Case Study of Baladna Food Industries in Qatar

Baladna Competing Against the Odds Qatar

“Qatar imports most of the food they consume and will continue to do so.

Local production of most of the food Qatar needs is not a viable option.”

“Now shoppers just look for Baladna’s ubiquitous logo. …

Qatar now produces twice as much milk as its population requires.”

In the year 2016, Qatar imported 72% of the dairy products it consumed (some sources claim the figure was 80% or 90%). The country was only one-quarter self-sufficient, if not less. About 60% of all imports of dairy products came from a Saudi Arabian conglomerate firm, Almarai, across the land border and from the United Arab Emirates via the port of Jebel Ali.

The unexpected blockade from Saudi Arabia, the UAE, Bahrain, and Egypt in June 2017 ended all trade across the borders of Qatar with these countries. It blocked all transport links between Qatar and the blockading countries. Airlines were banned from overflying these countries, forcing them to take circuitous routes. Overnight, Qatar was cut off from most of its food supplies.

Many dairy products are perishable and cannot be stored for a long time. New sources of supply had to be found and found quickly. The first move was to buy imports from neighbouring countries. Within days, imports from Turkey and Iran, countries with which Qatar already had favourable political and diplomatic relationships, stocked the supermarket shelves. However, a more dramatic scenario was about to unfold.

Baladna: Creating a Dairy Farm in the Desert

Baladna Farm was a small Qatari-owned private enterprise located in Al Khor, more than 50 km north of Doha. It was founded in 2013 as a sheep and goat farm, part of a larger Qatari conglomerate firm. Its senior and executive leadership comprises both Qatari business people and foreign managers.

Within days of the Saudi-led blockade, Baladna began to import – not milk, but milk cows. With support from the Qatar Development Bank, Baladna Farm began its transformation into a sizable enterprise devoted to the food security of the Qatari people.

The first batch of 165 Holsteins was airlifted from Europe; they were at Baladna producing milk a month after the blockade started. Subsequently, 4,000 more cows were flown into Qatar, and 3,200 more arrived by ship from the United States before one year had elapsed. By June 2023, the company had increased the number of dairy cows to nearly 25,000

A dairy farm on a vast expanse of hot desert sand where the average July temperature exceeds 40° C and can reach 50° C is not a usual business undertaking. Unusual farming practices and resources had to be applied. Baladna’s cows “rest on beds of cooled sand,” according to the company website. They are sheltered in 40 giant barns with ample movement and air circulation space. Fans and water mists are ubiquitous. Hay, grain, and protein supplements to feed the cows were imported.

To cope with the large number of cows to be milked two or three times a day and produce the required output, Baladna installed an automated high-technology milking carousel. It was imported in components from Ireland and constructed at Baladna. It is capable of milking 100 cows at a time.

After the Baladna dairy operation was underway, the company’s management acknowledged that milk production had been under consideration as a future line of business, but it was not taken up due to expectations of high costs and higher prices than Almarai’s prices. However, when the number of cows reached 14,000, the company expected its milk production cost to be about the same as Almarai's. By mid-2019, milk production exceeded domestic consumption, and milk was already being exported to Afghanistan and then to neighbouring countries Oman and Yemen.

Fresh milk was only one of Baladna’s products. Extensions into other dairy products included fruit-flavoured fresh milk, long-life milk also in fruit flavours, cream, laban, cheese, yoghurt, labneh, and deserts such as rice pudding. More recently, a range of fruit juices – not dairy products – was added. Altogether, the company claimed more than 250 different products.

Market Share of Baladna Main Products in Qatar in 2022 (per cent)
Product	Fresh milk	UHT milk	Laban	Yoghurt	Labneh	Cheese	Creams	Juice
Share	92.5	84.2	47.8	45.4	49.4	47.4	60.3	19.4

Baladna Farm is also a factory with a modest degree of vertical integration, both forward and, by plan, backward. It fills milk containers and packages them. However, Baladna buys packaging materials and cartons from a local firm with which it has a partnership. “Baladna wants to increase cooperation with Qatari companies and production units to achieve an advanced level of self-sufficiency in line with Qatar Vision 2030.” (Tribute News Network, September 28, 2021.) In 2023, Baladna established a new company in Romania with the intent to grow forage for its cows.

Financial Performance

In early December 2019, Baladna launched an initial public offering and became a publicly listed company. At the end of 2022, individuals own 61 per cent of the shares, companies own 24 per cent, and governments own 10%. Across all owners, Qataris represent 95 per cent of the total.

In the latest full-year financial statement for 2022, the company reported revenue of nearly one billion Qatari riyals million (USD 271 million), up steeply from the year before – attributed to the World Cup in Qatar in 2022 that increased demand for Baladna products – but net profit of QR 81 million (USD 22 million), down 39 per cent from 2021.

“In 2022, Baladna’s sales rose to a high of QR 986 million, with turnover surging by 28% and our overall market share climbing to 51%. … Pandemic-related supply chain issues persisted into 2022; financing rates rose sharply worldwide, increasing our financing costs; and steep inflation resulted in higher global commodities, energy, and animal feed input costs.”

– Chairman’s statement, Baladna Annual Report 2023

At the end of calendar 2022, the price of Baladna’s shares was six per cent higher than the year before, even as the stock market index was down eight per cent.

In an analysis of Baladna’s year 2022 financial results, the Gulf News (March 16, 2023) reported:

Net profit declined due to the increase in the cost of animal feed, raw materials, packaging materials, fuel, logistics and finance costs, which negatively impacted the company’s profits, results and cash flow, leading to the company’s inability to pay dividends to its shareholders for 2022 results as it used to do every year.

Baladna is "actively co-ordinating" with authorities to study multiple solutions for reducing the effects of high production costs on the company's profitability.

During the year 2022, Baladna managed to "introduce a number of new SKUs to optimise and enhance" its product portfolio.

International expansion opportunities and partnerships are key for long-term growth and remain a focus area for Baladna. Opportunities in the local market and beyond are being evaluated on a case basis, with feasibility studies currently underway.

As part of its ongoing efforts to enhance operational efficiencies and support food security and self-sufficiency, Baladna is considering potential value-accretive options for backward integration that would ensure the supply and quality of feed, a critical component of the company’s operations.

The International Trade Environment in Qatar

Qatar is a small country, both in population and geography. Its resource base is narrow. This implies that exports will be concentrated in a few products or services and that a wide range of goods and services will be imported.

Qatar’s abundant factor of production is natural resources, particularly mineral resources, but not agricultural land fit for use as it naturally occurs. Due to the profitability of Qatar’s natural gas and oil exports, physical capital is also a relatively abundant factor of production. Domestic and outward foreign direct investment can be financed. However, labour is scarce due to the small population; consequently, large amounts of unskilled and semi-skilled labour are imported.

In the realm of created factors of production, human capital is available. The share of the population with university graduation in 2016 was 17%, whereas the average for OECD countries was 37%. However, considering Qatari citizens only, 29.2% of males and 37.2% of females were university graduates. Accordingly, technology as a created factor of production is also amply available.

The pattern of the abundance versus scarcity of various factors of production suggests that according to market forces, exports from Qatar are unlikely to be unskilled or semi-skilled labour-intensive and unlikely to be agricultural. Instead, goods and services from these industries are likely to be imported.

Revealed Comparative Advantage

While the comparative advantage of industries in a nation is difficult to measure directly, they can be inferred indirectly by observing their actual export experience. If an industry in a country exports a greater share of its production than is exported worldwide, we infer the industry has revealed a comparative advantage. For example, if the Indian software services industry’s exports are 73% of India’s total software services production, and exports of software services worldwide are 44% of production worldwide, then the Indian software services industry has revealed a comparative advantage.

 Data on the revealed comparative advantage (RCA) of Qatar’s industries show the pattern that we expect. (See Figure 1.) The industries with RCA >1 are concentrated in the minerals sector (e.g., natural gas, liquefied propane and butane, sulphur) and the chemicals sector (e.g., fertilizer, ethylene polymers). Thirteen of the 17 industries with RCA > 1 are in these two sectors. An additional four industries are in manufacturing (e.g., aluminium). No industries have revealed comparative advantage in the food and live animals or beverages and tobacco sectors.

Figure 1. Revealed Comparative Advantage of Industries in Qatar in 2016

Each colour-coded segment in the radar map below represents a group of related industries. All industries outside the white centre have RCA > 1. The dots on the map show all the specific industries in Qatar with an RCA value between 1 and 10.

International Expansion

While exports continued to a few countries that are geographically near, in the most recent two years, Baladna also began to expand internationally via other forms of doing business. 

• In August 2022, Baladna established a new greenfield dairy operation in Malaysia via a joint venture with two Malaysian companies to produce fresh milk. Commercial operation would commence in 2025. This investment was first proposed in 2017; it would replicate the company's achievement in shifting Qatar from milk import dependency to self-sufficiency during the regional diplomatic crisis. Baladna Group chairman Moutaz al-Khayyat said, “With the support of our shareholders, we are increasingly transitioning to a truly international company.” (Gulf Times, August 16th 2017) The Baladna website reported the news, writing, “Baladna to export business model to Malayasia.”
• In March 2022, Baladna acquired a five per cent equity stake in Juhayna Food Industries, an Egyptian dairy, juice, and cooking products company that is publicly listed on the Egyptian stock exchange. By May 2022, Baladna had increased its ownership stake to 10.1 per cent, bringing the investment to QR 139 million (USD 38 million).
• Another venture was announced in 2022. Baladna agreed to a deal with the Philippines Department of Agriculture to develop the dairy industry and increase fresh milk production in the Philippines, thereby reducing imports.
• In February 2023, Baladna announced a new strategic partnership with Bel Group, the French-based global maker of cheeses and snacks. Baladna will begin producing The Laughing Cow® cheese jars for Bel in 2023 and then add other Bel products.(reported by GCC Business News and the Baladna website)

Discussion Questions

1.  Using what you know from both old and new international trade theory, how can you explain the apparent success of Baladna in producing and market dairy products in Qatar? 

2.  Is the Baladna case an example of import substitution? Why did Qatar not continue to import milk from Turkey and Iran during the Blockade? Why not import milk and dairy products from other countries like Ireland? Is this a case of ‘food nationalism?’

3.  A news report about the case of Baladna said:

“It is not known how much was invested in Baladna and Qatar’s dairy production, but it looks like however much money was spent represents good value.” -Dairy Reporter, June 12, 2019

Do you agree? What is the basis for your judgement?

4.  What is your evaluation of the Gulf News analysis of Baladna’s 2022 results and prospects?

5.  Recently, Baladna partnered with Malaysian enterprises, an Egyptian food company, a Philippine government agency, and a French multinational corporation. How do you characterize these partnerships as modes of business abroad? How do they differ in terms of Baladna’s interests and responsibilities?

6.  What is the business model that Baladna is exporting to Malaysia?