Competitiveness of Northern European Dairy Chains Taloustutkimus PUBLICATIONS 116
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Competitiveness of Northern European dairy chains Taloustutkimus PUBLICATIONS 116 Competitiveness of Northern European dairy chains Csaba Jansik (ed.) Xavier Irz Nataliya Kuosmanen March 2014 MTT Agrifood Research Finland Economic Research PUBLICATIONS 116 ISBN 978-951-687-176-2 (printed version) ISBN 978-951-687-177-9 (electronic version) ISSN-L 1798-5900 ISSN 1798-5897 (printed) ISSN 1798-5900 (electronic) Copyright MTT Economic Research, Agrifood Research Finland Publisher MTT Economic Research, Agrifood Research Finland, Latokartanonkaari 9, 00790 Helsinki, Finland http://www.mtt.fi/mttl Sales and distribution MTT Economic Research, Agrifood Research Finland, Latokartanonkaari 9, 00790 Helsinki, Finland Tel. +358 29 5300 700 e-mail: [email protected] Printing Vammalan Kirjapaino Oy 2014 Apart from the process of statistical data and the calculations for the indicators infor- mation in this report is based on over a hundred interviews among the stakeholders of dairy supply chains in the eight countries. The authors would hereby like to thank all who via these interviews kindly shared their views and contributed their expertise. The viewpoints of actors and experts of the chain are presented anonymously. Special thanks go to Aldona Stalgienė, Marcin Żekało, Juris Hāzners, Helma Jirgena, Christoph Geil, Ole Kristensen, Lennart Holmström and Risto Kauppinen, colleagues who devoted their time to organise the interviews with dairy farms and dairy companies and/or helped with interpretation. We are grateful to our colleagues who kindly reviewed earlier versions of the manuscript and provided us with valuable comments: Ludwig Theuvsen and Heiko Hansen (Germany), Jannik Toft Andersen and Jens Christian Flye (Denmark), Lennart Holmström and Hans Samuelsson (Sweden), Timo Sipiläinen, Marika Säynevirta, Juha Nousiainen and Reijo Kiskola (Finland), Tiina Saron, Rando Värnik and Ants-Hannes Viira (Estonia), Agnese Krievina (Latvia), Deiva Mikelionytė and Aldona Stalgienė (Lithuania), Iwona Szczepaniak and Piotr Szajner (Poland). The responsibility for possible mistakes naturally lies solely with the authors. This research was financed by the Ministry of Agriculture and Forestry of Finland. List of photographers and/or photo sources: page 6 - Norrmeijerier page 16 - Arla Foods page 32 - Eesti Piimaliit page 40 - DMK/Pressebilder page 44 - Rewe Group/Media database page 53 - Norrmeijerier page 58 - Valio/ Kaius Hedenström page 65 - Eesti Piimaliit page 67 - Matis Luik page 68 (top) - Tiina Saron page 69 - Grühne Woche/Press Service pages 74-75 - Latvijas Piens page 78 - Rokiškio sūris page 85 - Wikipedia/Bearas page 90 (top) - Wikipedia/Henryk Borawski page 90 (bottom) - Wikipedia page 92 - Wikipedia/Krugerr page 93 - Wikipedia/Henryk Borawski page 101 - Matis Luik page 118 - Arla Foods page 119 - DMK/Pressebilder page 124 - Wikipedia/Packa page 132 - Magnus Johansson page 138 - Valio page 140 - Valio page 142 - Danone page 143 - Arla Foods page 147 - Norrmeijerier page 148 - DMK/Pressebilder The rest of the photos were taken by the authors. Contents 1.INTRODUCTION...................................................................... 7 1.1 The concept of competitiveness...............................................................7 1.2 The European dairy sector .......................................................................9 1.3 The chain approach ................................................................................10 1.4 The dairy supply chain ........................................................................... 11 1.5 Background and structure of the report .................................................14 2.ECONOMIC PERFORMANCE.................................................. 17 2.1 Agricultural input supply ........................................................................17 2.2 Milk production .......................................................................................19 2.2.1 Milk farm structure ...................................................................19 2.2.2 Milk supply ...............................................................................26 2.2.3 Raw milk trade and milk prices ................................................30 2.3 Dairy industry .........................................................................................32 2.4 Food wholesale and retail .......................................................................36 2.5 Country reviews .....................................................................................38 2.5.1 Germany ..................................................................................38 2.5.2 Denmark ..................................................................................46 2.5.3 Sweden .................................................................................... 51 2.5.4 Finland......................................................................................57 2.5.5 Estonia .....................................................................................64 2.5.6 Latvia .......................................................................................70 2.5.7 Lithuania ..................................................................................77 2.5.8 Poland ......................................................................................86 3.PRODUCTIVITY .................................................................... 95 3.1 General approach and methodology ......................................................95 3.1.1 Productivity growth versus productivity level ..........................95 3.1.2 Partial versus Total Factor Productivity (TFP) ............................96 3.1.3 Measuring productivity .............................................................96 3.2 Data and construction of variables ........................................................98 3.2.1 Dairy farming ...........................................................................98 3.2.2 Processing sector .....................................................................99 3.3 Results for dairy farming ......................................................................100 3.3.1 Partial productivity measures .................................................100 3.3.2 The parallel between farm structure and labour productivity 102 3.3.3 The two components of labour productivity ...........................104 3.3.4 Total Factor Productivity .........................................................113 3.4 Results for dairy processing .................................................................116 3.4.1 Partial productivity .................................................................116 3.4.2 Total Factor Productivty ..........................................................118 3.5 Summary of the productivity calculations ............................................122 4.FOREIGN TRADE PERFORMANCE ....................................... 125 4.1 Foreign trade balance of milk and dairy products ................................125 4.2 Revealed comparative advantage ........................................................126 5.GROWTH ...........................................................................129 5.1 Growth of raw material production .......................................................129 5.2 Growth in dairy processing ...................................................................134 5.3 Dairy industry sales growth in the domestic versus foreign markets ...135 6.INNOVATION ......................................................................139 6.1 Innovation in the dairy industry ...........................................................139 6.2 Innovation on the corporate level ........................................................ 141 7.CONCLUSIONS ................................................................... 145 Text boxes Renewable energy production on German milk farms ................................24-25 The case of Estonia - Milk farms as the most powerful segment in the supply chain ...............................................................................101-102 The trade-off between milk yield and fertility .................................................105 Danish dairy farms in a financial grasp ...................................................110-112 "Mer mjölk" - a project to fight agains falling milk production .................132-133 6 1 INTRODUCTION 1.1 The concept of competitiveness Competitiveness is one of the most popular is "... the ability of companies, industries, terms in the economic and business litera- regions, nations or supranational regions ture, and it has several different definitions to generate, while being and remaining depending on the context of analysis and exposed to international competition, the subjects of competition. relatively high factor income and factor Competitiveness can be investigated employment levels on a sustainable basis" for companies or other levels of economic (Hatzichronoglou, 1996, p. 20). units such as sectors or national economies. The determining factors of competitive- Krugman (1994) points out, that while cor- ness of nations have identified and inves- porate competitiveness has a clear meaning, tigated since 1977 by the world economic the competitiveness of national economies forum. The Global competitiveness report can be a wrong and dangerous obsession has been published on a regular basis. Their when the word is related to carelessly used definition of competitiveness