Few sectors in the domestic food and beverage industry are as dynamic as the yogurt and fermented milk segment. On-going differentiation strategies and the launching of products adapted to increasingly specific consumer demands are based on strong R & D investment, underpinned by comprehensive customer services, and substantial advertising campaigns. Argentina’s production has undergone a 90% expansion in the last five years, and set a historic record in 2007 – reaching 510 thousand tons. The boost in the domestic per capita consumption was a decisive factor, as in the same period it rose from 7kg (15.43 lb.) to nearly 13 kg (28.66 lb.)/inhab./year.

PRODUCT

• Article 576 of the Argentine Food Code (CAA as per its Spanish acronym) provides an overall definition of fermented milks (a group including, among others, yogurt and fermented milk proper) as “...products to which other food substances may be added or not, obtained by coagulation and pH decrease in milk or reconstituted milk, to which other dairy products may be added or not, by lactic acid fermentation through the action of specific microorganism cultures. These specific microorganisms shall be viable, active, and abundant in the end product throughout its shelf life.”
• This paper, save for the exceptions stated below, shall refer to the yogurt and fermented milk market as a whole, since these products are not usually segregated in the literature and the domestic and international statistics available.

PRODUCTION

• The main international databases (FAO / USDA) do not have either world or by country production series for this product, so that in this sense we only analyze the Argentine scenario.
• An analysis of the domestic yogurt and fermented milk production trend in the last decade (Chart 1) identifies two well-defined stages – a first stage of continuous albeit fairly gentle ups and downs, and a final five year-period of great expansion, in line with the increasing consumption in the domestic market, where these products are mostly sold.
• In the period 2003-2007, production rose at a cumulative annual rate of 17%, until last year, when it broke a historic record of nearly 513,000 tons.

• This last figure shows an 8% increase as against 2006, and it is even more relevant if compared to the performance of other high-volume manufacturing sectors. Indeed, although these are interim figures for the January-September period, between 2006 and 2007, production of fluid milks showed a modest 2% improvement, while production of cheeses rose by 5%, and powdered milk dropped by 33%.
• If fluid milks are not included in the analysis, in 2006 yogurt ranked for the first time as the major product in terms of manufacturing volume in Argentina, even surpassing the entire cheese production. The preliminary trend for the first nine months in 2007 may lead us to believe that such leadership may likely continue.
• According to the latest data available, in 2007, nearly 4.6% of the total raw milk volume processed by the industry was used to make yogurt. Considering an average 0.79 liter/kg requirement, the volume produced accounts for 33% of all “dairy products”, or 16% of the “milk and dairy products” category.
• In 2007, the gross ex factory production value (not including VAT) was estimated at AR$1.2 billion.

RAW MATERIALS

• The burden that the raw milk cost has in the end shelf price (not including VAT) of this type of products is quite variable given the wide range of presentations. However, it may be estimated between 5% for fermented milks and up to 25% for full-fat yogurt smoothies in 1 kg. (35.27 oz.) sachets.
• The manufacture of these products requires premium quality milk, with a low bacterial content to avoid competition with the inoculated bacteria strains. No enzymes or chemicals should be present that may hinder fermentation.
• Industrial yields fluctuate, among other reasons, with the type of yogurt (basically with additives), season (due to the varying fat and protein content in fresh raw milk and greater wastage through evaporation at high room temperatures), with minimum levels in summer and maximum levels in winter. In 2007, an average of 0.8 liters (27.05 oz.) of fresh raw milk was used to obtain 1 kg (35.27 oz.) of yogurt.

CONSUMPTION

• In the global market, the demand for fermented milk product has good prospects as a result of the trend to consume natural, fresh, and healthy foods.
• Additionally, the manufacture of “functional foods”, enriched with ingredients like calcium or specific bacteria, is providing new differentiation opportunities.
• Globalization brought about the rapid incorporation of the Argentine market (one of the most developed and interesting in Latin America) to the international trends. This was made possible, in the particular case of fermented milk products, through the landing, in the mid-90s, of Danone, one of the world leaders in the sector, which partnered with La Serenísima, Argentina’s No. 1 manufacturer.

• The first domestic consumption boom occurred between 1990 and 1994 as a result of a significant increase in purchasing power, strong promotion campaigns, and changes in consumer habits. In this five-year period, the cumulative annual rate amounted to 14%. Hence, Argentina’s average consumption rose from 4 kg (8.81 lb.) to 7 kg (15.43 lb.)/inhab./year.
• An analysis of consumption trends in the last decade (See Charts 2 and 3) identifies a second stage of remarkable expansion. After five years (1998-2002) marked by falling income, stable or decreasing prices, and fluctuating consumption, the sector entered a new period of steady growth, with a cumulative annual rate of 16% in the period 2003-2007.
• Devaluation was followed by a strong surge in product prices, which could only be offset in 2003 with a pickup in income. This, along with the strong promotion campaigns conducted by the leading manufacturers, spurred a boom in consumption which went from 7 kg (15.43 lb.)/inhab./year in 2003 to nearly 13 kg (28.66 lb.)/inhab./year as estimated for 2007 (+82% between both values).
• Yogurt and fermented milks are consumed in spring-summer, with the highest levels reached in November-December, and the lowest in May-June.
• In recent years, seasonality has decreased. In 2003, the difference between positive and negative consumption peaks reached 100%, while in 2006/7 it became more stable, at around 55%. This reduced seasonality may be explained by higher autumn-winter relative levels and not by the recovery seen in the last two months of the year.

DOMESTIC MARKET

• The yogurt market is one of the most dynamic ones in the dairy sector. Its strategy is based on constant differentiation and the launching of new products by incorporating additives, packaging variation and innovation, and by adapting to new consumer demands. Also, a strong investment has been made in R&D, customer service, and advertising.
• Companies tend to meet the needs of increasingly specific consumer groups by developing products for children, youths, sports people, women, adult and elderly customers, celiac patients, etc.
• Products are therefore differentiated by consistency (set, whipped, and smoothie), by fat content (with cream, full-fat, low-fat or fat-free), and by flavor (natural or flavored). Apart from these presentations, yogurts may include a wide range of additives – fruit pulp or pieces, juice, cereal, cream, honey, probiotic and symbiotic microorganisms, prebiotic ingredients, iron sulfate, calcium, vitamins, among others.

• The addition of probiotic and symbiotic microorganisms deserves a special note. In line with the global trend, the manufacture of “functional foods”, enriched with specific bacteria, is currently very popular in Argentina. For instance, Danone-La Serenísima has introduced the concepts of “Probio2”, “Biopuritas”, “Provitalis”, or ”Acti Regularis”; Sancor, for its part, has launched the “Biototal” concept, which combines natural ferments selected by the manufacturer with calcium, vitamins, and minerals. Likewise, Suc. de Alfredo Williner has introduced the BB-12 prebiotic culture into its Ilolay Vita Bioarmonis yogurt line, which contributes to a balanced intestinal flora.
• Packaging differentiation strategies are under continuous development:

- Shapes: cups, bottles, and sachets.
- Content: 80, 95, and 100 gr. (2.82, 3.35, and 3.52 oz.) (fermented milks), 70, 125, 163, 170, 172, 175, 180, 183, 190, 195, and 200 gr. (2.82, 4.40, 5.74, 5.99, 6.06, 6.17, 6.34, 6.45, 6.70, 6.87, and 7.05 oz.) (usually, yogurt in small plastic bottles or cups), or 700 and 1,000 gr. (24.69 and 35.27 oz.) (yogurt in sachets).
- Materials: at present different kinds of plastic are almost exclusively used: low-density polyethylene (for sachets) and high-density polyethylene, polystyrene, and polypropylene (for cups and bottles). Some stores sell glass containers (only products from the Dahi brand, an SME from Pilar, Buenos Aires Province).

• Color is another differentiation element used to make the product stand out on the shelves and identify segments. At the beginning, color was limited to green on diet product labels, but then it spread to containers. Today, the major manufacturers identify their full-fat yogurt lines in blue and low-fat lines in green hues.
• Just to show the wealth of presentations on retail shelves, it should be noted that the two leading companies, Danone and UTE Sancor/DPA, include more than 100 different product codes in their price lists corresponding both to yogurts and fermented milks.
• Given the perishable nature of the products and the need to ensure a continuous cold chain, distribution logistics play a key role, so only the leading companies have a national reach.
• Due to the wide range of yogurt products and packaging, it is extremely difficult to estimate an average price that may account for such diversity. Since November 2001, the National Institute of Statistics and Census (INDEC as per its Spanish acronym) monitors the price of creamy yogurt in 200 gr. (6.76 oz.) cups as a sample product.
• The consumer price of this sample product showed a stable trend from 1998-2002, and a 42% rise from 2004-07 (See Chart 3). In March 2008, the price was AR$1.35-1.40, i.e., AR$6.75-7.00/kg. At the time, the price of a 1-liter (33.81 oz.) sachet on the retail shelf was almost 50% cheaper.
• With regard to fermented milks, in March 2008, the consumer price of a 100 gr. (3.52 oz.) bottle of classic or 0% fat Actimel, for instance, was in the range of AR$1.25 (AR$12.5/kg.), while the price of the 95 gr. (3.35 oz.) Sancor Bio bottle was around AR$1.15 (AR$12/kg.).

FOREIGN MARKET

• Due to their high perishability and long-haul transportation problems, these products are almost exclusively sold in the domestic market.
• According to Comtrade, world exports of yogurt and other fermented milk products grew by 90% from 2002-2006, to a total of USD 3 billion last year, of which 50% corresponds to yogurt.
• The major individual exporters are Germany, France, and Belgium, which together account for nearly 53% of the total volume.
• In Argentina, the “yogurts and other fermented milk products” sector is one of the few negative items in the dairy products balance of trade, which at an aggregate level has always been favorable in the last decade. Since 2005, however, the balance of trade has been positive and growing.

• Overall, Argentine export volumes and amounts were negligible during the period under review, both as against domestic production and total dairy product exports. As a matter of fact, yogurt exports accounted for a maximum 2.6% of total dairy product volumes (in 2007), while the domestic production/export ratio grew over 1% only in the 2006-07 two-year period.
• Between 2003 and 2007, the exported volumes increased tenfold, and set another historic record last year, with 6,600 tons, which accounted for a revenue of nearly USD6 million FOB.
• In the last ten years, except for year 1999, yogurt was the most exported product category, representing an average of 67% by volume. The remainder corresponds to other fermented milks, whose contribution to the total volume has significantly decreased, especially in the last four years, currently reaching 18%.
• Since 1993, when exports started to maintain some continuity, sales went mostly to two or three neighboring countries. In the last decade, Uruguay has been the major importer. This country absorbed 62% of exports in 2007, followed from a distance by Chile with 33%.
• Imports were also negligible in the ten year period going between 1998 and 2007, and attained their peak in 2002, when they barely accounted for a little more than 2% of total domestic consumption.
• As to the share of yogurts and other fermented milk products in total dairy imports, in 6 out of the last 10 years, it was less than 10%, with a peak in 2002, when the group held slightly more than half the total import volume.

Table 1

• With regard to the import structure, as from 2002, all shipments consisted of other fermented milk products, basically Actimel and Yakult fermented milks, and today exclusively the latter.
• Since 2000, Brazil has become an almost exclusive supplier.
• In 2007, imports totaled 1,250 tons, which represented an outlay of nearly USD 1 million FOB.
• The Extra-zone Import Duty in place for the set of products described under Item 0403, which includes yogurts and other fermented milk products, amounts to 16%, while the Export Duty is 5%, and Drawbacks, both Intra and Extra-zone, total 1.5% for products with a net content equal to or lower than 1 liter (33.81 oz.), and 1.15% for products in larger packages (Information at March 2008).

MANUFACTURERS AND BRANDS

• Although there is no complete information on the universe of dairy companies in Argentina, out of a sample of 70 dairies surveyed by the Food Industry Administration within the framework of the SAGPyA – CIL – FIEL Agreement, in 2007 only 20 companies manufactured yogurt or fermented milk.
• The major companies are Danone, which in the mid-1990s acquired 100% of the equity interests in Mastellone’s business, Unión Transitoria de Empresa SanCor-Dairy Partners América (Nestlé-Fonterra), Manfrey, Milkaut, Williner, Lácteos Conosur-Suipachense, García Hnos. Agroindustrial, La Lácteo, and Orlando y Celso Peiretti (Lácteos Ramolac).
• In terms of market concentration by company, it is estimated that in 2007 the first 5 companies held nearly 90% of production, with the first 3 having slightly more than 80%.
• The table 1 illustrates the main yogurt and fermented milk brands sold at the major supermarket chains in Buenos Aires city, as well as their corresponding manufacturers (based on data gathered in March 2008):
• During the survey conducted at the major supermarket chains, which should be considered for illustrative purposes only, 3 yogurt lines were identified on the shelves having the distributor’s own brand and manufactured by about as many dairies.

Table 2

• These are: Great Value (Wal Mart’s own brand, with a line of set yogurts in 160 gr. (5.64 oz.) cups, manufactured by Establecimiento San Ignacio) and COTO (a line of flavored yogurts in 200 gr. (7.05 oz.) cups, and a line of smoothies in 1-liter (33.81 oz.) sachets, both manufactured by UTE Sancor-DPA)
• Although no quantitative data is available to confirm this, in recent years the own brands of major distribution chains have fallen behind, a trend that reached a peak after the post-devaluation crisis. This phenomenon might be seen as a sign of market recovery.

QUALITY CERTIFICATION STANDARDS

• According to the Instituto Nacional de Tecnología Industrial (INTI) (National Institute of Industrial Technology) database, in March 2008, the dairy sector obtained five Quality Assurance Standard certifications on yogurt production, as illustrated 2 above.

CONSULTED SOURCES

FAO – Comtrade database - Guardini E. y Labriola S. Dirección de Ind. Alimentaria, SAGPyA, 2008. Dairy Products Statistics at www.alimentosargentinos.gov.ar/lacteos/default.asp - SAGPyA-CIL-FIEL Agreement – Brochures and websites from various dairy companies - INDEC – General Customs Administration AFIP (Federal Administration of Public Revenue) - INTI Quality Department http://nina.inti.gov.ar/calidad/index.html - INDEC Informa - Newspaper and Specialist Magazine Articles – Argentine Codex Alimentarius.