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 Fonterra Expects Double-Digit Growth in Africa, Middle East  

The world's biggest dairy exporter, New Zealand's Fonterra Cooperative Group, expects a double digit jump in Middle East and Africa sales over the next year as the region's thirst for milk products grows and populations swell, its chief executive officer said.

"What you have already in the Middle East is reasonably high dairy consumption," Andrew Ferrier told Zawya Dow Jones in a telephone interview recently. "You've also got a large population and consumers looking for increasingly healthier foods. We're in that category, so we see good growth."

Fonterra's core business involves the production of milk, milk powder and other milk-based ingredients. It acts as a key supplier to global food giants like Nestle and Kraft but also owns and operates a number of high profile consumer brands like Anchor butter, cheese and milk, Tip Top ice cream and dietary supplement Anlene.

Ferrier said the Middle East, Africa region currently accounts for about 10% of the New Zealand conglomerate's total global revenues. In the six months to Jan. 31. Fonterra's sales worldwide amounted to NZ$7.7 billion ($5.5 billion).

Growth for Fonterra in the Middle East, Africa, Ferrier said, is set to balloon over the coming years in terms of volumes and revenues.

"Good solid double digit growth is what we expect to see," Ferrier said from the company's Auckland headquarters.

Dairy companies globally are operating in a sweet spot as prices continue to grind higher due to a combination of firmer demand and tighter supply.

Because consumption of dairy products is largely disrectionary, demand typically rises during periods of economic expansion, providing a good indication of the health of the global economy.


According to Rabobank analysts, milk powder prices on April 1 stood at $3,300/ton, up about 3.9% on the month and 61% on the year earlier.

"On average we expect to see significantly higher prices in the next decade than what we saw in the 10 years up to 2007. Probably about 50% higher," said Ferrier.

The dairy demand picture for Middle East is also a key reason for Fonterra's burgeoning interest.

According to the company, dairy consumption in the Gulf Cooperation Council region is well above the world average at 55 kilograms per person a year compared with 41 kilograms per person worldwide.

To meet the growing dairy requirements of the Middle East, Fonterra recently paid 120 million Saudi riyals ($32 million) to buy the remaining 51% it didn't already own in Saudi NZ Milk Products Co. from Saudi Dairy and Foodstuff Company, or Sadafco.

The manufacturing site, located near the Saudi city ofDammam, currently packs and processes over 30,000 metric tons of New Zealand milk a year into Anchor and Anlene milk powders, processed cheese and recombined feta-style white cheese.

Full ownership of the manufacturing plant, said Ferrier, gives Fonterra "the ability to grow the facility as our business grows." "It makes an enormous amount of sense to us to have that footprint. We can make a number of different products from there," he added.

errier said Fonterra isn't currently pursuing any merger or acquisitions in the region but the dairy giant would consider teaming up with local companies in order to move its products more quickly throughout the Gulf area.

"What we will continue to look for is more along the distribution joint venture we did in Egypt where we see the opportunity to work with local distributors that might grow our brand presence faster," said Ferrier.

"You're giving up a bit of margin of course but on the other side of the coin you're getting much more rapid distribution to the market place."

-By Tim Falconer, Dow Jones Newswires; +9714 446-1690;

Source: The Wall Street Journal/Zawya Dow Jones

Posted on Thursday, April 29, 2010 (Archive on Thursday, May 06, 2010)
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