In 1998 the total organic dairy productsmarket had reached a total of $1.3 billion. Organic food as a whole has been one of thefastest growing areas of the food industry in Europe, with both production and consumptionrising rapidly.

The International Federation of OrganicAgricultural Movements (IFOAM) has defined organic food as: "That which is farmedwithout the use of chemically formulated pesticides, herbicides and/or fertilisers, and asinvolving animals reared without the use of growth stimulants, regulators, and orartificial food additives. Animals should also be allowed as natural a life as possibleand should be slaughtered humanely."

For the purposes of this report theEuropean organic dairy products market has been segmented into the three main areas listedbelow and shown in Chart 1.1:

  • Organic drinking milk market
  • Organic cheese market
  • Organic yoghurt market

These are by far the most developed organicdairy products markets in Europe. Other products such as organic cream, ice cream andorganic butter have much smaller unit shipments in Europe.

Chart1.1

Total Organic Dairy Products Market: MarketSegmentation (Europe), 1998

Summary of Major Findings

Market Growth, Opportunities andTotal Forecast

Organic dairy products have becomeincreasingly popular throughout the 1990s. This has been due to a number of reasons.

The increase in the number of food relatedhealth scares such as the UK centred Bovine Spongiform Encephalopathy (BSE) crisis andmore recently the GMO (Genetically Modified Organisms) issue, have all influencedconsumer's purchasing behaviour, with dramatic increases in demand for organic dairyproducts.

European consumers have also becomeincreasingly concerned with the environment, which has further increased demand fororganic dairy products. The liberal use of pesticides by farmers and the unnecessarysuffering of livestock have all been highlighted in the press over recent years, anddriven higher numbers of consumers to purchase organic dairy products. Many consumers havefelt the need to become more environmentally friendly. One obvious and easy way forindividuals to do this is through the purchase of organic food.

All these factors combined has enabled theEuropean organic dairy products market to increase rapidly since the beginning (1995) ofthe forecast period.

Countries with the highest share of themarket are those that have lent the most support to the organic movement, includingAustria, Switzerland and Denmark. Various forms of Government subsidies exist which haveall helped to increase the number of organic dairy farms in Europe, but the governments inthese countries have offered particularly attractive benefits to farmers converting toorganic methods of agriculture.

The major growth segment has been theorganic drinking milk market, which had 54 percent of the market in 1998. Volume shipmentsof organic milk and organic yoghurt have both been increasing at a fast rate, while demandfor organic cheese has been at a lower level.

Reasons for this disparity include thebetter consumer appeal of organic milk and yoghurt, whereas organic cheese is much moreexpensive than conventional cheeses.

By 1998, revenues for the total Europeanorganic dairy products market had reached $1.3 billion.

After this date revenue growth rates in thetotal European organic dairy products market are expected to become more subdued. Growthrates are slowing due to the increasing maturity of the organic dairy products market inEurope. It is harder for unit shipments to grow significantly as penetration intoconventional dairy products markets deepens. However, for many consumers the purchasing oforganic dairy products has actually become a habit.

By the year 2005, revenues for the totalEuropean organic dairy products market are forecast to reach $4.4 billion.

Total Organic Milk Market

In 1998 revenues for the total Europeanorganic milk market had increased to $713.1 million.

The major drivers for this market are asfollows:

  • Higher demand for more natural products
  • Market entry of the supermarkets
  • Health scares
  • Increased support for animal welfare
  • Increasing supply of organic milk from organic dairy farmers

The major restraints include:

  • Higher prices limited demand
  • Lack of supply in some areas also limited demand

Total Organic Cheese Market

In 1998 revenues for the total organiccheese market in Europe had increased to $167.7 million.

The major drivers for this market are asfollows:

  • Increase in demand for more healthy products
  • Entry of the supermarkets
  • Food quality and safety scares
  • Increased empathy for animal welfare
  • Increasing volume shipments of raw materials; organic milk

The major restraints include:

  • Higher price premium has limited demand
  • High demand for organic milk has limited supply of milk for cheese production
  • Lower availability in retail outlets, compared with milk or yoghurt, has also stifled demand

Total Organic Yoghurt Market

In 1998 the revenues for the total Europeanorganic yoghurt market had reached $428.3 million.

The major drivers for this market are asfollows:

  • Entry of supermarkets dramatically increased demand
  • Demand for more healthy foods
  • Animal welfare issues
  • Food scares and quality issues
  • Increased availability of organic milk; the main raw material

The major restraints include:

  • High price premium has limited demand
  • Problems of supply in some areas led to reduced availability

Analysis by Geographic Region

In 1995 Germany had, by far, the largestorganic dairy products market, with 39.5 percent. Germany's organic dairy products marketdeveloped relatively early, but since 1995 organic dairy products markets in otherEuropean countries have increased at a faster rate, while Germany's revenue growth hasbeen more subdued.

By 1998 Germany was still the marketleader, but their share had fallen to 26.6 percent. Other important countries, in rankorder, include Switzerland, Austria, Denmark and Sweden. Countries such as France theNetherlands and the UK are less developed but expanding their organic dairy productsmarkets rapidly.

Competitive Analysis

There are a number of important companieswithin the European organic dairy products market. Most concentrate on domestic sales, butexports are increasing. This is because the supply of organic milk in many countries islower than demand.

The conventional dairies have increasedtheir share of the organic dairy products market rapidly over recent years. Previously,organic milk, cheese and yoghurt was processed by smaller, dedicated organic dairies.However, conventional dairies saw this lucrative market as an area for expansion due tothe high demand and limited supply of organic dairy products in Europe.

By 1998, many conventional dairies were nowactive in the organic dairy products market as well.

Large companies in the European organicdairy products market include the Danish companies MD Foods and Klöver. In Sweden, Arlahas by far the highest share of organic milk production, while in the Netherlands the twolarge conventional dairies, Campina Melkunie and Friesland Coberco are rapidly increasingtheir share of the organic dairy products market through mergers and joint ventures.

In France, Besnier is another largeconventional dairy that has taken control of the organic dairy products market.

Adding value to the basic product offeringswill become increasingly important in the European organic dairy products market. This canbe achieved though increasing the product portfolio of organic dairy products offered by acompany.

The market is also expected to becomeincreasingly internationalised over the rest of the forecast period, with exportsincreasing further.

Conclusions

The organic dairy products market isforecast to remain one of the fastest growing organic markets in Europe. The similarappearance of organic dairy products to its conventional counterparts will continue todrive growth forward. Also, factors such as the continuing debate regarding GMOs and newfood/health scares will ensure higher numbers of consumers purchase organic dairy productsin the future.

Prices for organic dairy products areforecast to fall somewhat over the rest of the forecast period, further stimulating demandand volume shipments.

At present most demand is for singleingredients, in the form of either organic milk, cheese, or yoghurt. Over the rest of theforecast period there will be an increase in unit shipments of organic dairy desserts andorganic ready-made meals which will both contain organic dairy products. Both theseproducts are value-added, and will help increase revenues for the European organic dairyproducts market over the rest of the forecast period.