Sector Study: Dairy products
Further decline in the consumption of milk in 2017
The domestic sector of dairy products is examined in a recent study of Infobank Hellastat S.A. According to Alexis Nikolaidis, Economic Research & Sectorial Studies Senior Analyst, the broader sector has been affected over time, by the economic recession of recent years, with domestic consumption after 2009 showing a downward trend due to the gradual shrinking of the purchasing power of consumers, with significant differences, however, being identified among the individual market categories.
According to the Association of Greek Dairy Product Industries (SEVGAP), in 2016, the consumption volume of milk decreased in all categories, to about 10%-12%, while the corresponding decrease in value amounted to 12%-17%. However, a big part of the losses resulted from the collapse of the network of Marinopoulos prior to the finalization of its acquisition by Sklavenitis.
Furthermore, IRI estimated that milk sales by supermarkets (excluding Lidl) fell further by 4.7%, to €232m, throughout 2017. Therefore, during the 2013-2017 period, a cumulative decline of 27% was recorded.
The deregulation of the shelf life of milk has enabled domestic companies to reduce the cost of returns. However, supermarkets and major suppliers now have the opportunity to import cheaper milk and sell it as fresh at competitive prices. Imports have shown a significant rise also due to lifting community quotas, which caused a sharp rise in the production output of countries such as the Netherlands, Germany, and France.
In terms of farm prices in cow’s milk, the average price amounted to €0.3937 per kilo in 2017, showing a slight rise of 1.2%. During the year, and over the first quarter, prices were lower than 2016, while a recovery trend followed, especially during the last months, up to €0.4088 in December, under the influence of rising prices in countries of Northern Europe.Finally, the number of cattle farming operations has dropped significantly, since farmers are under pressure from: the rising imports of cheap milk due to the deregulation of its shelf life, the reduction in the volume of delivered milk from the manufacturing industries due to diminishing domestic demand and low farm prices.
According to Mr. Nicolas Gouzelos, Chairman & CEO of Infobank Hellastat, “Given the weak domestic consumption and decline demonstrated by the Greek market, the further boost of an internationally-oriented outlook and export activity can become a doorway of opportunity. The most favorable prospects can be identified in yogurt, where the Greek products already have a successful presence in major foreign markets.”
In the study conducted by IBHS, an analysis takes place of the financial statements of 80 companies. The key conclusions are summarized as follows:
- In 2016, Turnover subsided by 1.2% to €1.89bn.
- Total EBITDA dropped by 2.6%, at €123.4m, while EBT boosted by 7% to €25.5m.
- The EBITDA margin and the EBT margin dropped to 7% and 2.8%, respectively.
- Capital leverage rose to a high of 1.7 over 1.
- Receivables were collected within a period of 4 months.