With the consumption of dairy products in western countries stagnant, the world’s largest processors are ramping up investment in emerging markets. European dairy giant Arla Foods is still targeting growth in countries like the UK and Germany through investment in value-added innovation but it is increasingly investing in markets like China and Nigeria. Both feature in Arla’s list of priority markets, drawn up in 2015 as part of the cooperative’s Strategy 2020 business plan. Arla’s executive vice-president of international operations, Tim Orting Jorgensen, talks to John Shepherd about the company’s recent moves in Nigeria and how, despite the country’s recent economic problems, the market is a springboard for the co-op’s ambitions in the wider region.
Arla Foods, the European dairy giant, has Africa among its strategic priorities as it looks to build businesses to drive its future growth.
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At the centre of Arla’s ambitions on the continent is Nigeria, where the company has been stepping up its investment over the last 12 months.
Nigeria was among six markets listed by Arla as targets for its investment when the cooperative announced its Strategy 2020 blueprint in late 2015 – and, since then, the business has backed those words with action.
A year ago, Arla announced plans to invest in Nigeria to improve milk output in the country’s nascent dairy sector. Now, the company is expanding its milk powder packaging operations in the country. Arla’s commitment to boosting its business in Nigeria comes despite dire recent economic conditions in the country, which included a 40% plunge in the value of the local naira currency and the first contraction in its GDP for 25 years in 2016.
However, despite the tough economic backdrop, Arla’s executive vice-president of international operations, Tim Orting Jorgensen, tells just-food Nigeria remains one of the six markets central to the company’s 2020 strategy – and insists growth is “strong”.
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By GlobalDataArla’s ambitions in Nigeria pre-date the publication of its Strategy 2020 document. Two months before, it announced the establishment of joint venture companies in Nigeria and Senegal, when the company struck deals with Tolaram in Nigeria – a distributor of FMCG and a producer of noodle products and food oils – and with Senegalese conglomerate Attieh Group.
The ventures, Arla said at the time, would “provide the distribution backbone” to help it grow across west Africa. “Nigeria is one of the biggest markets for dairy products in Africa. For Arla to succeed in Africa we must succeed in Nigeria,” Steen Hadsbjerg, the head of Arla’s business in sub-Saharan Africa said at the time.
Jorgensen says Arla is beginning to reap the benefits of those investments and setting a platform for its wider ambitions on the continent.
Moreover, Arla’s recent decision to add two production lines to its milk powder packaging facility in Lagos was, Jorgensen insists, “taken because we are experiencing strong growth in Nigeria and to meet that demand we are increasing capacities”.
Jorgensen underlines how Arla’s ambitions in Africa, while having Nigeria at their heart, take in other markets.
The Nigeria facility blends and repackages milk powder produced in Europe for distribution and sale in the local market. Jorgensen declines to give details about the level of investment in the packaging facility or increased production. However, he says the move was needed to meet “strong growth” and nuture further dairy development in the country. “We are extending our cooperation and footprint in west Africa,” he added. “We are mainly focused on Nigeria, which is by far the biggest market in Africa, but we are also seeing the market develop through our subsidiary operations in Senegal and Côte d’Ivoire,” he says.
Arla opened its Dano long-life milk powder packaging facility in Dakar, Senegal, last year, with the capacity to handle 5,000 tonnes of milk powder. The company also established a wholly-owned subsidiary in Accra, Ghana – the second largest economy in Africa.
Arla had previously set its sights on growing annual revenue in Africa from around EUR90m (US$100.8m) to some EUR460m in 2020, initially based on sales of powdered and liquid milk and eventually butter and cheese.
Jorgensen says Arla does not disclose profits for specific markets but he reveals the company’s retail and foodservice revenue for the sub-Saharan Africa region last year was EUR85m, compared to EUR75m in 2015.
Nevertheless, economic conditions in Nigeria have been a factor weighing on Arla’s international growth. The co-op noted in its annual report for 2016 that “low oil prices in a volatile year”, combined with economic troubles in the “spill-over economies in the Middle East and Nigeria” led to total international results being below the company’s 15% growth target.
The report said Arla’s newly-established joint venture in Nigeria was “the main driver of higher milk powder sales” in the first half of 2016 but the devaluation of the naira “following scarce USD availability, limited growth in the second half”. Exchange rate losses related primarily to the naira’s devaluation amounted to EUR28m, the report said.
Jorgensen acknowledges the “difficult” economic circumstances Arla faced in the region and would not be drawn on expectations for the company’s local performance in 2017, other than to say “we are on track with our plans”.
“Unlike Europe and other developed regions, growth in an emerging market such as Africa is not straightforward,” Jorgensen says. “There are sometimes hiccups, but overall we have very good development there, growth is strong despite other issues and revenue is on target for the region.”
Jorgensen accepts Arla, in common with all businesses in Nigeria, has experienced more than “hiccups” as a result of the country’s recent economic difficulties. However, he says Arla’s business model was designed to allow the company to “respond quickly to the significant changes, manage the situation and still experience very strong growth”.
“That’s the name of the game in Africa… to be strong in reading the market and responding,” Jorgensen asserts. “We have shown we can do all that and we are now experiencing strong numbers. We are not yet ready to disclose latest figures, but we are on target with our performance in Africa in terms of our Good Growth 2020 strategy.”
Arla’s performance in northern Africa, which falls into the company’s Dubai-led Middle East and North Africa (MENA) unit, is now “very strong”, Jorgensen says.
He says Arla continues to build on the success of its branded goods which have been “sold there for many years” and aims to build on its joint venture with Egyptian dairy-to-juice firm Juhayna Food Industries to bolster the unit’s sales in the region and “use that position as a footprint for further expansion”.
What Jorgensen describes as Arla’s “very strong assortment” of milk powder sachet products is, he says, driving the co-op’s revenue in west Africa and in Nigeria in particular. He describes the Dano brand as “the backbone of our business” in the region.
“Milk powder is our stronghold in western Africa while in other markets, such as southern Africa, we sell more value-added cheese and butter products,” Jorgensen said. “In northern Africa we sell more of Arla’s butter and white cheese products.”
Jorgensen is coy about potential future products to be developed and marketed in Africa as a whole, although he said infant milk formula (IMF) production “is not currently on our agenda”.
“We have set our main goal as producing more familiy-oriented and affordable nutrition, so IMF is not in range at the moment,” Jorgensen adds. “I think IMF is always interesting as a business opportunity, but there are other opportunities in Africa that I think might come before that.”
Jorgensen underlines he would “definitely not exclude that IMF, at a certain time in Africa, could be interesting for us” but adds: “It is a different channel… and our focus now is on affordable nutrition.”
Meanwhile, Jorgensen says Arla has been burnishing its sustainability credentials in Africa. The company has recently joined the Danish government-backed Milky Way initiative, established to develop a “socially, environmentally and economically sustainable market” for milk in West Africa. The programme also seeks to help small farms and large companies produce and deliver their products to market.
Milky Way is financed by the Danish government’s international development arm, Danida, and coordinated by the country’s sustainable development, NGO Care Denmark, in cooperation with the government of Nigeria in terms of support in that country.
Jorgensen says Arla’s role in the initiative “is important to our business model for doing business in emerging markets”. “We believe we have to take responsibility for developing markets and we want to be sure our impact on the industry is balanced.”
He says Arla, in cooperation with the Nigerian and Danish governments, are developing Milky Way “so we can invest and particiapte together in activities than can improve and increase local milk production in Nigeria”. “That is how we take responsibility for helping to develop local milk production.”
With market growth comes competition and Jorgensen acknowledges as the economies of the region grow, so does commercial competition. He said Africa is now “very competitive” in terms of the dairy sector market with the presence of several international firms.
Foreign dairy businesses operating in Africa include Dutch dairy firm FrieslandCampina. In March last year, Bel Group, the maker of The Laughing Cow cheese, officially opened its first production facility in sub-Saharan Africa at its new plant in Côte d’Ivoire.
Earlier this year, French dairy giant Danone added production lines at a plant in Ghana in west Africa, run by Fan Milk, the African business in which the French group has a majority stake.
But Jorgensen insists Arla is undaunted by competition. “I think so long as you have a combination of a strong set-up, strong brands and the right offerings, together with a strong distribution network, then Africa offers great opportunities. We have all of that and we are in a good place.”
