JEDDAH, 7 July — The decision by one of the major dairy companies to cut prices by up to 33 percent is set to trigger a price war among major producers in the Kingdom, industry sources said.
Major dairy farms are now bracing for a repeat of last year’s cut-throat competition after Almarai announced on Thursday a steep cut in prices. The company is now selling its one-liter laban bottle for SR3, a 33 percent off on the earlier price of SR4. The two-liter bottle is now sold at SR6 instead of SR7, or a 16 percent cut, and the three-liter bottle at SR9, down 11 percent from SR10.
Al-Safi-Danone Company, which holds one third of the Kingdom’s dairy market, announced yesterday that it was also slashing prices of its products. Muhammad Al-Serhan, managing director of the company, told Arab News that it would cut the prices in a commercially viable manner. He expected that two or three companies might leave the market due to the price war.
Almarai denied suggestions that it was stirring a price war. “Many other companies have reduced their prices before and have carried out promotion campaigns violating an existing agreement,” it said in reference to an accord reached by 24 dairy firms in May last year following a bitter price war.
Almarai also said it did not intend to harm small producers by the move. “It is not a temporary measure. These are new prices of our products,” a company source said, adding that it believed the new prices would benefit a large number of consumers.
Other major producers are also divided on the issue. Muhammad Al-Areefi, director general of Al-Safi-Danone Company, said the price war would harm the national dairy industry and negatively affect small producers. But the National Agricultural Development Company (Nadec) welcomed the move. Abdul Aziz Al-Rebdy, Nadec’s director general, said his company was the first to call for price cuts. Almarai affirmed that its decision to cut prices was final and said it would not back down. Company sources said the move was taken after calls for merger of small firms and regulatory measures on pricing had failed.
Abdul Aziz Al-Rabia, an official of Alban Al-Mazraa, accused Almarai of harming the interests of the national dairy market by its unilateral move.
“Almarai is coming up with various excuses to justify its decision. If it is serious about mergers, then why is it not setting an example by inviting small producers for merger talks,” he added. According to Rabia, the price war will not be in the interest of the consumers as it would inevitably lead to a compromise on quality. He said his company would study the price situation and issue a statement within a day or two. He did not rule out price cuts. Almarai sources said the quality of products would depend on companies and market competition. Abdullah Al-Senaidy, chairman of Alban Al-Riyadh, said his company favored the decision to reduce prices.
The price war in the dairy market started about two years ago when major producers slashed prices by up to 50 percent.
