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The economic growth since 2000 has resulted in a rapid increase in demand within the food sector throughout the world, especially in developing economies. The traditional supply-driven market has become a demand-driven market. At the same time, considerable changes have taken place in regulatory policies and control measures, which have resulted in high food inflation during the last year or so.
The global economic crisis, which has rapidly escalated over the last few weeks, is suddenly impacting on the market conditions of the economy, and companies are having to quickly adjust their operating strategies to adapt to the situation. However, the Finnish dairy sector provides a good example of successful long-term operations where the guiding principle has been the accentuated role of research and product development.
In principle all food companies, including dairy companies, would like to be dynamic, innovative, international and competitive and to offer wellness products as well as respect the values of sustainable development in their operations. The key challenges for the dairy sector in improving competitiveness, as in the rest of the food industry, concern the competitive availability of raw ingredients, the efficiency of regulatory and control systems, access to geographic and consumer markets and the commercialisation of innovations.
With respect to the availability of raw ingredients, the change that has had the greatest impact has been the reforms to the EU’s CAP in 2003, as a result of which agricultural aid has been separated from production and market regulation mechanisms have been simplified. One very important and topical question is ensuring sustained production also in areas with unfavourable natural conditions. Without local raw ingredients, the operations of the dairy industry, for example, would be impossible.
The importance of regulation has been underscored in the food sector and is becoming increasingly important all the time. The industry operates, in this respect, in a changing and complex operating environment. In this situation the role of the authorities is highlighted – is the role of the authorities simply one of oversight or can the actors expect and consultative role? The smaller actors in particular have their hopes on the latter.
International markets are always a challenge for actors coming from small countries. The food sector increasingly desires national support and promotional activities as the sector becomes more international. For Finland, its greatest challenges are focused on Russia. The key to success in the market is reaching consumers, which continually creates new challenges.
Developing innovations through research and product development is long term and demanding work. Unfortunately, the trend in profitability in the food sector has reduced the resources of companies for investments. Therefore, national and international networking by the public sector and public financing are increasingly important. The largest companies are seeking out international networks or networks with other sectors.
The investment Valio has made throughout its history in research and product development has resulted in a significant improvement in the company’s profitability and continues to do so.
Veijo Meriläinen
Executive Vice President
Valio Oy