Crying over spilt milk

Ministerial corruption, lax health standards, unlicensed production and sluggish exports continue to blight Lebanon’s dairy industry

The government and the private sector must do more than squabble over the standards in the dairy product sector if proper regulation is to be achieved. Cutthroat competition between small and big producers, chaotic ministerial control and sluggish exports of a mere $3 million all have to be addressed.

The health standards of dairy products, which became a subject of tit-for-tat accusations late last year, are not as dire as they seem, but their problems have been writ large due the chaos gripping a private sector trying to maximize profits and a government trying to deflect attention away from its failure to boost the troubled sector.

Prior to Agriculture Minister Ali Hassan Khalil’s statements last year about the poor standards of dairy producers, state prosecutors were investigating embezzlement charges by his predecessor, Ali Abdullah, who has been accused of using a $15 million loan for a dairy projects for his personal use.

Abdullah faces 15 years in jail for dipping his hand into credit extended by the United States Agency for International Development (USAID) to finance the import of some 5,000 cows and the creation of milk collection centers in rural areas.

The US-Lebanese cow project and numerous other internationally funded programs aimed at revitalizing the dairy sector have failed over the years due to political intervention, dairy producers say.

“The International Fund for Agricultural Development was working on a project to set up some milk collection centers in the Bekaa but it was only able to create one because politicians wanted a piece of the pie in other centers,” said Iskandar Chedid, head of the dairy producers committee at the Syndicate of Lebanese Food Industries.

And any funding that is made is not focused. “Over the past four to five years, the government has spent at least $100 million of donor loans on dairy projects and yet we still have a load of problems linked to the chaos within the government,” said Atef Idriss, President of the Lebanese Food Industries. “Some of these projects did not involve the private sector and in fact competed with it.”

Elsewhere, many dairy producers say their sector has numerous problems with government licensing, rivalry among small and big producers and the implementation of standards.

Minister Ali Hassan Khalil said last year there were up to 400 dairy units in Lebanon, out of which only 25% were licensed. The rest may be selling contaminated milk and other dairy products. There are no accurate figures for the true number of the dairy units that fluctuates with the seasons and can reach up to 600 units.

While most producers welcome regulation, they say the minister’s public accusations have not lead to a genuine clampdown on unlicensed dairies and instead dried up demand for locally-made products; sales plunged in the weeks that followed.

“Our sales dropped by 60% in the first few days after the minister made his statements, then it went down to 40%,” said Chedid. “We are still smarting from the scandal, but our problems are not over yet.”

The ones that the ministry shuts down, mushroom in other places and in the basement of shops where they go undetected. “For a long time we have been calling on the ministry to control unlicensed ‘under the stairs’ producers, but it is unable to control the whole sector, particularly producers of unpackaged dairy products,” said Chedid. Unpackaged dairy products are banned under a four-year old law, which is not implemented forcefully by the agriculture ministry, he added.

Difficulty of controlling the dairy sector lies in the intertwining of authorities between the agriculture, health, industrial and economy and trade ministries. The agriculture ministry is responsible for supervising dairy farmers, the health ministry is tasked with controlling health standards, the industry ministry is responsible for granting licenses to big and medium sized dairy producers and the economy and trade ministry is supposed to catch any violators through its consumer protection department.

“The are some 12 main legal dairy producers – four of them have their own laboratories -which are licensed by the ministry of industry and 30 factories that produce raw materials or milk and are licensed by the agriculture ministry,” said Zuheir Berro, head of the non-governmental protection agency, Consumer Lebanon. “The 200 other unlicensed dairy units work on a temporary basis and are responsible for the sector’s problems, because their health standards are not controlled.”

Small producers accuse big ones of mass producing dairy goods in modern factories without adhering to standards while big producers accuse small producers of churning out contaminated dairy products. Little wonder there is no esprit de corps within the sector.

“There are small dairy units that are unlicensed and there is also unfair competition from big producers,” said Idriss. “Retail chains also are not paying dairy producers on time and they sometimes have to wait five to six months to receive payments for their perishable goods.”

Some dairy producers accuse big dairy companies of deliberately selling at low prices and forcing smaller ones to neglect health standards to sell cheap products. “It is an abnormal situation,” said Ara Baghdassarian, head of Karoun dairies, Lebanon’s oldest dairy producer, which has stopped producing dairy goods until the market is settled. “Some of the big producers are selling their products without adhering to quality control, falsifying the nutritional contents and tampering with the production dates.”

Not true say big producers, who argue they are complying more than any other party with the standards. “We support the minister’s statements because the industry has to be controlled and unlicensed small producers have to be stopped,” said Marc Waked, marketing and sales manager at Liban Lait, one of Lebanon’s largest dairy producers, which has franchises to produce Yoplait and Candia products in Lebanon. Liban Lait was establish in 2000 at a cost of $30 million – it has yet to make money.

“We have our own farms and we control the production of our milk. We are also exporting some products to Syria, where the issue of price is a problem and recently to Iraq.”

Liban Lait is relatively a new establishment that was set up in 2000 with a $30 million investment and has yet to get a return on it. Meanwhile, both big and small producers face competition from cheap goods coming from Syria and Cyprus and some depend on small milk producers to process their cheese and other dairy products.

“There is no real control of food safety in Lebanon and that’s why it is important to push through the food safety bill and create a regulatory authority along the lines of the Food and Drug Administration in the United States in cooperation with the private sector,” said Berro.

Dairy producers are pushing for the creation of a milk board made up of government and private sector officials as a first step toward regulating the industry. But they are not the only party supporting this idea. A study conducted last year by a French dairy expert on behalf of the syndicate said the creation of the milk board could help win back consumer confidence and improve the quality of goods.

“The creation of a dairy board could therefore be a fair track to concentrate donor money and skills in the same direction,” said Francois-Xavier Pinard’s in the study. His analysis of the dairy industry was not all doom and gloom. “Has Lebanon achieved a fair basis for further investments in the milk and dairy sector?” Pinard asked in his study. “The answer is ‘Yes.’ All development programs and private investments in farms, dairies and in structured retail chains show a potential competitive 20,000 hectares/25,000 cows/140,000 tons of milk produced by specialized farms.”

The expert estimated the value of the dairy market at retail value to be around $200 million and the present value of small and medium-sized enterprises producing dairy to be up to $47 million. He recommended that dairy producers try to wean off consumers from using imported powdered milk, promote dairy products through a dairy board and sustain intensive dairy farming for 25,000 specialized cows. Convincing consumers to abandon powdered milk is one common interest shared by small and big dairy producers. “Why should Lebanon spend each year $50 million on imported powdered milk?” asked Waked. “Only five percent of Lebanon’s milk market of 80 million liters is fresh liquid milk.”

Each year, Lebanon imports around $150 million worth of dairy products and exports only $3 million, based on customs figures. Nonetheless, Pinard portrayed in his study a bright view of the dairy sector’s capabilities, a view shared by Berro.

“In general, the health standards of Lebanon’s dairy sector are much better than other products where the use of pesticide is quite prevalent,” said Berro. “Even cases of food poisoning from dairy products in Lebanon are much fewer than in some other Western countries, where there are rampant food poisoning cases despite the existence of regulatory authorities.”

But Berro said dairy producers have to strive to improve their standards if they want to export goods to international markets to counter lower domestic purchasing power and compete with the flood of cheap imports once tariff barriers are removed in the near future.

“In a few years time, tariffs on European dairy imports will be removed under Lebanon’s Association Agreement with the European Union and the Lebanese market could become flooded with European dairy goods,” said Berro. “Consumers will not hesitate to buy European goods instead of locally-made ones and the local dairy producers will suffer even more.”

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