5 - 11 July 2001

Report proposes building of new dairy factory

by Ivan Brincat

There is a lot of hesitation in the dairy industry and everybody is waiting for “somebody else” to take the next move, according to a report by Thorarinn Egill Sveinsson. The report states that if dairy production and farming in Malta is to be sustainable in the future, a new production facility must be built.
The report, published by the government in view of the impact of European Union accession on the industry, states that such a facility would not only be important technically but also would have a psychological effect on the operators.
“This is a commitment that will encourage everybody working in the industry. It will also serve the purpose of the competitors and the farmers of other countries, to postpone the decision to build a new factory. If this decision is taken soon, the new company will have started production before Malta joins the European Union. However, even if Malta does not join, it will be necessary to have a modern food production on home ground in future,” Mr Sveinsson said.
The production today is profitable and is a good base to work from, but improvements will make it even more efficient. The turnover during the last years has been around Lm11m. The cost of sales is approximately Lm10.1m leaving a gross profit of around Lm900,000. After administrative expenses are reduced, there is around Lm250,000 left for taxes, the financial costs of a new plant and depreciation.
The report suggests that with less rikotta and more value added products, the turnover can be increased and the cost of sales will be reduced thus the profit will increase. Mr Sveinsson of Food Control Consultants Ltd said that an estimated rough approach is that a new factory would cost £15m.
The per capita consumption of dairy products in Malta is quite high and is on level with many other countries in central Europe. Netherlands and Malta had similar figures last year on liquid milk. On the other hand, the yoghurt consumption is considerably lower and was only around four litres per capita in 2000. Danone is the main competitor from abroad in the yoghurt sector. Cheese and butter are mainly imported and are well displayed in larger stores the report states.
The market share on fresh milk is 98 per cent, while on yoghurt and cream it is 75 to 80 per cent. The report states that there are not many value added UHT products and this market will sooner or later be entered by someone. “It is important that MDP is the first out here.”
Mr Sveinsson said that there is also a lot of work to be done in the yoghurt section. He remarks that the market is rapidly changing from being a producer-oriented market to consumer-oriented with the larger stores – supermarkets – taking over the market. In all, there are around 1,200 retail outlets in the market, 150 schools and six hospitals.
He said that it was important to remember that no products – not even white milk – sell without organised marketing and sales work. It is therefore important to look at sales and marketing spending like an investment and not a cost. In the relatively small market of Malta, it is important to be first in the market and lead the trends.
The dairy industry in Malta has great potential but the author of the report emphasises the need for the development of a new dairy factory. He suggests that a strong and stable dairy production factory can easily adapt a side-production that fits to the machinery and production routines of the factory such as juice and drinks, ice tea and ice-cream among others.
He warns that a further postponements of the decision to build a new factory will gradually slow down every initiative and limit the available possibilities, gradually decreasing the interest of the people working in the industry.
He remarks that it is unfortunate to see that a considerable amount of money has been spent on an old building, in some cases, almost as much as the cost of a new factory, but still the company has old and outdated production facilities. The industry has to be updated and modernised to prepare for more competition. Most of the skills and routines are in place at the dairy, but it needs some “push” to start and finalise other routines.