This is a summary of a report published by Rabobank. Click here to read the full report.

The latest annual Rabobank survey of the world’s largest dairy companies highlights the giants of one of the world’s valuable food sectors.

The world’s largest food and beverage company, Switzerland’s Nestlé reigns supreme on the list, but the gap between number one and number two has narrowed. French Lactalis swapped places with compatriot Danone and moved into second place, boosted by its acquisitions of United States yoghurt businesses, Stonyfield and Siggi’s. Danone slipped to the third spot, after divesting Stonyfield following the acquisition of WhiteWave, reducing its stake in Yakult, and selling its holdings in the Al Safi Danone joint venture in Saudi Arabia.

Merger & acquisition on the rise

Merger-and-acquisition (M&A) activity in the dairy sector grew in 2017 fuelled, as in other sectors,  by the availability of cheap capital. However, unlike other food and agribusiness sectors, the megadeals which did occur – Danone/WhiteWave and Saputo/Murray Goulburn – had limited impact on rankings within the Global Dairy Top 20.

Cooperatives dominate but are challenged

The dairy sector trails other sectors in terms of industry consolidation through large-scale acquisitions. That is not to say that M&A doesn’t occur in the dairy sector; it just means that dairy acquisitions tend to be limited in size and financial impact.

China considers global growth opportunities

Chinese companies need to address the integration of non-Chinese management as they consider growth opportunities around the globe. Increased collaboration between Chinese and non-Chinese companies in China has the potential to create a pipeline of global management talent.

Local or global … or both?

Historically, the dairy industry was very local. That is, milk production, processing, and consumption occurred locally. This was particularly true in markets dominated by fluid milk consumption. However, economies of scale in milk production and the conversion of milk into longer shelf-life products like butter, cheese and dry dairy ingredients has required many dairy companies to be more globally-oriented.

The disruptors are here

Rabobank sees an increased amount of ‘disruption’-based M&A deals, either defensive or opportunistic. By nature, these deals are often small and involve start-ups, but they are growing in volume.

“Dairy price recovery positively impacted the combined turnover of the Dairy Top 20 companies. For the second consecutive year, there were no new entrants to the Dairy Top 20 list, with the USD 5bn threshold difficult to achieve due to a scarcity of large acquisitions or mergers,” says Peter Paul Coppes, senior analyst – Dairy at Rabobank. “However, while the names have remained the same, the order shifted in 2017”. –  Rabobank