Sceptics who considered newspaper cartoons little more than light relief from the serious business of news reporting will have been shocked in recent weeks. The lasting economic fallout of Islamic protests over Danish political cartoons will be severe, and some of the worst-hit casualties are in the food industry. Catherine Sleep reports.

In September 2005 Danish newspaper Jyllands-Posten published cartoons caricaturing the Muslim Prophet Muhammad to accompany an editorial criticising self-censorship in the media. A few weeks ago these images were republished in a number of other countries, leading to a dramatic escalation of protests by governments and citizens of Muslim states.

The storm of fury shows little sign of abating; if anything, it is gaining momentum. In recent days stone-throwing protesters have targeted Western businesses in Pakistan, including a Holiday Inn hotel and Pizza Hut, KFC and McDonald's restaurants. Several people have died in the unrest. Meanwhile Egyptian demonstrators are calling for a boycott of European countries and beyond the Middle East, the Indonesian Importers Association has weighed in by launching a boycott of Danish goods.

The speed with which a spontaneous boycott took effect was remarkable. By 30 January Danish products had been removed by at least six UAE supermarket chains while most Saudi importers had cancelled all orders. Stores in Bahrain, Kuwait and Qatar quickly followed suit. Even foreign-owned stores operating in the Middle East, such as Carrefour of France, bowed to public pressure for a boycott.

Denmark's Arla Foods, which before the boycott enjoyed annual turnover in the Middle East of DKK2.6bn (US$413.8m) quickly became the focus of the boycott, and the company confirms that sales in the region have come to a halt. In response, Arla swiftly brought production in the area to an end, forcing it to lay off hundreds of workers in the region.

In a bid to protect this business, Arla paid for a statement from Denmark's ambassador to Saudi Arabia, saying Denmark respected all religions, to be placed as an advertisement in Saudi newspapers, which had declined to carry the statement in their news pages. Despite such measures, Arla managing director Peder Tuborgh warns that it could take years for trade to pick up again. Analysts corroborate his pessismism, with Euromonitor International telling just-food that Arla is unlikely to recover its former standing as the sixth-ranked dairy firm in Africa and the Middle East.

If Arla has borne the brunt of the backlash, it is not suffering entirely in isolation, with compatriot feta cheese manufacturer Nordex reporting a 20% slump in sales since the crisis began. However, the very nature of Denmark's other major food and drink exports has minimised their exposure. Muslim religious laws already limit sales of Carlsberg and Tuborg beers in the Middle East, and bacon and ham are also off-limits, a happenstance which serves to cushion companies such as Danish Crown and Tican from the effect of the cartoons.

Further afield, it remains to be seen whether New Zealand mega dairy Fonterra will benefit or suffer from the scandal. According to Euromonitor analyst Diane Dodson, the US$2.2bn company already has a 2% toehold in the Saudi dairy market, in large part generated by its cheese brands. As Arla's 20% grip on the Saudi cheese sector dwindles to zero, Fonterra is well placed to push its New Zealand-made labels. However, it must first overcome two obstacles: the cartoons were reprinted in New Zealand, which has not quite gone unnoticed in the Middle East; and the company has ties to Arla, which controls Fonterra's key Anchor brand in the UK.

This connection has already resulted in Fonterra's milk powder appearing in some boycott literature, and in response the company took out newspaper advertisements emphasising the fact that Fonterra merchandise, notably Anchor milk powder, comes from New Zealand by printing "New Zealand" in large type next to pictures of the product. This may or may not be enough to pacify protestors.

Datamonitor analyst John Band emphasised that the anti-Arla campaign was not strictly rational. Just as Coca-Cola has become a symbol for globalisation, so the ringleaders of this current protest have singled out Arla as the focus of their activity, he told just-food. To this end, religious leaders circulated posters depicting a leading Arla brand to aid identification by illiterate consumers.

Band added that it was likely that "Arla's competitors in the region will gain from its problems in equal measure", with no clear winner. Production limits would in any case restrict local rivals from capitalising on the shortfall of products beyond a certain point.

While this may be true in the short term, consumer loyalty to Muslim-made products may boost companies indigenous to the Middle East if the antipathy sparked by the cartoons proves enduring. Local players that stand to benefit include Egyptian dairy firm Juhayna Food Industries and Al Marai, a major Saudi dairy. These companies could capitalise on this consumer preference, building an identity for their brands rooted in their Muslim origin.

Arla is not the first food company to experience a consumer boycott but it is unusual in being punished for misdemeanours that are not of its making. Switzerland's Nestlé for instance has famously been the subject of prolonged boycotts over its marketing of infant formula in developing countries, while the employment practices of McDonald's have also prompted intermittent boycotts. But this is something altogether different; the companies involved in these boycotts are simply being seen as ambassadors of their home countries, and taking the flak for a regrettable series of events that they could not have foreseen. Arla may now regret marketing its products on their Danish origins, but hindsight is a wonderful thing, and the strategy has hitherto served it well.

The irony of the widespread boycott is that the foreign companies targeted are not the only parties it hits. Local Muslim employees are among those made redundant as the boycott hits home and companies close down production and distribution facilities. As protestors realise the local ramifications of their actions, they may relax their efforts. However, it is just as likely that they will be glad to see the departure of foreign-owned companies they feel should not have been dominating the local market in the first place.