Butter
Market, Supplier, Risk and
Competitive Intelligence

Industry Outlook & Drivers

Activated Carbon Global Market Outlook:

The market complexity is high, due to standardization and multiple (38) co-products in the value in tier 2 and 3, with majority of the products finding applications in the food & beverage industry. The dairy derivatives (tier 3) products namely the cheese and butter along with whey yield higher profits (15-30 percent) compared to tier 2 products (less than 15 percent).

The export of butter has been increasing since 2011, however fell at 2017 with weak export demand. The export share of three major regions increased by around 6 percent, while that of Australia decreased, due to unfavorable climatic conditions impacting the feedstock. The U.S. has lost 6 percent on export share and has increased its import share by 14 percent over last five years, due to international price differences.

Supplier Power

• The market volatility opens opportunities for dairy farmers in India, Russia, Ukraine, China, and Brazil to increase efficiency of production
• Major suppliers are integrated to dairy farm level and companies like Fonterra and Amul, are secured through the co-operative models
• Significant threat exists if major suppliers/co-operatives cannot make competitive milk pay-outs to shareholder suppliers
• Equal opportunities and threats maintain supplier power at a medium

Barriers to New Entrants

• Economies of scale is a significant barrier

• Global entrants are most likely to be from low-cost supplier nations, with a strategy of increasing export share or highly targeted high- value niche producers

• Countries, like New Zealand, with deregulated market structure and relatively low cost might attract entrants (e.g., Chinese manufacturers) as a base for export-oriented supply and processing

Threat of Substitutes

• The dairy derivatives are unique natural products, however, substitutes do exist in the form of vegetable oils

• The shift in consumers from milk fat product to vegetable oils in the emerging and few developed countries.

•  Substitution is possible, but with consumer preference for cheesy snacks in the U.S. & EU; butter considered a tradition in countries like India; and growing inputs of whey protein in infant formulae, the threat is low - medium

Intensity of Rivalry

• Continued consolidation of industry could see competing dairy resources being merged into larger, more efficient competitors

• Competitors may respond to trade liberalization through increasing global growth strategies

• With increasing consolidation, rivalry among large competitors is expected to increase significantly, after they achieve saturation in their own markets

Buyer Power

• Continued consolidation of food manufacturing and retailers has the effect of reducing the overall number of buyers and increasing their negotiation power
• Most buyers are pursuing strategies to secure supply channels
• Since the market is oversupplied, the buyers engaging with integrated suppliers have high negotiation power
• Supplier switching cost is low, as the products are often traded in standardized forms E.g., Cheese 40# Block