Fonterra holds position, Chinese players on the rise

Switzerland's Nestle tops the list with US $30 billion in sales followed by Danone and Lactalis, both headquartered in France. After Fonterra comes FrieslandCampina of Netherlands and Dairy Farmers of America.

Rabobank notes while the top-5 dairy players continue to drive consolidation and maintain a firm hold on their positions, elsewhere there is much movement. Chinese players Yili and Mengniu continue their ongoing rise, while US giants such as Kraft Foods slipped down the rankings.

"While the top five remain unchanged, there are now two Chinese companies in the top-15. There were none in the top 20 until 2008," commented Rabobank analyst Tim Hunt. "In contrast the lack of a US-based global consolidator is seeing the rankings of US companies decline."

Nestlé extended its lead at the top of the table, with organic growth and the purchase of Pfizer's infant nutrition business contributing to 23% revenue growth in dairy sales.

Despite Nestlés performance, almost all of the top-20 felt the stiff headwinds of a slow global economy, EU recession and maturing Western dairy markets in 2012. At least six companies saw their dairy revenues actually decline in 2013 (in local currency terms). Slowing organic growth potential is placing more pressure on companies to consolidate local industries and to seek growth via acquisition, contributing to the flurry of recent activity in the top-20. Companies are also actively positioning themselves to access stronger growth markets abroad.

The Chinese government's desire for domestic consolidation and vertical integration, together with local market growth, will almost certainly underpin further growth of the Chinese giants Yili and Mengniu.

A combination of confinement to the domestic market and a lack of sizeable acquisitions has seen the rankings of US companies decline in recent years. Kraft slipped seven, while Dairy Farmers of America saw sales decline in 2012 on an organic basis.

"With the rapid growth of the Chinese giants, it is quite possible that the US giants will be pushed further down the list in coming years, with the global landscape largely being shaped by others at present," says Hunt.

"Size should not be a goal in itself, and US companies can participate in growth offshore by developing their export businesses. However, with much of the growth opportunities in dairy likely to come outside of the US in coming years, US companies will need to think about whether being an unaligned exporter with no offshore footing will be enough to secure a fair share of the growth and value available in coming years."