Into Africa

Despite the challenges, opportunities may emerge for resourceful U.S. dairy suppliers.

It is home to more than 900 million people and expanding more rapidly than any region in the world. It boasts the world’s second-fastest growing economy. And its people are in dire need of more nutritious foods.

Danone, Irish Dairy Board, Nestlé, Arla Foods, FrieslandCampina and Fonterra Co-operative Group have already planted roots in Sub-Saharan Africa. U.S.-based quick-service food chains like Burger King and Pizza Hut are planning to expand there.

These reasons alone should put Sub-Saharan Africa on every U.S. exporter’s radar screen—if not as a potential new market, then as a region that will increasingly influence global milk flows, trade and pricing.

“The emergence and growth of this market has the potential to draw a lot of milk—mostly from regional players and U.S. export competitors—and at the same time might offer opportunities for resourceful U.S. suppliers who can formulate affordable, nutritious milk and dairy-containing products,” says Véronique Lagrange, USDEC senior vice president, strategy and insights. USDEC recently published research on affordable dairy in Sub-Saharan Africa that pointed out both the opportunities and the considerable challenges.

The area is vast—more than 2.5 times the size of the contiguous United States. Although conditions vary from country to country, the region is marked by poor infrastructure, political and economic instability, corruption and, despite a growing middle class, extremely high poverty levels.

The African Development Bank estimates the region’s stable middle class will reach 1.1 billion by 2060, but at present it is about 150 million.

Stunting remains a huge issue in Sub-Saharan Africa, and there is clear intrinsic rationale for investing in reducing its incidence. A recent paper from the International Food Policy Research Institute notes: “Countries that want to generate and sustain broad-based wealth are likely to find that scaling-up nutritional interventions [are] some of the best investments they can make.”

 “So we will see dairy demand fueled by governmental health/nutrition programs, at times funded by internation­al organizations or NGOs, and at the same time demand from a rising middle class,” says Lagrange. “But at this point in its evolution, the key to serving Sub-Saharan Africa is affordability.”

What is ‘affordable’?

The term “affordable” carries multiple meanings. It can signify a lower-cost ingredient formulation, or smaller (single-serve) pack sizes, or lower cost packaging. Affordability varies by country and between rural and urban areas within a single country. And several recent studies have shown that in most countries imported dairy ingredients are less costly than locally produced ones.

“We believe there is an opportunity for affordable ‘near milk’ products, which might mean blends of milk powder, whey, permeate, perhaps sugar or grain (if used as porridge) that have been optimized for nutrition and tailored to meet the organoleptic/flavor preferences of each target population,” says Lagrange.

“We have, for example, talked with the Clinton Health Access Initiative about its plan to set up a series of African food processing operations to manufacture nutritional porridge using imported skim milk powder (SMP) to combat chronic malnutrition and stunting,” she adds.

Partnering with a local processor, government or private voluntary organization (taking advantage of distribution channels that have already been opened), blending and packaging in-country, and using local ingredients (oils, sugar) can help ease market entry. Work is also needed to familiarize consumers with dairy tastes, applications and nutrition, as well as the U.S. dairy portfolio.

“Any U.S. exporter looking to make a name in the market needs to have a long-term vision and staying power, and must build a local presence,” says Lagrange.

Southeast Asia and the Middle East may have seemed similarly daunting to U.S. suppliers 15 years ago, but now are major U.S. customers.

Says Lagrange, “Affordable milk products will continue to grow the demand for dairy in a part of the demographic pyramid usually considered to be low dairy consumers. And as a larger part of Sub-Saharan Africa moves more solidly into the middle class, it will become a much larger dairy buyer.”

(This article first appeared in the June 2014 edition of Export Profile.)

Image copyright: 123RF Stock Photo

The U.S. Dairy Export Council is primarily supported by Dairy Management Inc. through the dairy farmer checkoff that builds on collaborative industry partnerships with processors, trading companies and others to build global demand for U.S. dairy products.