A new study has revealed that increasing competition and declining profitability in the dairy industry are prompting many UK companies to look to the value-added milk market for growth opportunities.

According to Organic Monitor, the value-added milk sector, which currently constitutes 6% of drinking milk sales, is growing fast. In 2005, the sales of value-added milk grew by 39%.

The most profound growth can be noted in organic milk sales. Many retailers have reported growth in excess of 50 % during 2005. Consumer demand for organic milk has broadened since several studies showed it to have higher levels of vitamin E, omega acids and conjugated linoleic acid than conventional milk.

Targeting consumers seeking specific health benefits, the functional milk sector has also experienced a marked increase in 2005. The launch of Saint Ivel Advance last year met with considerable success. Fortified with omega acid Saint Ivel Advance has helped drive growth in the popularity of functional milks in 2005. Future functional milk product launches are expected to drive further growth of the segment.

Flavoured milk has the highest retail penetration of the value-added sector. Consumers are increasingly purchasing flavoured milks as alternatives to soft drinks and flavoured milk sales are expanding with the launch of own-label products.

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The new study, titled the UK Market for Value-Added Milk, finds that high growth rates are attracting a number of new entrants into the market. Dairies, re-aligning their businesses to move away from commodity products, are investing heavily in value-added milk while large food companies like Nestlé and Unilever are coming into the market because of the growth potential and low barriers to market entry.

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