Middle East dairy trade opportunity: It takes work

Editor’s note: Dairy Profit Weekly editor Dave Natzke is part of a U.S. dairy industry team participating in a Middle East information mission in Dubai,  in the United Arab Emirates (UAE), Feb. 20-26.

The Middle East’s growing population and social changes make it an attractive dairy export market. While logistics and prices put many U.S. companies at an economic disadvantage with companies in the European Union (EU), New Zealand and Australia, the potential market is too great to overlook, U.S. dairy trade representatives were told here this week.

A U.S. dairy industry team is participating in a Middle East information mission in Dubai,  in the United Arab Emirates (UAE), Feb. 20-26. The mission includes visiting Gulfood (http://www.gulfood.com/), the Middle East’s largest food exhibition for the foodservice and hospitality business, and includes meetings with key U.S. customer and marketers of U.S. dairy products and ingredients to the Middle East.

Dairy producer participants include Kenton Holle, Mandan, N.D., Paula Meabon, Wattsburg, Pa.; and Paul Rovey, Glendale, Ariz., who all serve on the Dairy Management Inc. board.

On the first day of the trip, U.S. Dairy Expo Council (USDEC) staff and regional representatives briefed the group on current dairy trade activities in the 23-state League of Arab States. Nina Bakht, Middle East USDEC director, also summarized food and dairy production and trade activities of the 15 individual nations making up the Gulf Cooperation Council.

Bakht said price sensitivity is important to dairy sales to the region, but personal business relationships are critical. “Phone calls must follow high-tech business,” she said, including inquiries about their personal well-being.

Since location and Free Trade Agreements with EU and Oceania have a significant negative impact on U.S. price competitiveness in the region, USDEC is focusing on business-to-business relationships to boost U.S. dairy sales. USDEC, which worked with just 13 U.S. dairy companies to export products to the Middle East in 1999, worked with 41 U.S. companies in 2009.

Competitive situation

The arid climate of the Middle East makes it a milk-deficit region, with many countries importing a majority of their food. Dairy is a traditional part of the diet in the Middle East, with a long history of consuming white cheeses, yogurt, butterfat and milk powder. For example, per-capita dairy consumption in the UAE, for example, is on par with the United States. People in Saudi Arabia consume a little less than half what their U.S. counterparts eat.

The two major dairy importing countries are Saudi Arabia, which imports about half of its domestic needs, and the UAE, which imports more than 90%. Most of the milk that is produced in the region goes to fluid and fresh dairy product production, leaving opportunities for imports of cheese, whey and milk powder.

The EU is the leading dairy supplier to the Middle East, with a market share across the region of about 30%. New Zealand supplies 20%-25%; Australia, about 10%; with the United States accounting for 5%-10% of overall imports on a milk-equivalent basis, including about 4% on cheese and about 30% on whey proteins.

U.S. dairy exports suffered in 2009, and business with the Middle East was no exception, in part due to competitive forces, as well as the global financial crisis that hurt dairy product buyers’ demand and credit availability. Sales growth in 2007-08, when U.S. prices were  favorable relative to world prices, were lost in 2009 when that relationship reversed. U.S. sales to the region (by volume) were down by about 50% from the prior year. New Zealand increased share due to aggressive pricing that U.S. suppliers couldn’t match. Reinstatement of export subsidies enabled the EU to pick up share.

The United States has not been a consistent supplier of dairy to the region. U.S. companies provided 3% of total cheese imported in 2007; rose to 8.8% in 2008; fell back to 3.2% in 2009; and is expected to climb to 4.5% in 2010. Sweet whey concentrates saw a similar fluctuation: 2007 – 27%; 2008 – 27%; 2009 – 11%; and anticipated in 2010 – 17%.

The absence of Cooperatives Working Together (CWT) export assistance took some U.S. suppliers out of the market last year. In 2008, nearly 12,500 tons of butterfat was shipped to the region with benefit of CWT bonuses.

Bakht said the best opportunities for U.S. dairy exports to the Middle East include: cheese for the GCC retail and foodservice sectors; cheese, whey protein and skim milk powder (SMP) for Egypt’s food processing sector; and SMP and whey proteins for Saudi Arabia and the UAE.

Importers’ add insights

Housam Houriky is business development manager for True Bell, UAE’s largest importer of cheese, primarily Italian cheeses from France, Switzerland, the United Kingdom and Australia. It serves the foodservice, retail and high-end hotel industries. To capture a foothold in the market, U.S. companies must focus on branded products that are recognized by consumers. He said EU suppliers promote brands, not commodities.

Ali Noor, commercial manager for Jordan’s Kaylani Food Center, imports some U.S. cheese, primarily cheddar and mozzarella. He said EU companies – with help from their governments – tend to provide much more promotional support for dairy products. Additionally, EU companies are more receptive to creating product labels in Arabic, and do a better job of creating products that meet Middle East specifications.

Emeel Moukarzel, deputy managing director for Green House, an UAE importer, said U.S. companies have traditionally overlooked the Middle East as a potential market, citing a small market and cost-benefit ratios. Citing potential marketing growth in the region, however, he urged U.S. companies to get a foothold in the region.