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February2011

ForyourQueries
EconomicResearchDepartment

Marwan Mikhael

Head of Research
marwan.mikhael@blominvestbank.com
Tel: +961 1 737 247
Ext: 1421
Fax: +961 1 737 414

Cynthia Zeilah

Analyst
cynthia.zeilah@blominvestbank.com
Tel: +961 1 737 247
Ext: 1413
Fax: +961 1 737 414

Gaelle Khoury

Economist
gaelle.khoury@blominvestbank.com
Tel: +961 1 737 247
Ext: 1405
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Walid Sayegh

Economist
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Tel: +961 1 737 247
Ext: 1409
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Analyst
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Research Department

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+961 1 747 812
Fax: +961 1 737 414

F&BintheMENARegion

ForyourQueries.....................................................................................................................................3
1 Globaloverviewanddevelopmentsinthesector..............................................................................8
1.1

Globalindustrystructure...................................................................................................................8

1.2

Increasingglobalizationofthefoodindustry....................................................................................15

1.3

Animminentfoodshortage?............................................................................................................18

2 MENAoverview..............................................................................................................................22
2.1

Geographicalprofileoftheregion....................................................................................................22

2.2

Foodproduction...............................................................................................................................24

3 Regionaltrends...............................................................................................................................27
3.1

Risingincomes.................................................................................................................................27

3.2

Foodpricesandinflation..................................................................................................................30

3.3

Traditionalandreligiousinfluences..................................................................................................32

3.4

Foodsecurityconcerns.....................................................................................................................35

3.5

Foodretailing...................................................................................................................................38

4 Opportunitiesandchallenges..........................................................................................................41
4.1

Ecommerce.....................................................................................................................................41

4.2

DemandforFunctionalfoods...........................................................................................................42

4.3

IntroductionofVAT..........................................................................................................................43

4.4

Difficultconditionsforagriculture....................................................................................................43

4.5

Religiousbeliefsandtraditions.........................................................................................................44

4.6

Thedrivetowardorganizedretail.....................................................................................................45

5 Futureoutlook................................................................................................................................46
6 Appendix.........................................................................................................................................48
6.1

LandacquisitiondealsbyMENAcountries.......................................................................................48

6.2

Companyprofiles.............................................................................................................................53
6.2.1
6.2.2
6.2.3
6.2.4
6.2.5
6.2.6
6.2.7
6.2.8

AlmaraiCompanyLimited...........................................................................................................................53
SavolaGroupCompany...............................................................................................................................54
KuwaitFoodCompany(Americana)...........................................................................................................55
HerfyFoodServicesCompany.....................................................................................................................56
AgthiaGroup...............................................................................................................................................57
OmanFlourMills.........................................................................................................................................58
DeltaSugarCompany.................................................................................................................................59
SaudiDairy&FoodstuffCompany(SADAFCO)...........................................................................................60

February2011

6.2.9 NationalAgricultureDevelopmentCompany(NADEC)...............................................................................61
6.2.10 SaudiFisheriesCompany............................................................................................................................62

6.3

Acronyms.........................................................................................................................................63

F&BintheMENARegion

ExecutiveSummary
Theglobalfoodandbeveragesindustrylandscapehastransformedovertheyearsfromsmallscalefarmingtoamultitrilliondollar
businesspoweredbygiantmultinationalsandadvancedtechnologies.Globalfoodproductionhasgrownby2.12.3%annuallyover
the past four decades. In 2008, food product revenues touched USD 3.2 trillion and are poised to reach USD 4 trillion by 2013,
showcasingoneofthefastestgrowthratesamongmajorindustries.Ontheotherhand,thebeveragessegment,valuedatUSD1.4
trillionasof2008,isprojectedtogrowtoUSD1.6trillionoverthesameperiod.
Increasingdemandandchangingconsumerpreferences,inadditiontotheexpansionofmultinationalretailandfoodserviceoutlets,
arereshapingmarketsthroughouttheworld.Eventhoughtheincreasedorganizationandindustrializationofthefoodandbeverage
business has created larger and more efficient markets, costs have spiraled as well, bringing margins under pressure. Rapid
urbanization, globalization, and economic development have transformed the industrys dynamics, as markets in developing
countrieshaveemergedasthekeygrowthenginesinrecentyears.Theincreaseindomesticfooddemandinemergingeconomies
hasoutpacedthatindevelopedcountries.Currently,about58%ofthefoodproducedgloballyisconsumedindevelopingcountries
asharethatislikelytoreach72%by2050.
Besidesbeingcriticaltothemacroeconomicbalance,theindustryalsoplaysamoresocialrolegiventheindispensabilityandcore
natureoffoodformankind.Asaresult,governmentsincountrieswithunderdevelopedagricultureordisproportionatedemandare
strivinghardtoensurefoodsecurityasakeypolicyitem.Steadilyrisingincomelevelsandrapidurbanizationhavebroughtabouta
shift in dietary preference toward more valueadded and proteinrich foods. Consequently, the average per capita meat
consumptionhasgoneup,ashasthedemandforprocessedproducts.
Inrecentyearsuntilmid2008thesteadyrunupinoilpriceshadaspillovereffectonagriculture,giventherisingcostsoffood
transportationandagriculturalinputs,aswellasthepushforbiofuels.Theeconomicincentivetoproducebiofuelsperhapseven
more than the environmental rationaleprompted many farmers to shift toward cultivating crops suitable for producing ethanol
and biodiesel. The use of certain crops as feedstock for alternative energy sources has led to multiple discussions and divided
opinionsamongeconomistsdebatingthefoodandfuelequation.
Itislittlesurprisethenthatpricesofagriculturalcommoditieshaverisensteeplyinrecenttimes.Globalfoodinflationsometimes
termed agflationis among the key macroeconomic events witnessed during the past decade. While a host of factors are
responsible for agflation, structural supplydemand mismatch is the root cause, as growth in production has not kept pace with
increasedconsumption.

Thenewworldorder
Followingthepricehikesandsupplyuncertaintiesduringthe200708globalfoodcrisis,foodcompaniesfoundthemselvescoming
increasinglyunderpolicymakersscanners.Grainpricespeakedtorecordhighsin2008,withcornreachingaboveUSD7abushel.
Apartfromspeculativeandsecondaryreasons,theconsistentlyrisingpopulationisanotherkeyfactorbehindthepricerise.Over
thenextfourdecades,theUNforecastsanincreaseinglobalpopulationbyover2.3bn,mainlyfromthedevelopingworld.By2050,
thepopulationoftheAsiaPacificregionisexpectedtoincreasebyawhopping1.5bn.Intandem,thedemandforfoodislikelyto
increasebyasmuchas70%.Nonetheless,theglobaleconomiccrisishaseasedfooddemand,helpingbringpricesdown,evenas
longtermpressureprevailsgiventhesupplydemanddisparity.
TheFood&AgricultureOrganization(FAO)opinesthatglobalwheatproductioncouldfallbyover7mntonsthisyearaslowreturns
keepfarmersdisinterested.Theglobalwheatharvestisexpectedat675mntonsduring2010,belowthatinthepastyearandthe
record683.8mntonsin2008.FoodpricesintheAsiaPacificregionhavestartedtostrengthenagain,increasing25%duringthe12
months starting January 2009. Given that future population growth will be centered in developing countries, crowded conditions
andlimitedarablelandwilllikelyexertfurtherpressureonlocalresources.
Accordingtocurrenttrendsinyields,theFAOprojectsthatAsiaPacificssupplyofgrainswillfallconsiderablyshortofmatchingthe
increaseindemandby2050.Therefore,investinginagriculturewiththeobjectiveofincreasingyieldsisamongthetopprioritiesfor
allcountries.Agriculture,whichisoneofthemostweatherdependentofhumanactivities,isalsoreelingundertheimpactofglobal
climate change. According to some market reports, if the current global warming trends continue, yields of major food crops in

February2011

tropicalcountriescoulddecreaseby2030%.Ontheotherhand,newlandadditionstotheagriculturallandbankhavebeenminimal
andhavetocomefromclearingtropicalrainforestswhich,inturn,willcarryheavyenvironmentalcosts.Inmanycountries,prime
agriculturallandisbeinglosttoindustrialandresidentialconstruction.Furthermore,scarcewaterresourcesandunderdeveloped
irrigationsystemsweighheavyonthesectorsdevelopmentaswell.Mostfoodmarketsintheworldfacetoughchallengesofrising
demand, changingweatherconditions,increasing commoditiesand production costs, andpoor harvests amid dwindlingfoodand
agriculturallandreserves.

MiddleEastfoodmarketoffersampleopportunities
The food and beverages industry in the Middle East has seen one of the fastest growth rates globally. The increasing number of
hypermarketsintheGulfandrisingpopulationcontinuetodrivethefoodprocessingsectorsgrowthanddevelopment.TheMiddle
EastsfoodserviceindustryalongwiththeconfectionerysegmentwasvaluedatoverUSD32bnin2009.Themembercountries
of the Cooperation Council for the Arab States of the Gulf (GCC) form one of the worlds largest food importing groups with an
annualimportbillofoverUSD12bn.Withover90%ofitsfoodneedsmetthroughimports,theGCCregionhasampleopportunities
forglobalproducersandlocaldistributors.

Religiondrivenpreferencesshapefooddemand
WithaglobalMuslimpopulationestimatedat1.82.0bn,thehalalfoodmarketispoisedforrapidgrowth.Thehalalfoodmarket
currently accounts for as much as 12% of the global agrifood trade with an estimated market size of USD 640 bn. Given higher
disposableincomes,theGCCregionistheworldslargestimporterofhalalproducts,especiallymeat.Thesixmembercountriesof
theGCCimportcloseto1metrictons(mt)ofhalalpoultrymeatandmorethan200,000mtofhalalbeef.ValuedatUSD38.4bnin
2004,theGCChalalmarketgrewtoUSD43.8bnin2009.SaudiArabiaandtheUAEareamongthebiggestimportmarketswithinthe
region.Currently,Brazil,EU,andtheUSarethetopthreeexporterstothetwocountries.Accountingfor63%oftheregionsoverall
imports,SaudiArabiacontinuestobethelargestfood&beveragesmarketintheregion.Ontheotherhand,inNorthAfrica,Egypts
prominenceissteadilyincreasingasakeymarket.

Food&Beveragesgrowthfortheentirevaluechain
Theindustryssupplydynamicsareratherskewed,asagriculturalproductionisclusteredinafewcountriesintheworld.Therising
populationandhigherdemandgrowthfromemergingeconomiessuchastheBRICcountries(Brazil,Russia,India,andChina)further
accentuate the situation. The growth is only going to go up as the worlds population surges towards 7 bn, in addition to rapid
urbanizationandnewlifestyles.Yetanotherareaoffocuswillbeclimatechangeconcerns,andbettermanagementofproduction
systemsinordertoincreaseproductivityandreducetheenvironmentalimpact.
However,softeningprices,theneedtopushyields,andthegradualeconomicrecoverycoulddisruptproductionlevelsasfarmers
plantlesserinordertotriggerpriceincreasesintheshortterm.Theavailabilityofarablelandwillbeanothercriticalfactorforthe
industry.In2008,theworldhadabout1.4bnhectaresofarablelandandabout3.4bnhectaresofpasture.Inordertomeetthe
fooddemandprojectedfor2050,about3bnhectaresofagriculturallandisrequired,whichismostlyexpectedtocomefromthe
developingcountries.
Overthenext decade, the OECD andthe FAOforecast agriculturalprices torise by 2050%.However, theMENAregion,which is
hometoalargepopulationandisheavilydependentonfoodimports,isasubstantiallylargemarketwithstrongpromiseoffuture
growth.Theexpectedgrowthislikelytobebroadbasedacrossmultiplesegments,includingretail,foodservice,dairy,softdrinks,
halalfoods,andthepromisinghospitalityindustry.AccordingtoFAOstatistics,thecumulativeagriculturaltradegapforthesixGCC
countriesstoodatoverUSD13bnasof2006,reflectingtheirhighdependenceonfoodimports.Sincethepossibilitiesofproducing
foodlocallyarelimited,countriesintheMENAregionfaceanumberofhurdles,beforethegovernmentsareabletoachievetheir
objectiveofensuringsufficientfoodfortheirlargepopulations.

F&BintheMENARegion

1 Globaloverviewanddevelopmentsinthesector
1.1 Globalindustrystructure
Whilepurchasinggroceriesfromaretailoutletordiningoutinarestaurant,onehardlythinksaboutthestepsinthesupplychain
andthecomplicatedseriesofstepsthatmakeitpossible.TheFoodandBeverages(F&B)industrytouchesthelivesofeveryhuman
beingonadailybasisandrepresentsoneofthemostvitalsectorsofthemodernsocioeconomicframework.Assuch,itattractsa
lotofattentionfrommultiplestakeholdersandissubjecttonumerousregulationsandmeasuresattemptingtoensureenoughfood
for everyone in the world. Simple as it was in the beginning, food production and trading have evolved dynamically over the
centuries to become part of todays multidimensional value chain. The constant innovation in products and delivery methods
furtheraugmentsthecomplexityandinterplayamongthevariousindustryparticipants.TheBritishFoodStandardsAgencydefines
theindustrysvaluechainasrangingfromfarming,foodproduction,anddistributiontoretailandcatering.
Base food productionin the form of farmingconstitutes the major part of the agriculture industry. A relatively small set of
agricultural activities include production of nonfood commodities such as cotton, tobacco, and natural gum, among others.
However,mostavailableagriculturaldataincludesuchactivities,whichwehaveleftoutofscopeforthisstudy,whichisfocusedon
theF&Bindustry.Thefarmingsegmentcomprisesthreemaincategories:crops(plantderivedagriculturalproductssuchascereals,

FoodandBeverageindustrystructure
Distribution
Retail

Foodservice

USD7+tril

Processing

2014

Processed/Finalproducts
Semiprocessed

Basicpackaging

Processing

Flour,Vegetableoils,Oilseed
meals

Dairy,Bread,Confectionery,
Snacks,Cannedfood&
preserves,Readytoeat
products,Others

CAGR
3.5%

Agriculture

Crops
Cereals,Horticulture,Oil
crops,Pulses

Livestock
Milk,Eggs,Meat

Fisheries

USD5.7tril 2008

Source:IMAP,FoodandAgriculturalOrganization(FAO),Variousnewsagencies,Blominvest

February2011

fruits,andvegetables),oilcrops(toproducevegetableoil),andpulses.Livestockproductscompriseallanimalrelatedproductssuch
asdairy,poultry,andmeat.Finally,fisheriesencompassallproductsrelatedtothefishandseafoodcategories.
Rawagriculturalproductscanbeeithersolddirectlytoconsumersorundergodifferentlevelsofcommercialscaleprocessing.Food
preparationandprocessing,asdefinedbyUnitedStatesDepartmentofAgriculture(USDA)isanychangethatismadetoafoodto
alter its eating quality or shelf life, has two major purposes preservation in order to increase product life; and secondary
processingtoimprovetasteand/orappearance.Themostbasicprocessisportioningandpackagingthatplaysakeyroleinensuring
theeffectiveness ofdistributionintodaysworld.There isawiderangeofmodernprocessingtechniques,suchaspasteurization,
baking,freezing,smoking,andaddingingredientstoenhanceflavor,oracombinationofoneormoreofthese,dependingonthe
desiredfinalproduct.Thenextcategorycomprisessemiprocessedfoodsthataremostoftenusedasfoodingredientsandarenot
edible directly. According to the most popular industry classifications, this category comprises flour, vegetable oils, and oilseed
meals.Finalorprocessedproductsfallintomultiplesubcategoriessuchasdairy,confectionery,snacks,pastas,breads,dipsand
sauces, and others. Readytoeat foods that usually require only a simple final step, like heating or adding water, before
consumptionasreadydishesfallwithinthiscategoryaswell.

The global F&B industry was estimated at USD 5.7 trillion in


2008,andDatamonitorforecastsittogrowataCAGRof3.5%
to more than USD 7 trillion by 2014. Global agricultural
production, providing raw material and intermediates for the
entire value chain, has been growing at annual rates of 2.1
2.3% over the past four decades. Most of the growth
witnessed during the past 50 years was because of intensive
increaseinoutput,75%of whichwasduetoimprovingyields
alone.Goingforward,however,theseimprovementsarelikely
to slow down, as yield enhancing techniques gradually lose
their edge following extensive use and soil depletion.
Therefore,ifcurrentproductionlevelsaretobemaintainedor
enhanced, increase in cropping frequency or expansion of
arable land will be the only options feasible, barring
unexpectedimprovementinyields.

FAOfoodproductionindex

120
110

Globalindex

100
90
80
70
60
'80

'83

'86

'89

'92

'95

'98

'01

'04

'07

Source:FAO,Blominvest

Globalagriculturalpopulation

Bn

ThefinalelementintheF&Bvaluechainisdistribution,which
takes place through two main channels retail and
foodservice.Retailencompassesvariousoutletsliketraditional
momandpop stores, bigger superstores, supermarkets, and
hypermarkets.Theseoutletstypicallyprovideaccesstoalmost
all food categories for self preparation and consumption.
Alternatively, consumers may choose to eat food away from
home at outlets that fall under the foodservice segment.
AccordingtoDatamonitor,foodserviceisthesaleoffoodand
drinks for immediate consumption either on the same
premises or in designated eating areas shared with other
foodserviceoperators,orinthecaseoftakeawaytransactions,
freshly prepared food for immediate consumption. The
segment itself can be further subdivided broadly into fine
diningrestaurants,hotels,andfastfoodchains.

0
'80

'85

'90

'95

Totalpopulation

'00

'05

'10

'15

'20

Agriculturalpopulation
Source:FAO,Blominvest

Globally,agriculturehasundergoneashiftfrombeinglaborintensivetoacapitalintensiveindustrycharacterizedbyhighlevelsof
mechanizationandprocessoptimization.AccordingtoFAO,overthepastthreedecades,whileglobalpopulationgrewbyover50%,
thenetinflowofhumancapitalintotheagriculturesectorwaslessthan20%.Thisisfurthersettodeclinebecauseofmanpower

F&BintheMENARegion

movingtononfarmsectors.Consequently,outputvalueperagriculturalworkergrewfrom436internationaldollars*in1980to648
in 2007. As expected, the more developed economies are behind this shift, as the agriculture sector in developing countries
continues to provide more employment relative to output. However, the percentage of agricultural workers in terms of total
workforceinAfricaandAsiaislikelytohavedippedfrom70%inthe1980stoapproximately50%recently.InthecaseofEuropeand
NorthAmerica,agriculturerepresentsonlyabout5%oftheworkforce.
Globalfoodproductionpatterns
Inordertocatertothefoodrequirementsoftheglobalpopulation,productionofmajorfoodcategoriesreachesbillionsoftonsand
billions of dollars each year. Cow milk is the most important commodity in terms of production value. According to FAO, global
productionofthecommoditywasworthalmost145bninternationaldollarsduring2007.Rice,wheat,eggs,andsoybeanswerethe
othersamongthetopfivefoodcommodities.However,fromavolumeperspective,sugarcanewasthelargestagriculturaloutput
withaproductionofover1.6bntonsin2007,followedbymaize,rice,wheat,andcowmilk.Understandably,thiswasdrivenbythe
relativelylowunitpricesforsomeofthecommoditiesthatrankedhigherbyvolume.WhiletheaveragepriceforsugarcanewasUSD
77pertonin2007,milksoldforalmostUSD490perton.Globally,dependingontheregion,sugarcaneisoneofthelowestpriced
commodities across the world after vegetables such as cabbage, lettuce, and potatoes. In general, meat is the most expensive
categoryamongthemajorfoodgroups,althoughcertainspecializedcommoditiessuchashops,tobacco,mushrooms,andtruffles
tendtobethemostexpensiveingeneral.

120

0.5

100

Mntons

Bnmt

Sugarcane

Potatoes

Maize

Vegetables

Buffalomilk

Soybeans

Eggs

40

Importsofworld'skeyagriculturaltradeitems

140

2
1.5

Wheat

80

Rice

IntUSDbn

120

World'stop10foodcommodities,2007
Cowmilk

160

80
60
40
20
0
'77

0
Production,IntUSD

Production,mt

'80

'83

'86

'89

Wheat
Soybeans
SugarRawCentrifugal

'92

'95

'98

'01

'04

Maize
CakeofSoybeans

'07

Source:FAO,BlominvestSource:FAO,Blominvest

Interestingly, food trade patterns do not directly reflect agricultural production patterns. While rice and cow milk are among the
highestproducedfoodcommodities,rice ranksonlytenthinterms of tradevolume, whilemilk doesnotevenfeatureinthefirst
twenty.Suchtrendsfurtherindicatethatthesecommoditiesare,inlargepart,consumedinthecountrieswheretheyareproduced.
Amongrawagriculturalcommodities,wheatisthemostwidelytradedinbothvolumeandvalueterms.Globalwheatimportsduring
2007 were close to 120 mn tons valued at an estimated USD 32 bn. Soybeans, cake of soybeans (obtained as a byproduct of
soybeanbased biofuel production and used as animal feedstock), maize, and sugar were the other top commodities by import
volumesduringthepastthreedecades.Therefore,themostwidelytradedagriculturalproductstypicallyincludebulkcommodities
thataregenerallylowerinvaluevisvisvolumes.Comparedtohighervaluecategoriessuchashorticulturalproducts(freshfruits
and vegetables), semiprocessed, and processed products, they are less perishable and, therefore, easily transportable. On the
contrary,productionofthemoreperishableandreadilyconsumablecategoriesoftenhappensclosertotheendmarkets,although
modernsupplychainmethodologiesandstoragetechniquesarebringingaboutaradicalshift.

According to FAO international prices, expressed in socalled international dollars, are derived using a GearyKhamis formula for the
agriculturalsector.Thismethodassignsasinglepricetoeachcommodity.Forexample,onemetrictonofwheathasthesamepriceregardlessof
the country where it was produced. The currency unit in which the prices are expressed has no influence on the indices published.
(http://faostat.fao.org/site/362/DesktopDefault.aspx?PageID=362)

February2011

Globalfoodproductsindustry
5.0%

4.0

4.5%

3.5
USDbn

Agricultural
products
35%

4.0%
3.5%

3.0

3.0%

2.5
Packaged
foodsand
meats
65%

GrowthYoY

Globalfoodproductsindustrybyvalue,2007

2.5%
2.0%

2.0
'03 '04 '05 '06 '07 '08 '09E '10F '11F '12F '13F
Value,USD bn

Growth,%

Source:Datamonitor,BlominvestSource:UNWTO,Blominvest

Basicagriculture,asawhole,islosingitsvalueshareintheglobalfoodproductsindustrytoprocessedfoods.OutoftheUSD3.2
trillioninrevenuesasof2008,agriculturecontributed35%andpackagedfoodsandmeatsaccountedfortheremaining65%.Sucha
highshareofpackagedproductsisonaccountofashiftinconsumerdemandtowardmorevalueaddedandprocessedproducts,
brought about primarily by rising per capita incomes in both developing and developed countries. As a whole, the food products
industryisforecasttogrowataCAGRof4.6%toUSD4trillionby2013,accordingtoDatamonitor.
DatafromUSDAconfirmstheaforementioneddeclineintherelativeshareofagriculturalproduce.Itisreflectedintheconceptof
themarketingbill,whichtheUSDAdefinesasthevalueaddedtoagriculturalcommoditiesbythefoodmarketingsystem,including
activitiessuchastransportation,processing,packaging,anddistribution.ThismarketingbillintheUShasgoneupfromUSD26bnin
1950toUSD718bnin2006,withitsshareintotalconsumerfoodexpendituresrisingfrom59%to81%.Asof2006,laborhadthe
greatestcontributiontothevalueaddedamountingto38%ofthetotal,followedbymiscellaneousexpenditure(suchaspromotion
andadvertising,insurance,taxes,andothers).Consequently,thevalueofrawagriculturalproducts(orfarmvalue)felltojustabout
19%ofthetotalfoodcostsbornebyconsumersintheUS.Thepictureissomewhatdifferentindevelopingcountries,wherefood
expendituresfollowadifferentpatternasmorepeoplestillrelyonunprocessedrawagriculturalproductsfortheirbasicsupplies.

1000

ConsumerexpendituresintheUS

Farmvalue
19%

800

USDbn

Consumerfoodexpenditurescomponentsinthe
US,2006
Packaging
Labor
39%

Marketing
bill
81%

600
400

materials
8%
Intercity
transport
4%
Fuelsand
electricity
4%

200
0
'50 '54 '58 '62 '66 '70 '74 '78 '82 '86 '90 '94 '98 '02 '06
Marketingbill

Farmvalue

Others
11%

Corporate
profitsbefore
taxes
4%

Source:USDA,BlominvestSource:USDA,Blominvest

Amongthevariousprocessedfoodgroups,chilledanddelifoodsrevenueswerethehighestin2008atUSD385bn,accordingto
Datamonitor,followedbydairywithUSD280bn.Thefastestgrowthbyfarwasrecordedbytheorganicfoodsegment,whichgrew

11

F&BintheMENARegion

Globalfoodindustryrevenuesbysegment,2008
450

1.5

16%

Globalbeveragesindustrybysegment,2008

Revenuegrowth,200308CAGR,%

Revenues,USDbn

Source:Datamonitor,Blominvest

Wine

Spirits

Softdrinks

Juices

Savorysnacks

Readymeals

Organicfood

Milk

Icecream

Frozenfood

Dairy

Confectionery

Chilled&deli

Breakfast

Cannedfood

Biscuits

Revenues,USDbn

Hotdrinks

0%

Distillers&vintners

Carbonatedsoft

2%

0%

Bread&rolls

0.3

Brewers

4%

Bottledwater

150

4%

0.6

Beverages

USDbn

8%

8%
6%

0.9

Beer

12%

300

USDbn

1.2

Revenuegrowth,200308CAGR,%

Source:Datamonitor,Blominvest

FoodexpendituresintheUSat1988prices

ataCAGRof14.6%between2003and2008.Savorysnacksand
dairyweretheothertwocategories,whichrecordedaCAGRof
above6%.

700
600

USDbn

500

Almost all beverages involve some kind of processing given


their easily consumable nature. The various beverage
categories include softdrinks,beers,ciders, spirits, and wines.
The sector was valued at USD 1.4 trillion in 2008 and is
projectedtogrowataCAGRof2.6%toUSD1.6trillionby2013,
according to Datamonitor. Within beverages, distillers and
vintnersaccountedforthelargestsalesofUSD507bnin2008,
followedbybrewersatUSD494bn.WithsalesofUSD387bn,
soft drinks represented the most valuable nonalcoholic
beverage category. Bottled water was the fastest growing

400
300
200
100
0
'53 '58 '63 '68 '73 '78 '83 '88 '93 '98 '03 '08
Foodathome

Foodawayfromhome

Source:USDA,Blominvest

Retailoutlettypesandtopfiveglobalplayers*intheirrespectivecategories

Petrol/Gas/
Service
stations

*AsperGlobalFoodmarketsales

Standard
convenience
stores

Source:USDA,Blominvest

segmentwithaCAGRof6.7%between2003and2008,drivenbytherisingconsciousnessamongconsumersforcleanandhygienic
drinking water in a convenient form, in addition to being an alternative for other notsohealthy drinks. Increasing health

February2011

consciousnessandconveniencehascontributedtothegrowthinthejuicessegmentaswell,whichstoodataCAGRof3.3%during
thesameperiod.Involumeterms,theoverallbeveragemarketconsumptiongrewataCAGRof6.9%between2004and2008to9.9
bnliters.
Foodprocessingwasnottheonlysegmenttoexperiencesuchadynamicevolutionoverthepastseveraldecades.Fooddistribution
too underwent significant changes over the past 50 years, a period that saw a sea change in lifestyles and dietary habits. With
increasing number of women entering the workforce and
Globalpackagedfoodsalesbyretailoutlettype,
prevalence of nuclear families, eating out has become a
2007
popularandconvenientoptionasopposedtopreparingfood
athome.IntheUS,in1953foodawayfromhomeaccounted
Other
for 33% of total food expenditure (USD 80.5 mn in 1988
Super/
16%
Discounter
prices), while in 2008 over 50% of consumer food spending
hypermarket
8%
was on foodawayfrom home.Thus, foodservice companies
52%
havebeengaininggroundinfooddistributionattheexpense Convenience
of food retailers who are under pressure to protect their
store
7%
share.

As mentioned earlier, the foodservice industry has been


increasing its share in the food distribution segment. In
value terms, the profit foodservice segmentexcluding

13

Independent
foodstore
17%
Source:USDA,Blominvest

800

Globalprofitfoodserviceindustry

600
400

Bn

AccordingtotheUSDA,thecurrentannualglobalfoodretail
sales stand at about USD 4 trillion. The primary retail outlet
formats include supermarkets, hypermarkets, discounters,
and convenience stores. According to a study by the Food
Marketing Institute and the Smithsonian Institute,
supermarkets first appeared in the US with the opening of
thefirstKingKullenstore.Whatdifferentiatedthestorefrom
othergrocerystoreswasahostoffactorssuchasselfservice,
separate product departments, discount pricing and greater
sales volumes. Hypermarkets, which are even bigger in size
andproductrangethansupermarkets,arrivedintheUSand
Europe during the 1960s. Discountersa retail format
particularly focused on the lower end of the marketare
back in the limelight in the US due to the recent economic
crisis. WalMart is one of the most wellknown discounters,
although the USDA classifies it as a supermarket. On the
other side of the price spectrum are convenience stores,
smallsize outlets that sell a limited range of products at
higherprices.Theirbargainingpowerwithsuppliersislower
than that of supermarkets, forcing them to raise prices to
maintain their margins. However, their strength lies in the
convenience they offer for everyday shopping for
customerslookingtospendlessertimeandeffort.Among
the retail formats, supermarkets and hypermarkets
account for the biggest share of the market at 52% as of
2007. US and European companies operate the largest
chains and are constantly looking for opportunities to
expand further in other regions. As a result,
supermarketsas a business segmentare rather
concentrated globally. According to the USDA, the top 15
globalsupermarketcompaniesaccountformorethan30%
ofglobalsupermarketsales.

200
0
2008
Value(USDbn)

2013
Volume(bntransactions)

Source:Datamonitor,Blominvest

Globalfoodproductsindustrybygeography,2007

Americas
28%

Europe
36%

AsiaPacific
36%

Source:UNWTO,Blominvest

F&BintheMENARegion

subsidieswasvaluedatUSD561bn,growingat5.8%in2008,afasterpacethanthe4.8%growthin2007.Theincrease,whichwas
faster than the transaction volume growth rates of 1.9% and 1.7% in 2008 and 2007, respectively, was because of a rise in both
prices and transaction volumes. The number of transactions will likely reach 236.7 bn by 2013, remaining slower than the value
growth. By that period, Datamonitor projects the 5year CAGR for value and volume growth at 4.6% and 1.8%, respectively.
Restaurants are the leading foodservice channels, with almost 60% of the sectors value as of 2008. In geographical terms, the
Americasconstitutethelargestmarketandaccountforapproximately38%ofthefoodserviceindustrysglobalrevenues.
USandEuropearestillmajorindustryplayersbutemergingcountriesareadvancing
FortheoverallF&Bindustry,EuropeistheleaderwithrevenuesofUSD1.4trillionasof2007.TheUSrankedsecondwithUSD1
trillion.However,thedominanceofdevelopedcountriesisonthedeclinewiththeemergenceofAsianmarkets,especiallyIndiaand
China, where the industry is valued at around USD 180 bn each. While this may not be as large as Europe or the US in absolute
terms,thegrowthratesinrecentyearshavebeenontherise.InChina,theindustryhasexceededa15%growthratealmostevery
yearsince1991,whileRNCOSIndustryResearchSolutionspredictsaCAGRof7.5%between2009and2013fortheIndianfoodand
drinksmarket.Thesignificanceofdevelopingcountrieswithrespecttorawmaterialproductionisevenmorepronounced. China,
the worlds largest agricultural economy, produces over 50% of the worlds pork and almost 40% of fruits and vegetables, as per
USDAs 2009 estimates. Indias F&B market in 20072008 was estimated at USD 182 bn, of which the food processing segment
contributed USD 72 bn with an annualized growth rate of 20%. Other Asian countries are gradually becoming major exporters of
agriculturalcommoditiesas well.ThailandandVietnamhavebeentwo ofthetopthreemilledrice exportersworldwidenextto
Indiafor some time now. Indonesiahasbeenencouraging investors as well toleaseits fertile countrysideand helpthecountry
becomeamajoragricultureplayer.

NestlSA
3%

Soup

Breakfastcereal

Babyfood

Confectionery

World

W.Europe

N.America

LatAm

Groupe
Danone
1%

E.Europe

Kraft
FoodsInc
3%

PepsiCoInc
2%

Australasia

Top5
companies
11%

100%
80%
60%
40%
20%
0%

Africa&Middle
East

Others
89%

Unilever
Group
2%

Fourfirmconcentration(%shareoftotalproduct
salesofthetopfourfirms),2007

AsiaPacific

Globalpackagedfoodsalesbymanufacturer,2007

Cheese

Source:USDA,BlominvestSource:USDA,Blominvest

Thepackagedfoodsindustryishighly fragmented,withthetop fivecompanies generatingonly11%oftotalsales andthetop50


companiesamere27%asof2007.However,theconcentrationismuchhigherinspecificmarketsegmentssuchasbreakfastcereals,
babyfoods,soups,confectionery,andcheese,wherethetopfourbrandssellbetween20%and100%ofthetotalintermsofvalue.
This is due to the evolving strategies of food manufacturers, who are facing stiffer competition from private labels and inhouse
brandslaunchedbyretailers.Therefore,manufacturerstendtofocusonspecificproductlinesandcategorymanagement,insteadof
abroadproductportfolio,inordertoestablishtheirpresenceindefinedsegments.
Therelativelysmallmarketsharesare,bynomeans,representativeofthesizeofF&Bcompanies,anumberofwhichfigureonthe
Fortune 500 list and the S&P 500 Index. Nestl SA is a global leader in the packaged food industry, followed by names such as
UnileverandKraftFoods,withrevenuesofUSD93bn,USD56bn,andUSD40bn,respectively,during2009.PepsiCotoppedthe
beverages segment with sales of USD 43 bn, followed by Coca Cola in terms of both revenues and market capitalization. Archer
Daniels and Bunge, with respective sales figures of USD 69 bn and USD 42 bn for 2009, are the biggest agricultural product
companies. Monsanto is a leader in the genetically modified (GM) seed and farming category with sales of USD 12 bn for the
financialyearendedAugust2009.

February2011

1.2 Increasingglobalizationofthefoodindustry
MaincommoditiesTop5globalproducers

120

Russia

China
India
USA

China
USSR
USA
India
France

50

USSR
USA
China
Canada
France

Mnmt

100

France

Wheat

150

Cowmilk

20
0

China
Russia
Germany
USA
India

40

Germany
France
India

60

USSR
USA

80
USSR
USA
Germany
France
Poland

Mnmt

100

Maize

400

100
0

USA
China
Brazil
Mexico
Argentina

200

USA
China
Brazil
USSR
France

300
USA
China
Brazil
SouthAfrica
USSR

Mnmt

The F&B industry has evolved over the decades in line with the
economic trends that underscored the transformation in most
industries across the world. Historically, the more developed
countries were the major producers of food and agricultural
commodities, led by the US and USSR. On the other hand,
developing countries led the production only in cases where the
climate in North America or Europe was too cold for crops like
sugarcane(IndiaandBrazil)orrice(ChinaandIndia).Thepicture,
however, has changed significantly over the last 40 years, as
developing countries have gained prominence on the global
stage. For some important agricultural crops that can be
cultivated under a broad range of climatic conditions, emerging
economies such as China and India are at the forefront. Since
1967, China has increased its wheat production by 283% and is
now by far the largest producer in the world, while Indias
productionmovedupby565%takingittothesecondpositionin
2007.WhiletheproductioncapacityforcowmilkintheUSgrew
by 56%, it grew by 421% in India, which now stands second
globally.Chinasawanincredibleproductionincreasefromalittle
over630,000tonsin1967to35.6mntonsin2007,atastunning
growthrateof5,546%tobecomethethirdlargestproducer.The
trend has strengthened in the recent past. Between 2003 and
2005,halfoftheUStoptenagriculturalproductsbyvolumesaw
adeclineinproductionvisvistwointhecaseofChinaandone
for India. Moreover, these included some conventional
strongholdslikewheat,chicken,andcattlemeat.

1967

1987

2007

The rapidly growing food demand on the back of rising


populations and improving lifestyles in developing countries has
Source:FAO,Blominvest
been the key driver for the production jump in these countries.
Due to these demographic and socioeconomic factors, the
growth in domestic demand within emerging economies has far outpaced that in developed economies. Developed countries
beingmuchmorematuremarketshaveseenrelativelynominaldemandincreaseonaccountoffactorslikehealthconsciousness
and the increasing preference for convenience foods. Based on volume consumption for some major food commodities, the
developingregionshaverecordedthefastestgrowthsincethe1960samongthetopfiveregions.Grainconsumptionincreasedthe
250

Oilseedconsumption

GDPpercapitavsfoodexpenditure

80%

Foodexpenditure*

Mntons

200
150
100
50
0
'64 '68 '72 '76 '80 '84 '88 '92 '96 '00 '04 '08
EastAsia
SouthAsia
SoutheastAsia

NorthAmerica
EuropeanUnion

60%
40%
20%
0%
0

10

20
30
40
GDPpercapita('000USD)

50

Source:USDA,Blominvest*PercentoftotalexpenditureSource:USDA,IMF,Blominvest
Note:Dataasof1996

15

F&BintheMENARegion

In line with the increase in household income levels, food


expenditurepatternshavealsoundergonechanges.Generally,
in lowerincome countries, food takes a much bigger share in
total household expenditures than in the higherincome ones.
Across a group of 112 countries analyzed in 1996, a GDP per

300
200
100
0
'60 '63 '66 '69 '72 '75 '78 '81 '84 '87 '90 '93 '96 '99 '02 '05 '08
EastAsia
FSU
SouthAsia

70

30

60

25

50

20
15
10

30
20
10

0
'60 '63 '66 '69 '72 '75 '78 '81 '84 '87 '90 '93 '96 '99 '02 '05 '08

'60 '63 '66 '69 '72 '75 '78 '81 '84 '87 '90 '93 '96 '99 '02 '05 '08
NorthAmerica

EuropeanUnion

SouthAsia

Livestockconsumption

40

EastAsia

NorthAmerica
EuropeanUnion

FSUFormerSovietUnionSource:USDA,Blominvest

'000tonCWE

Mntons

400

Sugarconsumption

35

Grainsconsumption

500

Mntons

most in East Asia and is now the worlds largest consumer.


Oilseed consumption recorded an increase of over 1000% in
East, South, and Southeast Asia. Sugar consumption has gone
upexceptionallyinSouthAsiasince1960withaCAGRofover
12%,morethanfourtimestheglobalgrowthrate,makingitthe
worlds largest sugar consumer. Livestock, the most expensive
of the analyzed food commodities, saw demand move up by
over10,000%overthepastfivedecadesinEastAsia,withChina
accountingforalmost90%oftheconsumption.

EastAsia
FSU
SouthAmerica

FSU

NorthAmerica
EuropeanUnion

Source:USDA,BlominvestSource:USDA,Blominvest

Shareoffoodexpenditure

capitaoflessthanUSD5,000usuallyimpliedatleast30%ofconsumerexpenseswenttowardfood.Foranumberofcountrieswith
the lowest GDP per capita levels, more than 50% of consumer budget was allocated to food. Thus, the share of food in total
expenditurestendstodeclineasacountryspercapitaincomemovesup.InasampleofhighincomecountriesanalyzedbyUSDAin
2008, food had an average share of 10.9%. Similar trends of rising per capita GDP over time can be clearly seen in the case of
individual countriesas well. Inthe US, food has thelowestsharein totalexpenditures5.9%as of2008declining from 9.7% in
1996.InVietnam,whichisattheotherendofthespectrum,foodaccountedfor64.8%ofconsumerexpensesin1996.However,the
percentage has decreased remarkably since then to about
35.7%asof2008.Nonetheless,whiletheshareoffoodintotal
Consumptionpatternsinvariouscountry
groups,2008 Foodas%oftotalexpenditures
expenses may be on the decline, the absolute spending has
40%
more than doubled when one compares developed countries
30%
with their lesser developed counterparts. The absolute annual
spending was below USD 200 per capita in lowincome
20%
countries,andstoodatUSD440andUSD914inlowermiddle
andhighermiddleincomecountries,respectively.Thesamein
10%
highincomecountrieswhichwasashighasUSD2,133.

0%
Similarly,thecompositionofthefoodbaskethasalsochanged
Incomegroup
Low
Lowermiddle Uppermiddle
High
in tandem with the income increase. A larger share of food
Breadsandcereals
Meatsandseafood
expenditure is allocated to highervalue products like meat or
Dairyandeggs
Oilsandfats
sugar and confectionery, leaving lesser for staples like bread
Fruitandvegetables
Sugar,confectionery
andrice.However,theanalysisofexpendituremaynotalways
Source:USDA,Blominvest

February2011

FDI,USDbn

Increase'03'07

beaccurate.Forinstance,thebreadsandcerealscategoryhasa
USFDIinglobalF&Bindustry,selectedsectors
similar contribution to food budgets across all the country
45
90%
groups. However, calories derived from this category account
40
for 57% of total calories in lowincome countries and 36% in
35
80%
highincomecountries.Thisindicatesthatlowincomecountries
30
consume larger amounts of simple breads and cereals
25
70%
(cornmeal,rice)asagainstotherfoodcategories.Ontheother
20
hand, higherincome countries buy smaller amounts of more
15
60%
expensiveitems(packagedandprocessedcerealslikebreakfast
10
5
cereals),whichexplainstheirrelativelyhighshareintotalfood
0
50%
expenditure. Therefore, in order to get a reasonably clear
pictureofthebasketscompositionacrosscountries,oneneeds
'03
'04
'05
'06
'07 Increase
to crossreference and collate data related to the share of
Beverages
Otherfoodproducts
Foodservicesanddrinkingplaces
Agriculture
individualfoodgroupsandthecalories/nutritionalvaluederived
fromthem.Furthermore,productpricesneedtobeconsidered,
Source:BEA,USDA,Blominvest
sincesomemoreexpensiveproductsinlowerincomecountries
can have similar contribution to household expenditures despite much lower consumption volume. The resultant analysis after
considering the aforementioned bias indicates that with rising incomes, incremental food expenditure broadly align along three
dimensions:a)qualityintermsofappearance,flavor,nutritionalvalueetc.,b)variety,andc)convenience.Asaresult,customers
tend to buy more of expensive foods like meats and organic products and more valueadded forms that offer variety and
convenience.Readymeals,inparticular,areaveryimportantretailcategoryinhighincomecountries.

The overall convergence in food consumption patterns across countries in terms of tastes and dietary preferences is, to a great
extent,correlatedwiththestandardizationoffooddeliverymechanisms.Evolvingconsumerdemandandtheexpandingpresenceof
global players across the developed and developing countries are inducing changes in retail and foodservice. The arrival of
multinational food service chains, westernstyle retail outlets, and globalization are influencing consumer preferences the world
over.Inmostlargecitiesoftheworld,includingdevelopedanddevelopingcountries,itisnomoreadifficulttasktofindthecuisine
ofoneschoice,regardlessofwhicheverplaceonebelongsto.
Retailsalesinvariouscountrygroups,2008
10

Retailsalesgrowthinvariouscountrygroups
18.98

20%

AAGR'03'08

USDbn

8
6
4
2
0
Incomegroup Low
Oilsandfats
Breakfastcereals

Lowermiddle Uppermiddle
Driedfood
Readymeals

High

Dairyproducts

15%
10%
5%

0%
Incomegroup Low
Oilsandfats
Breakfastcereals

Lowermiddle Uppermiddle
Driedfood
Readymeals

High

Dairyproducts

Source:USDA,BlominvestSource:USDA,Blominvest

Developingcountriesrepresentanincreasinglyattractivemarketforglobalfoodindustryplayers.Currently,about58%ofthetotal
foodisconsumedbythisgroup,andtheshareisexpectedtoreach72%by2050.Retailsalesacrossallmajorfoodcategoriesare
growingmuchfasterinthelowerincomecountrygroups.Overthe200308period,salesofreadymealsgrewbetween11.8%and
26.9% in China, Brazil, Russia, and India, in that order. In contrast, the growth in the US and UK was just about 2% and 2.8%,
respectively. By 2014, China is expected to become the largest grocery market in the world. From a retail and foodservice
standpoint,theincreaseinsalesfromsupermarketsandfastfoodchainsindevelopingcountrieswasseveraltimesthatindeveloped
marketssuchastheUSandJapanover19992005.

17

F&BintheMENARegion

Indonesia

SouthAfrica

Czech
Republic

China

Thailand

Morocco

US

Japan

1999'05 increase

Foodretailisarelativelymatureindustryinthewesternworld
GrowthinfoodsalesfromWesternstyleoutletsin
and is, therefore, characterized by flat sales growth and
developingcountries
160%
multiple large retail chains (WalMart, Carrefour, etc.).
Companieshavetorelyonproductdifferentiation,innovation,
120%
andintroductionofnewretailformatssuchasdiscountstores,
80%
allofwhichhaveanegativeimpactonprofitability.Asaresult,
companies are forced to scout for opportunities in emerging
40%
countries, where the industry is still developing and offers
0%
tremendousscopeforgrowth.Theworldsmajorinternational
food retailers are reportedly particularly interested in Brazil,
Russia, India, China, and Mexico. WalMart recently tied up
withIndiancorporatemajorBhartitoentertheretailbusiness
inIndia,whichhasrelativelythelowestpenetrationofmodern
Supermarkets
Fastfoodoutlets
retailformatsamongthefivecountries.Carrefourhastakenthe
Source:USDA,Blominvest
lead in China, but other biggies like Tesco, WalMart, METRO
Group,andAuchanareexpandingtheirpresenceaswell.Brazil
andMexicohaveacomparativelymoredevelopedfoodretailsectorthanothers,whilebothChinaandRussiaarecharacterizedbya
relativelystrongpresenceoflocalplayers.CharacteristictoIndianfoodretailisthelowestpenetrationofmodernformatsamong
thefivecountriesandarapidlygrowingmiddleclassof300mnandcounting.

1.3 Animminentfoodshortage?
In November 2009, the United Nations (UN) held its first food summit since 2002. In July 2009, the G8 countries promised to
increasespendingonagriculturaldevelopmentbyUSD 20bnoverthenextthreeyears,callingagricultureandfoodsecuritythe
coreoftheinternationalagenda.TheWorldBankraiseditsagriculturespendingby50%toUSD6bn,andtheJeddahbasedIslamic
DevelopmentBankiscreatinganagriculturedepartmentforthefirsttime.Individually,almosteverydevelopingcountryhasbeen
supporting its farmers, implementing measures such as building rural roads; offering subsidies on seeds and fertilizers; helping
smallholders;andinterveninginthemarketifneeded.ThisrenewedinterestiscomparabletothatprecedingtheGreenRevolution
of the 1960s, when the foundations of modern agriculture were laid, leading to increases in staple crop yields of 36% a year.
However,industrialactivityhoggedtheinterestduringthefollowingdecades,becauseofwhichinvestmentsinagriculturedeclined,
researchbudgetsslashed,resultinginyieldgrowthcomingdownto12%ayear.
Thereisavalidreasonfortheconcern.Itwillgetincreasinglydifficulttoensurefoodsecurity,i.e.tomakeavailablethenecessary
quantitiesoffoodataffordablepricestoeveryone,unlesscertainmeasuresareadopted.AccordingtotheUN,theglobalpopulation
issettoincreasebyanother2.3bnoronethirdofthecurrentlevelsby2050.However,theexpectedfooddemandislikelytobe
higher by 70%. The disproportionate increase in demand will be driven by increased per capita consumption, in addition to the
4

Increaseinglobalconsumptionpercapita

Globalpopulationgrowth

3.1

2.9

2
2.7

8
Bn

mnmt

Kcal/day

10

6
4

2.5
99/01
Cereals,mt

2015

2030
Meat,mt

2050
Kcalperday

Source:FAO,Blominvest

2
0
'00 '05 '10 '15 '20 '25 '30 '35 '40 '45 '50
Source:UN,Blominvest

FAOfoodpriceindexanditscomponents

400
350
300
250
200
150
100
50
0

700

Index(baseyear1986)

200204=100

February2011

'00

'01

'02

'03

FoodPriceIndex
DairyPriceIndex
OilsPriceIndex

'04

'05

'06

'07

'08

'09

MeatPriceIndex
CerealsPriceIndex
SugarPriceIndex

'10

600

Crudeoilprice,soybeanoilprice&production
growthtrends

500
400
300
200
100
0
'86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08
Crudeoilprice
Soybeanoilproduction

Soybeanoilprice

Source:FAO,BlominvestSource:EIA,Bloomberg,Blominvest

highernumberofpeople.Thefastestdemandgrowthwilllikelyberecordedforhighervalueandspecializedfoodslikemeat,dairy,
andoilseeds.

According to FAO, per capita consumption of cheese, poultry meat, and vegetable oils will increase by 12%, 29%, and 49%,
respectively by 2018 compared to the levels in 2004. The largest contribution to this demand growth will come from emerging
economieslikeChina,India,Brazil,Argentina,andCIScountries.Similarly,thenumberofcaloriesconsumedwillbehigher,withan
expected 3,047calories daily per headversus 2,771 in 200305. While thisindicates betternutritionlevels,especially in the least
developedregionslikesubSaharanAfricaandSouthAsia,italsoimpliesincreasingpressuretoensureeffectivefoodproductionand
distribution.

Therecentspikeinfoodpricesduring200708hasalreadycausedalotofconcernanddrawnattentiontothevolatilityofthefood
market.Thistimearound,thefoodpriceincreasewassomewhatreversedbytheeconomiccrisis,whichpusheddownpricescloser
to the longterm historical average. However, the fact remains that the fundamental issues that led to the recent spike and are
intrinsic to the global food markets have not really disappeared. Therefore, as economic conditions improve, the earlier upward
trendinfoodpricesislikelytostageacomeback.Priceshavealreadybeguntolookupamidsttheongoingeconomicrecovery,even
thoughthesustainabilitystillremainsuncertain.

The food supply system is even more reliant on fossil fuels today. Vast amounts of oil and natural gas are required in the
manufactureoffertilizersandpesticides,andasinputsatallstagesoffoodproductionfromplanting,irrigation,harvesting,through
processing, packaging, and distribution. Higher oil and natural gas prices increase input costs, transportation expenses escalate,
further accelerating food prices. Once oil prices top USD 6080 a barrel, biofuels become more competitive, and grains may be
diverted for biofuel production. Besides, subsidies for biofuels production are driven by ecological and sustainability concerns. In
fact,theemergenceofbiofuelswhichononehandaresubstitutesforfossilfuelsandontheotherhandcompeteforlandusewith
foodcommoditieshasprovidedalinkbetweenoilandagriculturalmarkets,bringingnewlevelsofvolatilitytothelatter.Forovera
decade,thepriceofsoybeanoilusedasbiofuelhasfollowedthatofcrudeoilthoughwithsomelagwhichcanbeattributedto
adjustment offacilities fromonetype of fueltoanother.Since2006, pricesofthetwohavebeen movinginunison.Atthesame
time,productionofsoybeanoilgrewsteadilyover19862009,validatingtheconclusionthatsoybeanoilpriceshavetrackedcrude
oilpricesmorecloselythanwhatisimpliedbythemarketssupplyanddemandfundamentals.

Changesinclimaticconditionsandfactorslikeglobalwarmingexertfurtherpressureonfoodprices.Whileitisstilluncertaintowhat
extent and how exactly factors like increased carbon dioxide emissions will eventually change the global climate, one observed
developmentistheincreasedunpredictabilityandvolatilityofweatherconditions.In2008,CycloneNargisdestroyed7%ofBurmas
ricecrop,andfloodsinMidwesternUScausedmajordamagetocornandsoybeancrops.In2009,abelowaveragemonsooninIndia
forced the country to sign futures contracts for sugar imports. By September 2009, the otherwise net exporter of sugar had
importedover2.5mntonsofthecommodity,addingover2mntonsbyendDecember.Amonsoonfailurereducedtheoutlookfor
Indiascrop,andamidlowerglobalstockpiles,sugarsurgedtostratosphericlevelsinNewYorkandLondon.Accordingtoarecent

19

F&BintheMENARegion

studybyFAO,suchvolatilitieswilladdtoglobalwarming,whichalthoughmaynothaveahugeimpactoverthenextfourdecades,
butwillaffectagriculturalproductionremarkablyby2080.

The upward trajectory of food prices has attracted investors and The single best recession hedge of the next 10 or 15
hedge funds into the commodity markets as a means of portfolio yearsisaninvestmentinfarmland
diversification. Around 2006, commodity investment funds started
RezaVishkai
increasing their focus on the agricultural sector, and individual
(Headofalternatives,InsightInvestment)
investors became more aware of the potential profitability. The
speculation has added to the existing volatility in food prices. Apart from commodity markets, the increased participation of the
privatesectorisvisibleinfoodproductionandprocessing.Infact,biggerinvestorshaveturnedtoacquisitionsofagriculturalassets
as a secure hedge against economic debacles. Reportedly, Goldman Sachs had spent up to USD 300 mn to acquire over ten
professionallivepigbreedingplantsinChinabyAugust2008,whileDeutscheBankhadboughta30%stakeinaShanghailivepig
breeding factory for USD 60mn. USbased Blackrock Inc.setupaUSD200 mnagriculturalhedgefund,of which USD 30 mnwas
allocated to farmland purchases around the world. Land seems to be the most sought asset in the private investors quest for
profits.Otherplayershaveenteredthesceneaswell,includingMorganStanleywithitsacquisitionof40,000haandRussiabased
RenaissanceCapital,whichacquiredrightsto300,000ha,bothinUkraine.BritainsLandkomjoinedthetwoafterbuying100,000ha
inUkraine,whileSwedishinvestmentgroupsBlackEarthFarmingandAlpcotAgrohavebeenfocusingonRussia,capturing331,000
and128,000ha,respectively.

Otherchallengesfortheindustrysurfacedfollowingfoodscarcity,andmanycountriesaroundtheworldoutliningfoodsecurityasa
prime policy objective. After food shortages caused public uproar in many countriesthe most notable being Madagascar and
Haitistatesembarkedonaquesttoensuresufficientresourcesforatleastthestaplefoodsfortheirpopulations.Thisledtoan
increaseinprotectionistandinterventionistmeasures,notseen
over the past few decades. Even though most of the export
Investmentrequiredinagriculturalsectorto2050
bansoncropsimposed byanumberofcropexportersinmid
2008 have been lifted, the market distrust prevails. In
Downstream
November 2009, Philippines contracted a purchase of 1.5 mn
support
tons of rice, or 5% of the grains total annual trade, to avoid
services
exposure to the spot market. The same commodity was
37%
rumoredtobeasubjectofbilateralnegotiationsbetweenIndia,
Vietnam, and Thailand, which could further reduce the
exportable surplus. In Africa, Burkina Faso and Sierra Leone
startednegotiationswithfoodwholesalersinordertoindirectly
Crop
control prices. In Europe, which has always been relatively
Livestock
production
stringent in food trade, France is resisting pressure from the
production
47%
World Trade Organization to lift agricultural subsidies in the
16%
face of the food crisis. At the same time, informal campaigns
commenced among food producing organizations supporting
Source:FAO,Blominvest
protectionism.

Biotechcropsareacountrywise,2009
Increasedinvestmentinagriculturewillbeabsolutelynecessary
iftheworldistomeetitsfuturefoodneeds.Overthepast50
Paraguay
years, according to a study by FAO, 75% of the increase in
China 2% SouthAfrica
1%
3%
agricultural output was on account of higher yields. However,
Others
Canada
as global food production reaches even higher levels, the
2%
India
6%
incremental effect is gradually on the decline. Since the
6%
US
potential for further land expansion is limited, higher yields
48%
seemtobetheonlywaytomeetgrowingdemand.Thus,FAO
Argentina
estimatesthatUSD9.7trillionwillhavetobeinvestedinfood
16%
production by 2050, of which almost half needs to be in the
area of primary agriculture, 16% in livestock production and
Brazil
37% in downstream support services like processing,
16%
transportation, and storage. All of this investment will be
Source:ISAA,Blominvest

February2011

21

USD/kg

kg/ha

kg/ha

required to focus on developing regions, with East and South


Asia receiving an estimated 57% of the total investment,
EffectsofBtcottoninChina
followed by Latin America, the MENA region and SubSaharan
2.5
3.4
70
Africa.Theterminvestmentinthiscontextisratherbroadand
60
includes a wide array of developmental activities that can
2.0
3.3
50
ensure sustainability of agricultural production increase. It
1.5
40
encompasses even simple ideas like building rural roads and
3.2
grainstores,especiallyintheleastdevelopedcountriesinSub
30
1.0
Saharan Africa. Technological progress to facilitate drip
20
3.1
0.5
irrigation, notill farming, and more efficient use of fertilizers
10
and pesticides is another critical focus area. Research and
3.0
0.0
0
Development (R&D) in agriculture, which failed to attract due
Yield
Production
Pesticide
attention after the Green Revolution era, is back under the
costs
use
spotlight. One of the especially prominent areas currently is
WithBt
WithoutBt
genetically modified (GM) foods, which can play a big role in
Source:FAO,Blominvest
raising the efficiency of food production. Development of GM
crops on a largescale began in 2006. In 2002, a study
conductedinChinashowcasedsomeofthegainsresultingfromtheuseofBt(Bacillusthuringiensis)cotton.Btcropscarrythegene
ofabacteriumthathelpsthemfightcertainpests,areoneofthemorepopularexamplesoftheuseofbiotechnologyinagriculture.
Bt cotton achieved considerably higher yields in China with much lower need for pesticides, resulting in production cost coming
down to less than a quarter compared to that for nonBt varieties. Cotton is the third largest GM crop at present, next only to
soybeanandmaize.AlmosthalfoftheGMcropsaregrownintheUS,followedbyBrazilandArgentina,withthetotalofalmost107
mnhaofsuchcropssharedbetweenthem.Another12countriesjoinedthegroupofbiotechmegacountrieswithatleast50,000
haofbiotechcrops,accordingtoInternationalServicefortheAcquisitionofAfribiotechApplications(ISAAA).Incontrast,Europes
rolehasbeenlimitedsofar,duetoanumberofcontroversiessurroundingGMfoodandanoveralllackofpublicsupport,resulting
in unfavorable regulations. Recently, a proposal to introduce Bt brinjal in India sparked another wave of controversies. However,
majorglobalorganizationsseemtobeinfavorofGMcropsandseethemasaninevitableoptiontoaddresstheneedforincreasing
fooddemanddespitelimitedresources.

F&BintheMENARegion

2 MENAoverview
2.1 Geographicalprofileoftheregion
Data about agricultural development In the Middle East region is relatively
difficulttoobtain,particularlyinthecontextoftheexactareaundercultivation. Country
LandArea AgriLandas%
(1,000Ha)
ofTotalLand
ThetotalareaunderdiscussionBahrain,Egypt,Jordan,Kuwait,Lebanon,Oman,
Qatar, KSA, and UAEis 366.7 mn ha or about 2.82% of the worlds total land Bahrain
71
14.08
area.However,thegreaterpartoftheareaisadesert,ofwhichonlyaverysmall
Egypt
99,545
3.55
portionissuitableforagriculture.
Jordan
8,824
10.93

A marginalsized area between the desert and the sown land is not cultivated Kuwait
1,782
8.64
regularly owing to harsh climate. This stretch of land is termed as the desert Lebanon
1,023
67.17
steppelandandiscultivatedatirregularintervalsmostlybyseminomadictribes.
30,950
5.81
Therainfallpatternsinmostpartofthegeographyaredifficulttopredict,while Oman
Qatar
1,159
6.13
therainthatdoesfallisofteninsufficienttoproducegoodharvests.

KSA
214,969
80.77
In geographical terms, agricultural land or area is that land that is suitable for
UAE
8,360
7.12
agricultural production, including both crops and livestock. The FAO classifies
Source:WorldBank,Blominvest
agriculturallandintothefollowing:
Arablelandlandthatcanbeusedforgrowingcrops;alsoincludesland
lefttemporarilyfallow.
Orchardsandvineyardslandunderpermanentcrops(e.g.,fruitplantations).
Meadowsandpastureslandusedfornaturalgrassesandgrazingoflivestock.

TheregularlycultivatedareaoftheFertileCrescentexhibitssignificantdiversity.Alongthecoastlineandunderthemountains,heavy
rainfallallowsforintensivecultivationandhigherinputperunitarea,resultinginhigheryieldsandlowerunitproductioncosts.As
therainfallrecedesfromthecoast,extensivecultivationofgrainsbeginsatashortdistanceinland,evenasyieldsdecrease.

FertileCrescent
The Fertile Crescent refers to an area of cultivable
land stretching as an arc around the deserts of Syria
and Saudi Arabia, where rainfall is high enough to
permit arable cultivation, mainly due to proximity to
eithertheseacoast,orthemountains.The20cm(or8
inch)rainfalllinemarksitslimits,sincewithlessrainfall
wheatcultivationisimpossible,althoughcropssuchas
barleyaregrowninthedesertborderzonewithonlya
4inch rainfall, but are uncertain or poor. The 8inch
rainfall delineates the limit of regular cultivation. The
4inchrainfalllinedefinesthelimitofthesemidesert
area.

TheMENAregionaccountsfornearly3.68%oftheworldstotalagriculturallandarea.However,adequatewaterisavailableinonly
threeoftheninecountriesincludedinthisstudy.Asof2007,Egypthad6,000sq.km ofwater,whileJordanandLebanonhadsome
aswell,albeit inmuchlesserquantities.TheMiddle Eastregionreceivesanestimated1.56trillioncu.m.ofannualprecipitation,
whichtranslatesintoanannualregionalaverageof238mm.However,therearesignificantdisparitiesbetweencountries.

February2011

The physical geography of the Middle East region is quite varied. Vast arid deserts such as the Sahara run across North Africa,
essentiallyrestrictingsettlementalongtheMediterraneancoastlineandalongtheriverNileandtheRedSeainEgypt,whichisthe
mostpopulatedcountry.ThedesertintheArabianPeninsulaiscalledTheEmptyQuarterforitsseverelyinhospitableconditions.
Therefore, agricultural activity is relatively prominent in areas that receive rainfall and are served by rivers such as the Tigris
Euphratesriversystem,theJordanRiver,andalongtheMediterraneancoast.

MiddleEastClimate
Broadly, the climate in the Middle East region is hot and dry, with mild winters and some rainfall. The exception is in the
mountainous areas, where the desert turns to steppes in northern Iraq, northern Iran, and eastern Turkey. Winters can be quite
severeinsomeoftheseareas.TheMiddleEastregionisinatransitionalzonebetweentheequatorialandmidlatitudeclimates.A
characteristicfeatureofallsubtropicallatitudes,ofwhichtheMiddleEastformsasubstantialpart,isaridityandamarkedlyminimal
precipitation.

The hot desert conditions are highly unfavorable for cultivation of permanent crops. Across the region, summer temperatures
usually hover around 85oFand can soarabove100oF. In theSaudi desert, temperatures of over 120oF arecommon. Most storms
crossingtheMiddleEastturnintodustorsandstormsduetostrongwindsandthedrysurface.Atlastcount,asmanyas38such
stormscanoccurannually,makingtheoverallclimaticconditionsevenmorehostile.

Waterintheregion
The MENA region is possibly the most water scarce region in the world with very limited renewable water resources. Rapid
populationgrowthandurbanizationhaveexacerbatedthescarceconditionsintheregion.Whiletheregionishometoabout5%of
theworldpopulation,ithasonly1%oftheworldsrenewablewaterresources.Theregionhasthehighestpercapitaratesoffresh
water extraction (804 m3/year) and exploits over 75% of its renewable water resources, more because of the lower absolute
amount ofwater present. Driven bydiminishing freshwater resources,localgovernments have been adopting newstrategiesfor
balancing their scarce sources and growing demand for fresh water. MENA countries are turning to other options such as
desalination to address the current and future water supply requirements. Some of them have developed sophisticated water
storage facilities. In Saudi Arabia, desalination plants provide as much as 70% of the total drinking water. Due to the increasing
population,aswellasrobusteconomicgrowth,waterdemandbothpercapitaandinabsolutetermswillcontinueto increase
acrosstheregion,heavilycompetingwiththeagriculturalsector,whichisbyfarthemostdemandingintermsofwaterwithdrawal.
TheGulfStatesdominatedbyoilindustriesstilluseaconsiderableamountofwaterforagriculturalpurposesdespitethesectors
smallcontributiontoGDP.

ContributionofAgriculturetoGDP
In most of the countries under study, the contribution of agriculture to GDP is ContributionofagriculturetoGDP,2009
lessthan 23%.A substantiallylarger figurecharacterizesEgypt,where irrigated Bahrain
0.4%*
farming has attained a significant level of development. The regions low
13.7%
agriculturalproductivityasvariousindicesrevealisdirectlyonaccountofthe Egypt
2.9%
adversephysicalconditionsacrossmostoftheregion,inadditiontotherelative Jordan
neglectofagriculturebytheregionsgovernmentsoveralongperiod.
Kuwait
0.2%

Lebanon
5.6%

Oman
1.2%**

Qatar
0.1%

KSA
2.9%

UAE
1.0%

Note:*2Q10,**1Q10

Source:
Bloomberg,

Blominvest

23

F&BintheMENARegion

2.2 Foodproduction
CroppingandirrigatedagriculturehasbeenpracticedintheMiddleEastsinceatleastthe5thcenturyBC.Regionally,theagricultural
sectorconsumesmorethan85%ofextractedfreshwater,althoughthisvariesfromcountrytocountry.Theregionsannualfood
imports are valued at approximately USD 12 bn, accounting for between 10% and 35% of the total imports. Grains lead imports,
although individual countries export higher value crops such as fruits and vegetables. While wheat production meets 25% of the
totalconsumption,riceisabout52%.Althoughpercapitaseafoodconsumptionishigh,freshandprocessedseafoodproductsare
widelyavailablethroughouttheregion.LebanonhasthehighestproportionofcultivablelandintheArabworld,withalmostone
fourthofthelandavailableforcultivation.

LandUsage,2010

Bahrain
Egypt
Jordan
Kuwait

Water
2
(km )
0

Arable
land(%)
2.82

Irrigatedland
2
(km )*
40

Permanent
Crops(%)
5.63

6,000

2.92

34,220

0.5

540

3.32

750

1.18

Other(%)** Produce
91.55 Fruit,vegetables;poultry,dairyproducts;shrimp,fish
96.58 Cotton,rice,corn,wheat,beans,fruits,vegetables;cattle,
waterbuffalo,sheep,goats
95.5 Citrus,tomatoes,cucumbers,olives;sheep,poultry,stone
fruits,strawberries,dairy
98.99 Practicallynocrops;fish

0.84

130

0.17

170

16.35

1,040

13.75

Oman

0.12

720

0.14

69.9 Citrus,grapes,tomatoes,apples,vegetables,potatoes,olives,
tobacco;sheep,goats
99.74 Dates,limes,bananas,alfalfa,vegetables;camels,cattle;fish

Qatar

1.64

130

0.27

98.09 Fruits,vegetables;poultry,dairyproducts,beef;fish

KSA

1.67

16,200

0.09

Lebanon

98.24 Wheat,barley,tomatoes,melons,dates,citrus;mutton,
chickens,eggs,milk
UAE
0
0.77
760
2.27
96.96 Dates,vegetables,watermelons;poultry,eggs,dairy
products;fish
*Asof2003**Asof2005Source:CIAWorldFactbook,Blominvest

About 16% of the available land in Lebanon is arable, with nearly 14 permanent crops. Agriculture in Lebanon is the third most
importantsectorafterthetertiaryandindustrialsectorsandcontributesnearly7%toGDP.Thesectoralsoemploysaround15%of
the active population. Main crops include cereals like wheat and barley, fruits and vegetables, olives, grapes, and tobacco, along
withsheepandgoatherding.IntheUAE,about760sq.kmoflandisirrigatedofwhichanestimated24%ofcultivatedlandisused
togrowvegetables,30%fruits,10%animalfeedcrops,and36%forotheruses.Thenationsmaincropsaretomatoes,melons,and
dates, with Ras alKhaimah being the most productive region. The emirate receives underground water supplies from the nearby
mountains of Oman and enjoys the most plentiful rainfall. Off late, advanced technologies and new green crops have helped
revolutionizetheMiddleEastagriculturalscene.AnewprojectunderwayinAbuDhabi,forexample,couldseeasalttolerantsalad
plantprovidefood,fodderandfuelwithoutusingasingledropoffreshwater.

Saudi Arabia has the second highest irrigated land area of 16,200 sq km in the MENA region, after Egypt. Despite contributing a
nominal3%tothecountrysGDP,theSaudiagriculturalsectorusesmorethan85%ofthetotalwateravailableintheKingdom.Itis
theworldsthirdlargestconsumerofwaterwithdailypercapitaconsumptionof248.7liters.AsperaUNstudy,waterconcernsare
prompting Saudi, the worlds largest barley importer, to cut down on the production of waterintensive crops such as wheat, for
whichthecountryisselfsufficient.For2010,importsofbarleyandcorn,usedmainlyaslivestockfeed,areestimatedat7mtand2
mt,respectively.Jordan,wherealmost3.3%ofthetotalavailablelandisarable,isprimarilyinvolvedintheproductionoffruitsand
vegetablesincludingtomatoes,cucumbers,citrusfruit,andbananas.

Withthesecondhighestarableland(2.92%oftotalavailableland)andthehighestirrigatedland(34,220sqkm)intheMENAregion,
theEgyptianagriculturesectorcontributesasignificant13%tototalGDP.Cotton,rice,wheat,corn,sugarcane,sugarbeets,onions,
andbeansarethemajorcropsproducedinthefertileNilevalleyanddelta.Infact,aftertheservicessector,majorityoftheEgyptian
populationisemployedintheagriculturalsector.

February2011

Grossagriculturalproduction(constantprices,mninternationaldollars)
2001
2002
2003
2004
2005
2006
2007
2008
2009
Country Item

Crops
8.8
7.8
8.0
7.7
7.0
9.8
9.0
9.0
9.0
Bahrain Livestock
14.2
18.3
15.4
14.4
15.7
16.0
16.7
15.0
15.0

Totalfood
23.0
26.1
23.5
22.1
22.7
25.8
25.7
24.0
24.0

Crops
10,007.6
10,456.7
10,570.1
11,162.1
11,409.7
12,187.8
12,525.7
12,894.4
13,546.2
Egypt
Livestock
3,544.9
3,678.1
4,253.9
4,133.0
4,121.0
4,200.5
4,831.3
4,748.8
4,737.0

Totalfood 13,038.2
13,683.2
14,506.4
14,835.6
15,205.2
16,055.9
17,006.0
17,384.4
17,936.3

Crops
294.3
446.1
392.5
451.1
441.2
474.0
439.6
431.5
476.4

Jordan
Livestock
256.3
255.6
281.1
296.6
299.0
298.5
337.2
387.4
355.8

Totalfood
545.3
690.7
666.2
740.7
732.4
764.6
768.4
810.5
823.8

Crops
48.0
45.8
53.0
53.8
55.1
53.0
53.8
53.8
53.8

Kuwait
Livestock
89.5
80.7
88.6
91.5
85.5
81.3
82.4
82.4
82.4

Totalfood
136.8
125.9
141.0
144.6
139.8
133.6
135.5
135.5
135.5

Crops
608.8
650.3
619.3
683.0
627.2
631.8
636.3
640.2
642.2

Lebanon
Livestock
248.2
274.4
285.1
292.5
287.4
279.2
299.8
360.5
360.5

Totalfood
830.6
903.9
883.3
952.0
894.7
891.9
915.6
980.2
982.2

Crops

145.0
125.3
118.6
136.1
130.1
131.0
135.0
135.0
135.1
Oman
Livestock
69.1
68.9
66.6
88.9
133.0
94.9
91.6
88.4
88.8

Totalfood
211.8
191.9
182.9
222.7
260.8
223.5
224.3
221.1
221.6

Crops
12.7
13.3
9.9
11.2
12.0
15.2
18.9
18.9
18.9
Qatar
Livestock
17.8
23.4
20.9
21.3
9.6
7.8
8.9
8.9
8.9

Totalfood
30.5
36.7
30.8
32.5
21.6
23.0
27.9
27.9
27.9

Crops
1,142.8
1,202.4
1,257.8
1,383.3
1,402.9
1,408.1
1,400.9
1,337.0
1,337.0

KSA
Livestock
1,207.8
1,171.3
1,172.8
1,226.6
1,258.8
1,373.6
1,485.0
1,521.1
1,521.1

Totalfood
2,333.0
2,355.8
2,412.5
2,590.0
2,640.7
2,763.5
2,867.7
2,840.0
2,840.0

Crops
374.3
348.4
307.9
349.3
347.1
341.9
350.3
350.3
350.3

UAE
Livestock
124.3
130.1
143.5
144.5
150.2
149.2
137.5
148.7
148.7

Totalfood
497.4
476.3
450.2
492.7
496.2
489.7
486.3
497.5
497.5

Source:FAO,Blominvest

Percapitaagriculturalproductionindex(19992001=100)
Country
199496
199901
2002
2003
2004
2005
2006
2007
2008
2009
Bahrain
101
100
115
114
107
107
122
119
109
107
Egypt
89
100
100
105
105
105
111
115
116
118
Jordan
120
100
126
113
122
118
119
114
121
120

Kuwait
74
100
93
109
115
92
87
89
87
85

Lebanon
123
100
98
94
101
93
94
94
100
99

77
100
90
81
97
109
94
91
88
86
Oman
Qatar
115
100
99
75
77
47
38
42
37
33

101
100
KSA
107
108
121
102
106
106
102
100
UAE
51
100
50
42
46
44
44
39
34
31

Source:FAO,Blominvest

Overthepastdecade,theamountoffoodproducedmeasuredininternationaldollars(constantprices)hasincreasedinmostofthe
countriesunderstudy.However,therehavebeencertainvariationstothegeneraloveralltrend.Jordan(+51%)andEgypt(+38%)
have seen the largest increase in total food production. In Kuwait and Qatar, on the other hand, the amount of food produced
actually declined. In Bahrain, Lebanon, Oman, Saudi Arabia, and the UAE, livestock recorded higher growth than crops, while the
oppositewastrueforEgypt,Jordan,Kuwait,andQatar.

25

F&BintheMENARegion

Thesituationappearsdifferentwhenanalyzingagriculturalproductionpercapita.TheindexprovidedbyFAOclearlyshowsthatnet
production(excludingdeductionsforfeedandseed)perpersonincreasedforonlythreecountriesoverthepastdecade,leavingthe
rest moredependent onfoodimports.Interestingly, inalmost allcasestherehasbeenanincreaseinfoodproductionpercapita
overthe20032005period,reflectingeffortsbystatesintheregiontoachievefoodsovereignty.Sincethen,however,manyofthose
initiatives have been scrapped, and food production per capita has dippedin some casesbelow what it was a decade ago. In
particular,QatarandtheUAEhaveseenthemostdrasticfallinfoodproductionpercapitatoaroundonethirdofthe19992001
level.This,however,hasresultednot onlyfrom lowerthanexpectedfood production in general, but in a largepart froma rapid
increaseinpopulationsofthesecountries.

February2011

3 Regionaltrends
3.1 Risingincomes
ThemaindriversfortheF&BsectorintheMENAregion,similartootherdevelopingcountries,arethefavorabledemographicsand
personalincometrends.Overthepast30years,theregionspopulationofthecountriesunderstudyhasmorethandoubled,from
59mn in1980toanestimated128mnin 2010.Annualgrowthratesduringtheperiodranged fromaround 2% to3.3%,with an
averagethatwasalmosttwicetheglobalaverage,whichhasbeenonthedeclineanyway.Akeyfactorcharacterizingtheregionis
thelowaverageage.Theproportionofpopulationwithanaverageageof24orlessinthecountriesunderstudyisestimatedinthe
rangeof30%to55%.Thisclearlyindicatestremendousgrowthpotentialinthefutureforamultitudeofsectors.Largerpopulations
inevitablyimplyincreasedfoodconsumptionand,inturn,furtherdevelopmentoftheregionalF&Bmarket.
Population,MENAandworld

3%

100

2%

50

1%

0%
'80

'85

'90

'95

'00

'05

60%

%oftotalpopulation

Mnpeople

150

MENApopulation, mn
MENApopulationgrowth, %

Populationaged024inthecountriesunder
study,2010

4%

Annualgrowth

200

50%
40%
30%
20%
10%

'10

0%

Worldpopulation growth,%

BAH EGY JOR KWT LBN OMN QAT KSA UAE

Source:USCensusBureau,IMF,Blominvest

Source:USCensusBureau,Blominvest

Shareofthehydrocarbonsector
intotal

Agrowingpopulation,however,isnottheonlycharacteristicoftheMENAregionthatpointstowardanattractivefuturefortheF&B
industry.Thesuccessfuleconomicrunovertheyearsthepastdecadeinparticularindicatesfurtherpotentialforgrowthvisvis
othercountries/regions.Duringthepastthreedecades,GCCcountrieshavebenefitedenormouslyfromtheiroilandgasresources.
Theunprecedentedeconomicgrowthwitnessedintheseeconomieswasprimarilyfueledbytherunupinoilprices.Fossilfuelsare
the main source of export incomes in the GCC and account for a huge share of public revenues and overall GDP. However, the
prominentexceptionsareBahrainandDubaiwhereothersectorssuchasfinancialserviceshavegainedsignificanceinrecentyears.
Inabidtostrengthenandsustaineconomicgrowth,governmentsinthesecountriesareimplementingpolicyreformstoeventually
reducedependenceonoilandgasrevenues.Accordingly,Bahrain
Importanceofthehydrocarbonsectorinthe
was the first Gulf state to decouple its economy from oil. The
economiesoftheGCC,2008
country is making concerted efforts to develop its banking,
100%
finance,andtourismsectors.Dubaisstellargrowthisanoutcome
80%
ofitsstrategytodiversifyitseconomyawayfromoiltorealestate
60%
and construction, trade, financial services, tourism, and
40%
hospitality.During2009,however,theglobaleconomiccrisishad
its effect when the unfettered expansion came to a screeching
20%
halt with the exodus of capital from the property sector. With
0%
Abu Dhabi coming to the rescue, the UAE managed to emerge
Bahrain Kuwait Oman
Qatar
KSA
UAE
from the crisis and is expected to maintain a robust economic
Shareintotal GDP
Shareintotal publicrevenues
growth of almost 4% in the nearterm, according to the IMF.
Shareintotal exports
Other GCC countries, which still rely on their hydrocarbon
Source:IMF,Blominvest
reserves, have so far seen a more benign impact of the global
economiccrisis,notwithstandingreportsofnegativeornogrowthinKuwaitandSaudiArabiaduring2009.However,therecoveryis
likelytobequicker,especiallywhencomparedtoEuropeanorNorthAmericancountries,whicharelikelytotraversealongerpath

27

F&BintheMENARegion

toreturntotheirprecrisisdays.Qatarcontinuestobeanexceptionallysuccessfulstory,withannualGDPgrowthratesinrecent
yearsfarexceeding10%.

Ontheotherhand,eventhoughthenonoilexportingMENAcountriesEgypt,Jordan,andLebanonmaynothavewitnessedsuch
stellargrowthratesastheGCCstates,theydidremainstronglyresilientintherecentpast.Owingtotheirbalancedanddiversified
economies,theestimatedGDPgrowthofanaverage45%through20092010inthesecountrieswassuperiortosomeoftheirGulf
peers. In this group, Lebanons performance has remained positive since 2007 because of expansion in real estate, tourism, and
financialsector,whichspurredeconomicgrowth.Theoveralleconomicperformancereflectsinthepersonalincomelevelsaswell.
GDPpercapitaintheGCC

GDPpercapitainEgypt,JordanandLebanon
10

80
USDthousand

USDthousand

100

60
40
20
0
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
Qatar
Kuwait
Oman

UnitedArabEmirates
Bahrain
SaudiArabia

Source:IMF,Blominvest

8
6
4
2
0
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
Lebanon

Jordan

Egypt

Source:UNWTO,Blominvest

InQatar,GDPpercapitaisexpectedtoexceedUSD100,000by2011, withtheUAE andotherGulfcountries likelytofollowsuit.


Egypt, Jordan and Lebanon are catching up with their richer peers. Lebanon is the clear leader within the group in the present
scenario,withitspercapitaGDPlikelytoreachUSD9,600by2011morethanhalfthatofSaudiArabia.

EconomicandsocialtrendscreateahugepotentialforF&B

Thehighpurchasingpowerofincreasingnumbersofpeopleisthereasonbehindtheexcitinggrowthinthedifferentsegmentsof
theindustry.Infact,owingtothestrongeconomicreasons,theMiddleEastregionhasemergedasastrongmarketfor highend
F&Bproductsandbrands,manyofwhichhavebeenexploringexpansionopportunities.AluxuryBritishchocolatieropeneditsfirst
store in Dubai, one of the companys few international shops (including one in Bahrain). In February 2010, a famous US dessert
house opened its first international store in the Dubai Mall. Pointing further to the future potential of the regions confectionery
market, the worlds biggest candy shop opened doors in Dubai in October 2009. The Middle East region is among the top ten
confectionery markets in the world and its penchant for sweets and chocolates is hardly surprising. According to TNS Media
Intelligence,theregionalconfectionerymarketisvaluedatUSD113bn.Over200609,themarketgrewbyasmuchas15%annually,
with Saudi Arabia and Qatar outpacing the other countries with growth rates of around 24%. In the GCC countries alone,
confectioneryimportsstandataboutUSD12bnayear.Accordingtoa2007TNSsurvey,99%oftherespondentsfromSaudiArabia
confirmedeatingchocolateduringthepastsevendays,upfrom95%in2004,whileintheUAEthepercentageremainedunchanged
at98%.InthewordsofYvesManghardt,ChairmanandCEOofNestleMiddleEast,theregionhastremendousgrowthpotential.

ConfectioneryisnottheonlypremiumsegmentexperiencingrapidgrowthintheMENAregion.Thebroaderfoodservicesegment,
whichalongwithconfectioneryisvaluedatanestimatedUSD32bnintheMiddleEast,representsanothergoldmine.Theexistence
ofalargemarketforgourmetfoodsunderpinsthelaunchofubertrendyrestaurantsintheregion.Celebritychefsmostlyfromthe
UKareeyeingtheregionsrestaurantbusiness.AnumberofcelebritychefshavesetupshoporareplanningtodosoinDubaiand
theregion.Westernstylefoodoutletsareburgeoningaswell,pointingtothechangesintastesandadoptionofinternationaltrends
intheregion.KuwaitsAmericanaGroupwasquicktospotthetrend,withitsregionwidefranchisenetworkoffamousrestaurants
andfastfoodoutletssuchasKFC,PizzaHut,Hardees,andChickenTikka,amongothers,inadditiontoambitiousexpansionplans.
PernodRicard, the international beverage giant and worlds secondlargest producer of alcoholic drinks, reported outstanding
performanceduring2009intheGulfvisvisitsmoreestablishedmarkets.

February2011

Going forward, the foodservice sector is in for significant growth and diversification, mainly due to changing lifestyles and the
regionsdemography.Currently,almost52%oftheMiddleEastregionspopulationis24oryounger,makingitoneoftheyoungest
regions in the world. The large youth population is driving most of the trends in the F&B industry. Eating out is becoming an
increasinglypopularentertainmentoptionandisplayingakeypartindrivingthesegmentsgrowth.Moreover,theadaptationto
westernstylefoodoutletsandproductsisdrivingbothfoodserviceandretail.Further,ayoungpopulationconnotesanincreasing
numberofworkingagepeopleandlowdependencyratiointhefuture,oneofthebasicdriversoftheF&Bindustry.Accordingtothe
USCensusBureau,between2010and2030,theMiddleEastpopulationissettoincreasebyalmostonethird,equallysplitbetween
thetwodecades.Withsuchforecasts,theregionnotonlyconstitutesanattractiveF&Bmarkettoday,butalsosignifieshighgrowth
potentialinthefuture.

29

F&BintheMENARegion

3.2 Foodpricesandinflation
InflationintheMENAregion

20%

50%

15%

40%

10%

30%
20%

5%

10%

0%

'00'04

'05

LEB OMA QAT


'06

'07

'08

KSA

UAE

0%
EGY*

'09

Source:IMF,Blominvest

Food is a major component of the regions Consumer Price


Index(CPI)andunderscoresthepriceriseinthepast.Overthe
past few years, prices of food commodities have been rising
more sharply than the overall CPI across all the countries in
theregion,withtheUAEandQatarbeingtheonlyexceptions
forawhile.Thisreflectshigherlevelsofincomepercapitain
thesecountries.Inanaffluentsociety,lessweightisattached
to food in the total consumer goods basket. In the UAE, the
differentiating factor was property costs and rents, which
played a dominant role, outweighing food. However,
comparison of price indices shows a very close correlation
between food price hikes and the overall inflation in the
region.

KUW

OMA

QAT

KSA

UAE

ConsumerPriceIndex(CPI)vs.FoodPriceIndex

GeneralCPI
Food
Bahrain
Bahrain

140
130
120
110
100
Aug07

2007=100a

Within the largely buoyant economic mediumterm scenario,


inflationisoneissueplacinganincreasingburdenonstatesin
the MENA region. After a period of relative price stability
during the first half of the decade when inflation rates were
evennegativeinsomecountries,consumerpriceshavebeen
ontherisesince2006.Pricesincreasedbymorethan10%ina
numberofcountriesduring2008,particularlyinEgyptwhere
inflation was above 18%. In the middle of the year, monthly
YoYinflationrateswereactuallyclosertoarangeof1520%.
Suchpricehikesmadeinflationthemostseriousthreattothe
regions macroeconomic health in addition to the prevailing
worries due to the global crisis. However, the crisis, which
started unwinding during the second half of 2008to some
extentwas a blessing in disguise as it managed to bring
downtheinflationrates.Thecurrenteconomicrecoverycould
however push inflation up and expose the economies to
anotherroundofpriceincreases,particularlytowardtheend
of2010.

JOR**

*2008/09**2008Source:NCBCapital,CentralBanks,Blominvest

2006=100a
2006=100a

JOR KUW

Feb08

Aug08

190

Feb09

Aug09

Feb10

Egypt

160
130
100
Feb07 Aug07 Feb08 Aug08 Feb09 Aug09 Feb10

2002=100a

EGY

190

Jordan

160
130
100
Dec03

2000=100a

BAH
5%

ShareoffoodintheConsumerPriceIndex,2007

Dec04

Dec05

160

Dec06

Dec07

Dec08

Kuwait

130
100
Dec00

Jun02

Dec03

Jun05

Dec06

Jun08

Dec09

1999=100a

160
170
190

170

2006=100a

Oman

150
130
110
Aug02

150

Feb04

Aug05

Feb07

Aug08

Feb10

Qatar

130
110
90
70
Mar02

1999=100a

Kuwait
Lebanon
Egypt
Jordan

150
160
130
130
110
100
100
90
Dec00
Dec03
Jun05
Dec06
Jun08 Feb10
Dec09
Feb07
Aug07
Feb08
Aug08
Feb09
Aug09
Dec03
Dec04
Dec05
Dec06
Dec07
Dec08
Sep03 Jun02
Mar05
Sep06
Mar08
Sep09

90
Feb01

150

Sep03

Mar05

Sep06

Mar08

Sep09

KSA

130
110
90
Jan03 Jan04 Jan05 Jan06 Jan07 Jan08 Jan09 Jan10

180
2000=100a

RisingfoodpricesarenotlimitedtotheMENAregionaloneand
can be seen in developing countries such as China and India
due to rising income levels. However, MENA countries are
particularlyvulnerabletoglobalpriceshocksduetotheirhuge
dependence on food imports, especially in the GCC states,
where currency pegs exacerbate the problem. With the dollar
weakening in 2008, purchasing power was down and food
imports turned expensive. For instance, by 2008, the Saudi
Arabianriyaldepreciatedby18.2%inrealeffectivetermssince
2000,theimpactofwhichcouldbefeltintheoverallpricerise,
especially for food that was mostly imported. Even Kuwait
experienced similar problems, despite its peg to a basket of
currenciesandnottotheUSdollaralone,aswasthecasewith
otherGCCcountries.

Foodpricestabilityrankshighontheprioritiesoftheregional
governments.Ahighstandardoflivingisgenerallyaguarantor
of political stability, which is especially the case in the Gulf.
However, inflation and the resultant decline in real wages
reduced the purchasing power and triggered a number of
protests across the region. Among the countries under study,
Egyptisthemostvulnerablesinceanestimatedonefifthofthe
population lives below the poverty line of USD 2 per day. In
2007, a number of protests demanding basic pay hike and
higherfoodsubsidieswerestagedinthecountry.Providingthe
lowest income groups with at least staple foods at affordable
prices is crucial to the policy, based on which the Egyptian
government has been subsidizing bread, sugar, and tea since
the 1940s. However, with soaring expensesbread subsidies
alone cost the exchequer around USD 2.74 bn annuallythe
burden on public finance is on the rise and is not likely to
recedeanytimesoon.

2000=100a
1998=100a
2002=100a
2007=100a

February2011

UAE

170
160

150
The more affluent countries in the region are also under
pressuretoprovideaffordablestaplefoodstotheirpeople.Ina
140
Jan08 May08 Sep08 Jan09 May09 Sep09 Jan10
bid to defuse the food crisis and step up food subsidies, the

UAEhasbeenconsideringaschemewhereinitscitizenswould
beabletobuystaplessuchasrice,bread,sugar,tea,dairy,and
otherbasicfooditemsatdiscountedpricesafterpresentinganidentificationcard.Inthemidstofthecrisis,toappeasethecitizens,
thegovernmenthikedpublicsectorwagesbyalmost70%,whichonlycontributedtofurtherpricerises.Suchmoves,however,are
not a longterm solution since they put an additional financial burden on public finances. They also have wider social effects,
triggeringdiscontentamongtheunskilledimmigrantworkersthemostvulnerableincomegroup,anddiscouragingthesoughtafter
highskilledexpatriatesfromtakingupjobsinthecountry.TheUAEdecidedtocappricesof16basiccommoditiesaswell,imposing
fines of about USD 3,000 for retailers who charged higher. Saudi Arabia, where rice prices rose 30% between 2004 and 2008,
introducedsubsidiesforriceandbabyfood.OthercountriessuchasKuwaithavefollowedsuitwithsimilarschemesandsubsidies.

Althoughsuchmeasuresbringtemporaryrelieftoconsumers,theymaynotbethebestlongtermsolutiontotheproblem.Infact,
they prevent the interplay of market forces that balance fundamental demand and supply. In economies with such food trade
deficits and that rely on food importslike the countries under studysuch policies may not be sustainable in the longer run.
Therefore, the longerterm sustainable solution entails steps to ensure comprehensive food security and broadbased economic
development.

31

F&BintheMENARegion

3.3 Traditionalandreligiousinfluences
WhileanalyzingtheF&BindustryintheMENAregion,itisimportanttonotethatthemarketdynamicsdiffersignificantlyfromthat
inwesternmarkets,duetothestronginfluenceoftraditionalandreligiousfactors.Inmostotherregions,nonalcoholicbeverages
encounterintensecompetitionfromtheiralcoholiccounterparts.However,sincetheShariahprohibitsalcohol,demandismarginal
inmostMENAcountriesandlimitedtotouristsandexpatriates.Thisopensupopportunitiesfornonalcoholicbeverages,bothhot
andcold.Ofthetwomajorhotdrinks,teaismorepopularandispartofdailyconsumption.Ubiquitousteashopsaccountforalarge
chunk of the tea demand almost 50% in the UAE. In North African countries such as Egypt, tea forms a pivotal element of the
popularsocialactivityofsmokingshishas,orwaterpipes.Asialeadsintermsofpercapitateaconsumption(asof2004),evenas
some countries from the wider MENA region rank higher. Turkey tops the list with an annual per capita consumption of 2.5 kg.
Moroccoisfourthglobally,followedbyIranandEgypt.NoneoftheGCCcountriesfigureinthetop25.WithintheGCCgroup,Oman
has the highest per capita tea consumption. The market for tea, however, is rather mature in the region and its growth is
comparabletothepopulationgrowthrate.In2006,theUAEsteamarketgrewbyanestimated7%,whichcomparedwellwiththe
recordedpopulationgrowth.Sincetheteamarketisclosetosaturation,salesgrowthislikelytocomefromtheshifttowardsmore
convenientoptionssuchasteabagsandnotfromanabsoluteincreaseindemand.

180

BeveragemarketintheGCC,2008growth

AnnualPerCapitaConsumptionofSoft
Drinks,2010

9%

150
6%
Liters

120
90

3%

60

KWT

OMN

QAT

KSA

UAE

Source:BMI,EIU,Blominvest

Tea

Dairy

Juices

Carbonate
ddrinks

EGY

Liquidmilk

BAH

Bottled
water

Energy
drinks

Instanttea
products

0%
30

Source:BMC,Blominvest

Themarketforsoftdrinks,ontheotherhand,iswelldevelopedandcontinuestothrive,drivenbyfactorssuchastheyearround
hotclimateandthebanonalcoholicdrinks.Softdrinksareparticularlypopularamongyouth,whoconstitutealargeshareofthe
MENAregionspopulation.AccordingtoBusinessMonitorInternational,theannualpercapitaconsumptionofsoftdrinksispoised
toexceed100litersinKuwait,Qatar,SaudiArabia,andtheUAEduring2010.TheUAEisthemostmaturemarketandisexpectedto
registeranannualsalesvaluegrowthof1.5%during2010toUSD760mn.Thisismarkedlybelowthe5%growthforsoftdrinksales
value over 200608, factoring in the economic downturn. After 2010, BMI forecasts an annual average growth of 3.78%. Strong
growthwillbeseeninQataraswell,whichregisteredaYoYincreaseof7.6%during2009toUSD226.2mn,reflectingitseconomys
relativeinsulationtotheglobalcrisis.OwingtothehighestGDPpercapitaintheregion,theaveragesoftdrinkssalesvalueinQatar
isforecasttoincreasebyanother8%peryearuntil2014.InSaudiArabia,softdrinksalesgrowthisexpectedtoreach4.2%in2010
andincreasebyanaverage5.6%between2011and2014.ThismayseemlessexcitingthanQatarsstory,butthecombinationofa
relatively high GDP per capita and a large population will imply perhaps the highest potential in the long term, beyond 2014. In
comparison,thegrowthofSaudiArabiassoftdrinkmarket,currentlyatUSD3.47bn,willlikelyoutperformthatoftheUAEby2014
withathreefoldjump.Egyptisexpectedtobecomethesecondlargestsoftdrinkmarketinvolumetermsoverthenextfewyears.
AccordingtoEconomistIntelligenceUnit,thevolumeofsoftdrinkssoldinthecountrywillreach1.5bnlitersby2012.Althoughsales
percapitawillbeonlyabout16.3liters,apopulationnearlythreetimesthatofSaudiArabiawillbethekeydriverforsuchvolumes.
Within the GCC, higher value drinks such as fruit juices and energy drinks are currently the main growth drivers and are likely to
remain so at the expense of carbonated drinks. In Saudi Arabia, for example, the increase in sales value for carbonated drinks is
forecastat6.1%between2009and2014comparedto46.9%forfruitjuicesand25%fortheoverallsoftdrinkssegment.However,
Egypt has a huge potential for carbonated drinks with sales volumes projected to increase 20.1% by 2014 to 987 mn liters. In
contrast,theincreaseinfruitjuicesalesduringthesameperiodwillonlybe15.8%to84mnliters.Accordingly,PepsiCoannounced

February2011

aninvestmentofUSD100mninthecountryduring2010.Thecompanyisthedominantplayerintheregionalsoftdrinksmarket,
although it lags global rival Coca Cola in promotional coverage across popular media and the internet, as per Pan Arab Research
Centre.PepsiCohada70%marketshareinthecarbonatescategoryinSaudiArabiaand83%inLebanonasof2005,accordingto
BMI.

Liters

Bottledwaterisanotherbeveragecategoryofsignificanceintheregion,bothduetoclimaticanddemographicfactors.Thecategory
haswitnessedspectaculargrowth,ridingonthewaveofincreasinghealthconsciousnessandconcernsoverthesafetyoftapwater
which,insomecaseslikeEgypt,wasvalidatedbyhealthstatistics.IntheGCC,bottledwaterwasthethirdfastestgrowingcategory
in 2008 at a rate of 6.7% after energy drinks and instant tea
products.TheUAEtopsthelistofpercapitaconsumptionof
Bottledwaterconsumptioninselected
bottledwaterintheregionatover150litersperyearandwas
countries,2008
160
60%
ranked third globally. Lebanon, Qatar, and Saudi Arabia are
present among the worlds top 20 as well. In Egypt, on the
120
40%
other hand, per capita bottled water sales were only about
80
3.5litersin2008,reflectingthehuge70%shareofcarbonated
drinks in the soft drinks market. This is, in large part, due to
20%
40
the price structure: Often, bottled water in the country is
more expensive than carbonated drinks. Across the region,
0
0%
localplayers,suchastheUAEbasedMasafiandAlAinWater,
UAE
Lebanon
Qatar
Saudi
Global
Egypt*
dominate the bottled water segment. This is similar to the
Arabia average
fruitjuicessegment,butincontrasttothecarbonateddrinks
Consumptionpercapita, liters
Increase200308,%
story.
*Increasedatan/a;basedonsalesvolumeSource:BMC,Blominvest

Other characteristics of the regional F&B market are the


restrictions on certain forms of entertainment otherwise
allowed in other markets, such as pubs or, in some cases, live music and cinemas. Indirectly, this implies further boost to the
foodservice sector, as going to restaurants or fastfood outlets remains the most popular option for socializing. Food and drink
expenditure clearly shows an uptrend during the holy month
GCChalalmeatimportsbyexportingcountry,2007
of Ramadan. Although this is a period of fasting during the
day, consumption levels increase at night, surpassing the
regularlevelsduringtherestoftheyear.InSaudiArabia,itisa
USA
Totalhalalmeatimportsto
3%
common practice to invite family and friends for dining
Argentina
GCCin2007:USD2.95bn
1%
together, which raises the household F&B expenditure. As a
result, food prices usually rise during Ramadan, with NewZealand
Others
4%
11%
traditionalArabfoodsand beveragesbeingthemostpopular
EU
products.
7%

Brazil

ThemostdistinctfeatureoftheMENAF&Bindustry,however,
54%
is the halal food market. Broadly, halal means lawful or
Australia
9%
allowed,accordingtotheIslamiclawORShariah,whichhas
India
11%
laid down certain conditions. First of all, the food itself must
not be prohibited, such as pork or alcohol. Furthermore, it
Source:WorldBank,Blominvest
mustbeobtainedthroughhalal(orlegitimately),implyingthat
itmustnotbestolenandhastobeprocessedproperly.Inthe
caseofmeat,animalsareslaughteredusingspecialtechniquesandconformtoacertaincodebothpriortoandduringtheprocess.
Finally,asageneralrule,anyfoodordrinkthatisharmfultohealthisnotconsideredhalal.
MiddleEastisthepremiermarketforhalalfood,currentlyvaluedatUSD111bn,or19%oftheworldstotal.TheGCCmarketitself
wasestimatedatUSD43.8bnin2009,despiteitsMuslimpopulationbeingconsiderablysmallerthansomeotherregions/countries.
Infact,theideaofhalaliswidespreadintheMENAregiontotheextentthatallfoodsandbeveragesareexpectedtobeShariah
compliant,ingeneral.TheGCCmarketreliesoverwhelminglyonimportsofhalalcommodities,especiallyhalalmeat.Accordingto
Halal Industry Development Corporation, aMalaysian halal standards body, thesix GCCstates import close to1 mn tonsof halal
poultryandover200,000tonsofhalalbeefannually,mostofwhichisaccountedforbySaudiArabia.NonMuslimcountriessuchas

33

F&BintheMENARegion

Globalhalalfoodmarket,2009
160

400.4

1400
1200
1000
800
600
400
200
0

Mnpeople

120
80

Americas

Europe

Africa

Malaysia

China

India

GCC

Indonesia

Australia&

40
Asia

USDbn

Brazil,India,Australia,andthoseintheEUaremajorexporters
of halal meat. In order to comply with halal standards
necessaryfortappingthehugemarketsintheMiddleEastand
otherArabcountriescompaniesintheexportingcountriesare
increasingly undertaking efforts to obtain the necessary halal
certification. In Brazil, over 300 F&B producers have already
obtained such certification from the Centre for Promotion of
Islam to Latin America, while Australia has its own national
body called Halal Certification Authority to issue such
certificates.

Halal food has become a global trend and offers tremendous


growth opportunitiesforhalalfood producersfromtheMENA
Halalmarketvalue,USDbn
Muslimpopulation, mn(2008)
region to serve such demand in other regions. The large
potentialforhalalF&BindustryinAsia(SouthEast,South,and
Source:WorldHalalForum,islamicpopulation.com,Blominvest
Central), Africa, and even Europe will benefit MENA players
goingforward.TheUSholdspotentialforastrongcustomerbaseaswellwithamarketestimatedcurrentlyatUSD16bn.Still,there
isonlyonehalalproductforevery86kosherproducts,asaresultofwhichMuslimsbuymoreofthelatterasasubstitute.Sofar,
Malaysiahasbeentheepicenterforhalalfoodinnovationandcertification.However,Dubaiisalreadymakinginroads,initsefforts
topositionitselfasthegatewaytotheentireMENAregion.AnumberofUAEcompaniessuchasAlIslami,AlKabeer,andAlAreesh
areengagedinreexports;butsomeofthemexportupto7080%oftheirtotalproduction.InNovember2009,theUAEbasedhalal
foodproducerKhazanMeatFactoryannouncedsalesgrowthof75%and200%intheUAEandMiddleEast,respectively,forthepast
year.Thecompanyplanstoincreasecapacityby30%andaffirmstheintenttoentertheUShalalfoodmarket.Akeychallengefor
the segment is the absence of globally accepted halal food standards. For instance, Malaysia has 45 approved halal certification
bodies,whileIndonesiahas40,andtheGCCcountrieshave52suchagencies.Nonetheless,organizationssuchastheInternational
HalalIntegrityAlliancearetryingtodevelopsuchstandardsinordertoboostandpopularizehalalfoodproductionandtrade.Once
achieved, it will eliminate a major hurdle to the development of the global halal food industry and make the international
marketplaceprobablyasaccessibleasthatforconventionalfoods.

February2011

3.4 Foodsecurityconcerns
AccordingtoFAO,foodsecuritymeans:allpeople,atalltimes,havephysical,social,andeconomicaccesstosufficient,safe,and
nutritiousfoodthatmeetstheirdietaryneedsandfoodpreferencesforanactiveandhealthylife.Theideaoffoodsecuritybecame
prominent in the face of the food crisis, when public concerns over the upward spiral in basic food prices sparked off
demonstrations and riots, causing a social and economic crisis of global dimensions. The most notable events were witnessed in
Egypt,Ivory Coast, Senegal, Yemen,Indonesia,andMexicoin2008,withsometurningviolent.Duringthe first quarterof2008,a
seriesofdemonstrationswereheldinMiddleEastcountries,includingBahrain,Jordan,Lebanon,Morocco,andSaudiArabia.

FoodtradeintheMENAregion,2008

100

15

FoodselfsufficiencyratiointheMENAregion,1993
2005

80

12
Ratio

USDbn

18

60

40

20

BAH

EGY

JOR KUW LEB OMA QAT


Imports

KSA

UAE

Exports

Source:WTO,Blominvest

BAH EGY
Cereals

JOR KUW LEB OMA QAT KSA

Dairyproducts

Fatsandoils

Meats

UAE
Sugar

Source:UNDP,Blominvest

IntheMENAregion,whichisoneofthemostwaterstressedregionsintheworld,foodsecurityisofparticularimportance.These
countries rely on imports to meet at least 50% of their food requirements. In most of the countries under study, arable land
constituteslessthan3.5%ofthetotallandarea.Lebanonistheonlycountrythathasalargershareofarablelandataround16%.
Therefore,domesticfoodproductionislimited,whilethedemandcontinuestoincreaserapidly,fuelledbydemographicfactorsand
growth in income levels. Across all the major food groups, the countries under study are not capable of producing enough, as
indicatedbytheselfsufficiencyratio,whichisthepercentageofdomesticconsumptionsatisfiedbydomesticsupply.Thenumber
standsbelowthebalancedlevelof100inalltheninecountries.Egyptand,toacertainextent,SaudiArabiaaretwocountriesthat
arerelativelyselfsufficient,whiletheothersespeciallyintheGCCarenotevenabletomeethalftheirrequirement.TheUAEis
probablythemostextremecase,sinceitsselfsufficiencyratioforcereals,fats,oils,andsugarisalmostzero.Alltheothercountries
importhugeamountsoffoodcommoditiestomeettheirdomesticdemand,aswell.

Naturally, such a situation makes the region vulnerable to international food prices. This became painfully evident during 2008,
whenanunprecedentedglobalfoodinflationpropelledthepricesofimportantfoodstaplessuchaswheat,rice,andcorn.Anumber
ofcountriesintroducedmeasuressuchassubsidiesorpricecontrolstoprovidethelessaffluentconsumergroupsaccesstoatleasta
fewstaples.Egyptsubsidisedwheat,flour,andbreadatahugeincrementalcostofUSD2.74bneventowardthebeginningof2008
whenpriceshadnotyetpeaked.Asasignofthecrucialroleofthesesubsidies,breadqueuesinthecountryweresocrowdedby
citizensdesperatetogetaccesstothesubsidizedstaplethattheyclaimedsomefatalities,referredtoasbreadmartyrsbythelocal
media. On the other hand, a number of Gulf states introduced various caps and ceilings on select food items. Such measures,
necessaryinthefaceof potentialsocialunrestare,however,verycostlyforthepublicsectorand usuallynotefficientenough to
completely eliminate the impact of rising international food prices. As a result, governments in MENA countries have decided to
pursuenotjustfoodsecurityasakeypolicyitem,buttogoastepfurthertofoodsovereignty,whichmeansmeetingdemandas
muchaspossiblefromdomesticsources.

Thisisnotnewtotheregion.Inthe1980s,mostGCCcountriesintroducedpoliciestoincreasedomesticfoodproduction,focusing
mostly on cereals the most important staple in the region. In order to make the cultivation economically viable, governments
offeredincentivesand subsidiesincluding farmlandsandfinancialassistancefordiggingirrigationwellsandpurchasingseedsand
fertilizers.Asaresult,between1980and1990,acreageundercerealcropsexpandedinalmostalltheGCCcountriesby15%peryear
andcerealproductionby31%.Accountingfor99%ofthetotalGCCcerealproduction,SaudiArabialaunchedaprograminthe1970s

35

F&BintheMENARegion

USDbn,constantprices

forwheatcultivation,aimedatachievingselfsufficiencyinwheatproduction.Asaresult,bythebeginningof1990s,itwasthesixth
biggest wheat exporter worldwide. However, it quickly realized that it did not have the necessary water resources for cultivating
suchawaterintensivecerealcropanddecidedtophaseouttheprogramin2008andtowithdrawitcompletelyby2016.

Thisstrategy,aimedatconservingwaterintheregion,furtherwidenedthegapinagriculturaltradethedifferencebetweenimport
and export of agricultural products. According to FAO, the
cumulativegapfortheregionssixcountriessoaredtoUSD13bn
WideningMENAagriculturaltradegap
18
in2006fromanaverageofUSD12bninthe1960stomid1970s.
This undesired dependence on foreign sources forced
15
governments in the region to look for alternative solutions in
12
ordertosecurefoodsupplyatstableprices.

9
Food security concerns are compelling the resourceconstrained
6
countries of the MENA region to embark on a new strategy of
gettingintolongtermleasesforarablelandoverseas.Onaglobal
3
scale, private companies looking to profit from lower rents and
0
higheryieldsindevelopingcountriesintroducedthisconcept.The
'61 '66 '71 '76 '81 '86 '91 '96 '01 '06
public sector has now started to play a dominant role, which is
especially true in the case of MENA buyers. Many of them are
Imports
Exports
either public sector companies or are supported by the state Note:Countriesincluded:Egypt,Jordan,Kuwait,Source:FAO,Blominvest
through publicprivate partnerships such as the King Abdullah Lebanon,KSA,UAE
Initiative for Saudi Agricultural Investment Abroad. Among the
regional players are entities such as the Kuwait Investment
Authority,QatarInvestmentAuthority,AgriCapital(aninvestmentvehiclelaunchedbyGulfFinanceHouse),Ithmaar,andAbuDhabi
InvestmentHouse,SaudiArabiasBinladinGroup,HailAgriculturalDevelopmentCompany,UAEsAbuDhabiFundforDevelopment,
andDubaiNaturalResourcesWorldownedbyDubaiWorld.

Thecountriestargetedforlandacquisitionsaremostlydevelopingcountrieswith underdeveloped farmingsectors,resultingfrom


thelackofadequatefinancialresourceswithinthecountry.Theyusuallybenefitfromacombinationoflowproductioncostsand
vastlandandwaterresources.Sinceproximityisanimportantfactor,MENAcountrieshavebeeninvestingprimarilyinNorthEast
AfricaandSouthAsia.SudanandPakistanhavebeenmajortargets,sincetheirlowlevelsofagriculturaldevelopmentimplyroomfor
yieldimprovements,whiletherelativelyshortdistancefromtheinvestingcountriesreducestransportationcosts.Ontheacquiring
side,SaudiArabiaandtheUAEhaveemergedasregionalleaders,withcombinedinvestmentsincountriessuchasSudan,Pakistan,
Turkey,andIndonesiaofreportedly2.8mnha.Apartfromdirectinvestments,thesecountriesarealsosupportingtheprivatesector
forthedevelopmentofsuchventures.Internationalinstitutions,suchastheArabOrganizationofAgriculturalDevelopment(AOAD)
andtheArabAuthorityforAgriculturalInvestmentandDevelopment(AAAID)areplayinganincreasinglyimportantrole.Theyaimto
ensure food selfsufficiency within the wider Arab region, fostering agricultural investments and trade between countries which
sharesimilarculturalpatterns.Reportedly,someArabofficialshavevoicedconcernsaboutsecurityrisksrelatedtodependenceon
foodimportsfromWesterncountries,especiallytheUS.Towardasimilarend,aJointAfroArabMinisterialMeetingOnAgricultural
DevelopmentandFoodSecuritywasheldduringFebruary2010todrawupanagriculturalinvestmentstrategybetweentheAfrican
andArabcountries.

More often than not, the host countries are welcoming such land acquisitions that provide access to capital and the required
knowhow for improving agricultural productivity, besides generating employment for locals. Among the partner countries, Sudan
heldpromotionalroadshowsforpotentialinvestors.Morocco,wheretheAbuDhabibasedTirisEuroArab(TEA)signedalongterm
lease worth USD 44.6 mn, is agreeable to investors exporting the total produce and assures further flexibility. Pakistan recently
offeredlandtoSaudiArabiainexchangeforasteadysupplyofoil.However,ontheflipside,fromtheinvestorsperspective,thereis
the problem of supplies restricted to a few sources, which implies related geopolitical and weather risks. They have to compete
against otherplayersaswell,most notablyChina,whichistryingtosecureagriculturalplotsaroundtheworld,as wellasprivate
corporationswithaprofitmotive.Ontheotherhand,landacquisitionsinhostcountriesaresometimescontestedbyboththelocal
population and NGOs. Often, they argue that some of these countries are net importers of food, and further reducing their
productivityisnotseenasastrategythatbenefitsall,althoughthisargumentisdebatablesincelocalfarmersproductivityisusually
low.Forinstance,inApril2009,Qatar'splanstolease40,000hainKenyainreturnforbuildingaUSD3.5bnportclosetothetourist

February2011

islandofLamuwerestalledafterstrongoppositionfromtheEasternAfricaFarmersFederationUnionandpastoralists.Pakistanhad
intially refused to grant exemption to the UAE from export ban restrictions during potential agroprojects negotiations, although
thatwasfinallyrelaxedonBasmatirice.

In order to benefit from such investments, MENA investors need to ensure that the deals are structured in a mutually beneficial
mannerforbothcountriesandwinpublicacclaim.Althoughagriculturalinvestmentabroadseemstobethepresentstrategy,MENA
governments are exploring other initiatives in pursuit of food security. One such approach involves building strategic reserves,
reducing the exposure to market volatility. Omans storage system has a 34 month capacity, while Saudi Arabia recently started
buildingsuchasystemin2009.InDecember2009,theUAEsMinisterofEconomyannouncedplanstojointheleaguewithathree
monthcommoditystockpile.AnothersteptakenbytheGulfStatestocounterthepriceincreasewasthedecisiontocreateaUSD2
bnagriculturalfund,announcedtowardtheendof2009toacquirestocksoffoodcompaniesinMiddleEastandAfrica.

37

F&BintheMENARegion

3.5 Foodretailing
TheMiddleEastregioniscurrentlyinthemidstofapossiblefoodretailrevolutionofsorts.Thesegment,sofarfullydominatedby
wholesalemarketsandsmallgroceries,isseeingtheemergenceofwesternstylehypermarketsandconveniencestores.Thechange
is visible in major cities, although a gradual diffusion into smaller towns is evident as well. This reshaping of the industry is the
outcome of intense competition, modernization, expansion, and the arrival of new retail formats in a globalized world where big
multinationals are looking for growth opportunities beyond developed countries. Moreover, such a trend is fuelled by the
embracementofcertainelementsofwesternculture,spreadthroughsatellitetelevision,theinternet,andincreasedavailabilityof
globalbrandsandproducts.

USDbn

However, the food retail market in the region still remains highly fragmented. Even in the UAE, which has the most developed
organized retail sector among the regional peers,
OrganizedGroceryRetailGrowth
independentretailershadamarketshareof34.5%in2008in
25
value terms, according to Business Monitor International
(BMI). This was in spite of grocery/convenience storesa
20
majority of which belong to the independent segmentfar
15
outnumbering larger formats, reflecting the much higher
salesvaluesinsupermarketsandhypermarkets.Intheother
10
countries under study, however, the share of traditional
outletsintotalfoodsalesstandsabove50%.InEgypt,which
5
isattheotherendofthespectrum,smallvendorsaccountfor
0
anestimated70%oftotalgrocerysales,whileowing9095%
of the food outlets. Changing consumer demographics, the
Bahrain* Egypt* Kuwait Lebanon
KSA
UAE
presence of a large expatriate population, and increasing
Increase50%32.9%22.3%16.5%27.2%48.7%
purchasing power have attracted supermarkets and
2009
2014
hypermarkets regionwide. Retail dynamics and consumer
behavior differs significantly across the countries under *Forecasts20092013Source:BMI,Blominvest
study. In the GCC states, especially Saudi Arabia, customers tend to be discerning and look for a good deal. However, products
perceivedasdiscountedorlowendarenoteasilyaccepted.Asaresult,thediscountstoreformat,whichisverypopularwithvalue
seeking European customers, has not yet taken off in the Gulf on a similar scale. Bahrain was the only GCC country that showed
somepotentialforvaluepurchasingandprivatelabels.

1.8

RevenueofOrganizedGroceryRetailintheUAE

StructureofOrganizedGroceryRetailinEgypt
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

1.5
USDbn

1.2
0.9
0.6
0.3
0

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12

'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12
Conveniencestores

Supermarkets

Supermarkets

Hypermarkets

Source:BMI,Blominvest

Hypermarkets

Discountstores

Source:BMI,Blominvest

Conveniencestores

February2011

Numberofstores

However, the scenario has changed since the crisis hit the region, and consumers are reportedly looking more favorably toward
discountshopping.Forexample,retailersintheUAEhavebeenreportingincreasingsalesofprivatelabelproducts.Mostofthefood
soldintheGulfcountriesisimportedimportedproductscontribute80%offoodretailinSaudiArabiaandabout90%intheUAE.A
large part of the domestic production is processed using imported ingredients. Major retailers, however, are sourcing products
directly instead of depending on local importers or distributors. Combined with other scale benefits, this makes supermarkets a
highly competitive shopping option to traditional markets and corner stores, especially from the purview of pricing. Another
characteristicofhypermarkets/supermarketsintheGulfistheirpresenceinshoppingmalls.Onecannoticetheincreaseinmobile
shoppingcartsandothervalueaddedservicesinmalls,whichlureacustomerbygivingafeelofwhatliesinsidethesupermarket.
Suchactivitiesadd tothe popularityof supermarkets in the region,which benefitfrom being perceived as a leisure optioninthe
absenceofotherentertainmentalternatives.InSaudiArabia,consumersgotosupermarketsasapastimeandspendmuchmoreon
groceryshoppingthantheywouldiftheyweretomakethepurchasefromacornerstore.Regionwide,hypermarketsarebecoming
aformofleisureactivity,astheyofferanumberoffacilitiessuchaschildrensplayareastoencouragecustomerstospendmore
timeandmoney.TheUAE,Qatar,andKuwaitarepremiummarketsbothintermsofretailformatsaswellasproducts.InKuwait,
however, supermarkets face competition from cooperative food retail stores, which are a prominent feature in the countrys
organized retail landscape with a total sales share of around
60%.Moreover,BMIexpectssalesatsuchcooperativestores
14 CarrefourPresenceintheRegionUnderStudy,end
2009
to grow at a robust rate of over 17% by 2014. Similar stores
12
arepresentintheUAEaswellandhaveanestimatedshareof
10
30%intotalretailsales.SaudiArabia,withitsrelativelylower
GDP per capita and wider income disparities than its GCC
8
peers as well as the continuing popularity of shopping in
6
traditional wholesale markets, is a more volumedriven
market. Nonetheless, along withthe UAE, thekingdom leads
4
the organized grocery retail industry in the region. Saudi
2
Arabiacurrentlyhasabout250ClassAsupermarkets(atleast
0
1,000 sq. m in size) and another 200 Class B supermarkets
(5001,000 sq. m), while the UAE boasts of 70 hypermarkets
EGY
JOR
KUW OMA
QAT
KSA
UAE
and650superstoresandsupermarkets.Retailsectorsinother
countries are developing as well, generally starting with Note:TherearenoCarrefourstoresinBahrainSource:Carrefour,Blominvest
supermarketchainsinmajorurbanhubs,followedbysmaller andLebanon
cities, and gradually expanding into rural areas where
traditional corner shops are still dominant. Carrefour, the second largest food retailer worldwide, is a leader in the Middle East
regionsorganizedfoodretail.InaffiliationwiththeMajidAlFuttaimGroup(MAF),ithasopened37hypermarketsintheregion14
withinthepastthreeyearsandislookingatanother10during2010.
Amorerecenttrendinfoodretailistheriseofthemodernconveniencestoreformat.Thedevelopmentofresidentialareashasled
to an evolving demand for retail formats that cater to more spontaneous, everyday needs, even if at a premium. Traditional
conveniencestoreshavebeenthedominanttypeofoutletintheregion,albeitunlikethepresentwaveofultramodern,western
styleformatsandimportedvalueaddedproducts.TheUAEishometoahighincomeexpatriatecommunitythatiswillingtopayfor
suchproductsandtimesensitiveconsumerslookingfortheconvenienceofquickshopping.Asaresult,thecountryistheregional
leaderinthedevelopmentofthisformat.AccordingtoasurveyconductedbyconvenienceretailerSouqExtra,40%ofconsumersin
theUAEprefertobuysuppliesfromconvenienceoutletsthanfromhypermarkets.BMIestimatesthesegmenttogrowataCAGRof
11.8% between 2009 and 2014. Supermarket chains such as Carrefour and LuLu, which have already tested this format in other
regions,areenteringthemarketwithanetworkofconvenienceandexpressstores.
Incountrieswithlowerlevelsofpersonalincome,modernretailformatsarestillperceivedtobeexpensivethantraditionalshops.In
Egypt, which produces a considerable amount of food domestically, supermarkets and hypermarkets failed to attract the price
consciouscustomerwiththeirrangeofimportedproducts,asaresultofwhicheventhesechainsarenowtryingtosourceproducts
locallyandofferlowerprices.However,thescenariochangedtosomeextentfollowingareductioninfoodimporttariffsinFebruary
2007. Since then, the development of supermarkets and hypermarkets has accelerated, and customers are increasingly turning
toward them for reasons of cleanliness, quality, and a wider range of products compared to traditional outlets. Beginning 2009,
there were an estimated 550 independent supermarkets in Egypt, concentrated in Cairo and Alexandria. Foreign chains, such as
Carrefour, MakroCash, CarryEgypt,and Metro arecompeting withlocal chains such asAlfa,Hyper One,and leading discounters

39

F&BintheMENARegion

suchasRagabSons,ElMahmal,andAbouZekry.ThesheersizeofEgyptspopulationmakesitanimmenselyattractiveopportunity
for players looking to tap the MENA market. Even though only 13 mn of the estimated 75 mn people can afford imported food
products,thenumberisstillbiggerthantheentirepopulationoftheothercountriesunderstudy,exceptforSaudiArabia.However,
themarkethasitsownsetofcomplexities,asindicatedbytheexitsofUKsSainsburyin2001(afteronlytwoyearsofoperations)
andSouthAfricasShopritein2006.
TheLebaneseretailsectorishighlyfragmented,with independentlocalplayerscontrollingthemajorityofthesupermarkets.The
countryspoliticalinstabilityhasdiscouragedinternationalretailersfromenteringtheotherwiseattractivemarket.The2006military
conflicttookitstollonthecountrysinfrastructure,destroyingalargepartofthetransportationnetworkandresultinginprolonged
powercuts.Suchfactors,combinedwithimportshortages,forcedthecountrysleadingretailerSpinneystocloseitsstoreinTyre.
However, the scenario is changing as foreign chains are starting to see the potential, despite the possible risks. In August 2008,
KuwaitiretailerTheSultanCenter(TSC)announcedtheacquisitionoffoodretailersMonoprixandGantCasinofromlocalcompany
Admic. BMI forecasts the Lebanese organized retail segment to grow to almost USD 3 bn by 2013, a 76.4% increase over 2008.
Supermarkets will continue to dominate the sector. Elsewhere, Jordans organized food retail may not see huge growth in the
immediate future. Even though the market is relatively underdeveloped, BMI believes the growth in the neighboring countries
woulddissuadelargemarketplayersfromenteringJordan,atleastforthetimebeing.
ProductgroupswiththebiggestpotentialforregionalF&Bsales
DairyproductionintheMENAregionisontheriseandholdsfurthergrowthpotentialbecauseofthepossibleproductinnovation
andlaunches.Thesixmostrelevantdairycategoriesarefreshmilk,longlifemilk,milkpowder,freshlaban(atraditionalArabicdrink
similar to buttermilk), recombined laban, and zabadi (yoghurt). Additionally, cheese and butter are poised to grow as customers
consumemoreofwesternstyleproductssuchaspizzas.SaudiArabiaisamajordairymarket,accountingfornearly61%ofthetotal
GCCdairymarket.Egypthaspotentialaswell,albeitmostlyforlowervaluedairyproducts.Currently,anaverageEgyptianconsumer
spendsmoreonstaplescomparedtotheGCCstates,asopposedtothemoreexpensivefoodcategoriesincludingdairy.Almaraiof
SaudiArabiadominatestheMiddleEastregionandisgearinguptobecomeamarketleaderinEgyptwithplanstocapturea50%
share of the countrys dairy marketbyexpanding production in Beyti that itrecently acquired. So far,FrancesDanoneis amore
important dairy producer on the domestic market; it also plays a significant part in the entire MENA market, mostly through its
subsidiaryAlsafiDanone.Infact,itisoneofthetopfiveplayersintheregionaldairymarket,whichisledbyAlmaraifollowedby
Nestle, Nadec, and Sadafco. Within the cheese and butter segment, Saudi Arabias Almarai is again a market leader with a 30%
share.OthermajorplayersincludeinternationalgiantssuchasKrafts,Puck,Lurpak,andthelocalNadec.
Currently, the emergence of other fastgrowing segments is limited to the GCC markets, because of lower affordability in Egypt,
Jordan,andLebanon.Forinstance,thejuicesegment,whichisquitefragmentedandrelativelyimmature,isgaininggroundagainst
the traditionally popular soft drinks because of increased health consciousness. In the GCC markets, major companies have a
combinedshareofaround40%,whilesmallerplayersaccountfortherest.ThelargestplayersareAlmarai,Nadec,andHalwani,all
publicly listed, in addition to private names such as Rani, Rabie, and AlsafiDanone with its milkjuice products (Danao). Another
dynamicfoodsegmentisthatofbakeryproducts,includingproductssuchaspastries,cakes,breads,andbiscuits,amongothers.This
segmenttooishighlyfragmented,withmajorplayerssuchasLusine,Alrashed,Americana,andHerfycompetingagainstanumberof
smallandlocalstores.WhileLusineoffersawideproductrange,othersarefocusedonselectcategories.Thehighfragmentationin
segments such as dairy, juices, and bakery products implies huge potential for larger and more organized producers to enter the
market. Similarly, retailers can look to tap into the opportunity by establishing their presence through private brands or instore
specializedoutletsridingontheincreasingpopularityofshoppingmalls,supermarkets,hypermarkets,andconveniencestores.

February2011

4 Opportunitiesandchallenges
4.1 Ecommerce
Withtime,peoplehavenotonlychangedthekindsofgoodsandservicestheyexchange,butalsotheirmethodoftrading.Amajor
part of modern distribution and trading practices rely on technological advancements that provide more comfort, reliability, and
speed. The advent of the internet has led to the rapid emergence of ecommerce as a preferred mode of trade, which has been
growing at a rate of 25% in the Middle East region since a decade. In addition to facilitating trade and distribution, ecommerce
supportsthedevelopmentofnicheproducerstoreachouttoglobalconsumersandnewmarkets.

Themajorfactorsthatwilldrivethefoodandbeverageindustrytoridetheglobalecommercebandwagonaregreaterefficiencyin
internalprocesses,integrationwithexternalorganizationsinordertomakelogisticsacomparativeadvantagebyachievingfaster
speedsandreducedcosts.Inaddition,itwouldhelpconsolidatesupplychainsandenhancerelationshipswithpartnersintheretail
anddistributionnetwork.However,fromalargerperspective,ebusinessactivitiesinthefoodandbeveragesindustryremainfairly
low,exceptforlargemultinationalcompaniesandmaturemarketsingeneral.Eventhoughmostgroceryshoppingremainsoffline,
globalonlinepurchasesaccountedfor1%ofallfoodandbeveragesalesduring2008.AsperaglobalNielsenstudy,onanaverage,
shopperstendtospendalmosttwiceononlineshoppingforfoodandbeverageproductslikepackagedfoodsandgroceries,when
comparedtoofflinepurchases.

As per Nielsen,althoughthe F&Bmarketisasmallmarketinthe online world,ithasthe potential to expandrapidlyinthenear


future.Fromapproximatelya3.3%shareoftotalecommercemarket,itisforecasttoreach13.3%in2011.

USD'bn

400
300

Internetpurchasesforallproducts,2007

Ecommercemarket

500

120%
100%

In2008,F&Bretailers
acountedfor13%ofall
offlineretailsales.

7%

8%

16%

21%

80%

33%

60%
200

40%
100

93%

92%

84%

79%

67%

20%
0%

0
2003

2005
Total

2007

2009F

2011F

Food&Beverages

Source:Nielsen,Blominvest

Europe

North
America
No

AsiaPacific

Latam

EEMEA

Yes

Source:BMI,Blominvest

Statistically,theMiddleEastregionregisteredtheworldshighestinternetusagegrowthof1,648.2%duringtheperiod20002009to
morethan60 mninternetand80mnmobilephoneusers.Thisindicatesthedefinitepotential for onlineandmobilecommercial
transactions,whicharelikelytogrowover15%during2010,benefitingfrominfrastructuredevelopmentandincreasinggovernment
focusononlineservices.SaudiArabiaandtheUAEofferahugeopportunitybeingthemajorfreemarketeconomiesintheregion.
OneCard,aSaudibasedcompany,whichintroducedthefirstsecureonlinepaymentsystemintheArabcountries,hasbeenpivotal
inthedevelopmentofinternetservicesnotonlyinthekingdom,butalsointheregionbylarge.Asperthe2009IMRGCapgeminie
RetailSalesIndex,totalonlinesalesintheMiddleEastexhibitedasubstantialincreaseandindicatepotentialforfurthergrowthin
theupcomingyears.

Datareveals that67% of thetotal populationintheMiddle East region hasmadeinternet purchases,which is amongthelowest


comparedtootherregionsoftheworldsuchasEurope,wherethepercentagestandsashighas93%.Egypthasbeentheslowest
adapterwithalmost67%ofthepopulationnotmakinganyonlinepurchasesasof2008.

41

F&BintheMENARegion

Theregionscharacteristicreligiousprofileisalsolikelytoplayakeyroleinboostingtheadoptionoftheonlinemedium.Women
typically do not move out of theirhomesafter a certaintimein the day, which impliesanopportunityforecommerce.Asurvey
revealsthatthemajorityofSaudiwomenpreferonlineshoppingforvariedreasonssuchassecurityandconvenience.
Despitetheoverallpositiveoutlook,ecommercedevelopmentdoesfacecertainchallengesthatincludelackofregionwidelawsfor
the sector and security threats due to the expanding internet population. OneCard believes that in order to attract the young
middleclasspopulationtotransactonline,itisnecessarytoredefineservicesandfocusonprovidingefficientsolutions.

4.2 DemandforFunctionalfoods

MarketsizeUSD'mn

Anewcategoryoffoodscalledfunctionalfoodshasrecentlyfoundfavorinthefoodandbeveragesindustry.Thepopularityofthe
segmentisontherisebecauseofthespecificphysiologicalbenefitsthatgobeyondbasicnutritionandpromotewellness,longevity,
and prevent chronic diseases. The largest market for functional foods is the US, followed by AsiaPacific, together accounting for
approximately75%ofthetotalmarketforsuchfoods.Globally,nonalcoholicbeveragesaccountforalargershareofthegrowth,
the variants of which are used for specialized nutritional
GlobalFunctionalFoodsmarketgrowth
benefits.

The diet F&B market in the US and Europe is projected to


140,000
USD32,900
128,000
reach USD 128.5 bn by 2014 with meal replacement shakes
120,000
and protein bars contributing the maximum. In order to
Beverage
USD16,800
exploitthismarket,majorfoodcompaniessuchasNestleand
100,000
Food
Unilever are revamping their product offerings to
78,300
80,000
concentrate on nutritional items. For example, in 2008,
Nestlemadechangestomorethan6,000 ofitsproductsfor
60,000
nutritionandhealthconsiderations.
Thegrowingdemandforhealthanddietfoodsclearlyreflects
thegrowthopportunityforthefunctionalfoodsmarketinthe
MiddleEast.Moreover,asyoungerconsumersaretheprime
target market for such foods and beverages, we foresee
robustgrowthprospectsforthiscategoryoffoodsgiventhe
regionsdemographicprofile.

40,000
8.5%P.A

20,000
0
2007

2013

Source:PriceWaterHouse,Blominvest

Foods withhigh energyand nutrition levels aregaining ground. Consumersare moreinclinedtowardsdairy products andcereals
withinherenthealthbenefits,rangingfromantioxidantstoprobiotics.ThishasledcompanieslikeFortitechInc.,theworldleaderin
thedevelopmentofcustomnutrientpremixes,toforayintotheMiddleEastregion.Cheesebeingapopularfoodintheregion,has
seenincreasingdemandnotonlyduetoitsdurabilityinhotweather,butalsoduetoitshighnutritionalvalue.

Meanwhile, the market for energy drinks such as Power Horse, X35, Arabev, Arrow Juice, and Dhler is growing as well.
Datamonitors report on Product Launch Analytics indicated that globally products containing energy shots had doubled since
2006.Meanwhile,theMiddleEastmarketsproviderobustgrowthopportunitiesforthebeverageindustryasreflectedinincreasing
percapitaliquidconsumption.

Looking ahead toward 2015, developing economies including the Middle East are expected to register superior growth rates
compared to the developed and matured markets, buoyed by factors including a high proportion of medianage population and
risingincomelevels.

WithrisingincomelevelsandhigherconsumptionofF&B,obesityrateshaveincreasedthreefoldintheMiddleEastregionsince
1980.Asaresult,peoplearenowbecominghealthconsciousandareturningtowardhealthyanddietfoods.AccordingtotheWorld
HealthOrganization(WHO),adultobesityratesinSaudiArabiaandtheUAEasmeasuredbyBodyMassIndex(BMI)stoodat35.6%
and33.7%ofthetotalpopulation,respectively.Fromaglobalstandpoint,SaudiArabiastoodatthe7thplaceandtheUAEat10th.
Egypt (30.3%), Bahrain (28.9%), and Kuwait (28.8%) followed at the 11th, 12th, and 13th positions, respectively. In fact, the 2009
humandevelopmentreportwarnedthatobesityisthegreatesthealthchallengeforKuwait.

BothSaudiArabiaandtheUAEhavedietconsciousconsumers
who are keen to buy lowfat products. The study infers that
38% of UAE consumers and 35% of Saudi consumers admit to
dietingonaregularbasis,whileanother62%and55%reported
actively seeking out products with added health benefits,
respectively.Sincemorethan60%ofUAEshoppersand56%of
Saudi shoppers consciously rely on food labeling for clarity
abouthealthbenefits,foodmanufacturersneedtoensurethat
the nutritional information is clearly displayed on the
packaging.

Besides obesity, diabetes is another concern that has led


people in the MENA region toward diet and health foods. As
per the International Diabetes Federation, approximately 13%
oftheUAEspopulationand13.5%ofSaudiArabiaspopulation
suffersfromthecondition.Globally,theUAEandSaudiArabia
rankamongthetopfivecountriesfordiabetesprevalence.

%ofpopulation aboveBMIlevel30

February2011

40

Obesityindicators(BMIinthemostrecentyear
available)
35.6

33.7

30.3

30

28.9

28.8
19.5

20

13.5
10

0
Saudi
2000

UAE
2000

Egypt
2008

Bahrain
1999

Kuwait
2000

Jordan
2004

Lebanon
2004

Source:WHO,Blominvest

Frozenfoodsaleshaveincreasedduringtherecessionrecently,aspeoplepreferredtoeatathomeinordertoreduceexpenditure
on dining outside. In addition, with manufacturers promising premium frozen produce, the consumer perception around frozen
foods is changing from just being cheap and convenient to additional benefits like nutrition and taste. This segment also holds a
huge potential as almost 90% of the food in the Middle East is imported. For instance, brands like Brazil Foods and Sadia will be
activelypromotingtheirlatestproductsinthechilledandfrozenfoodssegmentduring2010inordertoexploittheopportunityin
thereadymealmarket.

4.3 IntroductionofVAT
In 2007, the nonGCC countries in the region moved toward the VAT regime following declines in government revenues from
customs duties, after dismantling trade barriers and entering into Free Trade Agreements (FTAs) with major trade partners. The
introduction of VAT would actas an obvious revenuesubstitute andreduce theexposure tovolatility in oil and gas prices. While
restructuring its tax administration, Lebanon introduced a 10% VAT during 2002. Meanwhile, in 1991, Egypt introduced GST on
goodsattheimportandmanufacturinglevelsandmovedtoVATforabroaderrangeofgoods(5%)andservices(10%).Jordanjoined
the league in 1994 by imposing GST on goods at the manufacturing and import levels and on select services. In early 2000s, the
countryfurtherimplementedVATongoodsattheretaillevelandwidenedthecoverageofservicesundertheregime.

EventhoughVATisnowagenerallyaccepted,theMiddleEastisthelastregionintheworldtointroduceVATorGST.Anumberof
othercountrieshavehadsomeformofconsumptiontaxsincethepast30years.WithintheGCC,ifthediscussedaverage5%VAT
rateisintroduceditwouldmakeitoneofthelowestVATratesintheworld.

In2008,theUAEFederalCustomsAuthorityannouncedayearspostponementoftheproposed3%VATthatwasearlierapplicable
from2009.Ifandwhenthelawcomesintoeffect,thegovernmentwillneedtostudytheproceduresindetailasitwouldaffectnot
onlythecustomsunion,butalsotheentirecustomsworkintheUAE.However,unlessallthesixGCCcountriesadoptthesystem
together,itwillbedifficulttoreplaceimporttariffswithVATintheregioninauniformandstandardmanner.
ExpertsbelievethatVATimplementationwould benefittheeconomy astheregimewouldtranslateintohighertransparencyand
accuracy. Besides, it would encourage investments from foreign investors who prefer to operate under a clear and defined
frameworkasopposedtoanonstandardambiguoussystem.

4.4 Difficultconditionsforagriculture
Theworseningenvironmentalconditionsduetoglobalwarmingwillexertfurtherpressureonagriculture,asisbeingseenrecently.
Humanactivitiesarecausingirreversibledamagetothegeneticdiversityofagriculturalcropsandseveralanimalspeciesareunder
thethreatofextinction.AccordingtotheFAO,oftheentirefoodavailableglobally,atotalof15cropsand8animalspeciesprovide

43

F&BintheMENARegion

BnHectares

90%ofthefood.Ofthe total landsurface,onethirdisagriculturalland.Statisticsclearlyshowthatafoodcrisisisimminentindue


courseintheeventofanecologicalimbalanceanddepletionoftherichbiodiversity.

TheglobalavailabilityofarablelandisfairlylimitedvisvisthetotalavailablelandareaandhassofarbeenconcentratedintheUS,
Europe, India, Southeast Asia, and Australia. However, as the world population continues to increase, the per capita arable land
availability and, in turn, agricultural productivity have declined, accelerated by factors such as soil degradation, deforestation,
climatechange,greenhouseemissions,andextensiveurbanization.

IntheMENAregion,arablelandareaincreasedlessthan6%between1961and2007farlesserthantheglobalaverageof10%and
muchbelowthe45%increaseinAfrica.ThepercentageofarablelandintheMENAregionstandsatjustabout1.87%ofthetotal
366.7mnhalandarea,whileitstandsat27.66%ofthetotalfromaglobalstandpoint.BahrainleadstheGCCpackwith2.82%arable
land,followedbySaudiwith1.67%.AmongthenonGCCMENAeconomies,Lebanonleadswith16.35%arableland,14permanent
cropsandasignificant7%contributiontoGDP.Thecountryisconsideredasthemostsuccessfulintheregionintermsofagriculture,
whichisthethirdmostimportantsectorafterthetertiaryandindustrialsectors.Jordancomesadistantsecondwithanarableland
percentageof3.32%,followedbyEgyptwith2.92%.

Availablelandforrainfedproduction,2009
The Middle East region is the least selfsufficient among the
worlds major populated regions due to lack of ground water
reserves and arable land. People in the region spend a
MENA
significant fraction of their disposable income on food,
SouthAsia
especially on valueaddedand the socalled luxury foods, such
asmeatsandfreshproduce.
EastAsia

Overthedecades,theincreasingfooddependencyhasledthe
SubSaharanAfrica
regionspolicymakerstotryandaccelerateagriculturalgrowth,
but they have had to deal with significant natural constraints
LatinAmerica
and social issues. The hot and arid climate of the region does
notsupportfarming.Besides,theregionhastousemorewater
0
150
300
450
600
750
900
1050
for irrigation compared to other areas of the world. In such a
Cuurentlycultivated
Alsosuitableforcrops
scenario, given the scarcity of fresh water resources in the
Source:WHO,Blominvest
region,itappearslogicaltopreferimportsinsteadofproducing
atfarhighercosts.

As per USDA, Saudi Arabia, the only wheat producer in the region, is also phasing out wheat cultivation and will rely on wheat
imports by 2016, as it terminates a 30year policy of selfsufficiency to put an end to the pressure on its limited freshwater
resources.IntheUAE,economicmigration,especiallyfromSouthAsia,furthertipsthescaleinfavorofimportsforfoodproducts
suchasedibleoils,palmoil,andrice.

4.5 Religiousbeliefsandtraditions
TheMENAF&Bmarketstronglydependsontheregionsreligiousprofile,whichplaysakeyroleindefiningthesocialandeconomic
environment.Thisalsomakesthemarketmarkedlydifferentfromtherestoftheglobalmarkets.Theregionhasstrictnormsagainst
theconsumptionofporkandalcoholinlinewiththeprinciplesofIslam.Foodhastobecertifiedashalal,implyingitisnotstolenand
hasbeenprocessedproperly.Moreover,theregionhasverylittlepubsorbarsthatconstituteapopularentertainmentoptioninthe
nonIslamicworld.
Whileononehand,theaboveindicatescertainconstraintsfortheF&Bindustryintheregion,ontheother,ittranslatesintocertain
clear niche opportunities. Fastfood joints and restaurants thrive as the most popular venues for socializing. The nonalcoholic
beverages and soft drinks market offers immense scope for growth. Moreover, halal foods are being accepted globally on
perceptionsofsafetyandhygiene,inadditiontotheirsuccessintheIslamiccountries.

February2011

4.6 Thedrivetowardorganizedretail
FoodretailintheMiddleEastisfastcatchingupwithitsEuropeanandWesterncounterparts.Itisbelievedthattotalretailsalesin
theregionarealreadyequaltothoseinEasternEuropeandhigherthanthoseinIndiaorChina.Additionally,thechanginglifestyles,
increasingawareness, and new social trendsinthe regionare drivinga shifttowardthewestern style ofshopping in malls, large
supermarketlikeoutlets,andontheinternet.
However,thestillfragmentedmarketcharacterizedbyanumberofsmallplayerswouldposechallengesfortheindustrytomature
in the near future. The industry will need to overcome infrastructure and consumer behaviorrelated issues in underpenetrated
areasthatarestillservedmostlybyunorganizedretail.

45

F&BintheMENARegion

5 Futureoutlook
TheMENAregionisplacedratherunfavorablywhenitcomestoagriculturalpotentialbecauseoftheharshclimateandscarcewater
resources.Sincethelikelihoodofproducingfoodlocallyisseverelylimited,governmentsinthesecountriesfacespecificissuesand
challengesinprovidingfoodtotheirrapidlygrowingpopulations.
Theglobalfoodcrisisof20062008impactedtheregionratherseverely.Relyingheavilyonfoodimports,theregionfacedthebrunt
as food subsidies imposed a heavy fiscal burden on the respective governments. In addition, growing food demand, under
investment in agriculture, inflation, rising income levels fuelling the shift to highervalue foods such as meat, dairy and
confectionery, higher oil prices, droughts in grainproducing countries, and diversion of corn toward the biofuel industry, all
aggravated the crisis. The agricultural trade gapthe difference between food imports and exportsreached over USD 13 bn in
2006,reflectingtheregionsunavoidabledependenceonfoodimports.Despitecountermeasures,includingimportsubsidies,direct
pricecaps,andgovernmentinterventionsinthesector,foodpricesacrosstheregionmovedupstarting2007,onlytodeclinewith
the onset of the global economic crisis. This, in turn, spurred inflation to the range of 1520% in the middle of 2008 in many
countriesandwasakeyconcernfortheregionsgovernments.
Drivenbysuchconsiderations,governmentshavelongbeensearchingforsolutionstothefoodsituation.Fromheavyinvestmentin
cerealproductionschemes(thatwerelaterabolishedduetowaterstress),tocontractingfoodimportsinadvance,andsettingup
agricultural investment funds, they have tried various measures to achieve food security, and ideally food sovereignty. A recent
trend involves the acquisition of farming land by MENA governments and private companiesoften with the formers support
throughoutrightpurchaseorlongtermleaseinothercountries,mainlyforsourcingproductsbacktotheirhomecountry.Oilrich
GCCstates,suchastheUAEandSaudiArabia,havebeenactivelypursuingthisstrategy.Jordanhasconcludedsomedealsaswell,
whileEgypthasbeenasourceaswellasadestinationforsuchinvestments.
Currently, partner countries (mainly developing nations) are open to such acquisitions, as they see it as a means of receiving the
muchneededcapitalandprovidingemploymentforlocals.However,protestsfromthelocalpopulationandNGOshaveprompteda
fewcountriestorejectsuchoffers.Coupledwiththeriskofexposuretolimitedacreage,and/orgeopoliticalconcerns,thiscallsfora
morebalancedapproachtoagriculturaldevelopment.Currently,thefocusisonanarrayofsubsidiesandfinancialsupporttolocal
farmers.However,suchastrategymaynotbesustainableinthelongterm,andmayleadtoabuse.Greaterattentionshouldbepaid
to farming technology, be it increased use of desalinated water in agriculture or greenhouse farming. In order to bring more
efficiencyintodomesticagriculture,privatesectorparticipationshouldbeencouraged.Somecountries,likeSaudiArabiaandQatar,
have already undertaken steps to facilitate the entry of private capital into the sector. This trend is likely to imply a plethora of
opportunitiesforprivateequity,especiallywithafocusonmodernagriculturaltechnology.
Theboomintheregionalfoodretailsectorisinstarkcontrasttothechallengingsituationincoreagriculture.Fuelledbygrowingper
capita GDP levels, which in some GCC countries are reaching those in advanced economies, new retail outlets and foodservice
outletsaremushroomingeverywhere.Salesofthemorepremiumproductsareholdingonwell,evenagainstthebackdropofthe
economicdownturn.Therecentmonthshaveseentheentryofhighendrestaurants,newhypermarkets,andextremessuchasthe
largest candy shop in Dubaithe regional food retail hubAbu Dhabi, and Qatar. Going forward, sales by the organized retail
sectoras opposed to the more traditional, small, independent retailersare likely to account for a larger share of overall food
retailing. The fragmented nature of the independent segment translates into the untapped market potential for organized retail
chainsasconsumersgetusedto,andstartexpecting,cleanliness,widerproductrange,andproductquality.Ontheflipside,inthe
moreaffluentcountriessuchasQatarandtheUAE,shopperstendtogetimpatientwaitinginhypermarketsqueuesandpreferto
shopinthehigherpriced convenience stores. Thesemarkets haveto be seen mainly fromtheperspectiveofthepremiumization
potential.Atthesametime,forlowerincomecountries,hypermarketsaremoreexpensivethantraditionalwholesalemarkets,but
stillneedtocatertothelesswealthypopulationforsustaininggrowththroughvolumes.InEgypt,aggressivepricereductionsare
keyduetothepricesensitivityoftheconsumers,becauseofwhichdiscountbuyingispopular.
Inspiteoftheprevalenceofimportedfoodproductsintheregion,whichhaveashareof90%and80%ofthetotalmarketinthe
UAEandSaudiArabia,respectively,certainlocalF&Bcompanieshavemadeamark.However,theystillfacefeedstockscarcityand
source most of their ingredients from foreign markets. Regional giants Almarai and Savola (both from Saudi Arabia) are making

February2011

effortstomanagetheirexposuretointernationalpricefluctuations.Savolauseshedgingandforwardselling,passingsomeofthe
foodinflationontoconsumers,whileAlmaraiisactivelypursuingdiversificationplanstoothercountriesinAfricaandAsia.
Goingforward,theconcernsoverfoodpriceincreasescontinue.Althoughtheeconomiccrisishelpedcurbpriceinflation,structural
imbalances continue to exist. MENA countries should counter these volatilities through sustainable and balanced agricultural
investment,focusingontechnologicaladvancesindomesticfarming.Ontheretailfront,thegrowthoforganizedretailchainswill
likelycontinueinthenearfuture,thoughcontingentupontheaffluenceofthesocietyandreligiousbeliefs.Regionalcompaniesin
the F&B sector will benefit from increased consumer spending, following the ongoing economic revival, as well as government
supportforthesectorintheformofsubsidiesandtaxbreaks.Themarkets,however,continuetomatureingeneral,progressing
towardthemorepremiumsegments.Categoriessuchasorganicfoodandenergydrinksarealreadynichebutsignificantmarkets,
andarepoisedtobenefitfromconsumerslookingtomakehealthierandpersonalizedchoices.

47

F&BintheMENARegion

6 Appendix
6.1 LandacquisitiondealsbyMENAcountries
Country/Region Investor

Investee

Produce

Details

Bahrain

Government

Market
Access
Promotion
Services
Group
(MAP)
MAP

Not
Specified
(NS)
NS

Longtermplanstoinvestinfarmlandininvesteecountriesandcontract
outfoodproduction.

Egypt
Iraq
Sudan
Georgia
Egypt
Pakistan

Pakistan

Dairy

MAPwilldevelop10modeldairyandlivestockfarmsinPakistanthrough
private equity, small enterprise development and donor facilitation
during20082010.Whencompleted,thefarmsshareswillbelistedfor
public offer on the Karachi Stock Exchange and the Dubai International
FinancialExchange.

MAP,aninternationalinvestmentfirm,hasjoinedotherGulfpartnersto
form a Middle East Food Fund that will collectively invest in food
productioninnearbycountriesfortheGulfmarket.

Philippines

Rice
Livestock

In May 2008, Bahrain's Trade Minister, Hassan Fakhro, went to the


Philippinestotryandsecureaccesstolargeplotsoflandtogrowbasmati
riceforBahrain'sconsumption.

Public
private
partnerships
(PPP)
Government

Philippines

Fish
production

In March 2009, the Philippines government completed a USD 300 mn


investment package with the Bahraini government to establish agro
fishery businesses in the country. Apart from fisheries, the Bahraini
government also committed investments into vegetable and fruit
preservation,biotechnology,postharvesttechnologyandlivestock.

PPP

Thailand

Rice

In May 2008, Bahrain's Trade Minister went to Thailand to negotiate a


dealunderwhichBahraincouldsetupaplantationinThailandtogrow
jasmine rice for direct export to Bahrain. A joint public or private
companyisbeing contemplatedto run the operations.A memorandum
ofunderstandingwasalsosignedwithaThaiexportertosecurejasmine
ricesupplies,asanalternativetobasmati,overthenexttwoyears.

Gulfcountries

Government

Arabstates,
Brazil,
Southeast
Asia

Basicfood
items

AgriCapital

North
Africa,sub
Saharan
Africa

NS

Somalia

NS

InMarch2008,theministriesoftrade,economyandfinanceoftheGulf
Cooperation Council issued a joint recommendation that the GCC
members consider setting up a joint corporation or a common fund to
producefoodinSouthEastAsia,BrazilandotherArabnationstosupply
theGCCmarket.Theyalsoproposedsettingupaworkteamtomonitor
theprojects,acommonfoodprocurementstrategyandpolicyaswellas
commonfoodpurchasingmechanisms.
InAugust2008,threeGulffirmsAbuDhabiInvestmentHouse,Ithmaar
BankandGulfFinanceHouseannouncedthecreationofAgriCapital,a
new Islamic investment fund. The USD 1 bn investment vehicle will
engage in land purchases overseas to produce food for the region,
through a separate investment bank specially created for this purpose,
andtofundbiotechnologyresearch.
TherearereportsthatsomeGulfstateshavetalkedwiththegovernment
ofSomaliaaboutallocatinglandforGulffoodproduction.

Source:NCB,GRAIN,Blominvest

February2011

Country/Region
Investor

Investee

Produce

Details

Kuwait

Government

Burma

Rice
Palmoil

Government

Cambodia

Rice

Government

Egypt,
Morocco,
Yemen

Poultry

Government

Laos

Government

Sudan

Rice
Palmoil
Crops
Cattle

Government

Thailand

Rice

Government

Uganda,
others

NS

Qatar

Government

Cambodia

Rice

Government

Indonesia

NS

Private
Sector

Pakistan

NS

InSeptember2008,KuwaitigovernmentrepresentativeswereinBurmato
finalizethetermsandconditionsonanagreementdrawnupearlierinthe
yeartoproducefoodinBurmaforexporttoKuwaitonacontractfarming
basis. Kuwait will provide fertilizers and financial support while Burmese
companies, employing local farmers, will provide land, labor and other
inputs.Kuwaitwillbuytheoutputatinternationalmarketpricesandthe
Burmese firms will pay back the fertilizer costs at 45% interest per
month.Themaintargetedcropsarericeandpalmoil.
In August 2008, Kuwait's Agriculture Minister, on a visit to Phnom Penh,
inked a bilateral deal with the Cambodian government for outsourced
foodproduction.Kuwaitwillhaveaccess,undertheseleasearrangements,
toKhmerricelandstoproducericeforexportbacktoKuwait,withsurplus
goingtotheinternationalmarket.Cambodia,inreturn,willgetagricultural
technologies and a USD 546 mn loan (of which some USD 486 mn is to
develop irrigation and USD 60 mn to build roads in Battambang,
Cambodia'sNorthWesternricegrowingprovincehencesuspicionsthat
thericeforKuwaitwillbegrowninBattambang).
In 2008, it was reported that the Kuwait Investment Authority, the
country's USD 265 bn sovereign wealth fund, may invest in food
production,particularlypoultry,inMorocco,YemenandEgyptforexport
to Kuwait. The country's trade ministry was also seeking to change the
statutesoftheUnionofCooperativeSocieties,thegovernmentrungroup
which dominates food retail in Kuwait, in order to enable the union to
invest in overseas farmland, possibly in cooperation with other Arab
cooperativeunions.Themoveisapparentlyonholdfornow.
InAugust2008,KuwaitiofficialswereinVientianetodiscussaccesstoland
forfoodproduction.
On September 07, 2008, Kuwaits Minister of Finance signed what his
Sudanesecounterpartcalleda"giant"strategicpartnershipdealwiththe
government in Khartoum. Under the agreement, the two countries will
invest jointly in food production, including cattle. The deal was to come
into force the following week, with the food security projects to be
developedrapidly.
Details of Kuwait's investments in rice production in Thailand are still
unavailableorunderdiscussion.Butwhenanofficialdelegationvisitedthe
countryinmid2008,oneKuwaitiministeropenlysuggestedthatThailand
offer to rent farmland to foreigners for up to 90 years as an investment
opportunity.
InApril2008,duringtheWorldIslamicEconomicForum,thegovernment
of Kuwait launched a new USD 100 mn fund called "Dignity Living". The
fundswillbeinvestedinfoodproductionandagribusinessdevelopmentin
Uganda, among other (unreported) countries, to supply the Middle East
market.Thefocusofthefundisonbuildingfoodexportinfrastructureand
capacities.
Qatar'sPrimeMinistervisitedCambodiainMarch2008,reportedlytoseal
adealforaccesstoKhmerfarmlandsforproductionandexportofriceto
Doha.Inexchange,Cambodiawouldreceivetechnicalassistanceaswellas
an invitation for Hun Sen to visit Qatar in January 2009 to boost
Cambodias standing in the Gulf's rice market. The Cambodian
governmentishopingtobecomeoneoftheworld'stopriceexportersby
2015,at10mntonsperyear.
In August 2008, Qatar Investment Authority, the country's sovereign
wealthfund,setupaUSD1bnfundtoinvestinenergy,infrastructureand
possiblyagricultureinIndonesia.QIAisputtingup85%ofthecapitaland
Indonesiatheremainder.
AQatarifirmisreportedlyeyeingtheacquisitionofPakistangovernment's
KollurkarfarminPunjabtoproducefoodforexporttoQatar.
Source:NCB,GRAIN,Blominvest

49

F&BintheMENARegion

Country/Region Investor

Investee

Produce

Details

Qatar
Livestock
Mawashi

Australia,
Pakistan,
Tajikistan,
Sudan

Livestock

PPP

Sudan

Wheat
Maize
Oilseeds

Government
Government

Turkey
Vietnam

NS
Cereals
Fruits
Vegetables
Cattle
Lamb

SaudiArabia

PPP

Brazil

NS

Private
Sector

Wheat
Barley
Rice
Soybean
Fodder

Private
Sector

Egypt,
Philippines,
Senegal,
Turkey,
Uganda,
Ukraine
Ethiopia

TheQatarCompanyforMeatandLivestockTrading(Mawashi)isin
advancedhighleveltalkswithAustralianofficialstoestablishlivestock
farmsinAustralia.IthasestablishedasheepfarminwesternSudanand
hassignedamemorandumofunderstandingwiththecountryfor
furtherexpansionoflivestockfarming.Italsohasbilateralagreements
withtwoTajiklivestockcompanies.QatarLivestockMawashihas
committedUSD1bntodevelopindustriallivestockfarmsinPakistan.
InJuly2008,QatarandSudanannouncedtheformationofajoint
holdingcompanywhichwillinvestinfoodproductionforexporttothe
Arabmarkets.ZadHoldingCompany(previouslyQatarFlourMills),a
stateownedfirm,andQIA,theemirate'ssovereignwealthfund,are
bothinvolved.
QatarisreportedlyconsideringlandacquisitionsinTurkey.
InSeptember2008thegovernmentsofQatarandVietnamannounced
thattheyhadsignedanagreementtojointlysetupaUSD1bn
investmentfund,withUSD900mnoftheequitycomingfromtheQIA,
Qatar'ssovereignwealthfund.ThecounterpartisVietnam'sState
CapitalInvestmentCorp.Partofthefundwillbeinvestedinfood
productioninVietnamforexporttoQatar.
InAugust2008,itwasreportedthatthenewSaudiambassadortoBrazil
isactivelytryingtodevelopopportunitiesinBrazil'sagribusinesssector
forSaudiinvestors.Thismayinvolvethelaunchofajointfood
productionventure,presumablytosupplytheSaudimarket,inwhich
Brazilprovidesthelandandknowhow,SaudiArabiathecapitaland
Singaporethelogistics.
Saudiinvestorsareunderstoodtobeexploringpossibilitiesforland
acquisitionforfoodproductionpurposesinEgypt,thePhilippines,
Senegal,Turkey,UgandaandUkraine.TherearealsoreportsthatSaudi
firmsarelookingforThaipartnerstojointlyundertakericeproductionin
UgandaandSudan.

NS

BinLaden
Group

Indonesia

Rice

Government

Kazakhstan

Cereals
Cattle

AlRabie

Pakistan

Pakistan
Dairy

InAugust2008,Ethiopia'sPrimeMinistertoldtheFinancialTimesthat
heiseagertogiveSaudiinvestorsaccessto"hundredsofthousands"of
hectaresoffarmlandforinvestmentanddevelopment.
InAugust2008,theBinLadenGroupsignedanagreementtoinvestat
leastUSD4.3bn,onbehalfofagroupof15Saudiinvestorsknownas
theMiddleEastFoodstuffConsortium,todevelop500,000haofrice
farmlandinIndonesia.TheaimistoproducebasmatiforexporttoSaudi
Arabia,reportedlyusingSaudiseeds.On14August2008theBinLaden
GroupsignedamemorandumofunderstandingwiththeSultra
provincialgovernment,underwhichtheBinLadenGroupwillbe
"provided"with80,000haofland.TheJakartaPostreportsthatthe
BinLadenGroupwillalsoacquirelandintheMeraukeRegencyofPapua
Province.TheinvestmentplanrunstoUSD43mnper5,000haand
implementationwastostartafterRamadanin2008.Localpartners
includeMedco(oilandmining),SumberAlamSutera(hybridriceseeds)
andBangunCiptaSarana(construction).TheSaudiriceventureispartof
alargeragriculturaldevelopmentprojectinvolvingatotalof1.6mnha
fornotonlyricebutalsomaize,sorghum,soyabeansandsugarcane,
muchofwhichwillbeconvertedtobiofuels.TheBinLadenGroupownsa
15%stakeintheIndonesianoilpalmplantationandmining
conglomerateBakrie&Brothers.
InSeptember2008,Saudigovernmentrepresentativeswentto
Kazakhstantoexploregrainproductionandcattleraisinginvestment
opportunities.
TheAlRabieGroup,aSaudifoodcompanyandthelargestjuice
manufacturerintheMiddleEast,isinterestedinbuyinglandinPakistan
todevelopthedairyindustrythere.AlRabieisalsohopingtodevelop
Pakistan'sexportsoftomatopaste,citruspulpandpackedbeansforthe
Saudimarket.
Source:NCB,GRAIN,Blominvest

February2011

Country/Region Investor

Investee

Produce

Details

UAE

Abraaj

Pakistan

Rice
Wheat
Dairy

AbuDhabi
Group

Pakistan

Emirate
Investment
Group
Private
Sector

Pakistan

Sugar
Dairy
Crops
Dairy

Abraaj Capital has, together with the UAE government, reportedly


acquiredsome800,000acres(about324,000ha)of"barren"farmlandin
Pakistan last year to produce rice and wheat for export to the UAE.
Abraajwillalsostartinvestingindairyfarminganddairyfoodprocessing
fromitsUSD250mnPakistanFund.EmiratesInvestmentGroupandthe
Abu Dhabi Group are allegedly not far behind in seeking similar deals.
Other players include the Al Ghurair Group, Effco and the Majid Al
Futtaim Group. Overall investments from Abu Dhabi in Pakistani
agriculturearesaidtobeworthUSD3bnalready.
TheAbuDhabiGroupisplanningtobuildsugarmillsinPakistanandlook
furtherintoagriculturalanddairyinvestments.

Philippines

Fruit
Fish
Cereals
Seafood

Senegal,
Uzbekistan

NS

AbuDhabi
Fundfor
Development
Government

Sudan

Janan

Egypt

Wheat
Maize
Fodder
Potatoes
Wheat
Corn
Feed

Government

Cambodia

Rice

Egypt

Government

Sudan

Wheat,
livestock

Government

Ukraine

Wheat

51

TheEmirateInvestmentGroupisinterestedindevelopingPakistan'sdairy
sector.

NewforeigninvestmentsfromUAEcorporationsinPhilippineagriculture
are growing. These include a USD 50 mn project to develop a 3,000 ha
banana plantation in Mindanao, fish and cereal farms in Luzon and a
pineapple cannery in Camarines Norte. Other firms are looking into the
possibility of producing organic fruits and vegetables, coconuts and
seafood. A memorandum of understanding between the two
governmentswassignedinJuly2008.
TheAbuDhabiFundforDevelopmentisseekinglandincountriessuchas
SenegalandUzbekistantoproducefoodandfeedfortheUAEmarket.
TheUAEgovernmentisinvestinginfoodproductioninSudantomeetits
ownmarketneeds.AsofAugust2008,itwasreportedthattheUAEhad
investedinatotalof378,000haoffarmlandinvariousSudanesestates,
includinga16,000haplantationformaizeandwheatproduction.
In May 2009, the UAE agricultural investment firm Janan reportedly
signed a deal with Egypt's Agriculture Ministryto cultivate 42,000 ha of
land with wheat, corn and animal feed. The project is expected to
generate around 350,000 tons of wheat a year. Janan has already
investedUSD320mntogrow6,227acreswithgreenfeedinEgypt.
In October 2009, the UAE Minister for Economy Sultan Bin Saeed Al
MansoorimetwithCambodiaPrimeMinisterHunSentodiscusstheUAE
governmentsplanstoinvestinCambodiasagriculturesector.
Egypt, one of the worlds largest importers of wheat, signed a contract
with President Omar Al Bashirs government to produce 2 mn tons of
wheatayearinthenorthofSudanforexporttoEgypt.Egyptisalsoeager
toraiselivestockthere.
EgyptisreportedlyseekingadealwithUkrainewherebyitwillexportgas
to Kiev in return for leasing out Ukrainian land for its own food
production.

Source:NCB,GRAIN,Blominvest

F&BintheMENARegion

Country/Region Investor

Investee

Produce

Details

Government Uganda
&private
sector

Wheat,
maize,
beef

Government Sudan
&private
sector

The Ugandan government has reportedly leased 2m feddans of land


(840,127 ha) a staggering 2.2% of Ugandas total area in various
partsofthecountrytoEgypt,sothatEgyptsprivatesectormaycome
in and produce wheat and maize for export to Cairo. The deal was
apparently struck in late August 2008 and would involve seven
Egyptian agribusiness firms, according to Reuters discussions with
Egyptianofficials.ThedetailshavebeendeniedbyUgandanministers
aswellasEgyptsambassadortoUganda,thoughhedidconfirmthat:
adealofthisnatureisunderpreparation;itwillfocusonwheatand
organicbeefforexporttoEgypt;theyhopesmallfarmers,notlarge,
willbecontractedforproduction;theEgyptiansmaybuildabattoirsin
Ugandaforthescheme;anditwillbefinancedbytheprivatesector.A
delegationofEgyptianbusinessmenandscientistsisexpectedtogoto
Kampala in October to work out details with Ugandan counterparts.
Initial activities will include setting up trials to determine which
varietieswillgrowwellinUganda.
In March 2008, Jordans prime minister announced that his country
would cultivate land allocated to it by the Sudanese government to
produce food for Jordanians, and urged the private sector to get
involved. Four months later, the agriculture ministry in Amman said
thatitwasappointingaprivatecompanytohandlethegovernments
overseas agricultural investments in the fight against domestic food
insecurityandinflation.
Source:NCB,GRAIN,Blominvest

Jordan

February2011

CompanyOverview

6.2 Companyprofiles
6.2.1 AlmaraiCompanyLimited
StockPerformance
14
12

StockPrice

200

10
8
6
4
2
0

150
100
Almarai
Tadawul

50

Oct10

May10

Jan10

Aug09

Mar09

Oct08

May08

Jan08

Index('000)

250

Source:Bloomberg,Blominvest
MajorShareholders

Holding(%)

Corporate

33.00

Private

30.71

Public

36.29

Source:Bloomberg,Blominvest

Saudi Arabiabased Almarai is engaged in the production and distribution of


consumer food and beverage products throughout the Middle East. Its main
business segments include Dairy & Juice, Bakery, Poultry, and Arable &
Horticulture.Setupin1976,thecompanywasapartnershipbetweentheIrish
agrifoods pioneer Alastair McGuckian and his brother Paddy, and HH Prince
Sultan bin Mohammed bin Saud Al Kabeer. Almarai is now the Middle Easts
largest integrated dairy foods company. It markets a variety of segments and
products under different brands through a distribution network that extends
throughout the Arabian Peninsula. Its product lines include dairy liquids,
cheese, regular and strained yogurt, butter and ghee, fresh and bottled fruit
juices,andtomatopaste.

PeerGroupAnalysis

Almarai

Herfy

ReturnonAssets(%)

11.44

29.97

ReturnonEquity(%)

24.37

39.61

Debt/equity(%)

81.3

5.7

AssetTurnover(%)

0.61

1.35

1.51

2.16

16.59
18.7

NA
22.1

Currentratio
P/E
Netmargin(%)

23,920
2,126.3
MarketCap.(SARmn)
*asofOct25,2010Source:AnnualReport,Blominvest

Productsegmentation

RecentDevelopments
Poultry
0.8%

Bakery
products
10.5%

Others
0.5%

OnMay22,AlmaraiannouncedthatitwishestoenterthePakistanimarket
Dairy,Fruit
&Juices
foods
88.2%

Source:AnnualReport,Blominvest
KeyFinancials
(SARmn)
TotalRevenues
EBITDA
NetEarnings
FreeCashFlow
Totalassets
TotalLiabilities
Shareholders'Equity

EnterpriseValue

2009

2008

5,868.8

5,029.9

1,784.1

1,439.9

1,096.7

910.3

467.17

(639.48)

10,987

8,181.28

5,587.28

4,549.79

5,399.72
22,861.14

3,631.49
18,671.89

Source:AnnualReport,Blominvest

and is likely to acquire Lahorebased dairy company Haleeb Foods. Sources


familiarwithAlmaraispendingtransactionsaythatthecompanyislookingto
investasmuchasUSD500mninPakistansfoodanddairysector.
In April 2010, Almarai announced plans to invest SAR 2 bn to acquire Hail
Agricultural Development Co. (Hadco), to gain entry into poultry production.
The proposed offer will be financed by its own resources, and will be clearly
reflectedinits2012financialresults.
In partnership with USbased Mead Johnson Nutrition Co., Almarai is
planning to set up a pediatric nutrition joint venture for the production,
marketing, and distribution of infant formulain the GCC countries. Almarai is
constructing a new manufacturing unit for pediatric nutrition products for
launchin2011,andthejointventurewillleasethefacility.

FinancialAnalysis
For2009,AlmaraireportedtotalrevenuesofSAR5.87bnfromSAR5.03bnin
2008,up16.7%.Duringthesameperiod,netearningssurged20.5%toSAR1.1
bn, because of increased sales and improved market shares across all the
sectors.Meanwhile,thecompanystotalassetsstoodatSAR10.99bnwithan
assetturnoverratioof0.61%.Thecompanysfreecashflowstoodatapositive
SAR467.17mn,ascomparedtoanegativeSAR639.48mnintheearlieryear,
asitsoperationalefficiencieshaveimproved.

ManagementOutlook
Productdiversification,potentialmergers&acquisitions,marketsize,attractive
demographics, and changing lifestyles offer Almarai excellent growth
opportunities. The company believes that the upcoming 1218 months are
pivotal in laying the foundation for its transformation from a local dairy
producertoaleadingregionalfoodcompany.Withnewbusinessunitscoming
online alongside the expansion into core dairy units during 2010, Almarai is
wellpositionedtocapitalizeonaBMIforecastof16.07%increaseinheadline
foodconsumptiontoSAR72.72bnto2014.

53

F&BintheMENARegion

CompanyOverview

6.2.2 SavolaGroupCompany
StockPerformance

10

30

7.5

20

10

2.5

Savola
Tadawul

Oct10

May10

Jan10

Aug09

0
Mar09

May08

Jan08

Index('000)

12.5

40

Oct08

StockPrice

50

Savola Group Company, a Saudibased public shareholding company, is


primarily engaged, together with its subsidiaries, in the manufacture and
marketingofvegetableoils,foodproducts,retailing,packagingmaterials,and
fast food operations. The Group has four core operating divisions: Savola
Foods, which deals in edible oils, general food, sugar processing and has
investmentsindairycompanies;SavolaRetail,whichoperatesaround80retail
storesacrossSaudiArabia,andahypermarketinDubai;RealEstateSector;and
Savola Plastics. Some of the companys 12 subsidiaries include Saudibased
Almarai, where it owns a 27.3% stake. In addition, the Group also has a
franchisingunit,whichhasexclusiverightsforinternationalbrandsoffashion
wear from different countries. Savola has a strong presence in the MENA
regionandCentralAsiancountries.

Source:Bloomberg,Blominvest

MajorShareholders

Holding(%)

Government

10.90

Corporate

60.1

Private

20.60

Source:Bloomberg,Blominvest

Savola

Herfy

ReturnonAssets(%)

6.00

29.97

ReturnonEquity(%)

14.28

39.61

Debt/equity(%)

72.6

5.7

AssetTurnover(%)
Currentratio

1.13

1.35

0.90

2.16

15.87
5.3

NA
22.1

16,450

2,126.3

P/E

8.40

Public

PeerGroupAnalysis

Netmargin(%)
MarketCap.(SARmn)

*asofOct25,2010Source:AnnualReport,Blominvest

RecentDevelopments
Savola Group has decided to set aside 1% of its annual profits in order to

Productsegmentation
Manufacture
/wholesale
56%
Retail
44%

Source:AnnualReport,Blominvest
KeyFinancials
(SARmn)
TotalRevenues
EBITDA
NetEarnings
FreeCashFlow
Totalassets
TotalLiabilities
Shareholders'Equity

EnterpriseValue

2009

2008

17,883.9

13,821.4

1,428

592.6

951.6

202.4

1,251.35

(538.23)

17,172.18

14,545.85

8,654.12

7,409.17

8,518.06
20,583.97

7,136.68
16,645.12

Source:AnnualReport,Blominvest

supportsocialcauses.TheGroupplanstoestablishanumberoftrainingand
educational centers not only in Saudi but also in countries where it has
businesslinks.
With the recent IPO of its unit Herfy Food Services Co., Savola netted a
profitofaboutSAR200mnfromtheoffering,withitsstakedecliningfrom
70%to49%inthecompany.
Savola entered into a sale and leaseback deal worth SAR 299 mn with Al
RajhiCapital,inordertocover its supermarketchains main warehousein
Riyadh.ThedealwillgenerateSAR55mnincapitalgainsforSavola,which
thecompanyproposestousetowardleasepayments.

FinancialAnalysis
In2009,SavolareportedtotalrevenuesofSAR17.88bnfromSAR13.82bnin
2008,up29.4%.Inaddition,netearningsmultipliedseveraltimestoSAR951.6
mnfromSAR202.4mnrecordedayearearlier,spurredbycapitalgainsworth
SAR101mnfollowingAlmaraisacquisitionofHadcolastyear.Thecompanys
freecashflowswungtopositiveSAR1.25bnfromnegativeSAR538.23mn.At
theendof2009,thetotalnumberofstoresacrosstheSavolaGroupstoodat
113. Looking ahead, the company plans to add 12 more stores within the
kingdombytheendof2010.

ManagementOutlook
Bolsteredbytheacquisitionofassets,Savolaplanstoexpanditsstorecountto
over120by2010,fromalmost60in2008.Thefoodcompanyhadalsoearlier
evincedplanstopursueacquisitionsofcookingoilfirmsinIndia,Indonesiaand
Pakistan. Benefits fromretail acquisitionscarried outin2009 are expected to
be seen in 2010. For 2010, the company estimates to earn an adjusted net
income of SAR 920 mn. Laid out across the hypermarket and supermarket
segments, Savolas retail unit is well positioned to take advantage of the
growing retail sector with Saudis retail sales projected to hit USD 97 bn by
2013.

February2011

6.2.3 KuwaitFoodCompany(Americana)
StockPerformance
20

StockPrice

2.5

17.5

15

1.5

12.5

10

0.5

7.5

FOOD
KSE

Jan08
Mar08
Jun08
Aug08
Oct08
Jan09
Mar09
Jun09
Aug09
Nov09
Jan10
Apr10
Jun10
Aug10

Index('000)

Source:Bloomberg,Blominvest

CompanyOverview

Kuwait Food Co. (Americana Group) is a Kuwaitbased public shareholding


company,withprincipalactivitiessuchastheimportandmanufactureoffood
andbeverages,andsaleofthesameonaretailandwholesalebasis.TheGroup
operates across the Kuwaiti and other Arab markets, and is engaged in the
operation of fast food restaurants and international franchises in Kuwait and
the Middle East. It operates over 1,000 restaurants across 17 countries with
franchises including Hardees, T.G.I. Fridays, Krispy Kreme, KFC, Pizza Hut,
Baskin Robbins,Samadi, andFishMarket. Itsfoodand beverage productsare
manufactured in five countries, and marketed under different brand names
acrosstheentireregion.ThecompanyssubsidiariesincludeEgyptianCompany
forInternationalTouristicProjects;GulfaforMineralWater,UAE;andAlAhlia
RestaurantsCo.,SaudiArabia.

PeerGroupAnalysis

MajorShareholders

Holding(%)

Public

33.67

Corporate

66.33

Source:Bloomberg,Blominvest

Product segmentation
Wholesale
trades
3%

Restaurant &
Stores
51%

Consumer
foods
manufacture
46%

Americana

Savola

ReturnonAssets(%)
6.34
6.00
ReturnonEquity(%)
13.70
14.28
Debt/equity(%)
47.1
72.6
AssetTurnover(%)
1.08
1.13
Currentratio
1.03
0.90
P/E
15.74
15.87
5.9
5.3
Netmargin(%)
659.3
16,450
MarketCap.(KWDmn)
*asofOct25,2010Source:AnnualReport,Blominvest

RecentDevelopments
AmericanarecentlyannounceditsentryintotheGuinnessBookofRecords

Source:AnnualReport,Blominvest
KeyFinancials
(KWDmn)
TotalRevenues
EBITDA
NetEarnings
FreeCashFlow
Totalassets
TotalLiabilities
Shareholders'Equity

2009

2008

616.4
557.4
85.5
103.6
36.3
35.2
75.10
(26.89)
589.75
554.61
264.53
271.09
325.22
283.52
709.14
665.65
EnterpriseValue

Source:AnnualReport,Blominvest

withthreenewrecordsinthefoodproductsindustry:thelargestservingof
friedchickenmealintheworldfromKFC,largestdoughnutsboxfromKrispy
Krme,andthelongestburgerlinefromHardees.
AmericanaenteredintoanagreementwiththeSanCarloGrouptolaunch
theItalianrestaurantSignorSassiintheMiddleEastmarkets.Thegroupis
planning to set up 22 such restaurants across the Middle East, with initial
locationsbeingKuwait,Dubai,Riyadh,andCairo.
InDecember2009,Americanasoldits49%stakeinCairoFoodIndustriesto
othershareholdersinthatcompanyandUSfoodcompanyHJHeinz.

FinancialAnalysis
In 2009, Americanas total revenues increased 10.6% to KWD 616.4 mn from
KWD 557.4 mn in 2008. Also, net earnings edged up marginally to KWD 36.3
mn from KWD 35.2 mn. In 2009, the companys free cash flow stood at a
positiveKWD75.10mnagainstanegativeKWD26.89mnin2008.TheBoardof
Directorshasrecommendeda60%cashdividendtoshareholdersfortheyear
2009.

ManagementOutlook
Looking ahead, the Kuwaiti market is attractive and profitable for F&B
franchises, supported by strong demand from a young, rapidly growing, and
wealthy population. Furthermore, the BMI estimates highlight that Kuwaits
headline food consumption is expected to increase 3.8% in 2010. Americana,
whichfirmlybelievesthatitwouldcontinuetomaintainitsmarketpositionand
buildonitduringtheupcomingyears,islikelytobenefitfromthesetrends.

55

F&BintheMENARegion

6.2.4 HerfyFoodServicesCompany
CompanyOverview

13

75

11.5

70

10

65

8.5

60

55

5.5

Herfy
Tadawul

Oct10

May10

Jan10

Aug09

4
Mar09

Jan08

May08

50

Index('000)

80

Oct08

StockPrice

StockPerformance

Source:Bloomberg,Blominvest

MajorShareholders

HerfyFoodServicesCo.(HFS)whichconsistsofachainoffastfoodrestaurants
isbased in Saudi Arabia. A unitofSavola, Herfy hasgrownto become one of
thecountrysfirstfullyintegratedfoodservicescompanieswithitsownbakery
factory,bakeryoutletsandameatprocessingplant.Itsfoodproductsinclude
beefandfishcombos,chickencombos,kiddiemeals,softdrinksandotherside
orders.HFSoffersitsproductsthroughsnetworkofbranchesacrosstheSaudi
Arabian,BahrainiandtheUAEmarkets.

PeerGroupAnalysis

Herfy

ReturnonAssets(%)

29.97

6.00

ReturnonEquity(%)

39.61

14.28

Debt/equity(%)
Holding(%)

Corporate

49.00

5.7

72.6

AssetTurnover(%)

1.35

1.13

Currentratio

2.16

0.90

NA
22.1

15.87
5.3

2,126.3

16,450

Public

30.00

P/E

Private

21.00

Netmargin(%)

Source:Bloomberg,Blominvest

Savola

MarketCap.(SARmn)

*asofOct25,2010Source:AnnualReport,Blominvest

RecentDevelopments

Historicrevenue
600

Herfy,whichowns16bakeryproductionunitsandameatprocessingplant,
450
n
'm 300
R
A
S
150
0
2007

2008

2009

has a current capital base of USD 70 mn. To fund its expansion plans the
companylaunchedanIPOinFebruary2010toraiseUSD110.2mn.
The firm opened three branches in Ras Tanoura, Riyadh and Dammam in
February.
HerfyFoodServicesplanstoopenitsrestaurantsalloverKuwait,withone
alreadylaunchedinJanuary2010.

Source:AnnualReport,Blominvest FinancialAnalysis
HerfyFoodServicesannouncedthatitstotalrevenuefor2009increased11%
toSAR517.6mnfromSAR466.5mnrecordedin2008.Ledbyhighersales,the
KeyFinancials
2009
2008
companys net profit surged 25.5% to SAR 114.6 mn from SAR 91.3 mn. Free
(SARmn)
TotalRevenues
517.6
466.5 cash flow dropped 3.8% to SAR 63.55 mn from SAR 66.06 mn. For 4Q09, the
EBITDA
144.6
120.2 companydeclaredacashdividendofSAR0.75pershare.

NetEarnings
114.6
91.3
ManagementOutlook
FreeCashFlow
63.55
66.06
Looking ahead, the company plans to open 17 new fast food restaurants in
Totalassets
410.61
354.55
2010,takingthetotalto173.Itplanstoutilizeitsexpertisebyexpandingacross
TotalLiabilities
93.90
92.47
other GCC countries, besides Bahrain and Abu Dhabi where it is already
Shareholders'Equity
316.72
262.08
operatingoutlets.Withthehelpofitsmodernfactories,agrowingselectionof
N/A
N/A
EnterpriseValue
newHerfybakeryitemsandprocessedmeatproductswillcontinuetorollinto

Source:AnnualReport,Blominvest
the market. The company continues to invest in product development and

stateoftheart technologies in order to emerge as a leading food services


brandintheregion.

February2011

CompanyOverview

StockPerformance

4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0

7000

4000

Index

5500

2500
1000

Agthia
DFM

500

EmiratesFoodstuff&MineralWaterCo.,alsoknownasAgthiaGroup,isanAbu
Dhabibasedpublicjointstockcompany,whoseprincipalactivitiesincludethe
establishment, investment, trade and operation of companies involved in the
foodandbeverageprocessingbusinessintheUAEandabroad.GeneralHolding
CorporationPJSCowns51%ofAgthiassharesandthecompanyoperatesfour
whollyownedsubsidiaries,namelyGrandMillsforFlour&FeedCompanyPJSC,
AlAinMineralWaterCo.PJSC,AlAinVegetableProcessing&CanningFactory,
andAlAinFood&Beverages.

Jan08
Mar08
May08
Aug08
Oct08
Jan09
Mar09
Jun09
Aug09
Nov09
Jan10
Apr10
Jun10
Aug10

StockPrice

6.2.5 AgthiaGroup

PeerGroupAnalysis

Source:Bloomberg,Blominvest

MajorShareholders

Holding(%)

Agthia

OmanFlour

ReturnonAssets(%)

9.40

10.28

ReturnonEquity(%)

12.48

11.72

Debt/equity(%)

11.2

2.3

AssetTurnover(%)

0.82

1.08

2.43

7.94

10.44
11.5

14.04
9.5

Government

56.00

Currentratio

Public

44.00

P/E

Netmargin(%)

Source:Bloomberg,Blominvest

1,380
102.53
MarketCap.(AEDmn)
*asofOct25,2010Source:AnnualReport,Blominvest

Productsegmentation

RecentDevelopments
Agthia Group is planning to ramp up its expansion plans in 2010 and has

Mineral
Water
17%

Flour&
AnimalFeed
83%

Source:AnnualReport,Blominvest
KeyFinancials
(AEDmn)
TotalRevenues
EBITDA
NetEarnings
FreeCashFlow
Totalassets
TotalLiabilities
Shareholders'Equity

2009

2008

921.4
853.9
138.9
89.5
105.7
72.2
169.37
(130.53)
1,190
1,060.3
290.96
264.98
898.99
795.33
1,014.38
729.35
EnterpriseValue
Source:AnnualReport,Blominvest

allocatedinvestmentstowardsthat.For2010,capacityexpansioninvestment
plannedforthenewflourmillissetbetweenAED60mntoAED80mnandis
settostartitsoperationsfromthesecondhalfof2011.Thecompanyplans
tolaunchnewproductsinthenearfuture.
In 2009, thecompany set up a foodprocessing factory in Egypt in order to
meetthegrowingdemandfortomatoandfruitconcentrateintheUAE,and
internationalmarkets.Thefactoryissetupwith95%Agthiagroupownership
and the remainder belongs to its entity Al Ain Vegetable Processing &
CanningFactory.Itwouldemploy110peopleandprocess1,000tonsoffresh
tomatoesperday.
Agthia plans to raise the proportion of foreign equity in the company;
currently,foreigninvestorsowna4%share.Inordertoexpandproductlines
andincreaseprofits,thecompanywouldhavetoinitiatemeasurestoattract
foreigninvestments.

FinancialAnalysis
Agthia Groups 2009 total revenues increased 7.9% to AED 921.4 mn, on
volumegrowthacrossallproductlines,particularlyinthewaterandbeverages
business.TheintegrationofCapriSunin1H09contributedtosalesgrowth.Net
profitfortheyearincreased46.4%toAED105.7mn,supportedbyimproving
gross margin, higher sales volume, and favorable impact of the ongoing cost
savinginitiatives.Subsequently,freecashflowstoodatapositiveAED169.37
mn as against a negative AED 130.53 mn in 2008. For 2009, the Board
recommendeda5%cashdividend.

ManagementOutlook
Thecompanyremainsoptimisticaboutfuturerevenueandprofitgrowthasit
pursuesthestrategyofintroducingnewandvalueaddedproducts,continued
geographical expansion, and high operating efficiencies. However, from a
macroeconomic perspective, Agthia remains cautious of the uncertainties
surrounding the current economic & financial environment in the UAE,
regionally,andglobally.
57

F&BintheMENARegion

CompanyOverview

StockPerformance

0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0

11000

7000
5000

Oct10

Jun10

3000
Jan10

Aug09

Mar09

Oct08

OmanFlour
Muscatsecurities

May08

Index

9000

Jan08

StockPrice

6.2.6 OmanFlourMills

Oman Flour MillsCo. SAOG (OFM),apublic joint stock company, is engagedin


themillingandfoodprocessingbusiness.Theprincipalactivitiesofthecompany
aremillingofwheatandothercereals,saleofflour,andtheprocessingandsale
of animal feed. Its brands Dahabi for flour products and Barakat for feed
products are popular not only in the domestic market but also in the other
ArabianGulfmarkets.ThecompanyexportsmainlytoAfrica,theCIS,andtheFar
Eastmarkets.ThecompanyssubsidiariesModernPoultryFarmsCo.isengaged
intheproductionandsaleofeggs,whileBreadHouseLLC,isengagedinthesale
anddistributionoffranchisefrozenbakeryproducts.

Source:Bloomberg,Blominvest

MajorShareholders

Holding(%)

Government

51.06

Public

48.94

PeerGroupAnalysis

OmanFlour

ReturnonAssets(%)

10.28

6.00

ReturnonEquity(%)

11.72

14.28

2.3

72.6

1.08

1.13

Debt/equity(%)
AssetTurnover(%)

Source:Bloomberg,Blominvest

Currentratio
P/E
Netmargin(%)

Productsegmentation

MarketCap.(OMRmn)
Eggs&Poultry
Produce
10%

7.94

0.90

14.04
9.5

15.87
5.3

102.53

16,450

*asofOct25,2010Source:AnnualReport,Blominvest
FlourMill
63%

FeedMill
27%

RecentDevelopments
Oman Flour Mills set up an investment firmAtyab Investmentwith a

Source:AnnualReport,Blominvest
KeyFinancials
(OMRmn)
TotalRevenues
EBITDA
NetEarnings
FreeCashFlow
Totalassets
TotalLiabilities
Shareholders'Equity

Savola

2009

2008

51.3
50.7
10.0
7.7
4.9
8.1
9.47
2.39
48.10
46.81
5.71
5.41
42.39
41.40
53.27
82.39
EnterpriseValue

Source:AnnualReport,Blominvest

capital base of OMR 150,000 to manage its growing portfolio of existing


investmentsandnewprojects.Theinvestmentsubsidiarywouldbeoverseeing
thedifferentbusinessesthatthemillplanstodiversifyinto.
Atyab Investment, in a 50:50 joint venture with UAEbased IFFCO, took over
Sohar Poultry Company. The JV plans to invest OMR 25 mn in setting up a
poultry farm that would produce 15,000 tons of chicken and 2 mn hatching
eggseveryyear.

FinancialAnalysis
OmanFlourMillsregisteredamarginalincreasein2009totalrevenuestoOMR
51.3 mn from OMR 50.7 mn in 2008, supported by increase in volumes and
improving margins. However, net earnings were reduced to OMR 4.9 mn from
OMR8.1mn.Thecompanysfreecashflowincreased296.2%toOMR9.47mn
fromOMR2.39mn.

ManagementOutlook
OFM is aggressively implementing an action plan to diversify operations and
venture into related businesses and has identified an industrial bakery and a
franchisee for frozen bakery products. The company is looking to expand into
new export markets as the traditional domestic markets are saturating. Going
forward,itplanstomodernizeitsmillingequipmentsandaddnewproductlines
toitsportfolio.

February2011

6.2.7 DeltaSugarCompany

CompanyOverview

60

14
12
10
8
6
4
2
0

StockPrice

50
40
30
20
10

DeltaSugar
CASE30

Jan08
Mar08
May08
Jul08
Sep08
Nov08
Feb09
Apr09
Jun09
Aug09
Oct09
Dec09
Feb10
Apr10
Jun10
Aug10

Index

StockPerformance

PeerGroupAnalysis

Source:Bloomberg,Blominvest

MajorShareholders

Holding(%)

Public

7.67

Government

29.89

Corporate

62.44

Source:Bloomberg,Blominvest
Historicrevenue

DeltaSugar

OmanFlour

ReturnonAssets(%)
8.83
10.28
ReturnonEquity(%)
10.49
11.72
Debt/equity(%)
NA
2.3
AssetTurnover(%)
0.86
1.08
Currentratio
2.32
7.94
P/E
22.33
14.04
10.2
9.5
Netmargin(%)
2,139.1
102.53
MarketCap.(EGPmn)
*asofOct25,2010Source:AnnualReport,Blominvest

RecentDevelopments

1200
1000

DSCBoardhasapprovedtoincreasetheissuedcapitalbyEGP300mn,out

800
n 600
'm
P 400
G
E
200
0
2007

2008

2009

Source:AnnualReport,Blominvest
KeyFinancials
(EGPmn)
TotalRevenues
EBITDA
NetEarnings
FreeCashFlow
Totalassets
TotalLiabilities
Shareholders'Equity

2009

2008

1,000.0
733.7
133.4
295.4
102.2
192.6
203.98
51.19
1,098.87
1,217.53
178.36
188.21
920.51
1,029.32
2,110.35
2,056.03
EnterpriseValue

Source:AnnualReport,Blominvest

59

Delta Sugar Company (DSC) is an Egyptbased public shareholding company


engaged in the manufacture of white sugar and related products. The
companyprovidesmorethan25%ofEgyptssugarrequirements.Itsrawsugar
refinery station produces over 270,000 tons of white sugar annually from
sugarbeet.Inadditiontowhitesugar,thecompanyalsoproducesbeetpulp
and beet molasses, which are basic ingredients for animal feed, and are
distributed domestically and exported abroad. DSC offers its white sugar
products to a range of food processing industries across Egypt. Sugar &
IntegratedIndustriesCo.(SIIC)holdsmajoritysharesinDeltaSugar.

ofwhich50%willbethroughequityandtheremainderthroughprofits.The
additionalcapitalismainlytofunditsnewproductionlineatatotalcostof
EGP1.1bnand acapacityof150,000tonsofsugar.Theremainingwillbe
addedfromdebtandproceedsofapreviouscapitalincrease.
Delta Sugar is seeking to establish a new sugar beet factory at Kafr Al
Sheikh, Egypt with a production capacity of 125,000 tons of sugar beet,
50,000tonsofmolasses,and50,000tonsoffodder.Asthecompanyalready
ownsaplantthere,anewplantwouldcutinvestmentcostsbyEGP300mn,
asthecompanywouldbenefitfromtheexistinginfrastructure.

FinancialAnalysis
DeltaSugarCompanyrecordeda36.3%surgeintotalrevenuestoEGP1.00bn
fromEGP733.7mn,drivenbyasignificantincreaseinsugarrevenues.Other
revenue segments jointly contributed more than 50% of total revenues. The
3Q09sugarvolumeswerelargeduetoescalatingdomesticdemandforsugar
whilstinternationalpricesincreasedsignificantly.Thecompanysnetearnings
dropped47%toEGP102.2mnfrom192.6mn,followingthereleaseofunused
provisions.Meanwhile,thecompanysEBITDAfell54.8%toEGP133.4mn.

ManagementOutlook
Althoughsugarpricesfacedatoughyearin2009duetohighbeetcosts,Delta
Sugar is optimistic about 2010. Industry experts say that the world sugar
marketwillreturntosurplusin201011,helpedbyimprovedoutputinmajor
producingcountries.Thecompanywouldalsobenefitfromthenewlawthat
exemptsitfrompayinganincentivefeeofEGP50pertononbeetbeingpaid
tofamers.

F&BintheMENARegion

6.2.8 SaudiDairy&FoodstuffCompany(SADAFCO)

CompanyOverview

StockPerformance

14
12
10
8
6

40
30
20
10

4
2
0
Oct10

May10

Jan10

Aug09

Mar09

Jan08

Oct08

SADAFCO
Tadawul

May08

StockPrice

50

Index('000)

60

Saudia Dairy & Foodstuff Co. (SADAFCO) is a Saudi Arabianbased company


withprincipalactivitiessuchasmanufacturinganddistributionoflonglifedairy
productsandfoodstuffs.Theproductrangeincludesmilkproducts,icecreams,
juices, and a selection of snacks such as Crispy Peanuts, Crispy Super Rings,
CrispyLetters&Numbers,CrispyRipplesandCrispyChips.Itscheeseproducts
includefetacheeseandcheesespread,whileotherfoodstuffsincludetomato
paste, mutabal, hummus, and tomato pulp. SADAFCOs subsidiaries include
Sadafco Food Stuff Co. UAE; Sadafco Bahrain Co.; Sadafco Qatar Co.; Jordan
SadafcoFoodStuffCo.;andSwissSpecialFoodCo,Egypt.

Source:Bloomberg,Blominvest

MajorShareholders

Holding(%)

Public

SADAFCO

Savola

ReturnonAssets(%)

3.82

6.00

ReturnonEquity(%)

5.57

14.28

Debt/equity(%)

49.40%

Corporate

PeerGroupAnalysis

AssetTurnover(%)

50.60%

Currentratio

Source:Bloomberg,Blominvest

P/E
Netmargin(%)

0.2

72.6

1.24

1.13

2.82

0.90

25.00
3.1

15.87
5.3

1,238.3
16,450
MarketCap.(SARmn)
*asofOct25,2010Source:AnnualReport,Blominvest

RecentDevelopments
In April 2010, SADAFCO sold its 51% stake in Saudi New Zealand Milk

ProductstoitspartnerfirmFonterraforaroundSAR120mn.
In 2009, SADAFCO launched a healthier alternative for its consumers by

introducing cheese triangles, which are a good source of calcium and


proteins.Sincethecheesetrianglessegmentisgrowingandconsumersare
weary of the foreignproductsavailable,thecompany planstoexpand the
marketandcaptureasubstantialshare.

Source:AnnualReport,Blominvest
KeyFinancials
(SARmn)
TotalRevenues
EBITDA
NetEarnings
FreeCashFlow
Totalassets
TotalLiabilities
Shareholders'Equity

2009

2008

922.3
878.2
101.7
94.5
28.3
58.5
28.4
(3.41)
719.33
763.93
216.71
248.65
502.63
515.28
734.95
969.41
EnterpriseValue
Source:AnnualReport,Blominvest

FinancialAnalysis
In 2009, SADAFCO posted a 5.0% rise in its total revenues to SAR 922.3 mn
fromSAR878.2mnin2008.Inaddition,thecompanysfreecashflowswungto
a positive SAR 28.4 mn from a negative SAR 3.41 mn earlier. However, the
companysnetearningsdroppedmorethanhalftoSAR28.4mnfromSAR58.5
mn.In4Q09,thecompanyplannedtopayadividendofSAR1.5persharetoall
itsshareholders.

ManagementOutlook
InlightofthedivestmentofSaudiNewZealandMilkProductsandanincrease
in other income, SADAFCOs net profit in 2010 is likely to increase.
Furthermore, the company is launching new products for consumption in
households,schools,andpicnics.SADAFCOisnowplanningtoinvestuptoSAR
60 mn in order to boost production and develop its production chain. The
company will use the electronic media to further promote and maintain the
brand image of Saudia. The Saudia brand is a key growth driver in the near
future as it would help to counter the rising competition and strengthen its
marketshare.

February2011

6.2.9 NationalAgricultureDevelopmentCompany(NADEC)

CompanyOverview

40

12
10

30

8
6

20

Index('000)

14

10

2
Oct10

May10

Jan10

Aug09

0
Mar09

Jan08

Oct08

NADEC
Tadawul

May08

StockPrice

StockPerformance
50

National Agriculture Development Co. (NADEC) is a Saudi Arabiabased joint


stockcompanyengagedincattlefarmingandagriculturaldevelopment,aswell
asfoodprocessinganddistribution.Itoperatesthroughthreemainsegments:
Agricultural Products, Cow Farms, and the Dairy Sector. The Agricultural
ProductsSectorproducesopenfieldvegetables,greenhousevegetables,cereal
crops, fodder crops, and fruits. The Cow Farms segment operates five cattle
farms,whichareengagedinanimalhousing,feeding,milking,andhealthand
reproduction activities. The Dairy Sector operates two dairy plants, which
produceanddistributedairyproducts.NADECalsooffersfreshandultrahigh
temperature(UHT)processedfruitjuicesindifferentflavors.

Source:Bloomberg,Blominvest

MajorShareholders

Holding(%)

Government

20.00

Public

40.60

Private

39.40

Source:Bloomberg,Blominvest
Productsegmentation

Wheat,Corn
&Potatoes
Farming
26%

Dairies,Fresh
&Canned
Vegetables
74%

2009

2008

1,334.2
1,338.6
200.2
259.8
(38.4)
68.8
(124.13)
(469.46)
2,513.39
2,442.30
1,538.07
1,383.27
975.31
1,059.03
3,017.68
2,799.67
EnterpriseValue

Source:AnnualReport,Blominvest

61

NADEC

Savola

SADAFCO

ReturnonAssets(%)
1.55
6.00
3.82
ReturnonEquity(%)
3.78
14.28
5.57
Debt/equity(%)
105.7
72.6
0.2
AssetTurnover(%)
0.54
1.13
1.24
Currentratio
0.59
0.90
2.82
P/E
NA
15.87
25.00
2.9
5.3
3.1
Netmargin(%)
1,578
16,450
1,238.3
MarketCap.(SARmn)
*asofOct25,2010Source:AnnualReport,Blominvest

RecentDevelopments

Source:AnnualReport,Blominvest
KeyFinancials
(SARmn)
TotalRevenues
EBITDA
NetEarnings
FreeCashFlow
Totalassets
TotalLiabilities
Shareholders'Equity

PeerGroupAnalysis

NADECexpectsto receive alongtermloan worthSAR104 mn fromSaudi

Industrial Development Fund. The funds will be used to finance the


expansionofNADECsfoodprocessingprojects.
Further to the Saudi governments strategy to investment in farmlands
abroad to alleviate food security concerns, in February 2010, NADEC
completedtheacquisitionofa42,000hafarmlandinSudan.

FinancialAnalysis
In 2009,NADEC reported amarginaldecline intotalrevenues to SAR 1.33bn
from SAR 1.34 bn recorded in 2008. The net earnings of the company also
swung to a negative SAR 38.4 mn, as compared to a positive SAR 68.8 mn
recorded earlier. However, the negative balance of free cash flow narrowed
downtoSAR124.13mnfromanegativeSAR469.46mn.

ManagementOutlook
NADEC believes that the introduction of greenhouse farming can not only
improve the company but also the countrys currently increasing vegetable
prices. It further added that looking ahead this kind of farming will help to
produceatareasonablecostandreducepricesforendconsumers.Thefactors
supporting such positive growth trends in the GCC food sector are favorable
demographicsincludinghighgrowthratesandayoungpopulation,strongGDP
growthlevelsandpercapitaincomerates;improvementsineducation,greater
healthconsciousnessandpreferenceforfoodssuchasdairyproductsandnew
lifestylechoices.

F&BintheMENARegion

6.2.10 SaudiFisheriesCompany

CompanyOverview

12500

60

11000

50

9500

40

8000

30

Index

70

6500

20

5000

SFICO
Tadawul

Oct10

May10

Jan10

Mar09

Aug09

3500

Oct08

Jan08

10

May08

StockPrice

StockPerformance

Source:Bloomberg,Blominvest

MajorShareholders

Holding(%)

Government

40.00

Public

38.50

Private

21.50

Source:Bloomberg,Blominvest

Historicrevenue
150

Saudi Fisheries Co. is engaged in developing investment prospects in fishing


and aquaculture, alongside the manufacture and sale of seafood, locally and
worldwide. The company operates through its own fleet of fishing vessels,
seafoodprocessing plants, a chain of retail shops and service counters. The
products fall into four segments, namely valueadded products (15 fish
productsundertheAlasmakbrand),theindividuallyquickfrozen(IQF)linethat
produces retail packs of IQF shrimp, a complete range of fish products, and
Alasmaktuna.Thecompanyhasfourprocessingplantsstrategicallylocatedin
Dammam,Jazan,Jeddah,andRiyadh.

Saudi
PeerGroupAnalysis
Savola
SADAFCO
Fisheries
ReturnonAssets(%)
14.80
6.00
3.82
ReturnonEquity(%)
19.12
14.28
5.57
Debt/equity(%)
6.6
72.6
0.2
AssetTurnover(%)
0.61
1.13
1.24
Currentratio
1.91
0.90
2.82
P/E
NA
15.87
25.00
24.3
5.3
3.1
Netmargin(%)
822
16,450
1,238.3
MarketCap.(SARmn)
*asofOct25,2010Source:AnnualReport,Blominvest

FinancialAnalysis
n100
m
'
R
A
S

Saudi Fisheries Co. reported a 3.8% drop in its 2009 total revenues to SAR
118.00 mn from SAR 122.7 mn in 2008. Furthermore, the companys net loss
widenedtoSAR28.7mnfromSAR25.8mn.Althoughfreecashflowregistered
anegativebalanceitnarroweddowntoSAR13.38mnfromnegativeSAR48.29
mnrecordedintheyearagoperiod.Asliabilitiesincreased42.7%toSAR51.37
mn,shareholdersequitydeclined17.5%toSAR135.67mn.

50
2007

2008

2009

Source:AnnualReport,Blominvest

KeyFinancials
(SARmn)
TotalRevenues
EBITDA
NetEarnings
FreeCashFlow
Totalassets
TotalLiabilities
Shareholders'Equity

2009

2008

118.0
122.7
(12.7)
(14.0)
(28.7)
(25.8)
(13.38)
(48.29)
187.04
200.36
51.37
36.01
135.67
164.35
1,057.51
493.36
EnterpriseValue

Source:AnnualReport,Blominvest

ManagementOutlook
TheoveralloutlookforthefoodsectorintheGCCcountriesseemspromising
withfurthergrowthexpectedinthenearfuture.Thepositivegrowthtrendsare
backedbyfactorssuchasfavorabledemographicsincludinghighgrowthrates
and a young population, strong GDP growth and per capita income rates;
improvededucation,greaterhealthconsciousnessandthepreferencefordiet
foodssuchasfreshdairyproductsandnewlifestylechoices.However,smaller
players in the food industry would be under pressure as mergers and
acquisitionscontinuetobethechiefmodeofgrowthfortopplayers.

February2011

6.3 Acronyms
F&B
CAGR
USDA
FAO
UNWTO
mt
ISAAA
MENA
GCC
GDP

63

FoodandBeverages
CompoundedAnnualGrowthRate
UnitedStatesDepartmentofAgriculture
FoodandAgriculturalOrganization
UnitedNationsWorldTourismOrganization
MetricTons
InternationalServicefortheAcquisitionofAfri
biotechApplications
MiddleEastandNorthAfrica
GulfCooperationCouncil
GrossDomesticProduct

CPI
BMI
MAF
TSC
GM
UN

ConsumerPriceIndex
BusinessMonitorInternational
MajidAlFuttaimGroup
TheSultanCenter
GeneticallyModified
UnitedNations

R&D
Ha

ResearchandDevelopment
Hectare

Bt
FSU

Bacillusthuringiensis
FormerSovietUnion