Surging population growth and a rising middle class have made Africa a priority for the dairy giants. What are the opportunities?
For decades, British food suppliers barely considered Africa in their global trade plans. Plagued by corruption and political instability, the continent was often seen as too much trouble for the limited commercial opportunities on offer.
Such a view is a thing of the past. Global giants like Unilever, Nestlé and Diageo are all running huge operations across Africa as they seek to capitalise on surging population growth, a rising middle class and increasing urbanisation in cities such as Lagos, Cairo and Johannesburg. Danone spoke for many when it deemed Africa the “new frontier” in 2014.
Dairy in particular looks set to prosper, as Africa’s growing wealth translates to evolving diets. The IFCN Dairy Research Network estimates intake will grow by more than a third by 2030, in which time imports of cheese and butter are expected to more than double to meet that demand.
So ignoring Africa is no longer an option. “For any serious company that wants to be big in exports, Africa has to be somewhere in their thinking,” says John Giles, divisional director at consultancy Promar International. For too long, he suggests, British suppliers have focused on regions like Southeast Asia, China and India only to miss out on the same opportunities in Africa. So, what are those opportunities? Which African countries are of greatest focus for dairy suppliers? And what challenges do they face?
European dairy exporters often target countries such as Egypt, Algeria and Morocco – both because of their proximity to Europe and domestic dairy deficit.
That could all change as other countries come into the foreground. Take Nigeria. It’s Africa’s largest economy, with a population expected to hit 400 million by 2050 and a growing middle class. It’s not yet a huge market – the UK exported about £4m of dairy products to the country in 2020, and milk powders make up a large proportion of that – but it’s seen by many as a cornerstone of growing interest in Africa.
“For any serious company that wants to be big in exports, Africa has to be somewhere in their thinking”
Ornua, Ireland’s largest dairy exporter, is a major seller of milk powder to Nigeria and ranks the country as one of its biggest target markets of the future. It is not only the demographic shifts that are leading dairy companies to “sit up and take Nigeria seriously” says Bernard Condon, MD of Ornua’s global ingredients division. It’s also a strong culture of milk consumption that stretches back generations.
This is in large part due to the semi-nomadic Fulani people, who are Nigeria’s primary local milk suppliers from a pastoral production system. Cattle rearing is culturally vital for the Fulani, yet with domestic supply still only meeting about 10% of demand, local officials are increasingly keen to commercialise it.
In this, European food giants are willing to serve as allies. Nestlé has partnered with Fulani herdsmen to help boost their local production by developing 1,000 hectares of grazing area and helping them become settled dairy farmers. They are not alone in building ties with African farmers. Arla, Danone and FrieslandCampina have similarly invested in domestic milk production on the ground.
Danone made its “new frontier” comment in 2014, when it invested more than €1bn (£850m) in expanding its presence across the continent. This included buying a 40% stake in East Africa’s leading dairy company, Brookside, which partners with more than 200,000 farmers across 12 countries.
More recently, in March 2021, FrieslandCampina established a new joint venture with regional giant Domty in Egypt to focus on exporting cheese across Africa and the Middle East.
China’s role in African infrastructure
For British dairy firms invested in Africa, there is a third party to consider: China.
The US Department of Agriculture estimates Africa received around 12% of China’s global agricultural investment in 2012, and there has been a continued uptick ever since.
The money has primarily gone into land purchases as well as technology and training for local farmers. While welcomed by many farmers, it has raised concerns among academics and policymakers that Beijing is using Africa to boost its own food security.
Standard Chartered, for example, sounded the alarm in 2012. While China’s short-term plan was aimed at addressing African food security, “by investing in the region with the greatest agricultural potential, China could also be seeking to support its long-term food security”, the banking & finance group warned.
But such claims are increasingly believed to be overstated.
In her book ‘Will China Feed Africa?’, political scientist Deborah Bräutigam examines the veracity of reports that China has bought huge swathes of arable land in Africa and populated it with Chinese workers.
She concludes Chinese farming investments are, in fact, “surprisingly” limited and land acquisitions are modest. China is not changing the face of African agriculture as is so often reported, she says.
China’s investments in African infrastructure could nevertheless be of significance to British dairy. Chinese companies have dominated the financing and development of critical infrastructure in Africa since 2017. They contributed around 25% of all funding towards African infrastructure development projects in 2018, according to The Infrastructure Consortium for Africa. This investment included roads, railways and ports – all of which are vital aspects of a functioning food chain.
Rich Clothier, MD of Wyke Farms, notes that logistics remains one of the key stumbling blocks in trading in Africa, particularly for chilled goods like cheese. “We still get docking problems with breaks in the chill chain where you get food left on the docks and product spoilage,” says Clothier. “Even in places like South Africa, we still get those problems.”
“You do see now, however, the Chinese are putting a lot of money into north-west Africa in particular, so the ease of trade is getting slightly better in some of those countries,” he adds.
Arla, meanwhile, announced in June it would build a commercial dairy farm in northern Nigeria. It will include a 200-hectare facility to house 400 dairy cows, modern milking parlours and ample grassland. The farm, scheduled to open next year, is expected to produce more than 10 tonnes of milk per day, which will be processed by Arla’s local dairy plant for Nigerian customers.
While milk consumption in Africa is still among the lowest in the world, Arla is betting big that this will change. Its plan is to develop a ‘hub-and-spoke’ model of regional hubs, which will be used to export to surrounding markets.
Simon Stevens, executive VP of Arla Foods International, believes this “complementary approach” is necessary. While imports remain critical, he stresses there must also be focus on an agricultural transformation to help build a sustainable dairy industry for the ages.
Especially as imports have faced opposition. In 2018, farming groups across West Africa spoke out against EU dairy giants exploiting rock bottom European milk prices to aggressively expand into West Africa at the expense of domestic producers.
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“When large quantities of milk powder from the EU… are sent to West Africa, our local milk producers have to shoulder the burden,” Bacar Diaw of Senegal’s dairy association FENAFILS told Politico at the time.
That competitive advantage has now eased, due to a combination of higher EU prices and a decision in Brussels to end subsidies for dairy exports in 2015, but it remains an issue all parties continue to monitor closely.
To that end, dairy companies also frequently partner with aid agencies – ubiquitous across Africa – to work with smallholder farmers and help form regional co-operatives and boost productivity.
“It would be difficult to do much business in Africa without coming across the aid agencies and understanding what they’re trying to do there at some point,” says Promar’s Giles.
Arla, for example, has often worked closely with the Bill & Melinda Gates Foundation to get its projects off the ground. The foundation dished out around $5bn in grants for food and agriculture in Africa between 2003 and 2020, according to a study this year by Grain, a nonprofit organisation working to support small farmers.
Yet Grain is critical of the charity’s approach and its focus on “technologies developed by research centres and corporations in the north for poor farmers in the south, completely ignoring the knowledge, technologies and biodiversity that these farmers already possess”. It poses some challenging questions for all of those involved.
There are other forces to consider, too – not least some of the individuals who continue to dominate African politics and commerce.
Aliko Dangote is Africa’s richest man with an empire now worth $11.9bn, according to Forbes. He’s continually expanding into new markets and, in 2017, he pledged $800m to boost Nigeria’s domestic milk production.
Nigeria’s Central Bank followed with a statement declaring the restriction of forex to milk importers, in the hope that limiting their access to foreign currency would boost the country’s domestic production.
Ornua was among those affected. “There’s no doubt our supply of dairy commodities into the market became much more difficult with the introduction of the restrictions,” says Condon.
“When large quantities of milk powder from the EU… are sent to West Africa, local milk producers have to shoulder the burden”
It’s not the first time Nigeria has imposed such restrictions. Importers of rice, sugar and palm oil have similarly found their access to foreign currency limited. It has led to price inflation and raised questions over the sustainability of such a policy. Within dairy, for example, Nigerian farmers can currently supply less than 10% of demand.
The policy may also be illegal. The EU reported Nigeria to the World Trade Organisation in March over its restriction of dairy importation. The WTO’s Nigerian director-general, Ngozi Okonjo-Iweala, vowed the complaint would be investigated fully.
Nigeria is not alone in promoting domestic production. Across Africa, governments are increasingly focused on adapting their approach to national food security by cutting imports of commodities like dairy and encouraging foreign developers to come and improve the domestic dairy system.
For any dairy supplier looking to strike a balance between Africa’s challenges and opportunities, South Africa could be the ticket. The continent’s most developed nation offers strong western ties, a large urban population and greater demand for pricier finished goods, like butter and cheese, in which the UK specialises.
Granted, it has its own challenges. South Africa is more than 5,000 miles from the UK, posing certain logistical challenges from the start. And when the food arrives, it will find a retailer market far less conducive to trade than in Europe.
“The biggest challenge is so often the fragmentation of retail,” says Rich Clothier, MD at Wyke Farms. The Somerset-based cheese producer exports to 15 countries across Africa, many of which are served via the continent’s retail chains such as Shoprite, based in South Africa.
Shoprite is easily Africa’s biggest retailer with more than 2,892 stores across 14 countries. Such a network enables for British suppliers to “cross-pollinate” into new markets while working with just one customer, says Clothier.
Yet Shoprite can appear measly in comparison to Europe’s supermarket giants. Tesco has a similar number of stores in the UK alone. “It’s crying out for the type of organised distribution and retail that we take for granted in Europe,” adds Clothier.
It is one of many barriers that remain for dairy companies trading in Africa. Fledgling infrastructure, claims of unfair competition with local farmers and extensive political instability are but a few more.
But the continent’s remarkable potential – one in three people on Earth are expected to be African by the end of the century – is enough reason for a growing number of suppliers to feel this is an opportunity worth pursuing.
Why dairy is ‘Brexit’s biggest loser’
Before Brexit and Covid-19, Britain sold more than £150m of its cheese to discerning Europeans in just three months. That, however, was 2019. The year 2021 has so far proved much less hospitable.
Brexit has not been kind to dairy. Cheese sales to Europe tumbled to just £43m in the first three months of this year, while dairy sales at large were down more than 90% year on year.
It’s a title nobody wanted, but, within the food world at least, the dairy industry is ‘Brexit’s biggest loser’. That’s due to a combination of vet certificates, driver shortages and a slew of extra costs.
Small businesses in particular have been plagued by issues surrounding groupage – shipments from different exporters, destined for different customers, combined together on a single lorry.
Neal’s Yard Dairy saw one shipment delayed by a week because of incorrectly filled paperwork by another company, leading its director Jason Hinds to liken groupage to Russian roulette. “You’re not just at the mercy of how you fill out your forms, you’re at the mercy of how other companies on the same container have filled out theirs,” he says.
Brexit-related issues have purveyed every corner of the dairy world. Omsco, the leading organic co-op, complained in May the UK is effectively “banning itself” from selling raw milk to the EU due to a refusal to license certain storage premises for export.
No company is unaffected. Yet that does not mean all companies are suffering.
Dewlay Cheesemakers says it is “mopping up” business in Northern Ireland and the EU as a result of other suppliers dropping out. While commercial director Conor Daunt acknowledges the regulations are tricky, those who stick with them can thrive.
Many dairy exporters have opted to set up an EU-based operation to streamline exports to the bloc. Wyke Farms took this one step further and used its new Irish company to assist rival cheesemakers looking to trade. It will act as a consolidator for companies who would otherwise be reliant on groupage loads.
“Sadly, the days of rocking up with half a pallet yourself is no longer realistic,” says MD Rich Clothier. “Smaller suppliers will need to go through consolidator companies to keep exporting. It’s all about full containers and the more volume we can do, the slicker the operation can be.”