Dairy industry in growth spurt driven by demography, large retail channels

Nigeria’s diary industry is growing moderately, with the compounded annual growth rate (CAGR) of 8 percent over the last three years and an estimated revenue of N347 billion in 2013. This industry is driven by rising demography, high youth and middle-class population, continued westernisation and growth in incomes. Others key drivers include development of modern retail channels, urbanisation, availability of products in small packs, among others, analysts have said.

“The continued westernisation, growth in incomes, and development of modern retail channels, means the category is expected to perform better. In particular, the fast growth of modern retail chains will be the main factor spurring growth,” says Euromonitor International, in its 2013 report on cheese, one of the diary products.

“The shift of emphasis to smaller packaging units by virtually all manufacturers also helped boost sales among poor and price sensitive consumers, who previously considered drinking milk products as a luxury,” Euromonitor International, says of milk, another diary product.

The research firm further says that as disposable incomes continue to rise and demand for different flavoured products grows, manufacturers are able to grab consumers from the unpackaged market, while providing better quality and packaged products.

An August 2014 report by Agusto & Co. notes that the dairy sector has emerged the second largest segment in the food and beverage industry (behind poultry) in the country, with estimated revenue of N347 billion in 2013, and compounded annual growth rate (CAGR) of 8 percent over the last three years. The sector leads the food, beverage and tobacco sector, say analysts.

Nigeria’s dairy industry comprises milk, cheese, yoghurt, ice-cream, butter and infant formula. The report by Agusto & Co. says that the milk segment remains the largest in the industry, accounting for an estimated 61 percent of the industry’s turnover.

According to CIA World Factbook, birth rate in the country is 38.03 births/1,000 population (2014 est.). This figure is high when compared with 19.32/1000 in South Africa, 17.48/1000 in Brazil and 12.31/1000 in China. This, according to analysts, is among factors driving the industry. Factors like advertising and promotional sales are also spurring growth. The shift of emphasis to smaller packaging units by virtually all manufacturers also help boost sales among poor and price-conscious consumers, who previously considered drinking milk products as a luxury.

In 2013, demand for milk was put at 1.7 million tons, about 1.2 million tons in excess of domestic supply, which was estimated at 591,470 tons. Imported milk powder was about 75 percent of the Industry’s input. There was high price of raw milk powder, which significantly affected the industry’s operating costs and consequently profits, says Agusto & Co.

Key players such as Friesland Campina, Promasidor, Nestle, Fan Milk, among others, have continued to dominate this market as rise in capital expenditure and demand for dairy products translated into growth in production volumes and turnover.

Though the cheese market is still small, an increased presence of expatriates and rapid increase in the number of supermarkets and hypermarkets such as Spar and Shoprite help to spur growth. Rise in online retail outlets like Konga and Jumia is also propping the growth of the segment.

Yoghurt (‘kunnu’ included) and sour milk drinks are driven by rising disposable income. Packaging the drinks mostly in drinkable forms presents them as an alternative to normal soft drinks. The condensed/evaporated milk is also strong driven by high youth population and birth rate, say analysts.

The World Bank and the United States Census Bureau put Nigeria’s population at 173.6 million. The population of young people is estimated at 70 percent, while the middle-income class is expected to jump to 23 million, using the National Bureau of Statistics (NBS) estimates of 5.7 individuals per household in Nigeria.

The Nigerian middle-class in particular jumped six folds between 2000-2014, with the return of democracy and increase in private sector investment, according to Standard Bank, in a new report. The report further states that about 4.1 million households or 11 percent of the Nigerian population consume $23 to $115 a day. These have provided strong platform for the growth of the diary industry, the analysts say.

“Overall, the industry’s financial condition is expected to remain positive, supported by good profitability, low leverage and good operating cash flow,” says Agusto & Co.

ODINAKA ANUDU