The Abraaj Group invested in Yorsan, a Turkish dairy producer, in January. Here, Omar Syed, a managing director, discusses the private equity opportunity in food and agri.
How did the Yorsan deal come about?
We were exploring the fast-moving consumer goods (FMCG) sector in Turkey quite actively to find where in the space we wanted to play and we found dairy to be one of the most attractive sectors to be in. There are not many available opportunities, however, because many companies in this space are family-owned, heritage businesses that have been so for several generations and so are not natural sellers.
But using our experience of investing into dairy before – we acquired Fan Milk International, a West African business, in June 2013 and Brookside Dairy in Kenya in February 2009 – we identified Yorsan as the most suitable player for us.
Why was it suitable?
When you look at the key trends occurring in Turkey and the surrounding region, dairy consumption is just a third of what it is in Europe. But it has significant potential to increase as incomes rise. Similarly, there is a significant shift occurring from unbranded to branded consumption. In Turkey, just 50 percent of daily consumption is branded. But as consumers shift their lifestyle towards wellness and health, they are looking for healthier food choices.
Governments are also taking note of a need to improve health and nutrition and school children are no longer allowed to drink carbonated soft drinks at school, which makes an appealing market for dairy drink products.
How can a private equity firm like Abraaj add value to these types of agri-food businesses?
Yorsan had never really actively developed its brand from an advertising or marketing standpoint so there were significant opportunities to really develop the brand’s image; we are currently in the process of completely changing the packaging and branding while still sticking to the heritage.
We also restructured the sales and distribution channel to focus on different sales channels like hotels, restaurants, and national and regional retail chains. And, to help increase profitability, we rationalised the product portfolio from over 500 products to 180.
Operationally, we helped the company to pursue an active environmental, social and governance programme, and work closely with farmers to make sure they were educated on the proper vaccination of their cows, how to maintain the quality of the milk and generally keeping quality controls on production.
How do you view Turkey’s agriculture sector more generally?
While we focus closer to the fork than the farm, it is easy to see that Turkey’s agriculture sector is still not very industrialised. Lots of farms are still very fragmented which prevents large-scale farmland ownership. It is still a very large agri market and the seventh largest agricultural producer globally. The government is also looking to boost this further with various incentives and a $20 billion budget to spend on developing and encouraging people to develop fertile lands. These incentives including lending provisions and export subsidies.