JEDDAH, 9 July — Dairy firms in the Eastern Province are expected to incur a monthly loss of SR50 million due to the price war, market sources said yesterday. They expected the price war to continue for several months.
The sources, quoted by Al-Yom newspaper yesterday, said the price war, which started on Thursday with the Almarai Co. reducing prices of its products by up to 33 percent, would drive out small producers from the market as they would not be able face the competition.
The sources described the price cuts as “settling of accounts” by major dairy firms and said the unhealthy competition would ultimately harm the market. Saudi businessmen have invested more than SR12 billion in about 80 dairy factories.
Agriculture and Water Minister Dr. Abdullah Muammar said on Saturday that his ministry would not intervene to stop the price war and would leave it for the market forces to decide. Speaking to reporters after signing a water supply contract in Riyadh, the minister said the price war would not damage the dairy industry.
“Ours is a strong and deep-rooted industry. It is not a new one to collapse quickly,” the minister pointed out. Muammar said the move by producers to slash prices was in line with international and regional economic developments and in preparation to the Kingdom’s accession to the World Trade Organization.
Muhammad Al-Areefi, director general of Al-Safi-Danone, told Al-Jazirah newspaper that Almarai’s decision to cut prices was a clear violation of the agreement reached by 24 producers in May last year. But Almarai said many companies have already violated the accord by reducing prices and launching promotional campaigns.
According to Al-Areefi, the move would definitely harm small producers. He called upon the authorities to quickly intervene to protect the interests of small investors.
Al-Safi-Danone, which holds one third of the Kingdom’s dairy market, is planning to target some 40 million consumers in the neighboring Arab and Gulf countries. Al-Safi strengthened its position after concluding an SR500 million deal with the French group last November.
Abdullah Al-Senaidy, director of Alban Al-Riyadh, welcomed the move to cut prices and said it would not affect the industry. “Prices are liable to change with the application of advanced technology and modern administrative methods,” he added.
