The convergence of factors that affect the dairy product market: A comparative analysis of European Union countries

Klapkiv, Jurij; Putsenteilo, Petro; Karpenko, Vitalii Article The convergence of factors that affect the dairy product market: A comparative analysis of European Union countries Comparative Economic Research. Central and Eastern Europe Provided in Cooperation with: Institute of Economics, University of Łódź Suggested Citation: Klapkiv, Jurij; Putsenteilo, Petro; Karpenko, Vitalii (2023) : The convergence of factors that affect the dairy product market: A comparative analysis of European Union countries, Comparative Economic Research. Central and Eastern Europe, ISSN 2082-6737, Lodz University Press, Lodz, Vol. 26, Iss. 2, pp. 105-127, https://doi.org/10.18778/1508-2008.26.15 This Version is available at: https://hdl.handle.net/10419/289738 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. https://creativecommons.org/licenses/by-nc-nd/4.0/ 105 The Convergence of Factors That Affect the Dairy Product Market: A Comparative Analysis of European Union Countries Jurij Klapkiv https://orcid.org/0000‑0002‑9771‑5357 Doctor of Sc., Professor UŁ, University of Lodz, Lodz, Poland, e‑mail: [email protected] Petro Putsenteilo https://orcid.org/0000‑0003‑0168‑9316 Doctor of Sc., Professor, West Ukrainian National University, 46009, Ternopil, Ukraine e‑mail: [email protected] Vitalii Karpenko https://orcid.org/0000‑0002‑2476‑6700 Ph.D., Associate Professor, Khmelnytskyi National University, 29016 Khmelnytskyi, Ukraine e‑mail: karpenko[email protected] Abstract The European Union is a large producer of milk and dairy products. It is also a significant market for the consumption of dairy products, which is characterised by effective demand, and it significantly influences the markets of other food products. The main milk producers in the EU are Germany, France, Poland, the Netherlands, Italy and Spain. Intensive migration has contributed to additional demand for food products, in particular, dairy products. This provided the basis for the construction and calculation of a dynamic model of dairy production, the export of dairy products, and the coexistence with the existing population as the main consumers in the EU–27 countries and Great Britain between 2004 and 2020. An additional research value is that based on the presentation of the analysis and mod‑ eling, the relationship between the growth in the demand for dairy products and the growth in the population is established. The reason for the large population in the countries of Central and Eastern Europe is intensive migration flows, which increase the demand for dairy products. The increase in volumes reduces the cost price, which contributes to the export of dairy prod‑ ucts, and also contributes to the increase in the volume of production of dairy products. The re‑ sulting models made it possible to analyse the influence of population growth on the increase in production volume. At the same time, the dependence and influence of the export of dairy Comparative Economic Research. Central and Eastern Europe Volume 26, Number 2, 2023 https://doi.org/10.18778/1508‑2008.26.15 © by the author, licensee University of Lodz – Lodz University Press, Poland. This article is an open access article distributed under the terms and conditions of the Creative Commons Attribution license CC‑BY‑NC‑ND 4.0 (https://creativecommons.org/licenses/by‑nc‑nd/4.0/) Received: 4.07.2022. Verified: 10.11.2022. Accepted: 21.03.2023 106 Jurij Klapkiv, Petro Putsenteilo, Vitalii Karpenko products on the increase in the volume of production of dairy products in the EU–27 and Great Britain countries is investigated. The results of the mathematical modelling indicate unique opportunities to develop the dairy sector of individual EU–27 countries, i.e., the Czech Republic, the Netherlands, and Poland. These countries have a rational ratio of the influence of the population growth factor on the increase in the volume of dairy production and the optimal influence of the export of dairy products on the increase in the volume of dairy production. Keywords: milk, dairy products, European Union, milk producers, consumers, export of dairy products, cost, price, profitability JEL: F10, J11, Q11, Q17 Introduction Inthecontext ofglobalization, most countries around theworld position themselves as open economies, thedynamics ofwhich depend onbuilding effective foreign economic relations between companies (Rosen etal.2000; Robbins 2003). Economies adjust tomore open markets by bringing their prices intoline with global prices (Eskelinen etal.2002). Exports andinternational competitiveness are crucial driving forces behind contempo‑ rary sectoral andeconomic development (Bojnec andFertő 2019). National economies are embedded inaglobal system that generates mutual interdependence across coun‑ tries. Inthis system, each country depends onthesupply ofconsumer goods, interme‑ diate products, andcapital goods from its trade partners, andit relies onthetrade part‑ ners tosupply markets forits own products (Bayoumi, Coe, andHelpman 1996). Exports inanopen economy are atool toexpand market space forbranches andindustries that are ready forintense international competition (Mahmood andNishat 2004; Berger 2005; Demir, Kalayci, andErtugan 2020; Gilpin 2020). Theexport base hypothesis is that are‑ gion’s growth is led by export demand, given perfectly elastic factor supplies (Kilkenny andPartridge 2009). Inaccordance with thebilateral agreements, quotas are anaddi‑ tional element oftrade liberalization (Putsenteilo, Klapkiv, andKostetskyi 2018). Given theexisting natural, resource, social, economic andother factors, theagricul‑ tural sector is among theexport industries inevery country oftheworld that creates conditions forintensive integration intotheworld economy andfood security (Mitchell 1985; Capalbo andDenny 1986; Melo andRobinson 1992; Barbier 2004; Qi andWang 2007; Molenaar etal.2015; Yu etal.2017; Kyrgiakos, Vlontzos, andPardalos 2021). Agri‑food products are among themost popular onthemarket because they are abasic need foraperson among thefood ration, which is met inthefirst place. Inany territory, thesupply offood is formed by acountry’s own resources through theproduction ofagricultural products (Marsden, Banks, andBristow 2000). It must fully cover theneeds oftheentire population living there. However, theplanet’s pop‑ 107 The Convergence of Factors That Affect the Dairy Product Market… ulation is constantly growing, so thedemand forfood is also growing rapidly. Histori‑ cally, when there have been food shortages or unavailability within Acountry, there is anurgent need tosupply or purchase food ontheworld market. Food demand has always been characterised by dynamism andalarge volume ofcon‑ sumer requests (Thiele andWeiss 2003; Wang, Mao, andGale 2008). It is also akey fac‑ tor that directly affects food price formation (Henson andTraill 1993). All countries are involved intheglobal food trade, as demand is constantly growing, mainly due topopulation growth, income growth anddiversification ofways ofnutri‑ tion (Liverman andKapadia 2012; Stephens, Jones, andParsons 2018). Therefore, inter‑ national trade is ofgreat importance forfood security (Putsenteilo 2011). According toresearch, thefollowing factors commonly influence agri‑food products onaglobal scale (Figure1). Natural conditions Accommodation of the population World transport and communications Potential of agricultural production Political situation in the world Innovation and technology Agri-food products Export Import Consumer World economy and trade Figure 1. The factors that influence global agri‑food products relations Source: generated by the authors. Thedevelopment oftheagricultural sector oftheeconomy andits efficient functioning are determined primarily by thedevelopment ofits institutions (Putsenteilo etal.2020). 108 Jurij Klapkiv, Petro Putsenteilo, Vitalii Karpenko Material and methods TheEU is alarge consumer market with more than 450million inhabitants. It is char‑ acterised by effective demand –theaverage income is 1,900 euros per month (Eurostat 2001b). These factors make it very attractive toforeign companies, resulting inthein‑ tensification ofcompetition inindividual EU countries (Sadowski, Wojcieszak‑Zbierska, andBeba 2021). However, companies from third countries face real challenges inenter‑ ing EU agricultural markets (Chantreuil, Hanrahan, andLeeuwen 2011). Let us consid‑ er thedynamics andstructure ofthedairy market tobetter understand thecompetition inthese markets. Sales andmarket share data from all countries within theEuropean Single Market (theEuropean Union’s 28 member states) have been included. TheEuromonitor Inter‑ national Passport Global Market Information Database has thebest available database formost oftheselected countries andproduct markets. Euromonitor is theworld’s lead‑ ing independent provider ofstrategic market research andcollects volume sales databas‑ es from various sources, including trade associations, industry bodies, company finan‑ cial reports, andofficial government statistics. These databases are validated by thefood industry. Forthis study, thedatabases were obtained formilk anddairy intheEuropean Union (EU) atthemost fine‑grained level between 2004and2020. Thepresent study is secondary research mainly based onTheFood andAgriculture Or‑ ganization (FAO) database, Eurostat New Cronos, andtheBulletin oftheIDF. Based onthese data, wecarry out statistical evaluations andillustrate themain tendencies interms ofproduction, trade andprices; finally, weanalyse these trends. TheFAO data‑ base provides theappropriate numbers forproduction, consumption, trade andprices. Wehave used these numbers toprepare figures andtables andanalyse thechanges over theyears. Wemake relative numbers andexamine thepercentage changes inthedif‑ ferent values. Inaddition, wetry toreveal which causes contribute tothechanges. Themain purpose ofthis study is toassess theproduction intheEU ofbutter, butter oil, cheeses, SMP (Skimmed Milk Powder), WMP (Whole Milk Powder), whey powder, casein, lactose, andcows’ milk between 2004and2020. Toachieve this goal, theEu‑ rostat databases were selected. Theadvantage ofthese databases is their wide coverage (they cover all EU countries) andtheonly methodology forobtaining them. This makes it possible tocompare EU countries. Using multiple correlation analysis, westudy thequantitative impact offactors onthere‑ sults andestablish thelevel ofdependence of theperformance indicator oneach ofthefactors. 109 The Convergence of Factors That Affect the Dairy Product Market… As theeffective indicator Y, wechoose “Products obtained”, andas factors that influence theeffective indicator, weuse factors х1, х2 andх3 –“Population”; “EXPORTS ofDairy Products toThird countries”; and“IMPORTS ofDairy Products from Third countries”, respectively. Weassume that therelationship between factor indicators andperformance is straight‑ forward. Towrite such dependencies, one can use alinear function such as: Yx=a0+a1x1+a2x2+...+anxn. Inmultiple correlation‑regression models, even andpartial correlation coefficients are calculated tomeasure therelationship density. Paired correlation coefficients show thedensity oftherelationship between factors, andbetween factors andperformance. Themethod ofcalculating andinterpreting such coefficients is similar tothelinear cor‑ relation coefficient foraone‑factor (pair) connection. Constructing theregression equa‑ tion is carried out foreach study country separately. Calculating paired correlation coefficients makes it possible toidentify collinearity. Since it distorts theestimation ofregression parameters, it must be eliminated. Inthis case, one ofthefactors must be excluded from theregression equation, which inapairwise correlation gives ahigh linear coefficient that exceeds theabsolute value of0.7. Such aconnection between two factors is called collinearity, andbetween several factors, it is called multicollinearity. Determining the pairwise correlation coefficients takes into account the influence of oth er factors of the model. Partial correlation coefficients are calculated to abstract from their impact and to quantify the relationship between performance and factor indicators in their pure form. They show the level of influence of one factor on the result at influence of one factor at a fixed value on the result of others. Wefind thecalculated values oft‑statistics foreach pair offactors andthetabular value oft‑statistics andcompare them with each other. t12 > tkp Pair Х1Х2multicollinear t13 < tkp Pair Х1Х3non‑multicollinear t23 > tkp Pair Х2Х3multicollinear Factor Х3excluded Thus, as aresult ofthecalculations, it can be concluded that it is necessary tore‑ move factor X3 (IMPORTS ofDairy Products from Third countries) from theequa‑ tion, which indicates that there is no close relationship between factors X1 andX3, i.e. these factors are non‑multicollinear. Then webuild astandardised model with‑ 110 Jurij Klapkiv, Petro Putsenteilo, Vitalii Karpenko out taking intoaccount theremoved factor X 3 . Inorder tobe sure ofthereliabili‑ ty oftheconnection equation andtheexpediency ofits use forpractical purposes, it is necessary togive astatistical assessment ofits reliability. Todothis, inaddi‑ tion tothecoefficients ofmultiple correlation anddetermination, weuse Fisher’s criterion andtheaverage error ofapproximation. Thehigher themultiple correla‑ tion coefficients, determination andFisher’s criterion, andthelower thestandard error, themore accurately therelationship equation describes therelationship be‑ tween thefactors. When assessing thereliability oftherelationship, theactual value ofFisher’s test is compared with its tabular value. If thetabular value oftheFisher coefficient is greater than its actual value, this indicates that there is no relationship between theperformance andfactor indicators. Since Fcalculation > Ftab, thereliability oftheconstructed mathematical model with reliability Р=0.95 can be considered adequate experimental data, andbased ontheaccepted model, it is possible tocarry out theeconomic analysis. TheStudent’s criterion is used separately toassess thereliability ofeach parameter oftheequation. Theresult ofthecalculations is theconstruction ofamultiple regres‑ sion equation foreach country separately, which reflects thedependence ofY onX 1 andX2. Analysing theparameters oftheregression equation will allow us todraw aconclusion about thedegree ofinfluence ofeach ofthetwo factors ontheYindicator –“Products ob‑ tained”. Forvisual presentation, theresults will be displayed Y andYcalculation intheform ofcharts foreach EU country. Results and discussion Milk production is one oftheimportant industries that provide theindustry with raw materials andthepopulation with biologically valuable food products (De Boer 2003; Blayney 2004; Marchand etal.2012; Baldini, Gardoni, andGuarino 2017; Rotz etal.2021). Milk has been known as nature’s most complete food formillennia, andit currently plays animportant role inpeople’s diets across theworld (Górska‑Warsewicz etal.2019). Milk anddairy products are nutrient‑dense foods, supplying energy andhigh‑qual‑ ity protein with arange ofessential micronutrients (especially calcium, magnesium, potassium, zinc, andphosphorus) inaneasily absorbed form (Black etal.2002; Bai‑ ley etal.2010; Muehlhoff, Bennett, andMcMahon 2013; Pfeuffer etal.2018; Bechthold etal.2019). Milk minerals are crucial forhuman health anddevelopment, as well as indairy processes such as cheese‑making andforall traits involving salt‑protein inter‑ actions (Franzoi etal.2017). 111 The Convergence of Factors That Affect the Dairy Product Market… InWestern countries, milk anddairy products are major components ofthehuman diet, providing about 30%ofdietary proteins andlipids andabout 80%ofdietary calcium (Fox 2003). Dairy products are animportant part ofmost people’s diets, andthebenefits ofcalcium are widely advertised (Jelen andLutz 1998; Girma, Tilahun, andHaimanot 2014). Therefore, dairy products are unlikely tobe completely replaced (Maijala 2000; Bauman etal.2006). Liquid (beverage) milk is amajor food item inall developed dairy‑ ing countries, representing 40%oftotal milk production (Fox 2003). However, thecon‑ centrations andproperties ofmilk constituents are variable. Hence, theprocessability ofmilk andtheproperties ofdairy products are inconsistent. However, much ofthis var‑ iability can be eliminated by modern technology, which exploits certain features ofmilk constituents (Boland andSingh 2019). Given thecrucial importance ofthedairy sector inproviding livelihoods, equity andfood security forrural populations, quantifying thecontribution ofvarious factors tomilk production growth is useful forreorienting dairy programs anddevelopment priorities (Dries andSwinnen 2004; Faye andKonuspayeva 2012). Milk has certain features that distinguish it from other agricultural products andshape its production, processing andtrade. Incontrast tograins, milk is abulky andheavy commodity requiring high‑cost storage andtransportation as it spoils quickly with‑ out cooling (Knips 2005). Theproduction andconsumption ofmilk as afood product is achain ofinterrelated andinterdependent stages oftheoverall process, thecourse ofwhich depends onthestate ofthemilk market, which is part oftheagricultural mar‑ ket (Bourlakis etal.2014; Landes etal.2017; Kumar etal.2019). Strategies forsustain‑ able rural development focus onvalue chain creation by establishing andconstantly searching fortransparency, using tools such as traceability systems toestablish trust and, ultimately, consumer willingness topay forproducts ofahigher added value. De‑ spite various attempts todefine what sustainability means, theconcept is still imprecise inits definition (Luhmann, Schaper, andTheuvsen 2016). Today, themarket formilk anddairy products is one ofthelargest food markets because it is quite large andac‑ tive, has strong trends, andsignificantly affects other food markets (Dawson andHub‑ bard 1987; Serra andGoodwin 2003; Bouamra‑Mechemache, Jongeneel, andRéquillart 2008; Hill 2017). Thecomposition ofdairy product consumption varies across different regions, with liq‑ uid milk being theoverall most important product by volume. However, processed dairy products have become more important with increasing incomes andliving standards. Indeveloped countries, there is agrowing trend forhigh‑value functional foods that re‑ quire considerable research investments andsophisticated processing (Knips 2005). Theglobal increase inmilk sales is associated with thegrowth intheworld’s population, as well as economic development, overall human well‑being, andclimate change (Guz‑ mán‑Luna etal.2021). Atthesame time, themilk market has undergone significant trans‑ 112 Jurij Klapkiv, Petro Putsenteilo, Vitalii Karpenko formations inrecent years, taking place against thebackground ofchanging consum‑ er preferences andtheelimination ofglobal demographic balance (Blasko 2011; Gerosa andSkoet 2012). However, while milk sales are growing indeveloping countries, they are declining indeveloped countries (Duncan etal.2013). According to the latest outlook from the OECD‑FAO, in the ten years between 2019and2028, global consumption offresh andprocessed dairy products is expected toincrease by 2.1% and1.5% ayear, respectively (Rusk 2019). Population growth inde‑ veloping countries, together with thegradual economic development that has taken place, has forced milk producers topay close attention tothese markets (Delgado 2003). Atthesame time, indeveloped countries, theopposite effect is seen. There are declines insales amid thewidespread popularization oftheidea ofdiet andhealthy eating, which sees some people giving up milk anddairy products due tothepresence ofsugar intheir ingredients (Armstrong etal.2005; Pothoulaki andChryssochoidis 2009; Sääksjärvi, Holmlund, andTanskanen 2009; Nolan‑Clark etal.2011; Grout etal.2020). Factors in the growth in demand for milk and dairy products include population growth in the world, urbanization, increasing incomes in developing countries, and a high share of young people, among others. These demand factors will continue over thenext 10–20 years. It will increase the demand for dairy products and, therefore, result in large volumes of milk being produced. This production, in turn, depends on two main factors: thenumber ofcows andtheir productivity. Prices formilk anddairy products ontheworld market, as well as any other product market under normal circumstances, are usually determined by domestic prices ofmajor exporting countries, which, inturn, depend onproduction costs, government support forexports, andtheseason oftheyear (Cox andChavas 2001). Thus, themarket formilk anddairy products is acomplex interconnected system ofnational markets indifferent stages offormation. Atpresent, theway it functions is complicated by factors related tolower prices andintensified competition between exporters ofdairy products. TheEU is amajor producer ofmilk anddairy products, andthey are integrated intoasingle market organization. Milk is produced inall EU countries andaccounts for12%oftotal agricultural output, estimated ataround 155million tonnes per year. Themain producers are Germany, France, Poland, theNetherlands, Italy andSpain, which account foralmost 70%oftheproduction. While milk is produced inall mem‑ ber states, farm andherd sizes, yields, andtypes offarming vary widely across Europe, from free‑range farming inAlpine areas tolarge specialised dairy farms inthenorth‑ west andcentre ofEurope (Augère‑Granier 2018). 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(2017), Modeling thepotential impacts oftwo BREXIT scenarios ontheDanish agricultural sectors, Department ofFood andResource Economics, University ofCopenhagen, Copenhagen. 124 Jurij Klapkiv, Petro Putsenteilo, Vitalii Karpenko ANNEX Quantitative impact of factors “Products obtained”, “Exports of Dairy Products”, and “Population” in the dairy industry of the EU–27 and Great Britain 125 The Convergence of Factors That Affect the Dairy Product Market… 126 Jurij Klapkiv, Petro Putsenteilo, Vitalii Karpenko Soures: authors’ calculations based on Eurostat. 127 The Convergence of Factors That Affect the Dairy Product Market… Konwergencja czynników wpływających na rynek produktów mleczarskich: analiza porównawcza krajów Unii Europejskiej Unia Europejska jest dużym producentem mleka i przetworów mlecznych, a jednocześnie zna‑ czącym rynkiem konsumpcyjnym, który charakteryzuje się efektywnym popytem i znaczą‑ co wpływa na rynki innych produktów spożywczych. Głównymi producentami mleka w UE są Niemcy, Francja, Polska, Holandia, Włochy i Hiszpania. Intensywne procesy migracyjne przyczy‑ niają się do dodatkowego popytu na produkty spożywcze, w szczególności produkty mleczne. Dało to podstawę do budowy i kalkulacji modelu dynamicznego produkcji mleczarskiej, eksportu produktów mleczarskich oraz współistnienia z populacją jako głównym konsumentem w krajach UE–27 i Wielkiej Brytanii w latach 2004–2020. Uzyskane zależności umożliwiły analizę wpływu czynnika wzrostu populacji na wzrost wielkości produkcji. Jednocześnie zbadano zależność i wpływ eksportu produktów mleczarskich na wzrost wielkości produkcji produktów mleczarskich w krajach UE–27 i Wielkiej Brytanii. Wyniki przeprowadzonego modelowania matematycznego wskazują na unikalne możliwości rozwoju sektora mleczarskiego poszczególnych krajów UE–27: Czech, Holandii, Polski. Kraje te mają racjonalny stosunek wpływu czynnika wzrostu liczby ludności na wzrost wolumenu produk‑ cji mleczarskiej oraz optymalny wpływ eksportu produktów mleczarskich na wzrost wolumenu produkcji mleczarskiej. Słowa kluczowe: mleko, produkty mleczarskie, Unia Europejska, producenci mleka, ludność, popyt, podaż