Blog: Dean BestAre dairy prices returning to normal?

Dean Best | 12 November 2007

From Kraft to Cadbury and Dean Foods to Danone, dairy bills have been a strain this year. It’s been an unprecedented few months. Some have faced difficult discussions with retailers reluctant to raise prices, while others have been forced to cut jobs to boost margins. Boardrooms around the world must be eyeing the horizon for some respite.

Arla Foods, for one, sees some light at the end of the tunnel. Last week, the company’s boss told Denmark’s dairy farmers that dairy markets were starting to return to normal. Peder Tuborgh’s comments were something of a surprise, especially when others remain under pressure. And for instance, Dean Foods, the largest dairy firm in the US, sees little sign of that pressure abating.

Perhaps a more significant sign of the state of the dairy sector is Danone’s tentative plan to create several giant dairy farms. Safeguarding future milk supplies is vital with the sector remaining in a state of flux, with the industry being at the mercy of vagaries in the climate and, most significantly, with demand surging as diets in Asia change.

A dairy company in a state of flux is one of the sector’s biggest, Australia’s National Foods. Last week, Japanese brewer Kirin agreed to pay A$2.8bn (US$2.5bn) for National Foods. The drought in Australia looks to have forced the hand of National Foods’ former owner, Philippines conglomerate San Miguel, and there will be questions as to whether Kirin, keen to expand overseas amid stagnation in Japan’s beverage market, will succeed Down Under.

And how will Coles Group, one of the biggest retailers Down Under, fare under new ownership? New owners Wesfarmers has secured support from Coles shareholders and named the retailer’s management team but the conglomerate faces an uphill task competing with rival Woolworths, which pulled away while the future of Coles remained up in the air.


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