24
Jun
Indian dairy firms are trying to tap opportunities in the East African milk processing markets where demand has surged amid rapid urbanisation and rising income levels. This comes at a time when several global dairy giants are looking for acquisition possibilities in eastern Africa and leading local milk producers are trying to consolidate their market share through aggressive buyouts.
Many Indian businessmen already have large exposure to the African agriculture and allied sectors, which include agriculture, floriculture and hybrid seed production.
Africa’s food and beverage consumption is projected to reach $544 billion by 2020 from $175 billion in 2010, according to a report of World Dairy Summit 2012, which was held in South Africa’s Cape Town.India is the world’s largest milk producer with a production of around 140 million tonne.
According to JB Sivakumar, dairy sector analyst at India Ratings, Indian dairy firms will beeline to African markets, given the highly attractive profit margins. “As against single-digit profit margins in India, African milk processing markets offer 15-20% margins,” he said.
Billionaire Ravi Jaipuria, whose Devyani Food Industries sells Cream Bell ice cream, was among the first businessmen from India to enter Africa’s dairy sector nearly a decade ago. The company, however, recently sold its stake in its Uganda dairy joint venture, Sameer Agriculture & Livestock, to Kenya’s largest milk producer, Brookside Dairy, which is controlled by President Uhuru Kenyatta’s family.
Hyderabad-based Dodla Dairy and Punjab-based Amos Dairy are the latest Indian firms to enter the African markets with processing plants, while a few others are weighing options. Dodla Dairy, which raised 100 crore from private equity firm Black River in 2012, had last year acquired milk processing assets in Uganda for 30 crore. It now sells around 10,000 litre of milk daily in that country.
D Sunil Reddy, MD of Dodla Dairy, said the company sees Africa as an opportunity for the next level of growth, especially at a time when it was witnessing margin pressure in the Indian market owing to price wars in the liquid milk market. “African expansion will help us understand new markets and help expand our presence globally,” Reddy said. “The profit margins will be at least double in Uganda compared to India.”
Amos Dairy had last year invested nearly half a million dollars to set up a milk processing plant in Uganda. The plant commenced operations recently. Punit Pruthi, managing director at Amos Dairy, said the company was now exporting processed milk products from milk-surplus Uganda to other countries in eastern Africa.
“Kenya is a big market and is a milk deficit country and Rwanda, South Sudan and Congo offer similar opportunities,” he said. “In fact, West African economies, which heavily depend on milk imports, also offer attractive business opportunity but we need to compete with the strong European brands.”
Parag Milk Foods, which is exporting products to African markets, is also weighing options to enter the market with a processing plant, said its chief marketing officer Mahesh Israni. “Raw milk is a difficult product to trade, especially given the tropical temperatures in Africa and the lack of refrigeration infrastructure,” said a June 2010 World Bank report on East Africa’s community’s dairy market. “That is why, we are focussing on long shelf life milk products in tetra packs, which also offer better margins,” said Sunil Reddy.