June 24, 2015
The demand for dairy products has surged in East Africa amid a rapid rise in income levels and urbanization. This market scenario has resulted in aggressive takeovers in the region by local milk producers as they seek to consolidate and increase market share. It’s also caught the attention of global dairy giants seeking acquisitions to gain entry into the East African market.
India is the world’s biggest milk producer, producing approximately 140 million tons per year. However, Indian dairy producers are seeing only single digit profit margins, driving them to increase their exposure to African milk processing markets, which are offering margins of between 15% and 20%, according to JB Sivakumar, dairy analyst at India Ratings.
One of the first Indian dairy businesses entered Africa nearly a decade ago when Devyani Food Industries, seller of Cream Bell ice cream, acquired a stake in Uganda dairy joint venture, Sameer Agriculture & Livestock, which it recently sold to Kenya-based Brookside Dairy.
More recently, Dodla Dairy, which raised US$15.7 million from Black River in 2012, acquired dairy processing assets in Uganda for US$4.7 million last year, and now has sales of 10,000 liters of milk per day in the country. After experiencing margin pressure in India due to price wars on the liquid milk market, the company saw Africa as an opportunity to globally expand while achieving margins that are double those in India.
Also last year, Pujab-based Amos Dairy invested almost US$500 thousand to establish a dairy processing plant in Uganda, and is now exporting processed milk products to other milk-deficit East African countries.
Because raw milk is a difficult product to trade in Africa due to the climate and lack of refrigeration, Parag Milk Foods, which is currently exporting dairy products to Africa is also considering establishing a processing plant in Africa that will focus on long shelf-life products that offer higher margins, such as tetra packs.
Kenya is also a large market and a milk-deficit country, as is Rwanda. But aside from East Africa, West African countries that depend greatly on dairy imports are also attractive. Congo and South Sudan offer their own opportunities, but gaining market share in these countries is much more challenging as newcomers would need to compete with established European brands.
To receive relevant news stories with summaries provided by GAI News, subscribe to daily or weekly service.
Let GAI News inform your engagement in the agriculture sector.
GAI News provides crucial and timely news and insight to help you stay ahead of critical agricultural trends through free delivery of two weekly newsletters, Ag Investing Weekly and AgTech Intel.