Sub-Saharan African Dairy Ready for Take-Off
Sub-Saharan Africa is increasingly recognised as the next frontier for the global dairy industry. However, given regional differences and specific country characteristics, unlocking Africa’s potential requires tailored strategies.
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Different circumstances call for different measures
Reviewing the ten most relevant dairy markets in Sub-Saharan Africa highlights the significant differences between them. In West Africa, for example, barriers to entry are generally lower and market access is easier, generating interest among importers as an early entry point. On the other side of the continent, the dairy trade perspective is much different. In East Africa, informal marketing of raw milk currently accounts for up to 97 percent of local dairy consumption. Differing circumstances dictate whether the strategy employed to unlock dairy potential should be to encourage expansion of local production where possible or to provide product through trade.
What is driving the demand?
The predominant driver of dairy demand is the growth of income levels. GDP per capita in the West African countries under consideration is well above USD 1,000. This is notably higher than in East Africa, where GDP per capita is generally around USD 600, with Kenya being the exception to the rule. While incomes have been growing, several foreign entrants have concluded that they had overestimated the growth of the middle class. Another driver of demand is in milk formula. Indicators suggest that Sub-Saharan Africa may deliver significant growth for infant formula producers over time, with forecast increasing birth rates, an increasing number of women in the workforce and increasing disposable incomes.
Rabobank believes international companies have an important role to play in the development of the Sub-Saharan dairy sector. Opportunities sit on a spectrum of international trade versus setting up local production. However, milk reconstitution—utilising African production facilities to make a range of value-added dairy products using either imported raw materials or in combination with local supply—is a third promising strategic option. The three broad strategies should be regarded as complementary, not substitutes. For the Sub-Saharan countries under consideration, a mix of strategies will be needed to meet the rising demand for a wider variety of dairy products.