In the race for Middle East’s dairy pie, Ireland can learn from New Zealand

By Ankush Chibber

- Last updated on GMT

The Irish Dairy Board investment will give it a local distribution base - which will circumvent tariffs
The Irish Dairy Board investment will give it a local distribution base - which will circumvent tariffs

Related tags: Middle east, United arab emirates

At the end of October, Ireland’s dairy sector finally flexed its muscles in the Middle East dairy market when the Irish Dairy Board Cooperative (IDB) announced a €20m investment in Saudi Arabia.

But on the path to a significant market share in Saudi Arabia and the rest of the Middle East, Ireland and IDB will meet familiar rivals New Zealand and its dairy giant Fonterra—that have outmuscled Ireland in China’s dairy market.

The Irish investment included the acquisition of a 75% interest in Al Wazeen Trading LLC, a firm that imports, distributes, and sells dairy products to food service and wholesale customers and the development of a new state of the art cheese manufacturing plant.

The plant, at the Al Wazeen facility in Riyadh, is being seen as a vital step into strengthening Irish Dairy’s position in the Saudi Arabian market, the fifth largest dairy importer in the world.

Equally, the plant is also being touted as a central hub to access the Middle East’s important dairy growth markets— including milk and milk products like cheese, cream, spreadable fats and yoghurt.

“This investment is not just about manufacturing.  We are building a hub for manufacturing, marketing and research and development.  This investment represents a major commitment to growth in this region,”​ an IDB spokesperson told FoodNavigator.

“Saudi Arabia is an excellent hub which gives us an ideal base to grow our business in the Middle East and North Africa.”

He said that current Irish dairy trade with the Middle East is worth about €55m, and with the cheese market in Saudi Arabia alone valued at €1bn, there are excellent opportunities for growth for Irish dairy.

Cheese and dairy ingredients are going to form the bedrock of Irish dairy expansion in the Middle East, he added, where the country has long established trade links.

The Kiwi way

One of the major factors behind the success of Kiwi dairy sector has been how much the government has worked in the sector’s favour to lower export costs. New Zealand inked a Free Trade Agreement (FTA) with China in 2009 and in 2008 with the GCC—the Gulf Cooperation Council of UAE, Bahrain, Saudi Arabia, Oman, Qatar and Kuwait.

These FTAs opened doors for Kiwi dairies in these high-demand regions as well as those with ASEAN and Malaysia. Today, some 40% of Fonterra’s exports go to countries with which New Zealand has established FTAs.

According to Chris Pike, prices manager at Statistics New Zealand, in 1992, China was the smallest dairy export market for New Zealand, accounting for 0.5% of exports, behind the UAE (0.7%), while Saudi Arabia (2.7%) was just a notch higher.

In 2012, China became the dominant market for Kiwi dairy exports at 22.4%, while Saudi Arabia and the UAE were 3rd​ largest at 4.1% each.

With its new plant, Ireland aims to do the next best thing to an FTA.

The new facility will produce a range of fresh white cheeses, hugely popular in the Middle East. It will use a technology to allow milk protein ingredients to be recombined for fresh white cheese. This process will allow the Irish product to circumvent a 5% import duty in Saudi Arabia.

On top of that, it will give IDB a local distribution base that can ship products to other countries in the GCC avoiding all the additional tariffs it would have incurred shipping cheese from its home country.

Healthy and premium dairy in demand

Kartik Dwivedi, partner with Mumbai-based Dassler Business Intelligence, told FoodNavigator that production of dairy products in the GCC region has not increased in tandem with the growth in demand.

“Consequently, almost 60% of the total consumption is met through imports from US, Europe, New Zealand, Australia and even India,”​ he says, adding that Ireland can really learn from what the Kiwis did in China.

“There was a conscious effort to play to the needs of the Chinese. There was a level of localisation and customisation,”​ he said.

“The average Chinese citizen is most concerned about the safety and security of his food. Consequently, you saw all the messages coming from companies like Fonterra about their products being safer and of higher quality. The results of that are for all to see,”​ he added.

Dwivedi said that increasing urbanisation and incomes, and the growing popularity of large food retail formats in the Middle East are expected to drive the consumption of high-value processed foods.

“But the Middle East also has an obesity and diabetes problem. And there is a growing awareness about them. So I foresee a high demand for functional and healthy foods in the dairy market,”​ he said. “I also see premium dairy products to be a fast growing segment.”

Related topics: Dairy

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