In October 2013, the French dairy company Danone announced that it had joined with the Abraaj Group to acquire Fan Milk International (FMI) (the two companies hold 49% and 51% shareholdings respectively). FMI is a dairy and fruit juice distribution company with a major distribution network across six West African countries (Ghana, Nigeria, Togo, Burkina Faso, Benin and Côte d’Ivoire). The deal is scheduled for completion by the end of 2013, with Danone gradually taking over a controlling stake in FMI. The website Dairyreporter.com noted that “through the deal, Danone, which has an established presence in South Africa and several Maghreb nations, hopes to develop the dairy product market in West Africa, using Fan Milk’s unique business model.”
According to the Danone/Abraaj Group joint press release, “the combination of Danone’s know-how in the fresh dairy category alongside Abraaj’s 20-year investment experience, insights and local presence on the African continent will boost Fan Milk’s growth in a market with major potential.” Emmanuel Faber, Co-Chief Operating Officer of Danone, commented: “This transaction represents a major step in Danone’s expansion in Africa.” According to dairy sector analysts, “Africa is becoming a major expansion axis for Danone and [tomorrow it will be] an important growth booster.”
The Abraaj Group is a leading Dubai-based private equity investment company operating in emerging markets. In the African dairy sector, the Abraaj Group is already a partner of Brookside Dairy, described in the joint press release as “the largest dairy in East Africa”.
FMI, which has its headquarters in Denmark, “relies on a fleet of more than 30,000 street vendors, operating push carts and bicycles, to distribute its growing portfolio of fruit juices and [frozen] dairy products”. The company has been present in West Africa since 1960, when the Ghana Milk Company was established, using imported milk powder to manufacture reconstituted dairy products.
Initially FMI distributed reconstituted milk products, but it has since developed its product range to include “yoghurt, ice cream, flavoured milk, drinking yoghurt and juice drinks”. The company now has sales of “around €120 million… and has access to around 250 million increasingly affluent customers”. FMI’s main markets are Nigeria and Ghana, which together account for 80% of sales. According to Reuters reports, FMI “commands a market share of 85 percent and 89 percent respectively in these two countries”.
Danone’s investment in South Africa, in collaboration with Clover Dairies, contributed to the structural development of the South African dairy sector by expanding the range of dairy products manufactured, thus increasing demand for supplies of fresh milk from local producers in KwaZulu-Natal and supporting the raw milk price.
In West Africa, Danone is looking to similarly expand the range of dairy products delivered to a growing number of West African consumers. However, the link to domestic milk production would appear to be more fragile, given FMI’s business model. It seems likely that any expansion of the range of value-added dairy products offered through FMI will be based largely on imported raw materials. In the years following the abolition of EU milk production quotas, Danish milk producers will be looking for a new market for over 1 billion litres of additional milk production (see Agritrade article ‘ End of dairy quotas leads to greater external focus of EU dairy companies’, 4 March 2013).
Given the growing interest of a number of EU dairy companies in West African markets (e.g. Danone, Arla and FrieslandCampina) the question arises: what policy frameworks do West African governments need to set in place to encourage the structural development of their dairy sectors in ways that are increasingly linked to domestic milk production?
The question needs to be addressed in the light of the agronomic and infrastructural constraints on competitive milk production in West Africa countries and of the policy choice as regards the relative importance accorded to milk production and value-added dairy processing activities in each country.