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Growing dairy industry in Africa taps more investments as demand rises
DairyBUSINESS
TRENDS IN FORMULATING, PROCESSING, PACKAGING & CONSUMPTION OF DAIRY PRODUCTS
Growing dairy industry in Africa taps more investments as demand rises
By Catherine Wanjiku
The sector continues to receive significant funding and investments from local, regional and global giants
Milk is a widely consumed beverage, rich in vital nutrients. It’s safe to say, it is one of the most versatile food products that can be consumed on its own, paired with other ingredients to come up with a new product. It can also be processed into an array of offerings to include butter, cheese, cream, yogurt, ghee, condensed milk, dried milk, ice cream among others.
The branching out of milk into other products has led to the emergence of the multi-billion-dollar dairy industry. According to Research and Markets, the global dairy food market is expected to grow from US$675.78 billion in 2020 to US$722.14 billion in 2021 at a compound annual growth rate (CAGR) of 6.9%. The market is further expected to reach US$956.26 billion in 2025 at a CAGR of 7%.
Africa’s dairy industry has immense potential that is yet to be actualized due to several challenges, including low productivity per cow, fluctuating milk production,
inconsistent milk quality, high cost of production, inefficiencies along the value chain, and a large informal sector, among others. Despite the challenges, the region boasts of having large herds of livestock, with Ethiopia taking the crown as the continent’s largest producer of livestock. In terms of milk production, the East African region produces 68% of the continent’s milk output, contributed mainly by Kenya, Uganda, Ethiopia, and Tanzania.
Due to urbanisation, population growth and improving household incomes, demand for milk and milk products in the region is expected to continue to grow, offering opportunities to transform milk chains to economies of scale, improve milk quality and safety and promote the inclusion of more parties. This has led to both local and international players channelling huge investments in the sector in the past three years, towards upgrading facilities and systems, product innovations, expansions, technological advancements, among others.
ETHIOPIA
With one of the largest dairy cow populations in Africa at over 10 million, Ethiopia produces nearly 4.6 billion litres of milk a year. However, the country is far behind in milk production levels despite the popular claims.
Local demand in the country stands at 22 billion litres annually, making it turn to imports to fill the huge deficit gap. Most of the milk is distributed through the informal channels, as the country has about 40 milk processing companies with a total processing capacity of about 200,000 litres a day. With the dairy sector still at its infancy, Tiret Corporate, an Ethiopia based private equity firm, invested US$1.65 million in 2019 to establish a new dairy processing plant in Amhara Regional State. The investment under TZA Dairy & Processing Plc has a designated dairy cattle rearing farm and a processing plant with a capacity to process 20,000 litres of pasteurised milk per day.
Meanwhile, MB Plc, one of the leading dairy processors in the country trading under the name Family Milk recently undertook installation of an automatic UHT milk processing plant in Addis Ababa. The new plant, having a processing capacity of 40,000 litres per day enables the dairy processor to produce the long-life milk with up to six months shelf life.
Further boosting the country’s processing capacity, Lame Dairy, subsidiary of Midroc Ethiopia Technology
DUE TO URBANISATION, POPULATION GROWTH, AND IMPROVING HOUSEHOLD INCOMES, DEMAND FOR MILK AND MILK PRODUCTS IN THE REGION IS EXPECTED TO CONTINUE TO GROW
Group opened a new dairy facility in 2021, constructed at a cost of US$14.5m. The new factory more than doubles the dairy processors capacity from 70,000 litres of milk a day to 160,000 litres and will produce the long-life Shola Milk brand that can stay fresh for three weeks under refrigeration. The new bottled product will enable distribution to far-off and remote areas, as well as reduce wastage. It will also produce other by-products such as cheese and yogurt.
Ethiopian milk processors have further diversified their operations and ventured into camel milk production. Mid 2021, Khelif Milk Processing Industry (KMPI), announced an investment of US$1.6m in the establishment of a camel processing plant. The facility, which is set to soon commence operations, has a processing capacity of 16,000 litres a day but the company will begin its production with 10,000 litres. KMPI is not limited to camel milk processing, as they plan to bottle pasteurized cow milk and yoghurt, and process cheese and butter.
KENYA
In neighbouring Kenya, the country boasts of having the highest milk per capita consumption in Africa at 120 litres compared with the region’s average of 50 litres.
The dairy industry is one of the most lucrative agricultural and manufacturing activities, with great potential to turn around the nation’s economic potential. According to the Kenya Dairy Board, Kenya has 4.5 million heads of dairy cattle producing 5.28 billion litres of milk annually, with only 600 million litres marketed formally and processed by about 30 milk processors and 67 mini dairies with a total production capacity of about 3.75 million liters per day.
Kenya’s milk production levels are estimated to grow to 12 billion litres by 2030, with a growth intake to the formal processing sector rising to 1 billion litres in 2025.
This will trigger more investments in the sector by both new and veteran players such as Brookside, New KCC, Bio Foods and a myriad of dairy cooperatives that have made significant inroads in the sector over the last 10 years such as Githunguri, Mukurweini and Kinangop dairies.
In the recent past, the country’s first dairy processor New KCC, undertook the rejuvenation of its ageing plants at a cost of US$10 million (KSH1 billion). Other New KCC facilities that have been re-tooled include Eldoret, Kiganjo, Nyahururu and Sotik plants, with plans to roll out investments at the other plants. The recently modernized unit was the Dandora factory in 2019, doubling its processing and packaging capacity to 160,000 liters per day. In 2020, the state-owned processor broke ground for construction of US$2.49m milk cooling plant in Meru County, Central Kenya, with a holding capacity of 100,000 litres.
During the same period, Nuug Camel Milk Products Limited, launched the commercial production and distribution of packaged camel milk products into the Kenyan market. Apart from milk, the company based in Industrial Area, Nairobi also produces camel yogurt in several flavours including vanilla, strawberry and mango.
The investment wave has also caught up with cooperatives who previously were content to be suppliers of milk to leading dairies, but have since vertically integrated their operations into processing. Kangema Unity Investment, a dairy cooperative of local farmers in Murang’a County, Central Kenya, built a US$2.8 million milk processing plant at the end of 2019. The construction of the plant was financed by the over 5,000 dairy farmers.
With the focus of expanding its portfolio, Glacier Products Ltd, one of Eastern Africa’s leading ice cream and chocolate confectionery manufacturers closed the year 2020 by clinching an undisclosed amount of investment from EXEO Capital, a leading pan-African private equity investment manager. The financial and management backing, is aimed to steer the producers of renowned Dairyland ice-creams and chocolates, towards continued sustainable growth that has seen them launch a line of premium yoghurt products into the Kenyan market.
UGANDA
Crossing boarders into Uganda, recent statistics by the Dairy Development Authority indicate that milk production in the country in 2019 stood at 2.7 billion litres. The sector has increasingly become an important contributor to foreign exchange for the economy, boasting of being the only nation in East Africa to have a positive balance of trade in milk products.
The country’s processing companies have increased from 120 with processing capacity of 2.72million litres in 2017/18 to 135 with processing capacity of 2.8 million litres by end of December 2019. This has been as a result of new players joining the market and some processors upgrading their processing capacities.
The Ugandan dairy sector has seen two key entrants in the last few years, with leading Kenyan dairy Brookside acquiring the stake previously held by Sameer Agriculture and Livestock to create Brookside Uganda. Meanwhile the Tomosi family and the Vital Capital Fund formed a new joint venture dubbed Vital Tomosi. The producers of the Milkman brand of UHT milk and yoghurt commissioned a new milk processing factory in 2019. The new dairy processing factory comes at an investment worth US$15 million and has a capacity to process 100,000 litres of milk daily.
It is not only the Vital Capital Fund that has invested in the sector. The Rise Fund, a global impact investment fund managed by American private equity firm TPG Capital acquired a reported 34% stake in Pearl Dairy in 2019 to enable the dairy processor to expand and enhance its operations, in addition to an earlier investment by the IFC in the firm.
Pearl, which markets its products under the flagship brand Lato, is the largest dairy processor in Uganda, with installed processing capacity of 800,000 liters of raw milk per day. The company recently partnered with Tetra Pak, to install a new Ush 9.25 billion (US$2.6m) packaging line. The new state-of-the-art facility has enabled the processor to expand its offering to a new range of UHT products.
Meanwhile Jesa Dairy, one of the pioneer dairy
KEY NUMBERS
US$956.26 BILLION
ESTIMATED MARKET VALUE OF GLOBAL DAIRY INDUSTRY IN 2025
processors in the country, is building a new, bigger 2,700m2 plant that will be ready in 2021 near Kampala, to boost its production capacity.
TANZANIA
Investors have also had an eye on Tanzania’s dairy sector as Tanga Fresh, a leading dairy processor in the country acquired additional investment from Dutch family-backed impact investor DOB Equity in 2020, to expand its production in the long-life milk market.
The dairy processor produces a wide range of products such as mtindi (sour milk), yoghurt, ghee, fresh and long-life milk. Its production facilities have expanded significantly in recent years, from initially producing 15,000 litres of milk per day to today making 80,000 litres per day in a modern high-quality plant.
The dairy industry in Tanzania has the most potential in Eastern Africa, as less than 7 per cent of the country’s milk is processed. Its current production capacity stands at 2.4 billion litres of milk a year, with a targeted production of 4 billion litres per annum by 2030. The Government is also planning to improve milk consumption per capita from the current 47 litres to 70 litres in a few years, driven by increased local production.
RWANDA
Shifting focus to Rwanda, big news emerged at the start of 2020, when the government privatized the state-owned Burera Diary Limited. The dairy company was sold to African Solutions Private Ltd (Afrisol), a Zimbabwean firm who acquired about 98.3% shareholding. The plant has a daily capacity to process 10,000 liters of milk into various finished products such as soft and hard cheese, yogurt, long-life milk, butter, ice cream as well as fermented milk.
Rwanda produces more than 2.2 million litres of milk a day, while only about 10 per cent of it gets processed into different dairy products. Meaning a lot of milk goes to waste, a loss that Inyange Industries, one of the leading food processing companies in the country, is seeking to mitigate with the establishment of at US$20.8 million milk powder plant.
NIGERIA
Nigeria has a cattle population of 20 million that produces 600 million litres per year against a consumption capacity of 1.3 billion tonnes of milk annually. This forces the West African country to spend US$1.5 billion every year in dairy products importation to meet rising demand for milk and milk products. With a target to increase milk production to 1.7 billion litres by 2024, the private and public sector have joined forces to drive investments in the dairy sector in the country.
For instance, in 2019, the Central Bank of Nigeria (CBN) included milk and dairy products on its list of items not eligible for foreign exchange (FX), leading to restriction of milk imports into the country. In turn, the apex bank resorted to partnering with state governments and private investors to actualize the various dairy sector backward integration programs.
In Niger state the government allocated land to four
dairy companies including Friesland Campina WAMCO, Neon Agro, Chi Limited and Irish Dairy at the 31,000 hectares Bobi Grazing Reserve. Meanwhile in Ekiti state, Promasidor Nigeria has invested US$5m to reactivate the moribund Ikun Dairy Farm. Further, Denmark-based dairy firm, Arla Foods, has also forged an alliance with the Kaduna state government to establish a dairy development programme and build a new commercial dairy farm in the region.
In southwest of Nigeria, Fan Milk Plc, the subsidiary of multinational food-products corporation Danone, has partnered with the government of Ogun state to develop a world-class dairy farm and technical institute at the Odeda Farm Institute, bringing the expertise of its parent company to the fore. The backward integration programs have started to bear fruits - in 2020, FrieslandCampina WAMCO, attained a record high milk collection capacity of 40,000 litres of milk per day.
FrieslandCampina WAMCO, leading the quest to transform the dairy sector in Nigeria, further expanded its milk production capacity with purchase of Nutricima in 2020 from PZ Cussons Nigeria Plc. The acquisition added Olympic, Coast and Nunu brands into its portfolio. In the same year, the subsidiary of Holland’s Royal FrieslandCampina, commissioned a state-of-the-art plant for local production of Peak Yoghurt. The company further strengthened its yoghurt line by recently building a mobile plant for long shelf-life yogurt production. The facility will start with a processing capacity of 1.8 million kilograms of milk and can annually produce more than 18 million pouches of drinking yogurt.
SOUTH AFRICA
Cruising down to South Africa, the dairy industry has been likened to that of USA, dominated by few commercial farms with larger herds undertaking intensive farming system. Most of the milk produced under this model goes to liquid milk production (60%) and the remainder is processed into concentrated products such as pre-packaged cheese and butter.
In 2019, Milco SA led by Tel Aviv-based Central Bottling Company (CBC) made the headlines with the acquisition of Clover Industries, producer of branded food and beverage products, majorly focusing on the dairy industry.
The following year, Sundale Dairy formed a joint venture with international cheese processor Schreiber Foods, invested R70 million (US$4.25m) in the construction of a new cheese processing factory. The new facility with capacity to produce 7,000 tonnes of cheese slices will mainly serve quick serve restaurants such as Burger King and McDonalds.
Later in 2020, Dairy Farmers of South Africa (DFSA) hit the headlines after its merger with Coega Dairy, creating a new agribusiness venture in the region known as Dairy Group. Under the 50:50 partnership DFSA brings it’s over a century long experience as a market leader in the
procurement of raw milk and supplying premium brands such as Clover, combining with Coega Dairy’s knowledge in building low-cost household brands
Deep-pocketed investor, EXEO Capital also recently ventured into the South African dairy industry by undertaking an equity investment in artisanal cheese producer, Fairview Cheese Company.
REST OF SOUTHERN AFRICA
Meanwhile in Zimbabwe, the country’s dairy industry has been experiencing annual milk production decline, currently registering around 70 million litres, short of the national demand of 120 million litres, making it turn to imports. Dwindling production capacity and currency devaluation has led to many investors shying away from
WITH A TARGET TO INCREASE MILK PRODUCTION TO 1.7 BILLION LITRES BY 2024, NIGERIA'S PRIVATE AND PUBLIC STAKEHOLDERS HAVE JOINED FORCES TO DRIVE INVESTMENTS IN THE DAIRY SECTOR
the industry.
However, the country’s leading milk processor Dairibord Holdings has been raking in huge amount of investments in the sector, stamping its dominant position. The company recently invested US$2 million in a new UltraHigh Temperature (UHT) filling and packing equipment, alongside a new US$1.5 million ammonia plant, expected to boost its ice-cream production levels. The processing giant was eyeing a larger market share by merging with its
competitor Dendairy. However, negotiations for a possible merger between the two dairy entities collapsed.
Still in the Southern African region, Trade Kings Group, Zambia’s leading manufacturer of Fast-Moving Consumer Goods (FMCG) commissioned a new milk processing plant at its subsidiary Dairy Gold Limited late last year. And in Angola, Webcor, one of the country’s leading FMCG players acquired Lactiangol in a deal valued at US$30 million in 2019, strengthening its presences in the manufacturing sector.
NORTH AFRICA
Located in the Northern fringes of Africa, the Maghreb countries have a long tradition of consuming dairy products. Despite the harsh weather conditions characterized with excessive heat and intense drought, the high demand of milk and milk derived products has led to realization of investment in the local dairy industries.
In 2019, Land’Or, Tunisian dairy manufacturer invested US$11.3 million in setting up a new plant in neighbouring Morocco. The following year, the cheese maker received €10.9 million (US$12.89m) loan financing from the European Bank for Reconstruction and Development (EBRD) to support its expansion in home market and investment in Morocco. Ripened for future growth, Maghreb Private Equity Fund IV (MPEF IV) acquired additional 1.8 million shares in Land’Or, representing 16.20% of the capital of the agrifood firm, raising its ownership to 21.6%.
Meanwhile in the land of the Pharaohs, French dairy group Lactalis acquired Greenland Group for Food Industries, an Egyptian cheese maker and subsidiary of Middle East food company Americana Group in 2019.
Seeking to get a share of the multibillion Middle East and Africa Cheese market share, which was worth US$8.52 billion in 2018 and estimated to grow at a CAGR of 4.27% to reach US$10.51 billion by 2024, Dutch dairy cooperative, FrieslandCampina also recently partnered with the Arabian Food Industries Company, popularly known as Domty, to establish a joint venture that will focus on the export of cheese.
Shifting focus from the cheese market, Dina Farms, Egypt’s largest private sector farm announced a US$24.4 investment in 2019 in its dairy farm and associated segments over the next three years to expand its production capacity. The investment is part of the company’s new phase of aggressive growth and restructuring that has seen the company double its milk production capacity.
From North to the South of Africa, the dairy industry has the propensity to create wealth in Africa, given its natural potential and presence of untapped opportunities. To unlock this potential, governments, private players, investors, developmental partners among other, must however play a collaborative role in the transformation agenda.
