Water shortages threaten Saudi dairy production

Despite potential challenges, the projected growth rate is slightly higher than the CAGR of 6.1% for 2007 to 2012, said the report by research firm Canadean. The market will reach around US$5.2bn in value in 2017, up from US$3.79bn in 2012, buoyed by strong consumer demand and lively competition between both domestic and foreign dairy firms.

Dairy in the desert​

But dairies producing from raw milk are under pressure to switch to less water-intensive methods, according to Thorsten Hartmann, director of consulting for EMEA at Canadean.

“The government is growing increasingly interested in usage of scarce water resources and the wisdom of dairy farming in a desert environment is questioned increasingly, with various legislative measures already in place aimed at persuading dairies to change their structures – such as importing dried animal feed instead of growing domestic alfalfa or Rhodes grass, or exporting ambient product made from recombined imported milk powder instead of domestic raw milk​,” Hartmann said.

As a result foreign dairies are likely to sell more ingredients to Saudi producers, particularly bulk milk powder and bulk cheese, according to Hartmann. Along with growth on the ingredients side, product ranges traditionally dominated by imported brands, including retail milk powder, cheese, butter, ghee and labneh, will remain strong for foreign producers.

Butters and spreads will see the fastest growth in the sector as a whole, with a projected CAGR of 9% for the next three years. Cheese, which overtook milk to become the largest product segment by value in recent years, will make up more than two-fifths of the whole dairy food market with a projected value of US$2.1bn in 2017, and CAGR of 8.8%.

Chilling in​

Milk will see a slight increase in growth to 4.2% CAGR, but within the segment ambient milk products will be under growing pressure from chilled varieties. This is part of a general shift towards chilled products, driven by increasingly sophisticated distribution and merchandising in the market, according to Hartmann.

“There are some more old-fashioned product sectors, such as butter, butter ghee and evaporated milk, where traditional consumption patterns persist, but other dairy sectors have enjoyed innovation in recent years, both in terms of product formulation – for example, the strong growth in dairy desserts – and packaging solutions​,” he said. 

“Healthier dairy options are starting to take hold – skimmed and semi-skimmed variants of milk, laban and yoghurt are increasingly common, and value-added products such as omega-3-enriched milk or lactose-reduced products are becoming more and more mainstream​.”