On 1 September 2014 the farmer-owned Dutch dairy cooperative FrieslandCampina announced that it had acquired Olam International’s dairy business in Côte d’Ivoire, including the right to use Olam’s Pearl brand for sweet condensed and evaporated milk “in designated African countries”.
Olam’s facility in Abidjan “processes local fresh milk and milk powder into sweetened condensed milk and evaporated milk for the local market”, but the Dutch cooperative’s purchase of Olam’s dairy business supplements FrieslandCampina’s existing involvement in Nigeria and its presence in established export markets for its Bonnet Rouge brand of evaporated milk (see Agritrade article ‘ Expanding Dutch corporate involvement in local milk procurement in Nigeria’, 15 April 2013).
FrieslandCampina’s media relations director, Jan-Willem ter Avest, has described the purchase of Olam’s dairy business in Côte d’Ivoire as “an opportunity to export milk powder from the Netherlands to the Ivory Coast”.
While forming part of FrieslandCampina’s longer-term strategy the acquisition also needs to be seen against the background of the market effects of Russia’s import ban on EU dairy products. In 2013 FrieslandCampina exported cheese to the value of €50 million to Russia. In response to the Russian import embargo, some alternative markets have been found for the existing cheese produced for the Russian market, but now “cheese production specifically for the Russian market has been suspended”. This means that “more milk powder is being produced to relieve the cheese market.”
The acquisition also needs to be seen in the context of a 44% decline in skimmed-milk powder prices at the GlobalDairyTrade auction in the course of 2014.
Whether it is FrieslandCampina’s 1 September 2014 purchase of Olam’s dairy business in Côte d’Ivoire, Arla’s September 2013 joint venture with Mata Holdings to repackage bulk milk powder in its new mobile modular processing units, Danone’s October 2013 acquisition of a 49% in Fan Milk International or Nestlé’s development of low cost processing facilities, a common pattern is emerging from recent corporate investments. (See Agritrade articles ‘ Arla launches turnkey milk powder packaging facility in Côte d’Ivoire’, 27 October 2013, ‘ Danone looking to expand in West Africa’, 19 January 2014, and ‘ Nestlé to roll out modular factory system in Africa’, 18 August 2014.
They all involve, to varying degrees, establishing or expanding local manufacturing capacity to produce ready-to-consume dairy products on the basis of imported milk powders, thereby contributing directly to meeting rapidly expanding demand for dairy products in Africa.
They also, of course, provide an outlet for European milk powder, both in the context of the current market crisis arising from the Russian import ban on EU dairy products and in the light of the projected expansion of EU milk deliveries to dairies following the abolition of EU milk production quotas.
Managing global dairy market price volatility or market disruptions is an integral part of developing EU corporate strategies. Establishing joint ventures which provide outlets for milk powders, independent of volatile global prices and growing competition on Chinese markets, can be seen as an important means of managing volatility. Given the West Africa region’s high import dependency in the dairy sector, recent investments would appear to suggest that West African markets could effectively play this role of ‘safety net’.
The investments need to be seen in the context of wider global corporate aspirations to move into higher value-added dairy product exports, primarily targeting markets beyond sub-Saharan Africa, where greater effective purchasing power exists (e.g. the infant formula market in China or branded, quality-differentiated cheese exports).
This focus however sits uneasily with national and regional efforts in Africa to promote increased local milk supplies to meet growing urban demand for commercially produced dairy products. The danger exists that a temporarily convenient convergence of interests could, on purely commercial grounds, become an entrenched system of integration of African dairy processing units into externally oriented raw material sourcing practices. This could see African dairy sector development in response to growing urban demand in some regions taking place largely on the basis of imported raw materials, without sufficient attention being paid to addressing the very real constraints faced in developing backward linkages to local milk production.
In terms of regional trade, current patterns of investment could have a strong effect on trade flows between milk producing regions and coastal zones, and between coastal zones and markets in the interior. This could see reconstituted milk products produced in coastal zones competing with dairy products in the interior produced from locally sourced milk. This will depend in part on how new investors make use of the distribution chains already set in place by locally established companies.