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Global Dairy eBrief Exclusives

Green Shoots of Recovery in Middle East (Video)


by Luke Waring      
Dairy trade data suggests that the import dip may have bottomed out and that we may be starting to see green shoots of recovery in Middle East demand.

Eighteen U.S. Dairy Export Council members—a record number—attended the Gulfood food expo this past February in Dubai. Why such strong interest in a market that saw aggregate powder, butter, whey and milkfat imports decline for three straight years?

The simple answer is that the underlying fundamentals pointing to long-term dairy import demand growth in the Middle East remain sound. Given its strong per capita dairy consumption, promising economic prospects, rising population and young-skewing demographics, "you can't ignore this region," noted Glanbia Nutritional's Vice President of International Sales Dave Snyder in a Global Dairy eBrief Exclusive video last month.

USDEC President and CEO Tom Vilsack sat down at Gulfood with USDEC Middle East North/Africa Business Unit Director Marc Beck to get his take on U.S. dairy opportunity in the region.
(Click arrow below to view an edited video of that interview.)

(Editor's note: During the interview, please note the correct per capita dairy consumption in Southeast Asia ranges roughly from 20-30 kg per capita per year versus 300-350 kg/capita/year in developed countries.)

Dairy trade picking up

The decline in Middle Eastern dairy purchasing over the last few years appears largely attributable to temporary market conditions, including the slump in oil prices that undergird the region's economy and record-high butterfat prices that eroded import demand. Indeed, dairy trade data suggests that the import dip may have bottomed out and that we may be starting to see green shoots of recovery in Middle East demand. 

Year-over-year import volumes improved over the course of 2017 for milk powder, butterfat and cheese. In the fourth quarter, Middle East cheese imports rose 4 percent, butterfat (anhydrous milkfat and butter) gained 14 percent, skim milk powder (SMP) jumped 20 percent and whole milk powder (WMP) gained 33 percent.

In addition, the cheese category never actually followed the drop-off seen in milk powder and butterfat in the first place. Among the world's top 11 suppliers, cheese exports to the Middle East have risen for the last seven years straight, from 143,000 metric tons in 2010 to 233,000 metric tons last year.

The region's diverse consumer base has created a multilayered market with demand for traditional Middle Eastern white cheeses and processed cheeses growing alongside more typical Western varieties from mozzarella to cheddar to strong flavored tastes like blue. Cheese for manufacturing for retail and for foodservice are growing concurrently.

In addition, apart from cheese, Middle Eastern demand has remained consistently strong for fat-filled milk powder (FFMP), which saw annual import volume gains from 2011-2017. Last year, Middle Eastern FFMP imports rose 11 percent to 287,455 metric tons, making it the region's second largest dairy import category by volume. (Note: FFMP economics have been favorable in recent years given relatively low SMP/vegetable oil prices compared to WMP.)

Furthermore, last year's decline in butterfat imports was not unique to the Middle East, as tight supply and record international butterfat prices stunted trade worldwide. While butter prices are edging higher again, global supply is stronger and Middle East purchasing power improving.

U.S. suppliers are beginning to see incremental gains. In the first quarter of 2018, aggregate U.S. exports of milk powder, cheese, whey, lactose and butterfat to the Middle East grew 48 percent compared to January-March 2017. 

Economic rebound lays the groundwork

The hope is that a stronger economy will keep buyers active moving forward. Crude oil prices have slowly crept up over the last 12 months, this week reaching $70 a barrel for the first time since 2014. Since oil exports account for anywhere from 20-40 percent of the GDP for the region's top dairy importers—including Iraq, Saudi Arabia and United Arab Emirates—that is positive news for dairy export demand prospects. 

In addition, due to the prolonged oil price slump, oil-exporting nations have begun reworking their economies to be less oil reliant, cutting government spending and passing a wave of structural reforms, from spending to tax to economic to social.

Economists are projecting GDP growth will rise to more than 2 percent for most nations in the region from less than 1 percent in 2017. Whether that continues to translate to greater dairy imports remains to be seen, but certainly import numbers and demand drivers are moving in a positive direction in the Middle East.

Luke Waring is manager of communications and membership at the U.S. Dairy Export Council.

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The U.S. Dairy Export Council fosters collaborative industry partnerships with processors, trading companies and others to enhance global demand for U.S. dairy products and ingredients. USDEC is primarily supported by Dairy Management Inc. through the dairy farmer checkoff. The password-protected article above is intended for USDEC member organizations only and should not be shared with anyone outside your organization.