Competitiveness of the EU dairy industry

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Competitiveness of the EU dairy industry

profits. This makes comparison difficult between countries that have different

taxes, inflation rates, capital prices and labour costs.

Return on total assets (ROTA) measures a company's ability to generate

profit net of expenses. It also measures the ability of the manager to generate

profit using company resources. Based on this measure the UK, France, Germany,

the Netherlands and Poland are ranked one to five respectively. Italy remains

the least profitable country in this regard. ROTA can give a biased picture

due to a different tax and capital structure effect. The EBITDA margin offsets

this problem. Measuring profitability using the EBITDA margin, France dairy

firms are the most profitable followed by UK. Italy, Germany and the Netherlands

follow with a more or less similar EBITDA margin. Poland dairy processors

have the lowest EBITDA margin.

Figure 6.3 Mean profitability (%) of dairy processing enterprises

operating in six EU countries

profit margin return on ET EBITDA margin

FR DE IT NL PL UK

Profitability may directly be related to size due to the cost-scale effect. Therefore,

it is not surprising that profitability increases from micro to large enterprises:

as the scale of production increases, the production cost goes down. This can be

observed from the profit margin (figure 6.4). The gap in profit margin between

large and medium enterprises is bigger than the gap between other size classes

(medium and small or small and micro enterprises). This implies the scale effect is

more important when a company size grows from medium to large.

Looking at the return on total assets, large companies obtain very high returns

from assets compared to micro, small and medium enterprises.

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