Korea. Dairy and Products Annual. Oct 2014 Nov. 11, 2014
In 2013, $55 billion in local dairy product sales was two-percent higher than 2012. Domestic raw milk production was 0.8 percent less however, total raw milk consumption increased by 6.6 percent, which was satisfied by a 12.2 percent increase in imports. Drinking milk products by value grew 6% in 2013 to reach $4 billion. New government price controls edged average drinking milk prices higher in 2013. The value of drinking milk products are expected to increase at a rate of 3% between 2013 and 2018, at constant 2013 prices. The local raw milk price jumped13 percent to $1.1 per liter since August, 2013, recording the highest raw milk price in the world. Cheese sales increased by 11% in current value terms to reach $449 million in 2013. Unprocessed cheese sales increased by 15% in 2013, contributing 33% of overall value sales of cheese in the year.
• Drinking milk products achieved growth of 6% in 2013; to reach $4 billion in 2013. The average unit price of drinking milk products increased marginally in 2013, due to the new government’s price-control initiative. The value sales of drinking milk products are expected to increase at 3% in the coming five years, at constant 2013 prices. Becoming more familiar with healthy foods and western breakfasts, local consumers are increasing their consumption of drinking milk products. Chocolate-flavored powder drinks is set to see the highest value growth, at 6%, due to increases in price. Seoul Dairy Cooperative is still the industry leader, with 36% of value sales, followed by Maeil Dairies with 17% of sales.
• In 2013, sales of local dairy products reached to $55 billion which increased by 2 percent over 2012. Domestic raw milk production was 0.8 percent lower however, total raw milk consumption increased by 6.6 percent, reached to 3.67 million metric tons which was more than satisfied by an increase in imports of 12.2 percent, including non-fat dry milk, whole fat dry milk and others. The local raw milk price jumped up about 13 percent to $1.1 per liter from $0.98 per liter since August, 2013 which recorded the highest raw milk price in the world.
• Sales of cheese increased by 11% to reach $449 Million in 2013. Unprocessed cheese continues to grow at the fastest rate, with sales increasing by 15% in 2013 and, sales contributed 33% of the overall sales value of cheese in the year. Unprocessed cheese is expected to grow at a 9% rate over the next 5 years, in constant 2013 prices, while processed cheese is anticipated to achieve a 3% growth. Seoul Dairy Cooperative still leads the cheese market, with 41% market share in 2013, keeping competitors from cutting into its share by entering the adult cheese market with its premium brand ‘Wellzak’ in April 2013. Cheese producers have turned their interest to adults from children due to saturation in the children’s market.
Dairy, Milk, Fluid
In 2013, Korean raw milk production was 2.093 million metric tons (MMT), decreased by 0.8 percent compared to the previous year. Also the number of cows for milking decreased by one percent. Since November 2010 however, dairy products in Korea, including fluid milk products, have suffered as a result of Foot-and-Mouth Disease (FMD) that occurred amongst cows, pigs, and oxen. In 2012, even though the milk production was increased, manufacturers of fluid milk products still had to increase their unit prices. This occurred due to production costs increasing during a slow economy along with an increase in labor and feed costs combined with a decrease in raw materials. In the beginning of 2013, severe cold weather influenced to decrease the production but recovered soon by government’s price control initiative. As a result, value sales of fluid milk products increased by 5 percent in 2013. As manufacturers are increasing their unit prices again, sales values have risen again in 2013. Fluid milk consumption was 76 percent of total raw milk production while the remaining 24 percent was marketed for processing.
In 2013, drinking milk products’ sales grew by 6% to $4 billion. The market suffered from an imbalance between demand and supply of raw milk in the first half of 2012. However, price promotion efforts by dairy producers gave support to sales in the second half of the year and 2013. Aggressive promotion was an attempt by the main manufacturers to gain market share. Sales in the chocolate-based flavored powder drinks and fresh/pasteurized milk categories grew at the fastest rate, both at 6% in 2013. Long-life/UHT milk suffered a four-percent decline in sales in 2013, as its long shelf life has put consumers off due to a lack of perceived freshness. Consumers in Korea tend to be highly health conscious and thus the strong relationship between healthy foods and freshness is high.
• The average unit price of drinking milk products increased slightly in 2013, due to the government’s new price-control initiative to limit the price increase of daily necessities including dairy products. Private label brands created by convenience stores in partnership with major manufacturers are well-received in the market. Chilled flavored milk drinks still account for most of flavored milk drink sales, with a 97% volume market share in 2013. In non-dairy milk alternatives, soy milk sales value is set to post 5% growth in 2013, increased from 3% in 2012. Soy milk has however enjoyed robust growth over the review period; as more consumers favor soy milk due to its high protein, lower fat content and sweeter taste.
• Market saturation has developed since the recovery of drinking milk products from the foot-and-mouth crisis in 2010 and will likely maintain 2-3% year-on-year value growth thereafter. Only long-life/UHT milk is expected to suffer negative growth, approximately -9% a year over the forecast period. Local consumers are less satisfied with shelf-stable products and turn attention toward fresh/pasteurized milk and flavored milk drinks that are more appealing to them. Drinking milk products value sales are expected to achieve a 3% increase in the coming five years, at constant 2013 prices.
• Flavored milk drinks with fruit juice are expected to see the highest growth rate of 4% at both constant 2013 prices and in volume terms. Growth will accelerate, driven by the varying strategies and marketing schemes of major manufacturers. Government policy to control unit price is expected to be eased in the coming years. Also, small pack sizes and new product launches will boost unit prices. For instance, cow’s milk will have unit prices increase by 8% between 2013 and 2018. Flavored milk drinks include a large range of possible flavors depending on which fruit juices or flavors are used, therefore the opportunity for expansion is large.
In 2013, Seoul Dairy Cooperative continues to dominate sales, which reached $1.4 billion in 2013, representing 36% of sales. Seoul Dairy Cooperative has a strong relationship as it is built as a cooperative organization and maintains its home delivery and foodservice business. Sales from hypermarkets and supermarkets account for 50%, food service for 30% and home delivery for 15% in sales value terms in 2013. The profit margin for sales through food service is on average less than retailing. In the dairy business, most of major market players are domestic firms. Since efficient logistics are important to keep drinking milk products fresh, international brands have high barriers to entry.
In 2013, Korea produced 22,389 MT of cheese, a decrease of one percent from 2012. Fresh cheese production of 5,673 MT was an increase of 28 percent and processed cheese accounted for the remaining 16,716 MT, a decrease of 8 percent. Cheese imports increased by 10 percent to 85,069 MT and, consumption was 8 percent higher than the previous year. U.S. market share was 50 percent with shipments of 42,530 MT out of total imports by Korea. In 2013, the production cost of dairy products including cheese, jumped due to the increase of the raw milk price, slow economy and, the increase in labor cost which led to lower the production of domestic raw cheese products but the higher domestic dairy products consumption still had to be satisfied by increased imports. Most major cheese manufacturers produce several unprocessed soft cheeses to have as a dessert along with wine. Manufacturers are trying to introduce a new soft cheese slice that is convenient for children. Also plans are for a squeezable format to use in cooking or as a salad dressing.
Sales of cheese increased by 11% in current value terms to reach $449 million in 2013. Unprocessed cheese is expected to grow at 9% over the coming five years, in constant 2013 prices, while processed cheese is anticipated to achieve 3% growth. Unprocessed cheese continues to grow at the fastest rate, with sales increasing by 15% in 2013. Sales contributed 33% of overall sales value for cheese in the year. Seoul Dairy Cooperative still leads the cheese category, with 41 percent market share in 2013. To maintain command of its market share, Seoul Dairy Cooperative is entering the adult cheese market with its premium brand ‘Wellzak’ since April 2013. Cheese producers have turned their interest to adults from children due to saturation in the children’s market.
In terms of volume sales, cheese recorded robust growth of 6% in 2013. Volume sales of processed cheese grew by 4%; while unprocessed cheese volume sales grew to 10%. Mozzarella represented 59% of value sales of unprocessed cheese, shrinking from 62% in 2011 and 60% in 2012 due to changing consumer tastes and new products. Mozzarella is sold mainly as a pizza topping, but more recipes are calling for other types of cheese have impacted the market share of mozzarella. As a result, cheddar and camembert will see a one percentage point increase in market share to 23% and 11% respectively in 2013. Among the other 7% of unprocessed cheese, Gouda is becoming more popular, thanks to its low level of salt.
• Owing to the Korea-US and Korea-EU free trade agreement (FTA), the average price of cheese will increase slowly in 2013 as the cost of raw materials remains stagnant. For unprocessed cheese, the average unit price reached $23 per kg in 2013, from $22 per kg in 2012. The average unit price of processed cheese was $19 per kg, up from $18 per kg in 2012. FTAs have influenced both categories, but the price gap between two categories is increasing gradually as unprocessed cheese is increasingly made with natural cheese.
• The growing demand for high-quality, natural cheese supports robust sales values for the coming years. As processed cheese products become more available with natural flavor, sales will increase. Unprocessed cheese is expected to grow at a 9%, in constant 2013 prices, whereas processed cheese is anticipated to achieve a 3% increase over the coming five years. Cheese producers have turned their interest to adults after saturating the children’s market. More Korean consumers like to have cheese together with alcohol. There is an increasing popularity of French style dining and to drink wine with cheese, which has market potential for adults.
• Sales of cheese grew by 11%, to reach $4.5 million in 2013. There was a trade-off between unspreadable processed cheese and soft cheese in sales growth. Unspreadable processed cheese is set to see growth increase to 9% in 2013, while soft cheese is anticipated to see a decline in growth to 15% in the year. New products will be introduced in processed cheese from local brands, supporting sales. However, unprocessed cheese continues to grow at a rapid rate due to market penetration of the major imported brands. Local consumers are likely to become more familiar with imported brands and soft cheese, as demand for western-style dining rises.
• Demand for natural cheese is growing, however, due to higher demand for convenience; local consumers prefer processed cheese that contains natural cheese in Korea. Amongst unspreadable processed cheese, more consumers are looking for string cheese as an accompaniment to alcohol. In 2013, Seoul Dairy Cooperative maintained 42% of value sales. The market share of Namyang Dairy Products declined to 22%, a fall of one percentage point due to the impact of unfair business scandal of the company. Consumers boycotted the company’s products after a group of wholesalers for Namyang reported to the public that the company is forcing its sales agents to buy more products than they needed and the products were closed to their expiry date.
Dairy, Milk, Nonfat Dry
In 2013, local NFDM production amounted to 11,670 MT; an 18% decrease from the previous year. Due to an outbreak of FMD in 2011, milk production was down until the middle of 2012. In March of 2012, there was surplus of raw milk which made resulted in an increase of NFDM production in 2012. The local raw milk price jumped up about 13 percent to $1.1 per liter from $0.98 per liter since August, 2013 which recorded the highest raw milk price in the world. Due to a severe cold weather in the beginning of 2013, milk production stared less production, however, production picked up to increase by the government’s price control initiative to encourage the farmers.
In 2013, inventory of NFDM and amount of duty-free NFDM imports impacted the markets in 2013. There were more opportunities for imported products due to price competitiveness of imported NFDM versus between locally produced NFDM. In 2013, NFDM consumption amounted to 31,445 MT, an increase of 16 percent compared to the year of 2012. NFDM is used primarily for bakeries, infant formula and as an ingredient in other dairy products. Since NFDM production is largely a result of marketing quota policies, consumption is expected to continue to track closely with production.
In 2013, NFDM import increased by 5 percent to 19,749 MT compared to 2012. Due to the FMD outbreak in November
2010, imports increased to 34,000 MT, jumping by 320 percent over 2010. On March 2011, the Ministry of Strategy and Finance (MOSF) announced temporary a zero duty on 30,000 MT of powdered skim & whole milk powder through the end of 2011 in order to stabilize food prices amid growing inflationary pressures.
The Korea Customs Service reimburses the high out-of-quota tariff of 176% to importers when they have re- exported processed dairy-based products made from the imported NFDM. Korean dairy manufacturing companies are looking forward to expanding the market opportunities for exporting to China. Local food processors import NFDM for the purpose of processing into infant formula, bakery use and re-exporting to other countries, including China. However, in 2013, most imported NFDM was used for bakery ingredients and infant formula.
Whey is co-product of cheese and contains lactose, protein, vitamins and minerals which are 50% of the nutrient of the original milk. Diverse whey protein usage across categories such as sports & energy bar, cereals, desserts & ice cream, baby food, bakery, and soft drinks continue to be introduced to the market. Whey protein demands are supported by body builders, extreme athletes, everyday active consumers and weight watchers. Whey/dairy proteins are considered as a key ingredient for satiety promoting products and aid to reduce risk for many adult diseases such as bone health, obesity, diabetes and heart diseases as the health benefits.
Yoghurt and sour milk drinks value sales increased by 7%, to reach $2 billion in 2013. The average unit price of drinking yoghurt and spoonable yoghurt increased by 2% in retail value terms in 2013. The unfair business practice of Namyang Dairy Products will affect yoghurt sales in 2013. The retailer boycott campaign against the company’s products is expected to marginally decrease its share of the market. Convenient packaging helps drinking yoghurt to continue grow over spoonable yoghurt, drinking yoghurt will see higher value growth of 9% than spoonable yoghurt with 4% in 2013. Yoghurt and sour milk drinks is expected to grow by a value of 5% over the coming five years, at constant 2013 prices.
• Yoghurt and sour milk drinks sales are growing, with a 7% increase in value sales expected in 2013. Strawberry is still the most popular flavor of flavoured spoonable yoghurt, followed by apple and grape. Blueberry has become more popular due to the growing popularity and abundance of the fruit among South Korean retailers. In 2013, fruited spoonable yoghurt will lead in value sales in spoonable yoghurt. Fruited spoonable yoghurt is preferred to flavouredspoonable yoghurt consumers due to the natural, realer taste.
• Since sour milk products are a negligible market, yoghurt drives the market. Among spoonable yoghurt, plain spoonable yoghurt is expected to achieve the fastest growth in 2013, with 6% value growth, followed by fruited spoonable yoghurt. Regular dinking yoghurt volume growth will almost double compared to 4% in 2012. As to drinking yoghurt, both regular and functional drinking yoghurt is expected to show volume growth of 7% in 2013. Premiumisation will however cause current value growth of functional drinking yoghurt to increase by 9% in 2013. The average unit price of both drinking and spoonable yoghurt will increase by 2% in retail value terms in 2013. Due to sluggish growth of overall spoonable yoghurt, dairy companies are selling them at discounts, slowing price growth.
• Mokjang freshness from Seoul Dairy Cooperative will show the fastest growth in spoonable yoghurt, with new products featuring coatings on their lids to stop yoghurt from sticking to them, making them more convenient and less wasteful. In 2013, Korea Yakult Corp will lead yoghurt with 46% value share. The company owns the top four brands, WiLL, Kupffer’s, R&B and Yakult in drinking yoghurt and the first leading brand, Super 100 in spoonable yoghurt.
• Other major yoghurt companies like Seoul Dairy Cooperative, Maeil Dairies, and Binggrae will try to push their products through marketing and packaging innovation. Yoghurt with Mokjang freshness from Seoul Dairy. The premiumisation trend in yoghurt will continue thanks to the popularity of pro/pre biotic products. Due to the convenience and price differences, market sales will be led by drinking yoghurt, rather than spoonable yoghurt.
• As the importance of pro/pre biotic lactic acid bacteria increases, competition based on the quality and volume of the bacteria included in yoghurts will increase.
Ice cream sees recovery from negative trend with 1% growth in retail value sales, to reach $1.78 million in 2013. All categories in ice cream show increase in average unit prices due to premiumisation trend. Lotte Confectionery Co Ltd is ranked as the first company in ice cream with 36% retail value share in 2013. Warmer and longer summer season in South Korea turns value sales of ice cream positive in 2013.Ice cream is expected to decrease by 1% in constant value terms over the coming five years. Frozen yoghurt posts the highest retail value growth of 4% in 2013, driven by increasing preference of yoghurt.
• Ice cream recovered from negative growth with 1% retail value growth, to reach sales of $1.78 million in 2013. The retail volume sales of ice cream still showed negative growth, as it had since 2011, but with a decreasing rate. Ice cream sales tend to be highly influenced by weather conditions. The early summer was warmer and longer in 2013, which had positive influence on ice cream sales.
• All categories in ice cream showed increase in average unit prices due to the premiumisation trend. Due to increasing numbers of foodservice outlets including cafés and artisanal ice cream franchises, consumers prefer to buy premium products even in general grocery stores, stimulating manufacturers to develop new products with higher quality and price.
• In 2013, single portion dairy ice cream grew by 2% whereas single portion water ice cream declined by 1% in retail value terms. Vanilla is the most preferred flavor in Korea, followed by strawberry and chocolate as in 2012. This tendency is in line with local consumers’ strong preference for the soft and creamy taste of ice cream.
• Ice cream desserts will continue positive growth in the coming years, as new dessert concepts were developed recently.This is because more and more consumers are willing to pay premium price for artisanal ice cream brands such as Häagen-Dazs, Natuur and Palazzo del Freddo. Overall ice cream is expected to decrease by 1% in constant value terms over the coming five years, mainly due to the expected decline of single portion dairy ice cream, from solid positive growth in the review period. Large retailers will try to attract those brands in the form of packaged retail products. However, Baskin-Robbins and Coldstone’s, popular made-to-order ice cream shops in Korea, have not provided packaged products of each brand yet, but will take more shares from retail brands with competitive marketing. Basically ice cream is known to have no expiry date since it is retailed as frozen