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Azores Milk

MEETING NO. : XV

YEAR OF 2012

The Azorean dairy sector has performed remarkablyin recent years offering an increasing number of milk and dairy products, along with an overall improvement of the quality of the raw material and of processed products.

The specialization of the productive and industrial structures allowed the emergence of a true agro-industrial sector, withcooperatives playing a key role inits consolidation and reinforcement.

At the level of primary production, there was an increase in farm size thanks totheretirementof a significant amountof smaller producers, with the amount of milk delivered at Azorean factories growing from 411,972,153 kgin the 1997/1998 season to 579,783,014 kg in the 2011/2012 season but the number of producers diminishing from5,797 to 3,170, that is, milk delivered at the factories increased 40.07% between the two seasons, while the number of producersdecreased45.30%. The direct consequence was the growthof the average quantity of milk delivered by producers, which jumped from 71,066 kg in 1997/1998 to about 176,000 kg in 2011/2012.

Despite a significant increase in the yield per cow and in the average size of dairy farmsduring the last decade, production under extensive grazing continues to dominate.

In the Azores, the region that produces almost 32% (31.72%) of the milk sold in the whole country, processing and marketing are carried out by national-sized enterprises, multinationals and regional cooperatives, with the mainlandbeing the main destination market of processed products.

We should note that,in recent years, there has beenanextensive modernization of the manufacturing facilitieson all the islands of the region, taking advantage of a number of incentives and creating conditions that have enabled productsto compete in outside markets. Given our geographical features, raw milk is mostly turned into cheese, powdered milk and processed milk for public consumption, which respectively amounted to28,696 metric tons, 15,778 metric tonsand 113,607,914 million liters of milkin 2011.

The primary challenge of this sector, which is crucially importantfor the regional economy, isthe need to increase its added value by improving theorganization at theregional level;themodernization and innovation in terms of products, technologies, production, collection, processing and marketing;and above all the development and enhancement of regional products with unique quality.

To attain the latter goal, the University of the Azores, the INOVA and other operators of the sector have developed extremely importantworkin recent years, havingreached some conclusions that highlight the positive and unique features of the quality of Azorean milk.

From the work that has been developed, it was possible to conclude that the profile of Fatty Acids (FA) of Azorean products, in terms of their nutritional and dietary value, showcases better quality than those from the Portuguese mainland. One can also conclude that milk produced under grazing has an FA profile with intrinsic characteristics that positively differentiates it from milk produced in more intensive production systems (Bessa and Rego, 2008), which in itself is a comparative advantage given the diet and the predominant type of farmsof the Region.

Thepositive evolution and consolidation of this production as a sector do not preclude the existence of some weaknesses that make the sector vulnerable.

Internally, the increasing bargaining power of large retailers has led to an added importance of distributor brands and of the so-called “first-price” products. This phenomenon, which is taking place across the EU and plays an important role, has crushed the trade margins of manufactures with the consequent implications that it has for the rest of the sector.

Broadly speaking, one can say that at the regional level the dairy sector features an organized production base that is very specialized and represents about 54% of the regional agricultural production, as a result of the excellent natural conditions for livestock production.This by itself proves the importance of this sector bothfor the Azorean agriculture and for the regional economy in general.