Saudi Arabia gets a mooooove on transforming its dairy sector to meet rising demand

Published March 16th, 2014 - 12:00 GMT

The dairy sector is projected to expand on the back of increasing population growth and changing consumption patterns due to rapid urbanization, according to a report.

The government has been very supportive of this industry given dairy‘s value added to the agriculture sector., stated the country's top lender National Commercial Bank (NCB) in its review.

Direct regulatory decisions by the government have allowed the dairy and agriculture sector, more broadly, to benefit from artificially low input costs, it stated.

The kingdom's milk consumption per capita is relatively low compared to the world average. In 2012, the world's average milk consumption was around 100 kg per capita, while the Kingdom's consumption per capita stood at 69.7kg, which is 44 per cent lower than the world average for the same year.

According to NCB, the Kingdom's consumption of fresh milk is poised to reach 80.94 kg per capita in 2015. The expected 31 million residents in Saudi Arabia by 2015 are expected to consume 259 million tons of dairy products with an average consumption per capita of 81 kg for the same year, it added.

There is a significant rising trend related to Saudi dairy exports and imports. In value terms, exports grew at a CAGR of 9 per cent over the period of 2008-2012, and is projected to increase, registering SR4.6 billion ($1.22 billion) by 2015.

Likewise, imports grew at CAGR of 3 per cent over the period of 2008-2012, and imports growth is expected to moderately continue in the future, driven mainly by dairy raw materials and other products such as butter, solid milk and solid cheese.

According to NCB, the imports are projected to register SR7.3 billion by 2015.

The financing landscape within the dairy sector has seen significant developments such as Almarai's decision in 2012 to diversify its debt structure through raising a seven-year SR1 billion sukuk, stated the report.

Currently, the company plans to issue a SR1.7 billion sukuk to help fund its SR15.7 billion capital investment program.

The NCB report pointed out that despite the growth prospects, Saudi dairy sector faces several challenges, mainly the water scarcity.

Hence, the government is trying to mitigate this challenge through initiatives that include increasing food imports and developing sustainable food production capabilities abroad for local consumption.

This transformation is likely to contribute to meeting local demand through major suppliers, the report added.

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