Arla Foods has inked a joint venture agreement with Egyptian dairy Juhayna Food Industries that will see the European co-operative's products fed into the firm's distribution network in the country.
The new company, to be called ArJu Food Industries, aims to start trading in October. According to Arla, ArJu Food Industries will combine the product areas in which the two companies operate.
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Juhayna manufactures UHT-milk, yoghurt and juice but has a "very limited production" of butter, cheese and cream, Arla said. The co-op said these were areas in which it "specialised" across the Middle East and Africa.
"It is a very good match for both parties. Juhayna has a nationwide distribution network, and we are not competing within the same product categories. Together we now get a broader product portfolio, which strengthens the business of both parties," Rasmus Malmbak Kjeldsen, senior director of Arla's operations in the Middle East and Africa, said.
Juhayna will control 51% of the new company while Arla will take a 49% stake. Arla will, however, be responsible for the daily management of the joint venture. The company also hopes to start local production of Arla products.
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"We have built our entire business in the Middle East through cooperation with local partners. In Arla we excel at making joint ventures succeed and that is a business model we will use to establish ourselves in other African markets as well," Kjeldsen said.
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By GlobalDataArla hopes that the venture will enable it to capitalise on growing demand for packaged dairy products in Egypt, which has a population of 90m and growing purchasing power. Arla said that it expects its revenue in Egypt to "exceed" EUR90m (US$102.6m) by 2020.
The move comes five months after Arla bowed out of a takeover battle for another Egyptian dairy, Arab Dairy.
France's Lactalis, Saudi's Arrow Food Distribution and local investment firm Pioneers Holding had also made offers. Arla said it decided to drop its offer having completed due diligence. Pioneers, which had owned 25% of Arab Dairy, ended up the winner in the race for the business.
