NW European dairy companies under pressure as milk production slows

A Rabobank report warns the decline in milk production in the region could be faster and greater than companies could manage.

Rabobank Dutch dairy analyst Richard Scheper said after a decade of growth, north-western European milk production was expected to decline due to:

If the decline was gradual, processors could shift towards higher value dairy products.

"A strategy of transitioning toward higher-added-value protein ingredients, (branded) consumer products and cheese would likely be manageable," Mr Scheper said.

But a steeper decline appeared more likely as deadline for water-quality regulations approached and nitrogen-reduction targets intensified.

This would put pressure on dairy companies' operational and financial performance.

"These challenges begin with revenue losses and reduced cost efficiency, are followed by increased competition for milk, and culminate in the capital implications of excess processing capacity on the balance sheet," Mr Scheper said.

"For dairy co-operatives, the challenges are even more complex, as lower milk intake generally coincides with members withdrawing capital."

The implications were severe as lost revenue, excess capacity and capital constraints quickly accumulated.

Mr Scheper said more consistent policies were needed to address this problem.

"Standstills and stalled policy decisions only make pathways steeper as deadlines come closer," he said.

"As such, it's better for dairy companies to be proactive than face harsher consequences at a later stage."