Arla Foods has signed an agreement with a local importer for the sale of Dano branded milk powder in Algeria, one of the world's largest importers of milk powder.
The announcement follows the partial liberalisation of the Algerian market for milk powder, which allows distributors to operate their own import businesses, and also traces Arla's own long-standing interest in the North Africa / Middle East region.
For example, the company recently switched production of processed cheese from the EU to Saudi Arabia in order to fully benefit from the region's potential for high value diary products.
In any case, Arla Foods Ingredients business unit manager Jørgen Waage Pedersen believes that the move into Algeria will enable the Danish firm to take between 10 and 15 per cent of the free market for milk powder. This currently amounts to between 50 and 70,000 tons.
The rest of the market will remain controlled by the Algerian government or the local food industry.
"The income of the local population has increased significantly in recent years and we see good opportunities for Arla Foods in the milk powder market," said Pedersen.
Dano milk power has performed well in a range of consumer tests conducted in various parts of the country. A promotional campaign will kick off early in the New Year when Dano will be marketed as a high profile brand.
The move will be accompanied by the setting up of an Arla representative office in Algeria's capital, Algiers, from 1 January 2006.
Arla's experience so far suggests that the North Africa / Middle East region could provide a good avenue for dairy firms to increase earnings. There is a growing population with a lot of young people interested in buying high value dairy products, and who are increasingly susceptible to advertising.
In addition, the group, like many other European dairy processors, is grappling with intense cost pressures. The whole dairy sector has seen a rapid shift towards value-added products, such as branded milk, in an attempt to push up earnings.
Arla warned a few months ago that the EU's export subsidy cuts would harm earnings from butter exports this year. The company's forage into new and emerging markets can be seen, to some extent, as a symptom of this.
Arla indicated earlier this year that it wants to increase its annual Middle East turnover from DKK2.9bn (€388.9m) to DKK4.1bn (€549.9m) over next five years, a move which will probably require the doubling of its workforce in the region.