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Deteriorating economic conditions coupled with the impact and after effects of the melamine scandal in Asia (which now accounts for 45.2 percent of entire global demand) have been the primary reasons for the slowdown in growth.
The Asian market witnessed the most marked deterioration—with total volumes expanding at just 0.5 percent in 2008 compared with 5.1 percent in 2007.
The overall situation was also compounded however by the first absolute declines in demand in both North America and West Europe since 2004. Africa, East Europe, Central & South America, and the Middle East all maintained positive growth in 2008 but even these regions are thought unlikely to escape the impact of the global downturn entirely in 2009.
White Milk remains by far the most important category overall accounting for 79.4 percent of total global dairy drinks demand in 2008 or just under 200 billion litres. Growth in this category halved from 0.6 percent to 0.3 percent in 2008.
The fastest expanding sectors since 2002 have been 'value-added' products such as drinking yogurts, flavored milk and fermented milk. However these products also experienced the sharpest slowdown in 2008, with flavored milk being particularly hard hit by the Asian melamine issue and falling back 2.9 percent over the year. Local analysts expect it will take at least 5 years for this category to fully recover in the region.
In spite of these negative trends, some categories and subcategories have remained resilient; growth in soy-based drinks has been good for example as some consumers have switched or switched back to these products and there has also been a strengthening in demand for evaporated and condensed milk and some specific market niches, such as low fat milk, probiotic drinks, ESL milk, organic and fortified milks.
With volume growth rates still in decline the short term outlook for 2009 is expected to be marked by a further intensification of competition and an extension of new products, brands and packaging types aimed particularly at meeting the demands of a more frugal and cost-conscious consumer.
But, whilst this short-term outlook for looks fairly bleak, some of the fundamental drivers for longer term growth remain in place. These include growing world population and per capita consumption, rising long-term disposable income levels, a steady shift to packaged from unpackaged consumption (the latter still represents nearly one third of the entire world market) and greater consumer interest in more sophisticated value added, functional and healthier products.