Thursday, Dec 22, 2011
Gulf News
Dubai Saudi Arabian dairy giant Almarai has announced a $83 million (Dh304.61 million) acquisition of an Argentine farm company in an effort to secure feed supplies to its cattle overseas.
Almarai said in a statement yesterday that the acquisition of Fondomonte was in line with the Saudi government’s plan to reduce reliance on local produce and protect valuable water resources. “The transaction is in line with the direction of the Saudi Government towards securing supplies and conserving local resources,” the company said.
“[It] forms part of Almarai’s continuous efforts to improve our supply chain and ensure access to the highest quality feed for both our dairy herd and poultry business.”
Samer Darwiche, a financial analyst at Gulfmena Investments, said that the acquisition represented “a positive step towards vertical integration” as Fondomonte produces products that are used as feedstock for Almarai.
“Almarai is having more control over its supply of feed, [but] the question is how much of the feedstock costs will be saved by this acquisition,” he said.
Saudi Arabia’s lack of arable land has seen it invest in farmland in a number of countries in recent years.
Although for 30 years the country had a target to achieve self-sufficiency in wheat production, Riyadh opted to reduce wheat production by 12.5 per cent a year in a the face of depleting water resources.
Almarai’s comment in its statement that the step is in line with the Saudi government’s intention to secure supplies and protect resources was no surprise, Darwiche said.
“This is understandable, as Almarai will also depend on imported feedstock for production which will decrease pressure on local resources,” he said.
Almarai has cited rising costs of raw materials, including feed, as one of the main pressures on its margins this year. The company in October reported a slight third-quarter net profit increase of 1.2 per cent year on year.
By Orlando Crowcroft?Business News Editor
Gulf News 2011. All rights reserved.
