18 August 2014, Global Connections

Feeding demand

The growing appetite of the MENA population for new and different tastes is stimulating a lively, innovative food and drinks market.

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Rising incomes… growing, youthful populations… increasingly adventurous tastes and a health-conscious attitude. By any measure, the people of the MENA countries are a receptive audience for the produce and innovations of the food and beverage sector.

By 2016, the MENA food retail market is expected to be worth USD10 billion, according to projections by Business Monitor International. And the World Bank has estimated that its value could top USD1 trillion by 2030.

Dynamic market

A diverse mix of businesses jostles to capture their share of this fast-growing market.

Multinationals such as Nestle, Mars, Lipton and Del Monte are well established in the Middle East – both to serve local markets and to take advantage of the area as an export hub. One of the world’s biggest food companies, BRF of Brazil, recently opened a vast 1.6m sq ft plant in Abu Dhabi, where it will process food for shipment across the region.

But indigenous companies fight to keep their share of the market, often by looking to expand from domestic to intra-MENA trade.

Simon Williams, Chief Economist for HSBC in MENA, says there is good reason for this: “The value of intra-MENA trade is already of substance, and I expect it to rise rapidly as our economies continue to grow and diversify and build up a world-class infrastructure base.

Over the last four years this region will have earned more from oil than in the previous 15 to 17 years combined. These oil receipts are being recycled into domestic economies that are growing more rapidly than they have done in a generation. The potential is huge.”

Niche opportunities

Growth potential is strongest in niche markets. MENA countries are well placed to follow the example of Singapore, which has overcome its low domestic agricultural output by developing strong regional brands.

That is certainly the view of the Dubai government, which is investing to help its SMEs create niche products aimed at offering convenience, health and luxury to high-income consumers.

“With a multicultural society consisting of wealthy locals and a dynamic pool of expatriates, Dubai can serve as a testing ground for innovative food products which are export worthy,” the government’s SME agency believes.

One of the fastest-growing categories is baby food. This market grew by 11.2 per cent in the five years to 2012, and promises “phenomenal” further growth, according to a study by Ken Research.

This trend is driven not just by exceptionally high infant populations in countries such as Saudi Arabia, where the birth rate is running at 19.2 per 1,000 people, but by social trends. An increase in the number of working women across the region means more households are opting for packaged baby food as a matter of convenience.

Halal centre

Halal food represents another major opportunity in the region. MENA demand for halal foods and beverages makes up a growing proportion of what is estimated to be a USD1.1 trillion global market – around 16.6 per cent of world food trade. The Saudi market alone is valued at USD6 billion annually.[1]

Dubai has taken a lead in positioning itself as a centre for halal excellence. The city has devoted over 6m sq ft of land to a ‘halal cluster’ for businesses specialising in this form of production.

While acknowledging this opportunity, Chaker Zeraiki, HSBC Head of Business Banking for the UAE, warns that businesses need to be cautious about how they operate and what they produce. “Given the size of the opportunity here, you need to be prepared to make a sizeable investment too,” he says.

Consumers in MENA are also switching on to organic food. According to Euromonitor International, organic food sales in the UAE topped USD16m in 2013, and are projected to grow at over 30 per cent by 2018 to hit USD21.1 billion.

Companies such as Global Alliance FZE have seized the opportunity to diversify. “People are becoming more health conscious, and they want organic produce,” says Amand Singh, the firm’s Managing Director. “We have set up a division to sell organic, though at present it makes up only 5 per cent of our business.”

Import dominance

The predominantly arid landscapes of the MENA countries serve to make them heavily dependent on food imports. Less than 2 per cent of Saudi Arabia’s land is available for agriculture, for example, compared to 16 per cent in China and 18 per cent in the US.[2]

Food traders from across the world have benefited from this. MENA countries import red meat and poultry from countries as diverse as Brazil, Australia, Pakistan, India and Ethiopia, for example.

Inevitably, this dependence is a threat to food security and leaves the region vulnerable to price volatility. Governments and business have honed their strategies in response to these threats in recent years.

In some cases this entails investing in agriculture elsewhere to provide yield for domestic consumption. According to the International Food Policy Research Institute, the Middle East is one of the biggest investors in foreign farmland, in areas such as Africa, Russia, Pakistan and Eastern Europe.

Embracing innovation

Building capacity to store extensive quantities of staples – as in dairy firm Almarai’s construction of large-scale grain silos in Saudi Arabia – is also seen as part of the solution.

But MENA businesses are also using innovative agricultural methods to try to achieve sustainable production. In Oman, a 33-hectare greenhouse project is awaiting its first crop of vegetables, grown using hydroponic techniques to save water and ensure year-round production.

Other projects include the introduction of water-resistant sand, which requires less water to sustain plants, and is being championed by a company in Al Ain, UAE.

These attempts to achieve sustainable food production have won endorsement from philanthropist Bill Gates, who said: “The Middle East region is in a unique position to be a catalyst in this effort.”

How they’re growing

They are two major players in the Middle East food market. Yet it was only when theyu met at an HSBC networking event that Global Alliance FZE and Pran Foods got talking and saw the potential benefits of a business partnership.

The two firms exemplify the dynamic market of the region. In common with many of their peers, both companies are striving to stay ahead of the competition through expansion into new product types, categories and business models.

From wholesale import and sale, Global Alliance FZE has expanded into distribution of fresh fruit, targeting restaurants and supermarkets. Its sphere of trade has spread from Dubai to cover the whole of the UAE.

Its latest venture is into retail. In May it established the UAE’s first wholesale supermarket, a 10,000 sq ft facility in Abu Dhabi. Managing Director Amand Singh is convinced the demand exists to make the concept a success.

“If all goes to plan, within two to three years we will have at least six wholesale supermarkets and 100 convenience stores,” he says.

Pran Foods is also looking forward to fast growth. Having started in 1981 as a Bangladeshi fruit and vegetable processor, the group has expanded in terms of product and global footprint, and has its own UAE-based sales and distribution network.

“We are primarily growing by introducing new types of products and expanding into new categories,” says Ahsan Khan Chowdhury, Managing Director. “We are looking at sales growth of around 100 per cent over the next few years, not only in the UAE itself but in other territories such as Oman and Qatar.”

One of the results of the two businesses’ encounter at the HSBC event is a high-volume packaging contract. It will see Pran’s own-brand products, including brown rice, sugar and salt, packaged at the Global Alliance FZE plant in Dubai.

According to Amand Singh, the partnership demonstrates the value of such events for growing businesses.

“It wasn’t the only fruitful contact I made: we are negotiating with other businesses in Europe and the UAE as a direct result of that event,” he says.

For Pran Foods, the event opened up diverse new possibilities: “We made contacts that will help us source Argentinian meat and Irish milk, among other products,” says Chowdhury.

 

[1] Dubai Chamber of Commerce and Industry 2014, based on a study by Thomson Reuters in collaboration with Dinar Standard.

[2] Global Futures & Foresight, 2014.

Disclaimer: This article is not intended to constitute any advice or an offer. Any forecasts or projections are indicative only. HSBC or any of its affiliates accepts no liability, whether express or implied, arising out of or incidental to contents forming part of the article.

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