Proposal for a multiclient study of The Dynamics, Operators & Opportunities in Key Technical Dairy Ingredient Markets to 2020 WPC/I WPH MPC/I Caseins MCC/MCI Native whey proteins Permeates Fat-filled Powder for Producer Dairies Ingredient end-users Traders Investors in the sector Supplying new consumer & industrial dairy needs February 2017 Contact: clafougere@girafood.com Tel: +33 450402400 Website: www.girafood.com
Contents of the Proposal 1. Background page 3 2. Objectives 5 3. Scope 6 4. Methodology 10 5. The Reports and the Presentation 12 6. Staffing 16 7. Gira s qualifications 17 8. Timing & Subscription 19 February 2017 2
1. Background A worldwide and generally growing market for dairy ingredients Limited growth potential in their traditional consumer markets, often combined with increasing milk production, is pushing more and more dairies to look for added value in ever more "technical" ingredients. As part of a general desire to de-commoditise their non-branded production, this has largely consisted of ongoing innovation to separate out, concentrate and then find new markets for the non-fat, generally protein components of milk. End-user markets of these ingredients have thus been able to open up to often new consumer food products nutritional, recreational, age-related, medical as well as to increase the efficiency and quality of the industrial production processes for many food products. Most of these markets are still growing (some of them very strongly), but a continuing lack of transparency, rapidly increasing competition and regulation, and in some cases a product lifecycle that is already well into middle age, all mean that there are now as many potential pitfalls for the unwary as there are opportunities for those that choose the right markets and routes to those markets. In powders, we have seen dramatic growth in Infant Formula (ingredients, bases and finished products), primarily in Asia, along with high added value. But while growth remains strong, times are changing and the whole supply chain is suffering from increased competition and industry concentration. The market for milk powders for young children (growing-up-milk, "GUM") is also strong, but increasingly crowded. Other powders and dairy-based ready to drink products continue their strong growth for medicinal, institutional, health and sport uses, but generally with high requirements for technical and/or marketing investment and NPD, and often with relatively low volumes. At the other end of the scale, we see growth in dairy-based, affordable nutrition, often for developing countries. This primarily concerns the high volumes of vegetable fat-filled powders exported from the EU to parts of Africa, but also dietary reinforcement for seniors in Asia. Protein shake Milk for seniors But the food manufacturing industry is also a major user of technical dairy ingredients. Not only the fresh dairy sector itself, but also in many other important food manufacturing sectors, where technological advances in ingredients have improved both profitability and product quality. While these end-user markets all have very different drivers and needs, the ingredients used are often the same dairy proteins sourced from the same supplier dairies. Our study will allow both suppliers and users to benefit from the opportunities all along the supply chain. Gira is highly experienced and possesses tried & tested databanks in this wide spread of products & markets. It is ideally equipped to carry out this very complex & demanding piece of original research & analysis. February 2017 3
Background Technical progress leading to ever more sophisticated industrial products Cracking today's litre of milk: processes & products February 2017 4
2. Objectives Our study will describe, measure and forecast the production, trade and end-uses of the main industrially produced, "technical" ingredients sold in the multiple forms of: whey proteins, caseins and milk powders used for human consumption, as well as of standard vegetable fat-filled milk powder. It will draw conclusions, illustrate best practice and make recommendations for operators. It will also investigate alternative strategies for ingredient/dairy operators to add value by increasing their presence along the value chain. The above will require us to carry out detailed qualitative and quantitative analyses both in the main countries producing & exporting these ingredients as well as in the main end-user country markets in which they are incorporated into consumer food products. As a part of the analysis of the drivers and brakes operating along this supply chain, we will also carry out strategic profiling of the major technical ingredients producing dairies and of the largest end-user manufacturers and powder packers. The profiles will also form the basis of a case-study analysis of the key question whether exporting dairies should limit themselves to the role of the specialist ingredient supplier, or if they should also (how & to what degree?) produce directly for the B2C end-market. In formulating our recommendations to suppliers of these ingredient products, we will draw attention to opportunities and supply "gaps" existing in the markets and how these are likely to evolve over the next 5 years. We have selected a number of producer countries, dairies & end-user markets for analysis in order to ensure in-depth cover of the highest volume supply and end-user channels, as well as of the most innovative processors and markets. These are set out in detail in chapter 3 below. The study's Reports will be so structured as to provide clients with a unique quantitative and a qualitative databank for the present and for the medium-term future. This will both support our conclusions & recommendations and allow clients to test their own strategic scenarios for the future. In order to ensure comparability between countries & markets, the Reports will be presented as far as possible in a standardised format. They will be delivered to clients electronically, in searchable PDF format. February 2017 5
3. Scope Multi ingredient, end-user market, country and operator cover The multi-dimensional nature of our study ingredient / country / producer dairy; and: end-user market / ingredient / country / manufacturer obliges us to adopt a basically horizontal approach, in order for our reports to be both comprehensive & user-friendly. We will be analysing 10 ingredient product groups potentially used in 13 different types of end-user markets, with production taking place in 5 major countries/zones and 15 countries being important end-users of our ingredients in at least one market. We will therefore present the study in two major Report Sections one for Ingredient Production and the other for their End-uses each Section containing a series of independent reports, and the whole being brought together, consolidated and summarised in a Synthesis Report. The provisional contents of the Reports are shown in detail in section 5 below. Ingredient and End-user Market Coverage February 2017 6
Scope (2) 1. Ingredient Products covered We will cover the main technical ingredients derived from whey, casein and milk protein, as shown here and on the previous page. Countries: we will analyse, quantify & forecast (for 2020) the production and export of these for the following countries, which are by far the largest producers: The USA The EU as a whole, also with individual sections on: Denmark France Germany Ireland The Netherlands New Zealand Australia Argentina. Ingredients covered Ingredients Whey WPC 25-49% WPC 50-89% WPI WPH Demineralised Whey permeate Skim Acid caseins Rennet caseins Caseinates MPC & MPI MCC & MCI Native whey proteins Milk Permeate Fat-Filled (standard) Dairies: as well as the analysis by country, we will analyse the ingredient production & trading activities of the following major dairies for those ingredients in which they have a significant market presence &/or a benchmark role. This may be just for one product (e.g. FFMP). Arla Davisco/Agropur DMK/Wheyco Fonterra FrieslandCampina Glanbia Hilmar Idaho Milk Products Ingredia Denmark USA Germany New Zealand Netherlands Ireland USA USA France Leprino Meggle Murray Goulburn Ornua Saputo Sodiaal Tatua Volac Westland USA Germany Australia Ireland Canada France New Zealand United Kingdom New Zealand Dry whey products global production breakdown by country, in WP eq., 2014 February 2017 7
Scope (3) 2. End-user Markets covered We will analyse & quantify the utilisation of ingredients in the following end-user markets. For convenience, some are grouped here and in the table under more general headings: Study Coverage Matrix: Ingredients & End-user Markets Health & Wellness This general heading groups together 3 distinct markets, each of which will be analysed separately: Muscle Building: primarily concentrated whey proteins used for increasing body mass for dedicated sportsmen. Sport Nutrition and Recovery: for healthy nutrition and recuperation after an effort. An already large and rapidly growing market, with an ever-widening user base. Primarily powders using whey and casein, but also increasingly (mostly in the USA) ready-to-drink (RTD) products. Meal Replacement: primarily products designed to help reduce or stabilise weight, but also including nutritional bars etc. The segment is less well defined than the previous two, covering several consumer need states. Powders generally for rehydration by the user (but also including RTD and solids) Infant Formula (Stage 1: 0 to 6 months and stage 2: 6 to 12 months): a major market in many countries, with particular growth in East Asia. Besides analysing the markets and operators, where possible, we will segment supply between raw materials, mixtures (bases) and finished product imports. Growing-up Milk GUM: generally for children aged 1 to 6 years (we will sub-segment where possible). Seniors, also known as Adult nutrition: mainly in old people's homes & hospitals in the USA and the EU, but also the much cheaper products sold through retail and ecommerce in China & SE Asian markets. Clinical nutrition: primarily dairy protein-based foods used in hospitals and at home care in the EU and the USA. Affordable nutrition FFMP: we will look here only at standard Fat Filled Milk Powder (24% milk protein, 28% vegetable fat) in its main import markets of Sub-Saharan Africa and the Gulf. Please note that we will not cover coffee whiteners in this study. Brazil: recovery after effort USA: fast releasing protein February 2017 8
Scope (4) [2. End-user Markets, cont.] Food Manufacturing Uses We will segment the usage of the technical dairy ingredients between the five major industrial food manufacturing sectors, with coverage in a separate section for each of: Bakery, Confectionery, Dairy products (yoghurt, cheese but not Processed Cheese), Meat Products and Soups & sauces. Other major uses will also be analysed where appropriate. Country coverage of End-use markets We have chosen to analyse those countries that represent the most important End-user markets for our technical dairy ingredients as well as those that are the most important importers of these products. It must be remembered that some of these are highly developed, even stagnating markets (e.g. some UE and US markets), while others are still very much in development mode. Coverage of the EU will zoom on the main markets of Germany, France, the UK & the Netherlands, but also with an EU general overview. We will cover Food Manufacturing uses in China more for their future potential than for the volumes they represent today. For West Africa, we will zoom on the 3 main countries representing nearly 40% of all FFMP imports, but also give an overview of the rest. Countries End-uses Muscle Building Health & Wellness Sport Nutrition & Recovery Meal Replacement Infant Formula Growingup Milk Targeted Powders Seniors Clinical Nutrition Affordable Nutrition (FFMP ) Bakery Food Manufacturing Confectionery Dairy Meat Sauces & Products soups USA Country Coverage: End-user Markets & Countries EU: & DE, FR, GB, NL Brazil Saudi Arabia Emirates China Indonesia Malaysia Philippines Nigeria Senegal Mauritania Other West Africa February 2017 9
4. Methodology We will use our tried and tested combination of 3 primary research approaches in order to obtain the fullest possible cover of the key aspects and drivers of the markets to be analysed & forecast. This will involve: Extensive documentary research: covering all aspects of the product supply chains and the markets to be analysed. We will use: All available documentation: trade press; company, retailer & association websites; national & customs data; consumer & sector studies. Gira s own extensive dairy ingredient production, trade and consumption databases built up over 30 years of sector experience. Operator Interviews: We are aware from experience that the above research will give us only a partial picture at best, and that it will be insufficient to respond to all the questions to which we need answers. We will therefore carry out a large number of interviews with operators in all the countries and segments to be analysed. These will allow us both to fill in the quantitative gaps left by the documentary research and to obtain the required qualitative insights on supply structures and demand, as well as on likely future developments in the markets and the competitive environments for operators. We will also obtain information on latest trends relating to the consumer products analysed As well as on the major operators, the bases for our strategic profiles. The interviews will be carried out by Gira's experienced interviewer team using questionnaires tailored to obtain the required answers for each different product & market and taking into consideration the specificities of each country concerned. We would expect to undertake around 150 operator interviews across the ingredient and end-user sectors and countries indicated on the previous page. Our interviewers will essentially target: Large dairies and traders based in the EU, the USA and Oceania Manufacturers and importers supplying the end-user sectors in the countries concerned Retailers and caterers (where relevant) Associations, authorities and experts. Discounting in the Chinese Infant Formula market February 2017 10
Methodology (2) [Research approaches cont.]. Strategic store checks: our "reality checks" for those end-user products sold in retail In the USA and in the two most "advanced", major markets of the EU, Germany and the UK, we will carry out a series of representative (but not statistically significant) storechecks of our consumer end-use products present in mainstream modern food and sports retailers, as well as on the internet where relevant. This will mainly concern Sport nutrition & recovery and Meal Replacement products. In China and Indonesia we will storecheck Infant Formula and the other powders sold in retail and by internet. Our aim here will be to establish the relative positioning of the products (e.g. branded vs Private label vs discount products) and to detect major trends and innovative products as they appear "on the ground", in the stores. We will note price levels and the ingredients listed on the packs to reinforce our understanding of the economics of manufacturing and of the volumes of ingredients consumed. Production and consumption of Infant Formula by main region, 2014 ( 000 tons) Malaysia: GUM China: milk for seniors February 2017 11
5. The Reports and Presentation The Reports will be divided into 3 Sections: 1. The Ingredients: a report for each of the 4 categories 2. The End-use Markets for the ingredients 3. The Synthesis. Within the Ingredients and End-uses Sections, the products and markets will be grouped as shown on page 7 above, and within those groupings, each product will be treated separately wherever required. The relevant strategic operator profiles will be grouped together at the end of each Section. 1. The Ingredients: 4 Reports and an Executive Summary concerning the production and route to market infrastructure for the four categories of ingredients: Whey concentrates; Caseins; Milk Powder concentrates; Standard Fat-filled milk powder. Each report will be stand-alone, with a summary and general conclusions and recommendations presented in the Executive Summary. Within each Ingredients report, the individual products will be treated separately where necessary but grouped together if more meaningful (& to avoid repetition), in particular where they may be produced from the same industrial process and/or plant. A: We would expect each individual Ingredient Report to contain at least the following chapters. Each Report will be of 30-40 pages, except FFMP which will be somewhat shorter. Products, definitions and utilisations. Historical production, trade, domestic consumption & price data to 2015 and explanation of the current situation followed by Gira's 2016 estimates & forecasts for volumes & likely price trends through 2020. All together, & for each country covered. Industrial structures and the main operators. Analysis of the key strategic aspects of raw-material sourcing, manufacturing and technology, distribution (in-country) and export; the Key Success Factors and Best Practice. Competitive environment analysis on the domestic and export markets. Competing dairies and other products. Recent innovations and expected future development. Product SWOT and conclusions. February 2017 12
The Reports (2) [1. The Ingredients: cont.] B: The Ingredients Executive Summary will contain: The main findings from the 4 individual Ingredients Reports. Consolidation of production and trade of each product covered, together with our forecasts through 2020. An analysis of the major producing dairies' market positioning and strategies; SWOTs. C: There will also be a series of Strategic Profiles of the main producer dairies (see list page 7), each of 1 to 3 pages targeting those ingredients where they are most active. Where they also have a B2C presence abroad, the profile will include their activities in the relevant end-user markets. Arla Foods Ingredients' large whey processing plant near Vium in Denmark 2. The End-use Markets for the ingredients: 13 individual End-use Market Reports (one for each of the markets shown in the table on page 8 above) and an Executive Summary. Each End-use Market Report will be stand-alone, and broken down by country covered; e.g. for each of the 5 Food Manufacturing user segments: USA, Brazil, China and the EU (zooming on the 4 main member countries). Please refer to the table on page 9 for specific detail of which countries will be analysed for which End-user Markets. February 2017 13
The Reports & Presentation (3) [2. The End-use Markets for the ingredients, cont.] - Each End-use Market Report will be of 20-40 pages, depending on its importance. For each country, we will show the following: Products manufactured, historical data & market description; explaining the current situation; Gira's 2016 & 2020 forecasts. Key Success Factors in the market. The routes to market for dairy ingredient suppliers. Competitive environment analysis; winners & losers with mini-strategic-profiles of the very largest operators. Our estimates of the types & volumes of our technical dairy ingredients used, with forecasts for the medium-term. At the end of each Report we will present our conclusions and recommendations for ingredient suppliers to manufacturers in the end-use market as a whole (all countries together), detailing specific opportunities by country or market sub-segment. - The End-use Markets Executive Summary will present the main findings from the individual end-user markets and will consolidate current and expected technical dairy ingredient uses and trade. We will show the main similarities and differences in the ingredient products' uses and the needs of manufacturers across the sector, both by end-use market and country. We will group end-user markets and countries together wherever they present real similarities, and conclusions will be drawn from this concerning optimal ingredient supplier strategies. 3. The Synthesis Report: summing up, conclusions & recommendations An overview of the main findings from Sections 1 and 2, including consolidated volumes of ingredients by type, end-user markets and trade, with forecasts for 2016 and 2020. Structure of technical ingredient supply and trade; operators, technology etc. Including discussion of the key "dedicated ingredient specialist" vs. "ingredient AND B2C supplier" question. Typology and drivers of demand for ingredients; products, markets, routes to market; winners & losers SWOTs and recommendations for suppliers of technical dairy ingredients, by end-use. A PRESENTATION of RESULTS: There will be an individual half-day, tailored presentation of the results and recommendations for each client of the study. Only our travel costs will be charged if this takes place in Europe. February 2017 14
The Reports & Presentation (4) Tailored Client Presentation The SYNTHESIS REPORT STRUCTURE OF THE REPORTS Section 1: The INGREDIENTS Executive Summary Section 2: The END-USER MARKETS Executive Summary & PRESENTATION 4 Ingredient Category Reports - Whey base - Caseins - MPs - FFMP 13 End-use Reports - Health etc - Powders - Affordable - Food processing Strategic Processor Profiles Mini End-user Profiles February 2017 15
6. Staffing the assignment Gira's team of managers & consultants is probably the most experienced & knowledgeable in world dairy markets today: Christophe Lafougere, CEO, 25 years with Gira. Supervisor of the assignment and lead contact for clients. He has headed a very large number of strategic consultancy, due diligence and research assignments throughout the food & drink chain worldwide. He also supervises all of Gira's consulting and research activities in the dairy sector. He is well-known throughout the dairy industry and he initiated and supervises the annual Gira Dairy Club. He will be assisted by: Mylène Potier: Senior Consultant handling technical aspects of the assignment relating to dairy protein production and utilisation. She has a PhD in Human Nutrition with particular reference to milk proteins. Mylène is responsible for all the technical and process aspects of Gira's work involving dairy ingredients. Veijo Merilainen He brings hands-on operational and operator knowledge to the assignment. He worked for the major Finnish dairy Valio between 1978 and 2011. He became a member of the Valio Executive Board in 1990 and played a central role in all business development and change processes in the group. An ex-president of EDA, Veijo is a Gira associate and he plays a central role in all our dairy consultancy assignments. Andrew Cookson: MBA (Insead), Chartered Accountant. 25 years with Gira, Director. Adviser on strategy & trends to the assignment. He has a deep understanding of global marketing dynamics and operator strategies. He also has specific skills in the areas of financial analysis, multiple retailing, and qualitative and quantitative consumer research. He supervises many of Gira s consultancy assignments. Many Gira Managers, Senior Consultants and specialist interviewers. They bring detailed country and market knowledge gained over many years from individual and muticlient studies in the dairy sector. All those involved in the present study also analyse their particular country every year for the annual Gira World Dairy Club. February 2017 16
7. Gira s Qualifications Gira is active in strategy consulting and market research in most food and drink sectors worldwide. More details of our activities are available on: www.girafood.com. Over the last 25 years we have built up a major reputation and client base in the international dairy sector. A list of our more recent dairy clients is given on the next page of this proposal. Gira has carried out many assignments in recent years for worldwide dairy companies in areas and product sectors similar to those to be covered in the present study. We regularly produce multiclient studies concerning several of the ingredient and end-user sectors and all of the countries involved in the present study. The most relevant of these here is the annual Gira Dairy Club, whose latest member list is also shown on the next page. Gira s extensive network of international experts, contacts and clients in most dairy sectors means that it is uniquely qualified to carry out this innovative and highly challenging research and analysis project. Experience has also shown that our long-standing reputation for research and consultancy in the global market opens doors for us to the most informed and competent sources of information. Our specialist consultants our high credibility in the dairy sector our long client list along with the multiclient studies for which Gira is widely known, all give us privileged access to information and decision-makers in dairies and end-user markets throughout the world. February 2017 17
Some of Gira's dairy clients 4dBarn Agropur Alpma ALIC Arla Foods Bel Bord Bia Chr. Hansen CNIEL Dairygold Danone (Dantrade) DMK Emmi EU Commission DSM Dupont Eucolait Eurial/Agrial Fedegan FIT Fonterra Friesland Campina Glanbia Kerry Lactalis Laïta Meggle Murray Goulburn Rupp Savencia Saviola Sealed Air Sodiaal USDEC Valio Yili Members of the 2016 Gira Dairy Club: Agropur ALIC Arla Foods Chr. Hansen Dantrade DSM Emmi FIT The EU Commission Fonterra Glanbia Meggle Sodiaal USDEC Valio February 2017 18
8. Timing & Subscription Timing: Completion 6 months after project go-ahead. Assuming sufficient Founder Client support is obtained, work will start beginning of April 2017 and the Reports and the Presentation will be available to clients 6 months later. Subscription: A Founder Client subscription to the complete study programme and the Presentation as set out above costs Euros 26,000 (before any applicable taxes). The price will be increased to those subscribing after work has started. Part-subscription options will also be available. Payment will be requested on invoice as follows: 50% at the start of work 25% three months later 25% on delivery of the final Reports. For more information, please call Christophe Lafougère on: +33 450402400 or email: clafougere@girafood.com. In the unlikely event that insufficient Founder Client subscriptions are obtained, Gira reserves the right not to start work on the study. In this case, existing subscription contracts will become null and void. February 2017 19