According to Rabobank’s annual Global Dairy Top 20 report, which highlights revenue performance of the world’s dairy sector leaders, just five businesses retained their place from the previous year, suggesting a rearrangement throughout the whole list. Lactalis maintained its lead, but Dairy Farmers of America moved up to second, pushing Nestlé to third. Position changes in the ranking were impacted by a higher US dollar. The aggregate turnover of the Top 20 corporations increased by 7.4% in US dollar terms, after a 9.3% increase the previous year. For these 20 market leaders, merger and acquisition activity was virtually on par with the previous year. The second half of 2022 had a slump, which lasted into the first part of 2023.
Due to elevated dairy commodity costs, 2022 will see a record-high turnover.
EU dairy product prices rose to record annual average highs, fueled by a second wave of war-induced inflation. Milk powder costs were also raised in Oceania and the United States. Simultaneously, lower-than-expected milk production increases in the key exporting areas, along with solid domestic demand, led to an overall tight dairy market with limited exportable surpluses throughout most of 2022.
Overall, year-on-year average price increases in butter, cheese, milk powders, and other dairy goods lay the way for double-digit local currency turnover growth in 2022.
Higher revenues are offset by a rising cost base and historically high milk costs.
“In the end, most turnover gains were absorbed by exploding costs, leaving little left on the companies’ bottom lines,” says Richard Scheper, Rabobank’s dairy analyst. “Many dairy companies paid record-high average farmgate milk prices to offset large farm input costs.” Rising energy prices and the availability of natural gas, particularly in Europe, were the most pressing problems for energy-intensive dairy processing at the plant gate. Other costs, such as shipping, packaging materials, and labor, will also rise in 2022.
A stronger US dollar affected ranking position alterations.
According to Scheper, “for non-US-based dairy companies, turnover gains in local currencies were partly or even entirely offset by the stronger US dollar, giving rise to position changes across the board and contributing to the entry of Ireland-based Glanbia.” Glanbia’s revenues are mostly drawn from sales in the United States, and the business recently stated that it would begin reporting in US dollars rather than euros in the near future.
The Canadian dollar also gained ground against a variety of other currencies, notably the euro. This allowed Canada-based Saputo (10th) to maintain its place in the top ten, while moving Agropur up one spot to 15th. Both firms have significant sales volumes in the United States, providing them a competitive edge over the other 11 companies on the list that report in euros.
FX developments in 2022 were especially unfavorable for dairy companies reporting in New Zealand dollars, renminbi, and yen, causing New Zealand’s Fonterra to drop three spots, China’s Yili and Mengniu to lose turnover gains in US dollar terms, and Japan-based Meiji, a long-standing Top 20 company, to drop out of the list.
Less activity and smaller transactions in mergers and acquisitions
With approximately 25 acquisitions, merger and acquisition activity in 2022 was virtually on pace with the previous year. However, 1H 2023 activity declined in terms of both the quantity and amount of agreements disclosed, with around eight announced vs approximately 12 announced in the first six months of 2022.
