Danone strengthens interest in Algerian dairy sector

The French dairy giant, which has raised its interest in Danone Djurdjura in Algeria from 51 per cent to 95 per cent, believes that the region offers significant growth potential.

And with annual per capita consumption of fresh dairy products in Algeria averaging only 7 kilos, compared with 23 kilograms in Western Europe, the Algerian market clearly offers promising scope for development.

In addition, the region's average annual growth rate of 20 per cent for the last three years eclipses the more modest growth rates seen in Europe.

Danone's move therefore reflects the group's strategy of strengthening its position in key dairy markets of North Africa and the Middle East.

This is a strategy that has been followed by other dairy groups. Arla Foods for example recently signed an agreement with a local importer for the sale of Dano branded milk powder in Algeria, which has become one of the world's largest importers of milk powder.

Such initiatives have been facilitated by the partial liberalisation of the Algerian market for milk powder, which allows distributors to operate their own import businesses.

Arla indicated recently that it wants to increase its annual Middle East turnover from DKK2.9bn ( 388.9m) to DKK4.1bn ( 549.9m) over next five years, a move which will probably require the doubling of its workforce in the region. But why?

Both Arla and Danone are grappling with intense cost pressures. The whole dairy sector has seen a rapid shift towards value-added products, such as branded milk, in an attempt to push up earnings. In addition, dairy processors have warned that EU export subsidy cuts could harm earnings, and the forage into new and emerging markets can be seen, to some extent, as a symptom of this.

Danone for its part has fought to be ahead of the game in emerging markets, selling its New Zealand biscuit firm Griffin to concentrate on the higher growth markets of China, India and Indonesia. It will shortly open a new dairy plant in Bangladesh to provide nutritious foods to low-income consumers, following successful entry into a number of similar emerging markets.

The company therefore considers increasing its interest in the Algerian Djurdjura business as a good opportunity to strengthen its presence in a new market. The firm currently leads the Algerian market in fresh dairy products with around 40 per cent market share.

The company reported sales over 60 million in 2005 with its main brands that include Danao, Petit Gervais aux Fruits, Activia, Danette and Fruix.

Boussaad Batouche, one of Groupe Danone's partners in the venture since the Algerian company was founded in 2001, will hold the remaining 5 per cent.

The transaction will be effective by the end of June assuming all administrative requirements are met. Danone Djurdjura financial statements will be then fully consolidated.

Altogether, Groupe Danone's sales in Africa and the Middle East come to over 1 billion through interests in companies enjoying strong leadership positions in local markets. In Saudi Arabia for example, the group is the number one supplier of fresh dairy products through its partnership with Al Safi.

The company is also the top supplier of fresh dairy products in Morocco, Tunisia, and Israel. In total, the Asian, Latin American and Middle East regions now account for 24 per cent of Groupe Danone sales.