The UAE dairy market, already considered overcrowded by local producers, is set to see further turbulence following a renewed move by the world's largest dairy farm to enter the Emirates, according to a report by Khaleej Times on Tuesday.
Al-Safi, the dairy giant from Saudi Arabia, is pressing ahead with plans to enter the UAE market following a fierce price war for fresh milk in the Saudi market, said the report.
The new player's entry is likely to be through Carrefour chain of hypermarkets with whom the French company Danone International, a shareholder in Al-Safi, has an exclusive contract.
Danone International recently acquired 50.1 percent shares worth SR500 million ($133,3m) in Saudi Al-Safi Foods, owner of the world's largest integrated dairy farm. The investment is said to enable Al-Safi to enhance its competition in the international market and target over 40 million consumers in the neighboring markets.
The biggest dairy in the world with 24,000 cows giving milk daily, the new Al-Safi Danone Company controls 30 percent of the fresh yogurt and milk markets in Saudi Arabia and is also trying to gain a foothold in foreign markets.
According to Khaleej times, prices for fresh milk in Saudi Arabia recently came down to Dh5 ($1.36) for two-liter packing from the previous Dh5.85 and a further drop, industry is likely.
Recently Al Safi-Danone company announced it was lowering the prices of milk and milk products this month. According to company officials, the move was due to the fact that the largest milk companies in Saudi Arabia suddenly started lowering milk prices, breaking the price-fixing agreement signed in May.
Quoting UAE fresh milk producers, the paper said that the Al-Safi ingression to the UAE market will bring even more tough competition to the already overcrowded market.
"If they decide to come to the UAE, they will have to sign the UAE Dairy Association agreement which stipulates the agreed prices for fresh milk," a big local fresh milk producer said, adding that in this case it will be difficult for them (Al-Safi Danone) to sell their products.
Another player said that, with 150 tons of daily local production of milk which is roughly the daily demand for fresh milk in the UAE, the surplus of 30 tons coming from outside every day and prices for fresh milk fixed much higher levels than Saudi prices, it will be very difficult for the newcomer to survive in this market – Albawaba.com
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