How milk is used
Milk Sourcing Philippe Bassin
VP Purchasing Dairy Worldwide
Milk Sourcing 1. What is milk? 2. Key market specifics 3. Milk pricing 4. Milk strategic axes
How milk is used High added value Yoghurt / FDP
PROTEINS
Fresh cheese, branded Fresh milk
CREAM WHEY
UHT Functionnal milk powders
Butter/traded cheese Milk powder
Commodities
Key market specifics Liquid milk cannot be stored (48h max) nor transported over long distances (1,500 km max) SMP / butter / cheese are the only way to store big volumes of milk and trade them
Key market specifics Liquid milk cannot be stored (48h max) nor transported over long distances (1,500 km max) mln tons 19
Milk Production Seasonality SMP / butter / cheese are the only wayUSA+ to store volumes EU15 big + New Zealand of milk and trade them 18
Fresh milk: Strong local political drivers, rural producers having political influence Seasonality is significant
17
Market cycle + 18 to 24 months 16 Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Feed cost represents 50-60% of production costs
Sep
Oct
Nov
Dec
Drivers of milk production costs Feed & type of farm model Extensive farming model
NEW ZEALAND
IRELAND
Intensive farming model
ARGENTINA
FRANCE
USA
Weather impact on milk production
SAUDI ARABIA
Feed cost impact on milk cost
Fixed cost impact on milk cost
GRASS
MEXICO
SILAGE CORN GRAIN
CORN SOY HAY
Milk Pricing
How the milk price is formed
h Open market
Regulated markets
High import/export
Export subsidies Controlled stock Government interaction
Extensive farm model Driven by supply/demand
Milk Price
Common drivers but price differs by region & country
Intensive farm model Driven by feed price
Key drivers of Farm Gate prices
Cheese drives EU milk price
+ US NFDM and US butter
Government
Inflation Local price of UHT milk
Milk price patchwork €/ton
RUSSIA UKRAINE
USA
207
332 TURKEY
ALGERIA
361
MEXICO
179
256 CHINA
374 338
330
EGYPT BRAZIL
254 ARGENTINA
176
KSA
SOUTH AFRICA
254
Still wide variation between regions
318
Milk price patchwork – Europe €/ton
BELGIUM
GERMANY
235 POLAND
242 FRANCE
253
CZ REP
216
286
HUNGARY
213 PORTUGAL
311
SPAIN
332
ROMANIA
267
Wide variation within Europe Spain 16% more expensive than France
BULGARIA
France 34% more than Hungary
311
Spain is 55% more than Hungary
What happened in 2007? Stock-to-use ratio 2% Rise in milk production costs (input costs – Feed & fuel) Severe drought in Oceania Critical supply situation; prices exploded “Milk Tsunami” Activated cross operations productivity program P300 – P300 €300 mln productivity – DanSource to leverage volume Fruit & resins
SMP $/MT
$5 500 $5 000 $4 500 $4 000 $3 500 $3 000 $2 500 $2 000 $1 500 $1 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2003
2004
2005
2006
2007
What happened since 2007? Stocks KTon
Dairy Stocks
1 400
1 400
Farmers reacted faster 1 200 - 8 months instead of 14 1 000
1 200 1 000
800
Retail consumption fell to ~1% 600
600 400
400
The market overcompensated 200 - Excess supply 0 - Stocks increased dramatically janv-99
800
janv-00
USA SMP
Prices fell sharply from $5,000 to $2,200
janv-01
EU SMP
200 janv-02
0
janv-03
janv-04
ARG SMP
janv-05
janv-06
Butter EU +EU US Butter
janv-07
+ USCIS
janv-08
SMP
janv-09
CIS SMP
SMP $/MT
$5 500 $5 000 $4 500 $4 000 $3 500 $3 000 $2 500 $2 000 $1 500 $1 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3Q4 Q1Q2Q3Q4 Q1 Q2 Q3 Q4 Q1Q2Q3
2003
2004
2005
2006
2007
2008
2009
Market Outlook 2010-12 Farmers’ margins very low – below 10yr historical average – Farmer protests & political intervention – De-regulation making markets more volatile – Government stocks being witheld from market Consumer demand picking up 2%+ Production reduced to +0.9% in 09 Short term market is tightening SMP $/MT
WMP Prices, 2004-2009
$5 500 $5 000 $4 500
5 000 $4 500 $4 000
$4 000 $3 500 $3 000 $2 500
$3 500 $3 000 $2 500
$2 000 $1 500 $1 000
$2 000 $1 500 Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4 2003
2004
2005
2006
2007
2008
2009
2010
2004
2005
2006
2007
2008
2009
Trading event month USDA Oceanis Average
Global Dairy Trade Average Spot Contract
Source: USDA International Dairy Market News, global Dairy Trade
Mid-term price increase slightly above long-term average
P300 Accelerate € 750 mln in next 3 years in COGS Supplier engagement - They generate productivity ideas - Challenge our way of working - Incentivized on results
PRODUCT I V I TY
Decomplexification - Ex 900 fruits preps sku in Europe, 300 for strawberry only !
Leverage DanSource organisation further
Key points
The market is becoming more volatile - Possibility for milk futures being developed Near-term price will be above the historical average Project “Accelerate” will contribute to offset the market PROD U CT I V I T Y
Access to milk is key success factor for growth in emerging countries
Need to support our farmers toward more sustainable economical & environmental model
Key Milk Strategic Axes
Main Milk Axes Upstream - Dan Farm - Feed programs - Environmental impact Transformation - Cracking milk - Optimal use of all milk components Valorisation - Cream resales - Innovative products
Upstream - DanFarm model
• Milk collection
• Breed selection
• Training centre
• Feed purchase
• Technical advice
• Feed production
The central DanFarm The Central DanFarm • 2,500 milking cows • 22 mln ltr milk/year • 70 people • High prod° standard
DanFarm benefits DanFarm Secure supply Cost efficient model Manage the feed risks Optimise feed & cow yields Develop local milk value chain – Ecosystem – Develop communities
Transformation The Danone milk platform
Cream Butter
Skimmer
Skimmed milk
SMP Blends
Directly to cheese
Sweet whey
Acid whey
feed
1Lt for each 1kg of product
WPCs Whey
Powders
Transformation The Danone milk platform (2) Casein Minerals
Cream Butter
Lactose Water Whey
Skimmer
Skimmed milk
SMP Blends
Directly to cheese
Sweet whey
WPCs Whey
Powders
Transformation The Danone milk platform (3) Casein Minerals
Cream Butter
Cracking milk
Lactose Water Whey
Skimmer
Excess Components
Skimmed milk
SMP Blends
Innovation Drinks Cream desserts
Directly to cheese Whey
WPCs Whey Powders
ByProducts
Optimise sales Eg cream
Thank you
VP Purchasing Dairy Worldwide
Milk Sourcing 1. What is milk? 2. Key market specifics 3. Milk pricing 4. Milk strategic axes
How milk is used High added value Yoghurt / FDP
PROTEINS
Fresh cheese, branded Fresh milk
CREAM WHEY
UHT Functionnal milk powders
Butter/traded cheese Milk powder
Commodities
Key market specifics Liquid milk cannot be stored (48h max) nor transported over long distances (1,500 km max) SMP / butter / cheese are the only way to store big volumes of milk and trade them
Key market specifics Liquid milk cannot be stored (48h max) nor transported over long distances (1,500 km max) mln tons 19
Milk Production Seasonality SMP / butter / cheese are the only wayUSA+ to store volumes EU15 big + New Zealand of milk and trade them 18
Fresh milk: Strong local political drivers, rural producers having political influence Seasonality is significant
17
Market cycle + 18 to 24 months 16 Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Feed cost represents 50-60% of production costs
Sep
Oct
Nov
Dec
Drivers of milk production costs Feed & type of farm model Extensive farming model
NEW ZEALAND
IRELAND
Intensive farming model
ARGENTINA
FRANCE
USA
Weather impact on milk production
SAUDI ARABIA
Feed cost impact on milk cost
Fixed cost impact on milk cost
GRASS
MEXICO
SILAGE CORN GRAIN
CORN SOY HAY
Milk Pricing
How the milk price is formed
h Open market
Regulated markets
High import/export
Export subsidies Controlled stock Government interaction
Extensive farm model Driven by supply/demand
Milk Price
Common drivers but price differs by region & country
Intensive farm model Driven by feed price
Key drivers of Farm Gate prices
Cheese drives EU milk price
+ US NFDM and US butter
Government
Inflation Local price of UHT milk
Milk price patchwork €/ton
RUSSIA UKRAINE
USA
207
332 TURKEY
ALGERIA
361
MEXICO
179
256 CHINA
374 338
330
EGYPT BRAZIL
254 ARGENTINA
176
KSA
SOUTH AFRICA
254
Still wide variation between regions
318
Milk price patchwork – Europe €/ton
BELGIUM
GERMANY
235 POLAND
242 FRANCE
253
CZ REP
216
286
HUNGARY
213 PORTUGAL
311
SPAIN
332
ROMANIA
267
Wide variation within Europe Spain 16% more expensive than France
BULGARIA
France 34% more than Hungary
311
Spain is 55% more than Hungary
What happened in 2007? Stock-to-use ratio 2% Rise in milk production costs (input costs – Feed & fuel) Severe drought in Oceania Critical supply situation; prices exploded “Milk Tsunami” Activated cross operations productivity program P300 – P300 €300 mln productivity – DanSource to leverage volume Fruit & resins
SMP $/MT
$5 500 $5 000 $4 500 $4 000 $3 500 $3 000 $2 500 $2 000 $1 500 $1 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2003
2004
2005
2006
2007
What happened since 2007? Stocks KTon
Dairy Stocks
1 400
1 400
Farmers reacted faster 1 200 - 8 months instead of 14 1 000
1 200 1 000
800
Retail consumption fell to ~1% 600
600 400
400
The market overcompensated 200 - Excess supply 0 - Stocks increased dramatically janv-99
800
janv-00
USA SMP
Prices fell sharply from $5,000 to $2,200
janv-01
EU SMP
200 janv-02
0
janv-03
janv-04
ARG SMP
janv-05
janv-06
Butter EU +EU US Butter
janv-07
+ USCIS
janv-08
SMP
janv-09
CIS SMP
SMP $/MT
$5 500 $5 000 $4 500 $4 000 $3 500 $3 000 $2 500 $2 000 $1 500 $1 000
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3Q4 Q1Q2Q3Q4 Q1 Q2 Q3 Q4 Q1Q2Q3
2003
2004
2005
2006
2007
2008
2009
Market Outlook 2010-12 Farmers’ margins very low – below 10yr historical average – Farmer protests & political intervention – De-regulation making markets more volatile – Government stocks being witheld from market Consumer demand picking up 2%+ Production reduced to +0.9% in 09 Short term market is tightening SMP $/MT
WMP Prices, 2004-2009
$5 500 $5 000 $4 500
5 000 $4 500 $4 000
$4 000 $3 500 $3 000 $2 500
$3 500 $3 000 $2 500
$2 000 $1 500 $1 000
$2 000 $1 500 Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q3Q4 Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4 2003
2004
2005
2006
2007
2008
2009
2010
2004
2005
2006
2007
2008
2009
Trading event month USDA Oceanis Average
Global Dairy Trade Average Spot Contract
Source: USDA International Dairy Market News, global Dairy Trade
Mid-term price increase slightly above long-term average
P300 Accelerate € 750 mln in next 3 years in COGS Supplier engagement - They generate productivity ideas - Challenge our way of working - Incentivized on results
PRODUCT I V I TY
Decomplexification - Ex 900 fruits preps sku in Europe, 300 for strawberry only !
Leverage DanSource organisation further
Key points
The market is becoming more volatile - Possibility for milk futures being developed Near-term price will be above the historical average Project “Accelerate” will contribute to offset the market PROD U CT I V I T Y
Access to milk is key success factor for growth in emerging countries
Need to support our farmers toward more sustainable economical & environmental model
Key Milk Strategic Axes
Main Milk Axes Upstream - Dan Farm - Feed programs - Environmental impact Transformation - Cracking milk - Optimal use of all milk components Valorisation - Cream resales - Innovative products
Upstream - DanFarm model
• Milk collection
• Breed selection
• Training centre
• Feed purchase
• Technical advice
• Feed production
The central DanFarm The Central DanFarm • 2,500 milking cows • 22 mln ltr milk/year • 70 people • High prod° standard
DanFarm benefits DanFarm Secure supply Cost efficient model Manage the feed risks Optimise feed & cow yields Develop local milk value chain – Ecosystem – Develop communities
Transformation The Danone milk platform
Cream Butter
Skimmer
Skimmed milk
SMP Blends
Directly to cheese
Sweet whey
Acid whey
feed
1Lt for each 1kg of product
WPCs Whey
Powders
Transformation The Danone milk platform (2) Casein Minerals
Cream Butter
Lactose Water Whey
Skimmer
Skimmed milk
SMP Blends
Directly to cheese
Sweet whey
WPCs Whey
Powders
Transformation The Danone milk platform (3) Casein Minerals
Cream Butter
Cracking milk
Lactose Water Whey
Skimmer
Excess Components
Skimmed milk
SMP Blends
Innovation Drinks Cream desserts
Directly to cheese Whey
WPCs Whey Powders
ByProducts
Optimise sales Eg cream
Thank you
