Abraaj-Yorsan Deal Highlights Long-Term Appeal Of Food Sector


Turkey's economy is under an intense spotlight at the moment. The sell-off in the lira is showing little sign of fading given the reluctance of the country's central bank to raise interest rates, and there is potential for an increase in inflation against the backdrop of growing political tensions and deteriorating investor sentiment. While these developments could weigh on Turkey's reputation as one of Europe's most exciting domestic demand stories, we believe food and drink companies will still pursue ambitious projects in the country given its fundamental appeal.

It was announced in the week beginning January 20 that Dubai-based private equity firm Abraaj had teamed up with the European Bank for Reconstruction and Development (EBRD) to acquire a controlling stake in the Turkish dairy company Yorsan Group. Abraaj's Selcuk Yorgancioglu, a company partner in Turkey, told the Financial Times that he saw Turkey as 'the next food basket' for both Europe and the Middle East and North Africa (MENA).

Despite its recent challenges, Turkey is still expected to become significantly richer on a per capita basis over the next few years. Indeed, our Country Risk team forecasts GDP per capita to increase to more than US$18,000 by 2018 - up from about US$11,000 in 2014. Given the size of the market (the country's population is above 70mn), a trend towards urbanisation, the ongoing development of formal retail channels and the relatively fragmented structure of the dairy industry, we believe there is enough in Turkey for Abraaj and EBRD to justify investing at this delicate time. We note that Turkey ranked in the top three in our Q214 Food & Drink Risk/Reward Ratings for Central and Eastern Europe, as the table at the end of this article illustrates.

Cheese Expected To Fare Particularly Well
Turkey - Yoghurt & Cheese Sales (Kg Per Capita)

Yorsan is primarily engaged in the production and distribution of yoghurt, cheese and milk, according to the Financial Times - all areas where growth is coming off a fairly low base. Yorsan already owns a number of well-established brands, and in addition to domestic opportunities, the company will be able to push these brands in the wider MENA region in particular.

Abraaj has clearly identified dairy as an attractive focus area as it makes more investments in fast-moving consumer goods. In 2013, it acquired Ghana's Fan Milk for more than US$300mn in conjunction with France's Danone.

Some Way Off Boom Years, But Still An Attractive Market
Turkey - Selected Macroeconomic Indicators
Central & Eastern Europe Food & Drink Risk/Reward Ratings Q214
Reward Industry Reward Country Reward Risk Industry Risk Country Risk Food & Drink Rating Ranking
Russia 59 68 50 52.4 50 54.7 56.3 1
Poland 51.5 64 39 60.2 55 65.3 55.0 2
Turkey 53.8 54 53.7 54.7 50 59.4 54.2 3
Latvia 40.5 54 27 69 70 68.1 51.9 4
Kazakhstan 57.3 72 42.7 43.4 25 61.8 51.8 5
Hungary 36 44 28 74.3 80 68.6 51.3 6
Romania 45.3 58 32.7 60 60 60 51.2 7
Czech 35.2 36 34.3 74.7 85 64.5 51.0 8
Lithuania 41.5 56 27 63.1 65 61.2 50.1 9
Slovenia 30.8 32 29.7 77.6 80 75.1 49.5 10
Slovakia 37.3 44 30.7 67 70 64 49.2 11
Estonia 35.5 44 27 65.9 60 71.8 47.7 12
Bulgaria 35.7 46 25.3 56.8 55 58.5 44.1 13
Croatia 31.2 38 24.3 60.6 60 61.3 43.0 14
Ukraine 39.5 48 31 46.1 40 52.2 42.1 15
Belarus 44.7 64 25.3 36.1 20 52.2 41.2 16
Serbia 35 50 20 43.4 30 56.9 38.4 17
Source: BMI
This article is tagged to:
Related sectors of this article: Food & Drink, Food
Geography: Turkey

Access all of our latest analysis, data and forecasts - request a trial