London – The British organic dairy products market is to show healthy growth in the coming years however oversupplies are set to continue.

Overproduction is responsible for half of British produced organic milk to be sold as conventional milk this year. The situation has arisen due to a flood of organic milk coming into a market that is showing slower growth rates. The British organic dairy products market is reporting growth of 26.7 percent in 2001 after years of growth above 33 percent.

A new strategic study by Organic Monitor (www.organicmonitor.com) values the British organic dairy products market at US $236 million in 2001, making it the second largest in Europe. Healthy growth is to continue with market revenues set to double by 2006.

Higher volumes of certified organic milk are to come into the market in 2002 and overcapacity could cause only a third being used as organic milk. The study shows that the supply-demand imbalance has been exacerbated by the lack of export opportunities for British dairies. The foot-and-mouth disease has prevented British producers to alleviate excess capacity to Europe. The strength of the British pound, high production costs, and the short lifetime of these products are to restrict exports in the future.

The organic yoghurt and organic milk segments account for over 70 percent of British organic dairy product revenues. The most developed is the organic yoghurt market, which has 6.4 percent share of the British yoghurt market. The highest growth is to be observed in the organic cheese segment due to new varieties being introduced.

The market has experienced high growth in previous years due to increased marketing by the supermarkets and broadening of product categories. The range of organic dairy products in British supermarkets is currently the most comprehensive in Europe. Future growth is to be driven by marketing campaigns, retail competition, and product innovations.

The study however warns of the negative implications of retail competition. Prices of organic dairy products are predicted to continue to decline as supermarkets undertake price-cutting strategies to gain market share. This is expected to squeeze dairy and farmer margins putting pressure on the pricing mechanisms currently in place.