According to Rabobank, Turkey’s developing dairy market offers exciting opportunities in its emerging export industry with access to markets that western players have previously found difficult to service. What’s more, a growing urban population with an increasing level of disposable income and interest in value added products is also presenting an attractive and vibrant domestic dairy market. But like any emerging region, there are challenges to getting the most from these opportunities.
“Taking advantage of the opportunities in the domestic market or in exports will require a secure milk supply source, especially as Turkish imports are subject to tariffs,” states Rabobank analyst, Matthew Johnson.
“In addition, Turkey faces the kind of economic and political uncertainty that can often affect emerging regions. Taking advantage of the two opportunities requires navigating an often unpredictable political and economic landscape. Therefore, a domestic partner will be pivotal to unwrapping Turkey’s potential.”
Turkey’s domestic dairy market is expected to grow from €5.2 billion in 2013 to €9.7 billion in 2018. Increasing urbanisation together with growing disposable incomes has seen value added products grow with a high level of local branding evident. However, traditional dairy products and processing structures sit alongside this leading to a high degree of fragmentation. Therefore, consolidation through M&A activities will be possible although doing so without investing in a Turkish brand, which are highly respected, may be somewhat challenging.
A second possibility will be for companies to invest in the Turkish dairy industry to gain access to growing markets in Iraq, Georgia and the Middle East. While still fairly limited in scale, Turkey is quickly growing an export market with 121,000 tonnes of product exported in 2013, a YOY increase of 23%, and with a value of US$282 million. This opportunity can be harnessed by investing locally or by using Turkey as a potential re-export hub, though any players wanting to go down this route will find it much easier to do so by engaging with a local partner due to trading polices designed to protect the domestic industry.
While Turkey offers international players many opportunities for investment Rabobank analysts believe that prerequisites for success include securing a milk supply source in a region that has a fragmented primary sector. In addition, a thorough understanding of potential political as well as economic risks is important which means that finding a domestic partner will be vital.