As U.S. suppliers seek to recover sales in the Middle East/North Africa (MENA) market, it's instructive to look at how European and Oceania suppliers approach one of the world's largest dairy import regions.

Buyers in the MENA region are price-sensitive. Spot sales often go to the lowest-price seller. At the same time, freight distance and costs place the United States at a disadvantage.

In contrast, ongoing business typically goes through formal joint ventures or partnerships with local companies. European and Oceania dairy companies do this - succeeding by establishing formal, long-term relationships with key local companies, despite the economic hurdles and the region's political uncertainties.

In-market presence vital

The most effective way to overcome the challenge of price competition is to establish an in-market presence. But the U.S. dairy industry has yet to invest the time, effort, manpower, and dollars needed to compete in MENA markets.

It's more than just a price issue. The U.S. export supply chain is often fragmented, particularly into retail and foodservice channels, in which product often moves through consolidators or distributors who co-mingle dairy products with dry goods and other consumables. When this happens the U.S. manufacturer loses connection to the end customer and may not even be aware their product is re-shipped to an overseas market.

This prevents U.S. suppliers from addressing issues that may arise relative to their product, quality, performance or consumer acceptance. It also sidesteps any point-of-sale opportunity for manufacturers to enhance their product or brand positioning.

Conversely, the end-user doesn't have interface with the manufacturer of the product. If an issue does arise, his point of contact will be with the seller/consolidator/distributor, who doesn't have any "ownership" in the product or brand and often can't or won't address customer or point-of-sales issues. The net result is that quality and consistency of business is in jeopardy.

Look at what our competitors are doing

Our competitors overcome supply-chain challenges by aligning with local partners. For instance, Arla, Danone, Fonterra, FrieslandCampina, Lactalis, Nestle, and Bongrain all have on-the-ground presence, either in the form of joint ventures or formal partnerships.

Almost every year, we see new developments from the majors, showing they are constantly searching for something that serves a need and increases their competitiveness in the market. The most recent is Arla's development of a new product in collaboration with its partner in Egypt, Juhayna Food Industries.

By way of background: for more than two years, the Egyptian economic situation has posed challenges for both producers and consumers. The lack of foreign currency has made it more difficult to import raw materials, and production costs have been higher than in the past. Inflation continues to skyrocket. Therefore, the production of cost-efficient white cheese like the varieties commonly consumed by the mass population makes sense.

The United States' main competitors in the MENA region—the European Union and New Zealand—have aligned themselves with local partners.

To address these challenges, manufacturers of feta and traditional white pickled cheeses have incorporated vegetable fat into their formulations to reduce cost and produce a whiter-colored cheese preferred by consumers.

Juhayna, primarily a beverage company, identified that 80 percent of the Egyptian population consumes white cheese. Partnering with Arla, Juhayna developed a feta cheese modified with vegetable fat, leading to a lower cost for both the producer and consumer.

This new cheese, sold under the Puck brand, is made in-country from skim milk powder, shortening and other ingredients. Some of these ingredients come from Arla, some come from elsewhere.

This feta cheese product incorporates vegetable fat to produce a whiter-colored cheese preferred by consumers in the Middle East.

Juhayna also has plans to export this cheese to other MENA countries.

Similarly, recognizing potential in Saudi Arabia and the broader region, Ornua, Ireland's largest exporter of Irish dairy products, acquired 75 percent of Al Wazeen Trading Co. and last year opened a cheese manufacturing facility in Riyadh, Saudi Arabia. The €20-million plant recombines milk ingredients to produce white cheese for the Saudi Arabian market and beyond.

Time to take the plunge

Identifying market demand and opportunity and making the timely investment to fulfill market needs is working well for those who have taken the plunge. Arla/Juhayna identified demand for a broad-penetration product that's more affordable than the regular. The timing has worked out well in light of Egypt's economic challenges. Ornua identified the lucrative opportunity of producing white cheese locally as well.

Investing in on-the-ground presence with local companies would be strategic for USDEC members. U.S. dairy ingredients can be used to produce indigenous cheese, providing large and consistent volume and value exports. Innovation, quality and cost-effectiveness are all key factors.

Nina Bakht Halal is USDEC's Middle East/North Africa representative. Here is more about her. 

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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.