More Dairy Consolidation To Come In Africa


BMI View: Dairy companies will continue to pursue acquisitions in Africa, where we see strong dairy consumption growth potential, mainly because of base effects. On the back of this, Danone has ramped up investment on the continent, with the acquisition of 40% of Kenyan dairy company Brookside and of a 49% stake in Ghanaian Fan Milk International. This will also help Danone diversify from its largest markets, France and Russia, where the consumer environment has deteriorated recently.

We believe dairy companies will continue to pursue acquisitions in Africa, where we see strong dairy consumption growth potential, mainly because of base effects. In fact, dairy consumption per capita in Africa is the lowest in the world, far below Asia and Latin America, where we already see strong growth opportunities. Consumption growth has for a long time been hampered by poor infrastructure and refrigeration systems preventing distribution and demand in the region. The growth in food retail has also made it easier for Western dairy brands to distribute their products. We estimate that mass grocery retail in the region has grown by an average of 9.3% annually between 2008 and 2013, and we forecast growth of 19.6% annually over our forecast period to 2018. We believe this will boost dairy consumption in the region and help consumption per capita higher by 2018.

On the back of this, Danone has ramped up investment on the continent, announcing in July the acquisition of 40% of Kenyan dairy company Brookside, after having bought a 49% stake in Ghanaian Fan Milk International in 2013. The Brookside deal was sealed with the controlling Kenyatta family, relatives of the current President Uhuru Kenyatta, for an undisclosed amount. Brookside had sales of EUR130.0mn in 2013 and has a 40.0% share of the domestic dairy market, which will give Danone's access to the largest milk collection network in East Africa, with 140,000 farmers and a distribution network in 200,000 outlets. Danone's decision to invest in Fan Milk International with Abraaj Group, a leading private equity firm having invested in several deals in Africa, was based on the growth potential the company had in Nigeria and Ghana (its main markets) but also in Cote d'Ivoire, Liberia, Burkina Faso, Benin and Togo. Fan Milk reported sales of around EUR120.0mn in 2012 and aims to become one of the largest food companies in West Africa. We believe these two acquisitions will help Danone expand beyond its existing African markets (South Africa and the Maghreb). Arla Foods, another leading European dairy company, also established a partnership with the Ivorian distribution company Mata Holdings to get more of its products on the market.

Lowest Dairy Consumption In The World
Selected Regions - Dairy Consumption Per Capita (kg/year)

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This article is tagged to:
Sector: Food & Drink, Agribusiness
Geography: Africa, Burkina Faso, Cote d`Ivoire, Ghana, Kenya, Niger, Nigeria, Togo

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