Dairy Market Recovery in the Middle East?
Twenty-three U.S. Dairy Export Council members attended the Gulfood food expo in February in Dubai. Why such interest in a market that saw aggregate powder, butter, whey and milkfat imports decline three straight years? The simple answer is the underlying fundamentals pointing to long-term dairy import demand growth in the region remain sound.
As one of those U.S. suppliers attending Gulfood noted: Given its strong per capita dairy consumption, promising economic prospects, rising population and young-skewing demographics, “you can’t ignore this region.” The slump in purchasing appears largely attributable to temporary market conditions, including the slump in oil prices that undergird the region’s economy, as well as record-high butterfat prices that eroded import demand.
Indeed, dairy trade data suggests the import dip might have bottomed out and we might be starting to see demand recovery in the Middle East. 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%, butterfat (anhydrous milkfat and butter) gained 14%, skim milk powder (SMP) jumped 20% and whole milk powder (WMP) gained 33%.
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 past 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 such as mozzarella and cheddar as well as varieties with a stronger flavor such as blue.
Cheeses made for retail and 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 to 2017. Last year, Middle Eastern FFMP imports rose 11% to 287,455 metric tons, making it the region’s second-largest dairy import category by volume. 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.
Assuming the price moderation seen toward the end of 2017 holds this year, butter trade in the region will likely pick-up, particularly given economic developments. After three-years in the doldrums, crude oil prices began to lift at the end of 2017 and have stayed above the workable level of $60 per barrel since December. Since oil exports account for anywhere from 20% to 40% of the GDP for the region’s top dairy importers, that is positive news for dairy export demand prospects.
Economists project GDP growth will rise to more than 2% for most nations in the region from less than 1% in 2017. How that translates to dairy imports remains to be seen, but certainly demand drivers are moving in a positive direction in the Middle East.