JEDDAH, 3 December 2004 — The Saudi dairy industry is stable and growing above average in relation to the growth in population and other consumer products industries. But the industry requires an additional capacity of 450,600 tons by 2007 in order to meet growing domestic demand, according to a market report prepared by the Jeddah-based National Commercial Bank (NCB).
“The development of dairy and juices industry has a significant contribution toward the Kingdom’s economic diversification. The dairy industry is relatively low-tech, but labor intensive due to the nature of selling and distribution requirements, NCB Chief Economist Dr. Said Al-Shaikh said.
The Kingdom’s wide geographical zone for dairy products comprises of more than 60,000 sales outlets across the country.
The 60 dairy firms currently operating in the Kingdom have a combined annual production capacity of around 1.4 million tons of various dairy products. The Kingdom’s five major producers of liquid milk are Al-Marai, Al-Safi, National Agricultural Development Company (Nadec), Saudi Dairy & Foodstuff Company (Sadafco) and Jamjoom Foremost, the NCB report said.
In value terms, the report added, domestic market demand for all types of dairy products is estimated to have reached SR8.03 billion in 2003 and is forecast to reach SR8.49 billion in 2004, representing an increase of 5.8 percent. In addition, the Kingdom’s dairy industries are estimated to have exported SR2.50 billion worth of dairy products to a dozen countries last year, thus totaling the combined market value of dairy products sold last year to SR10.53 billion. In value terms, each resident in Saudi Arabia is expected to spend SR353 on the consumption of dairy products in 2004, an equivalent of almost one riyal each day.
The combined average price of all types of dairy products is estimated at SR6.4 per kg in 2003. While the industry had passed through a bruising experience of price war in mid 2001, no price increases are expected across product mix in the coming quarters, the NCB report said.
Based on the 2003 constant prices, the market value of domestic demand is expected to reach SR10.10 billion by 2007 with and an expected value of exports of around SR3.00 billion. Thus, the combined market value of dairy products will reach SR13.10 billion by 2007.
The combined domestic market demand for all types of dairy products in the Kingdom is estimated to have increased by 5.8 percent to 1.12 metric tons in 2003, and is expected to have the same rate of growth to reach 1.25 metric tons in 2004. Locally produced dairy products represented nearly 81 percent of the total demand in 2003, while those of the imported one comprised of the remaining 19 percent.
The report said that in the past, the volume of market demand for all types of dairy products had been growing 5.83 percent annually in the last ten years through 2003, surpassing the Kingdom’s population growth rate. Given the growth trends, current consumption and population, the volume of dairy products demand is likely to continue growing around 5.8 percent annually in the coming six years through 2010.
Thus, the quantity of dairy products demand is projected to reach 1.39 metric tons in 2005, and 1.57 metric tons in 2007. By 2010 the Kingdom’s total population is projected to reach 29.21 million and the volume of corresponding demand for dairy products are expected to rise to 1,854,854 metric tons in the same year. The rapidly rising demand for dairy products in the country would necessitate expanding the existing domestic production capacity by 32.4 percent (450,600 tons) in the next four to six years, the report said.
The consumption of all types of dairy products by the 24.07 million residents in the Kingdom is estimated to have reached 51.93 kg per head for the year in 2003, and is forecast to reach 53.456 kg in 2004.
Dr. Al-Shaikh said that “The Saudi dairy industry is rapidly emerging as self-reliant on the back of in-built capacity, competitive edge and high quality products.”
Dairy exports from the Kingdom expanded nearly six-fold in the ten years to 2002, from 46,950 tons worth SR205 million in 1992 to 272,000 tons worth SR2.29 billion in 2002. Saudi exports of dairy products are estimated to have further increased by 5.5 percent to 287,000 tons worth SR2.50 billion in 2003. The value of dairy exports from the Kingdom represents nearly 7.8 percent of the country’s total non-oil exports in 2003.
The report said that the export markets for Saudi dairy products are still expanding in 2004, as supplies to Iraq and Kuwait are rising. The most commonly dairy products exported from the Kingdom are unsweetened milk, cream, sweetened milk, yoghurt, laban, other milk cream, fresh cheese, fresh fermented cream cheese, solid and semi solid cheese, low fat solid milk and other cheese. While the main destination of these exports are the neighboring Gulf markets and Iraq, Saudi companies are also targeting the Levant (Jordan, and Lebanon), Yemen, and selected African markets.
The dairy export-oriented companies are Al-Marai, National Food Industries Company (LUNA), Sadafco, Al-Rabie, Al-Othman, Al Rai (Danya) and United Food Industries Corporation (Pride). Al-Safi, Nadec, Halwani, and Jamjoom Foremost have yet to really develop export business, the report added.
Saudi imports of diary products expanded almost three fold in the last ten years to 2003, from 78,715 metric tons in 1993 to 235,092 tons in 2003. In the same time span, the corresponding value of imports expanded from SR660 million in 1993 to SR2.10 billion in 2003.
“Although the government policy is still supportive for the dairy industry, gradual elimination of all forms of subsidies would expose to increasing challenges to the local dairy industry,” Dr. Al-Shaikh said.
The government decision to lower custom duties to 5 percent on import of dairy products would induce competition from foreign suppliers, particularly in the area of cheese and other solid dairy products, where Saudi capacity is still lacking.
Saudi accession to the World Trade Organization and the creation of much awaited Arab Free Trade Zone (AFTZ) are among the major challenges the Saudi Dairy industry is expected to face in the future, the NCB report said.