Large Saudi dairy producers with substantial investments and joint ventures have been accused of launching a price war but some of the losers could well be a number of the smaller firms based in the Kingdom.

Reports said dairy companies in Saudi Arabia were expected to suffer a combined loss of up to SR1.8 million daily ($480,000) due to the ongoing price war triggered by major producers, a local newspaper reported.

The price war was likely to continue for a long lime, forcing some companies to quit the market and others to halt their expansion plans.

Abdullah Al Sunaidy, chairman of Alban Al Riyadh Dairy Company was quoted as saying that particularly smaller dairies would not be able to make any profits under the present market situation and that the Saudi dairy market would not return a unified price agreement that used to prevail. He warned that major producers such as Almarai, Al Safi and Nadec would now fix prices.

The price war broke out when some companies cut prices of milk and whey by 20 to 25 per cent. The price war in Saudi Arabia is also having a devastating impact on dairy farms in Bahrain.

The adverse situation for the island's producers began late last year when four major companies in Saudi Arabia reduced their prices for all their products by 20-25 per cent. This ended in December before starting again around May-June this year, the sources said.

Saudi companies have been accused of freely entering the Bahraini market and dumping their products at much reduced rates while also granting attractive incentives, thereby placing local companies in a very difficult situation.

Bahrain Danish Dairy had to seek government help to prevent a closing down of its plant after serious losses. There are around 11 dairy farms, companies trading in dairy products and distribution outlets for Saudi companies in Bahrain.

"What is at stake is our very survival. We can only compete in quality and not in the cost of production and the expensive promotion drives usually undertaken by big-time Saudi companies. On the other hand, our market is very small," said Ali Ahmadi, managing director of Al Ahmadi Industry, which owns a dairy.

A spokesman for a company dealing in dairy products said there was a suspicion there was a secret understanding between Saudi companies and retailers on the island.

Meanwhile Saudi companies denied charges by UAE dairy firms they had violated a UAE-Saudi dairy producers' agreement, which covers prices and promotions and regulates the relationship between producers.

"There were attempts by some companies to interpret the agreement in accordance with their own welfare. The UAE dairy Producers' Association requested they abide by what was earlier explained to them," said Khalid bin Kalban, CEO of Dubai Investments, one of whose subsidiaries is Marmum dairy Farm. Al Marai, Al Safi-Danone and Nadec, the kingdom's dairy giants, produce 1.18 million litres per day of the kingdom's total 2 million production.

"Al Marai fixed its prices and they will continue. They are neither seasonal nor promotional. They were driven by the company's distribution and production mechanisms, huge investments to raise production level and reduction in production cost."

"The Saudi market is maturing economically and all compete to serve clients and consumers,"

Kalban also accused Saudi Arabian milk producers of launching a new price war by buying raw milk from small UAE farms at bargain prices. He said the small farms provided local dairy companies with raw milk.

Kalban warned that the strategy aimed to stifle the growth of the UAE dairy industry, and that small farms "will be entrapped by the temptation" if officials did not intervene. Al Marai responded that undermining the UAE market was unacceptable, but raw milk purchases were a business deal that benefited all parties.

"The GCC markets are open. Some UAE dairy producers were buying raw milk from Saudi farms for years."