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World Markets – The Far East
by Hugh Stringleman
Like a whirling dervish at Baba al Shams desert restaurant, outside Dubai, the Middle East market for dairy products never stands still.
Occasionally it might pause to re-gather momentum, but surges off again, in times of plenty and of disruption, in war and in peace.
The global financial crisis might have left giant holes in the ground and untenanted skyscrapers littering Dubai, but the Middle East's appetite for dairy products is undiminished.
New Zealand's giant dairy co-operative, Fonterra, reported NZ$1.7 billion (£800 million) revenue from the branded product sales to the Asia Middle East region in 2009, along with $1 billion (£450 million) sales of dairy commodities and ingredients to the Middle East.
Across the range of products, compounded annual growth rates of 15% in sales volumes are normal, and many touching 50%.
As the region contains more than 20% of the world's population, including Islamic states of the former USSR and northern Africa, and the average age in most countries is under 25, Fonterra sees huge potential for the future.
However, the potential is not targeting the tens of thousands of rich expatriates who hold executive positions in all the capital cities, but the millions of indigenous peoples and their Indian sub-continent workers.
“For them dairy is the gold standard in nutrition,” explained Amr Farghal, managing director of Fonterra Brands, Middle East, Africa and the Commonwealth of Independent States (CIS), which are the countries called “stans” below Russia.
Among more than 70 countries in the vast region there are the world's richest, like Qatar, and the poorest, like Somalia. Fonterra is active in 28 of these so far, although developing markets such as Iraq, Lebanon, Ukraine and Somalia have been opened up recently.
During the past three years under Farghal, Fonterra Brands has rejuvenated its Anchor brand (mostly milk powders) re-launched jar cheese and launched Anlene calcium enhanced milk powder. Volume growth has been 15% year-on-year and revenue growth 22%, as base products give way to added-value products.
The region contains products unique for Fonterra – like processed cheese spread in jars, ambient temperature butter in 454g tins, canned feta cheese which doesn't melt in cooking and 5kg butter block sales direct to the Azerbaijan people.
Consumers take home 5kg of butter once a month, melt 4kg into butter oil for cooking and refrigerate the rest for spreads, Farghal said.
Fonterra likes to research new markets in “clusters” so that logistics, language, media and promotion can be effective across several countries at one time. It also believes that it is creating history and future consumer loyalties by going into countries where others can't like Iraq and Somalia.
“We are building business which will last, and getting first mover advantage,” Farghal said.
Both of these war-torn countries are supplied from Fonterra newly wholly owned processing and packing plant at Dammam, Saudi Arabia, with jar cheese for Iraq and milk powder sachets in Somalia.
Fonterra employees are not permitted to travel into those countries and business is conducted with local distributors, who have to pay cash in advance for supplies. Training of the locals is done outside the country.
One of the hazards of supplying Somalia, Farghal said, is the risk that local operators keep the shipping containers and refuse to send the empties back.
The Dammam plant takes 30,000 tonnes annually of New Zealand milk powder and cheese for re-formulation and packaging. International competitors Nestle and Kraft have similar plants in Dubai and Bahrain respectively.
Saudi Arabia has its own dairy industry, supplying just a portion of the domestic liquid milk demand. It has giant farms in the desert, on which tens of thousands of cows are kept indoors, fed with cut-and-carry rose grass and alfalfa. Cows are milked three or four times a day and can produce up to 11,000 litres annually, about three times the average volume of a NZ pasture based cow.
The major farm owners are Saudi companies such as Al Marai, NADA, Nadec and Safi-Danone, which has a French minority stake.
Fonterra's Global Trade division, which operates independently of Brands around the world, sells milk powders, fat and protein to local Middle East companies like Al Marai, which are then used to produce UHT milk and cultured products.
The Dubai-based director of Global Trade, Callam Weetman, said his business unit has achieved a consistent 300,000 to 400,000 tonnes of sales annually over the past five years, in a region of the world not so badly affected by the global financial crisis as Europe and North America. That includes arm's length sales (in Auckland) to Fonterra Brands and its Dammam plant.
Dairy imports from New Zealand into the Middle East and Africa (MEA) are 50% of the total from all sources, plus 7% from Fonterra Australia.
Milk powders account for over half of the Fonterra volume, cream products 95,000 tonnes and cheese products 11,000 tonnes.
MEA is number two in Fonterra's Global Trade hierarchy behind China, which enjoys a 20% freight advantage from NZ. Global Trade in the MEA employs 25 people, only 10% of whom are Kiwis, doing $1 billion (£450 million) of sales into 50 countries, lead by Algeria, Saudi Arabia, Iran and Egypt.