Naji Khairallah, owner of Fattoria del Sole (Factory of the Sun), Lebanon’s only producer of Italian cheese, prefers to preface the good news by recounting the bad. The story begins in 1997, when Khairallah, who had spent 30 years in Italy as an interior designer, and an Italian business associate were having dinner in a Beirut restaurant. “We asked for fresh mozzarella and the waiter brought us the yellow, imitation kind,” Khairallah recalled. “We thought: why don’t we set up a mozzarella factory here?” And so it came to pass. In its heyday, five years ago, Fattoria del Sole used to produce 20 different kinds of FORMAGGIO including MOZZARELLA, PROVOLONE, RICOTTA, and PECORINO. Khairallah employed 36 staff and turned over $50,000 to $55,000 a month. Then came disaster. Khairallah’s Italian partner was imprisoned for conning a Lebanese bank out of $1 million in bad checks. The factory had to close down for three years – during which Khairallah was hounded by debt collectors and lawyers, and lost a sizeable portion of his $500,000 investment.
There was however, a bizarre twist. While serving his three-year sentence, Khairallah’s former partner made friends with a fellow inmate who was due for release. The ex-partner told the inmate that he was appointing him director of Fattoria and ordered him, upon his release, to go to the plant and take over control from Khairallah. “One day, a guy shows up here, and without saying good morning orders me to hand over the keys of the plant and my car. I said: ‘Who are you?’ He said: ‘I am the new director, appointed by the Italian in jail.’ They were in the same cell together. So, I hit him. He came back 11 times, and each time I hit him. And then I closed down. The police came here 11 times and took me away. From the first time, I told him: ‘Every time you set foot here, I will hit you.’ But he kept coming back.” “I lost money and customers,” acknowledged Khairallah. “When we opened again, it was very difficult to reintroduce ourselves to the market. All the customers thought we might close again. We are still making up for the three lost years. It’s very hard. They were the worst three years of my life.”
Since the factory reopened in 2002, the battle to regain lost momentum has been an uphill one. Today, Fattoria employs only around seven staff, produces only five or six kinds of Italian cheese because it no longer employs an in-house Italian cheese production specialist, and turns over less than half its pre-closure revenues. But Fattoria del Sole is back. And despite the turmoil of the past, insists the brawny Khairallah from behind a large wooden table in a makeshift kitchen inside the plant, the future is bright. “I can do the work of 10 men,” he boasted. “No one can follow my pace. People thought we would close again within two months. Now it’s been two years, and we are growing.” Today, Fattoria enjoys a 70% to 75% share of Lebanon’s mozzarella market and 40% of the country’s Italian cheese market overall.
Khairallah has drawn a line under judicial proceedings related to his former partner, who is now back in Italy (the money he conned the bank out of was never retrieved). Khairallah’s lawyer has convinced him that a court case brought against him by a bank demanding repayment of a loan taken out as part of the initial Fattoria investment will remain bureaucratically bogged down for 10 to 15 years. And he has taken out another 7- to 10-year, 5% interest, $400,000 small-to-medium-sized industry loan to finance Fattoria’s rebirth. Within the next four to five months, he predicted, the factory should break even. This year, the plant is selling twice as much mozzarella and ricotta as a year ago. Revenue for 2004 is projected to grow by 40% over 2003. “I’m not worried,” he chuckled.
However, Khairallah tempers his optimism. “In the current economic environment, our strategy is to grow slowly,” he said. Fattoria has not resumed exporting – before its temporary closure, about 10% of its products were channeled to foreign markets. “It is important for us to grow again domestically. Then we can think about exports,” Khairallah said, noting that Lebanon has one of the highest per capita dairy product consumption rates in the world. Khairallah said he expected the market for mozzarella and ricotta, at least, to grow, but admitted that they only constitute 5% of the cheese market. “A lot of people don’t know what mozzarella, ricotta or provolone is,” he said. And any attempt to increase awareness of Italian cheese in Lebanon would have to rely on substantial advertising, Khairallah said. “I just can’t afford to do that.” Asked if he thought he would ever be able to sell Italian cheeses to small groceries, Khairallah responded: “Absolutely not, even though the Italian cheeses I produce are not much more expensive than the Arab ones. They don’t understand the difference between good cheese and bad cheese.” Fattoria supplies only restaurants, resorts, hotels and supermarkets. Under the current cheese market conditions, Khairallah agreed, a factory producing only Italian cheese would not survive and so two months ago, Fattoria began producing Lebanese cheeses, such as halloum and akkaoui. “The market for Lebanese cheeses is bigger,” Khairallah conceded. But Khairallah is finding competition in the Arab cheese sector stiff, particularly in the form of cheap Syrian imports. He implied that Syrian cheese importers were benefiting from an unwillingness on the part of the Lebanese government to protect Lebanese cheese producers. “It’s a pity that here in Lebanon we promote the interests of other people ahead of those of the Lebanese. Competition is not fair,” the Fattoria boss grumbled. He pointed to his high overhead costs – electricity, fuel, and telecommunications and compared them to Syria, where they are much lower. And he observed that while Lebanon allows Syrian cheese imports, Damascus has barred cheese imports from Lebanon. “It’s politics,” Khairallah remarked resignedly. He implied, as well, that some Syrian cheese importers might be compromising on quality. “I don’t understand how they can sell halloum at LL3,500 (about $2.30) a kilo,” he said, and suggested that the situation was being aggravated by the government’s failure to enforce quality regulation.
Another problem is the lack of regulation: of the 150 to 160 dairy factories in Lebanon, only about 25 have a license, according to Khairallah. The unlicensed ones are able to produce cheaper, inferior-quality cheese. And certain dairy factories in the Bekaa Valley use cheap, imported Syrian milk to produce cheese, putting plants like Fattoria – which uses Lebanese milk – at a further disadvantage, Khairallah said.
He said his Arab cheese market share wasn’t even 1%, although he expected the figure to grow because Fattoria’s low-salt Arab cheeses were attracting ever-more buyers. Fattoria keeps the salt content of its products down in part so they can be sold as light and healthy to an increasingly health-conscious clientele, but also, because according to Khairallah, there is a general demand for low-salt Arab cheese.
For the moment, Fattoria is still the only producer of Italian cheese in Lebanon. Khairallah doesn’t expect a domestic competitor anytime soon. He argued that this was because the necessary investment in machinery was prohibitively high. But in a country in which successful schemes are quickly emulated, the absence of Italian cheese-producing copycats may be a sign that not everyone shares Khairallah’s faith in the business. Fattoria must, however, compete with Italian imports – such as imitation (processed) mozzarella, which Khairallah plans to begin producing soon. It will be sold for use on pizzas and mana’eesh, and will allow Fattoria to tap into a market that is creating demand for between 1,500 and 2,000 tons of imported imitation mozzarella cheese a year. Fattoria mozzarella sells at less than half the price of Italian imports, and is better, because it is fresher, Khairallah said. “Imported mozzarella has a shelf life of one-and-a-half to two months. It’s not fresh. It contains preservatives. Our mozzarella has a shelf life of 10 days, and our ricotta five. We don’t add anything.”
Except perhaps, a bit of Lebanese determination.