Arla flags up Middle East dairy potential

By Chris Mercer

- Last updated on GMT

Related tags Middle east United arab emirates Arla

Arla's switch of production from the EU to Saudi Arabia will save
the firm money and help it to benefit from the Middle East's
significant potential for high value diary products.

Arla, who's Lurpak brand already leads the Middle East's butter market, announced earlier this year that it would move production of processed cheese at its Bislev Dairy in Denmark to Saudi Arabia.

The grand plan is to double current sales of 60,000 tonnes per year by 2010. This will be done via a multi-million Danish Kroner investment in the Middle East region, including factory extensions and a pilot plant to test new products and packaging.

Louis Honoré, Arla spokesperson, said the group wanted to expand its reach in Lebanon, Oman and Kuwait, where it already has a strong foothold. Qatar and United Arab Emirates are also on the list, while Saudi itself is already the firm's biggest market.

And with many European dairy firms facing tough margin pressure, Arla's move and experience so far suggests the Middle East could provide a good avenue for dairy firms to increase earnings.

"There is a growing population with a lot of young people who will be interested in buying high value dairy products. Plus with the spread of satellite television, it is easier to reach them by advertising,"​ said Honoré to​.

He added that Arla's Puck cheese brand was now as well known as Coca-Cola in the region because of satellite tv ads.

Arla said in a statement this year that middle classes were getting wealthier in the Middle East and that more people were looking to shop in supermarkets.

"Middle Eastern consumers are increasingly demanding fresh, locally produced products,"​ said Finn Hansen, executive director of Arla's overseas division. "The intention is for new products produced in the Middle East to account for 20 per cent of our turnover there."

And Honoré said the firm could take also a cultural advantage by producing more locally. "We've been here so many years now we believe the authorities consider us a local dairy,"​ he said, adding that this could give Arla an advantage over other international brands.

Arla expects to make much-needed cost-savings out of its switch in production from Denmark to Saudi Arabia. An cost-benefit analysis revealed "substantial advantages"​, it said.

But, Honoré denied the move was directly connected to the European Union's decision to cut export subsidies on a range of dairy ingredients.

"We would have done this anyway. The Middle East is a big market for us and we foresee that our brands are well able to sell more there. Of course, the cutting of the export subsidies just shows that this is the right move."

Arla warned a few weeks ago that the EU's export subsidy cuts would harm earnings from butter exports this year.

The group, like many other European dairy processors, is grappling with intense cost pressures. The whole dairy sector has seen a rapid shift towards value-added products, such as branded milk, in an attempt to push up earnings.

Consolidation has also picked up with deals, such as the UK's Milk Link buying Glanbia Foods and Dutch dairy Campina merging its European consumer products divisions.

Arla wants to increase its annual Middle East turnover from DKK2.9bn (€388.9m) to DKK4.1bn (€549.9m) over next five years, a move which will require the doubling of its workforce in the region.

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