Yemen - the Forgotten Market
This does Yemen an injustice as, in manyways, the country has considerable potential and is presently, in spite of the poor worldeconomic climate, as well placed as at any time in its history, to make a quantum leap ineconomic development. In some respects, Yemen could be said to be actually in advance ofits richer neighbour e.g. in the use of the Internet and in parliamentary government.
In terms of key parameters, the twocountries contrast as shown in Table 1:
Table 1 : Yemen and Saudi Arabiacontrasted
|Area km2|| |
|Of which cultivable|| |
|Population mid 1998 Millions|| |
|GDP per capita 1996 |
(purchasing power parity basis $US)
|Imports 1996 $US Billions|| |
It is evident from the table that, althoughYemen has a similar number of consumers, they are much poorer - 25% of the population isofficially designated as urban compared with over 75% in Saudi Arabia. There is a largerlocal agricultural sector in Yemen but it lacks the resources available in Saudi Arabia.
IMES includes Yemen as the final piece ofthe jigsaw in our regular biannual programme studying all the dairy markets of the ArabianPeninsula, which has just been completed. How the pattern of consumption for dairyproducts in Yemen compares with Saudi Arabia in particular is the subject of this article.
At $US 125 million retail value in 1997,the Yemen dairy market is only 7% the size of the Saudi market ($US 1,720 million in thesame year). Not surprisingly this is reflected in very different levels of per capitaconsumption overall. Whereas the average Saudi consumes the equivalent of close to 125litres of milk annually in all commercial dairy products, the Yemeni consumer only manages12 litres.
More than ninety per cent of commercialdrinking milk is UHT long life. Short life milk, where it exists, is only available inplastic sachets. The market for commercial milk has even declined in recent years asconsumer disposable incomes have been constrained. It is estimated to have probablyreached its lowest point in 1997. The recent success of imported brands however shows thatan increase in marketing activities taken by the supplier can influence consumers.Arguably, local manufacturers have neglected the commercial milk sector in the last fewyears.
Laban or plain drinking yoghurt is atraditional, well-established product in Yemen but is still produced mainly in the homefrom fresh milk, milk powder or by diluting home-produced/commercial yoghurt. In Yemen,home-produced laban tends to be consumed in spiced form, particularly seasoned with garlicand pepper. Commercial laban was only introduced in the late 1980s and is negligiblecompared with the Saudi market.
Commercial, branded yoghurt, which is oftenthe first "convenience" dairy product for consumers has grown strongly duringthe last two years. The market for cream in Yemen is so small that prevailing economictrends are having little impact on consumption levels. Cream consumption is basicallylimited to canned sterilised cream.
Unlike other dairy products, cannedevaporated milk is seen as an essential food item and its main use is as a whitener fortea and coffee, both basic components of the Yemeni diet. The negative impact of thedecline in economic activity is, therefore, limited in the case of concentrated milks, andgrowth has been above that of the population. Most canned concentrated milk consumed inYemen is locally produced filled evaporated milk, another sign of the much lower incomelevels and also of the oligopolistic nature of the local industry which is driven more bycost and margin considerations than competition.
As in other regional markets, retail milkpowder is a long-established product category with a variety of applications. The markethas declined during the last two years, but at a slower pace than previously and has nowlevelled out.
Packet butter is a relatively high costluxury product and does not filter down to the general trade. It also requiresrefrigeration at the point of sale as well as in the home. Consumers favour locallyproduced butter substitute based on vegetable oils. This is lower in cost and does notrequire refrigeration. For the moment it has replaced packet and canned butter in themarket. The small amount of butter ghee in the market goes mostly to the small foodservice sector.
The cheese market remains small. Just overhalf the volume is processed cheese i.e. very similar to the Saudi market but almost allthe remainder is in the form of white cheese. Natural cheeses such as mozzarella compriseless than 2% of the volume compared to the more sophisticated Saudi market where fast foodis more developed and natural cheeses account for 8% of the total volume.
There are basic factors presentlyconstraining the consumption of commercial ice cream in Yemen. Supply is restricted toonly two local manufacturers and there is no import. The major international ice creamsuppliers have yet to be encouraged by opportunities in Yemen and the underdevelopedretail environment remains a barrier in developing ice cream consumption.
Dairy processing in Yemen is limited but atthe same time highly concentrated in the hands of two of the largest food groups - HayelSaeed Anam (Nadfood) based in Taiz and Thabet Brothers in Hodeidah (Yemen Dairy and JuiceCo). These two companies have access to some of the most advanced processing equipmentavailable in the region. The relative importance of local production compared withimported products is shown in tables 2 and 3.
Table 2 : Yemen, Pattern of localproduction for dairy products
|Product Category||Sector Description|
|Liquid milk||dominated by local production, but imported products increasingly available|
|Laban||entirely served by local production|
|Yoghurt||entirely served by local production|
|Cream||entirely served by imports|
|Concentrated milks||dominated by local production|
|Milk powder||entirely served by imports, but important local repacking operations|
|Butter/butter ghee||entirely served by imports|
|Processed cheese||some local production, dominated by imports|
|White cheese||dominated by imports|
|Natural cheese||entirely served by imports|
|Ice cream||entirely served by local production|
Table 3: Yemen, Relative Importanceof the Different Sources of Supply (1997, LME Terms)
|Local fresh|| |
|Local recombined|| |
Yemen's fresh dairy industry islimited in scale and size, with no individual company remotely comparing in size to therecombining operations. Most of the dairy operations currently existing aregovernment-controlled in some way, with few companies in the private sector. ThabetBrother's Alamaraee operation, the largest fresh dairy, is a private operation but all theavailable fresh milk is used in laban.
The Supermarket sector in Yemen is veryunderdeveloped. There are only five stores in Sana'a which can be classified assupermarkets, four in Taiz, two in Hodeidah, and two in Aden. The majority of Yemenis usesmall bagalas which are mostly small lock-ups with counters. Bagalas usually do not stockmore than two or three brands within any product group.
A lot of this sounds rather unimpressive sowhy do we feel optimistic about the prospects for Yemen? There are a number of reasons.
The Yemeni Government's own five yearplan (1996-2000) envisages GDP growth averaging 7.2% per annum. Most analysts expect realannual GDP growth to be at least in the 5-6% range in 1997 and 1998, and remain in thatvicinity through the turn of the century.
There have been pledges from the West offoreign aid amounting to US$ 1.8 billion over three years in recognition of the commitmentto economic reform and the successful holding of national elections. International debtrescheduling agreements have considerably improved the situation faced by Yemen. Russiahas for example agreed to write off 80% of the amount owing, much of which had arisen fromloans to the South Yemen before unification. The country is receiving support from theWorld Bank and IMF and structural reform measures agreed as a prerequisite for thisinclude:
- holding the budget deficit to under 2%
- reforming tax collection for example with a new general 10% sales tax to be introduced from January 1999 and more effective income tax collection
- reducing subsidies (petroleum by the start of 1999, utility subsidies by 2000, wheat and flour by 2001)
- reducing maximum import tariffs to 25% by 1998 and to 5% for raw material inputs
- removing import bans on some food products and replacing these with tariffs
- the planned cutting back of the civil service by 20% between 1998-2000
- a series of privatisations of publicly owned enterprises
Since the start up of the Masila oil fieldin 1993, Yemen has not suffered the severe balance of payments problems, whichcharacterised the 1980s, although oil reserves are limited. Total foreign reserves havebeen increasing strongly and consistently since 1993. The population is growing rapidlyand the country is expected to remain a net food importer for the foreseeable future.Informed observers feel that Yemen offers potential investors one of the largestpopulations in the Arabian peninsula as a market, a productive workforce, if properlymotivated, and potential access to regional markets in the Gulf and Africa. Certainlythere are major problems - acute unemployment is one and the ambivalent political andcommercial relationship with Saudi Arabia is another difficult area - but if the GCC hasbeen able to develop to its present position, then Yemen too must have potential.
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