expected to remain the second and third largest over the forecast period.

The report shows that the bulk of European organic dairy revenues, 42.5 per cent in 2001, is the organic milk segment. Over half a billion litres of organic drinking milk was sold in Europe representing 3.1 per cent of total drinking milk volumes.

Organic Monitor​ predicts that healthy growth in the organic dairy sector will continue but it will also face a number of challenges. One of the most important will be to overcome supply-demand imbalances. Overproduction resulted in over half of the organic milk produced in Denmark and the UK to be sold as conventional milk in 2001, while many parts of southern Europe suffered from supply shortages.

The organic dairy sector is also set to become highly competitive as more country markets reach maturity. Large dairies are expected to gain market share as they are able to achieve economies of scale in the production and marketing of organic dairy products. Large conventional dairies already dominate the Scandinavian, French and Dutch markets and this trend is likely to spread to other European countries as market growth rates slow and competition becomes more intense.