Dubai – Decypha: United Arab Emirates’ (UAE) dairy food products such as milk, sour milk, yoghurt, and cheese, have long since been staples of all households. Despite the harsh desert environment, the UAE has been largely self-sufficient in meeting domestic demand, with minimal reliance on imports – contributing to the industry’s continued growth. The dairy industry grew by more than 50% in the GCC in the last decade, according to food and drink consultancy Zenith International.
As the second largest producer of milk and dairy products in the GCC region, imports for the dairy market is minimal compared to other food products. Approximately 24% of the liquid milk market is imported, whereas 13% and 11% of yoghurt and sour milk are imported.
The consumer foodservice industry is, on its own, a powerful force propelling the industry forward. UAE has a large proportion of expatriates with a high standard of living – all of whom frequently eat out and visit cafes with family and friends all causing the foodservice sector to be an integral part of the populations lifestyle.
Approximately 33% of the total milk product sale in the UAE come from foodservice sector, with the bulk of it going to coffee shop chains Costa, Starbucks, institutional contracts, and airlines, according to Mordor Intelligence Reports.
Market Overview
Sales of dairy products in the Emirates are expected to grow over the next couple of years to reach $1.6 billion in 2019, compared to $1.2 billion recorded in 2015, according to The National. Approximately 80% of dairy sales come from four key product categories, fresh white milk, laban, yoghurt, and cheese, according to Zenith report.
Unprocessed hard cheese sales are becoming more popular in the UAE, primarily due to the growing Western cultural influences in the country. In 2016, cheese sales grew by 8% to reach AED 1.1 billion in 2016, according to Euromonitor report.
Fresh milk products growth is somewhat limited, mainly attributed to the strict government price controls on fresh milk. Yet, more than half of all the dairy product revenues come from the fresh milk category. Operational expenses of farms are quite high, making it difficult for manufacturers to boost their profit margins and grow.
Other dairy products such as yoghurt and sour milk, among other products, are becoming quite popular with local consumers with the sustained rise in health awareness reinforcing them as healthy substitutes. Some dairy products have been stagnant in their growth, such as condensed milk, as majority of consumers are cost sensitive low-income expatriates.
Challenges
One of the ongoing challenges of the dairy sector in the UAE is rearing and keeping dairy cows in the harsh desert of the country. The UAE’s harsh and hot environment and limited natural grazing pastures hinder dairy farm’s growth.
“Trying to bring an animal to where it's not supposed to be, and trying to get the quantities of milk up to European or Australian standards, is not easy,” said the chief operating officer of Al Ain, Shashi Kumar Menon, according to the National.
"This is an intimidating and hostile environment. The primary challenge is getting the cows to adapt and live in this harsh desert environment. To do that you have to have a good understanding of the animal and provide them with the conditions that help," added Menon.
As the cows are not made to live in a desert climate, all of the cows are kept indoor which is very costly. Cow excrement, if not managed correctly, can cause ammonia to build up to dangerous levels. Another challenge for dairy farms is the rising cost of feed. Cows food consumption can reach up 40,000 tonnes each year, with dried alfalfa accounting for half of them. The cost of feed rises each year while the price of milk is set and fixed at AED 5 a litre by the government.
Another challenge the milk producers face is the government regulations imposed on milk and yoghurt. The UAE government regulates the prices of milk and yoghurt, limiting the ability of producers to boost profitability. These regulations are put in place to avoid price volatility on staples such as milk caused by currency fluctuations.
“The price controls by themselves are not the problem – all the Gulf states have it on dairy products,” said an industry source, according to the National. “The problem comes when the producers start discounting over and above the recommended price.”
The slim profit margins on fresh milk and yoghurt has lead some dairy manufacturers to expand their portfolio of products to include long-life products which is outside of any price control requirements. Unikai, a UAE-based dairy producer, is revamping its product base to become a lifestyle foods/F&B company over the next three years.
“[Focus on] fresh milk makes sense if you have your own dairy, cattle and farm — We don’t have that at this point,” said Neeraj Vohra, CEO of Unikai. “And it’s capital intensive and it needs a completely different focus; our focus is more on distribution and more on packaged products, which we can easily manufacture. Those are the kind of products we are focusing on.”
Market Players
There are numerous market players in the dairy industry, where each manufacturer dominates a chunk of the market according to the product. Almarai Co Ltd, Al Ain Dairy Co Ltd , Al Rawabi Dairy ,Arla Foods Amba, Kraft Heinz Co, National Food Products Co Ltd, Friesland Arabia Ltd, and . Nestlé Middle East FZE.
For cheese, the three dominant market players are Almarai, with a 15% market share, Arla Foods Amba, with a 13% market share, and Kraft Heinz Co, with a 9% market share. Almarai has deep roots in the region with an extensive distribution network and has access to prime shelf space in main retail channels, allowing it continue to dominate the market.
Drinking milk products sales was dominated by Al Ain Dairy in 2016 where it had 20% of the market share. Almarai and Al Rawabi Dairy each had 19% and 16% of the market, respectively. Deep-rooted local presences, well-established distribution networks, and a diversified product portfolio of the three companies are reasons for the companies continued dominance of the market.
For dairy products, such as yoghurt and sour milk products, Almarai is a leading player with 23% market share, followed by National Food Products Co with a 16% market share. Friesland Arabia Ltd dominates the market in sales of other dairy products, such as condensed milk, with a 38% market share. Nestlé Middle East FZE comes in second, with an 11% market share due to the popularity of Nestle and Carnation brands with higher-income consumers.
Bright Outlook for the Dairy Market
Cheese sales are expected to grow over the next few years to reach AED 1.4 billion in 2021. In a similar vein, fresh milk products is expected to record a value CAGR of 2% over the next few years to reach sales of AED 1.6 billion in 2021. The sales forecast for milk and sour milk products is AED 1.8 billion over by 2021.
By Heba Eid
