JEDDAH — Food consumption in the GCC, backed by encouraging macroeconomic drivers, is expected to grow at a 3.5% CAGR between 2014 and 2019 to reach 51.9 million metric tons (MT), Alpen Capital said Tuesday in a new report on “GCC Retail Industry”. Cereals are likely to remain the most consumed food category, accounting for 46.5% of the region's total food consumption in 2019. However, rising consumption of high-priced protein-rich and healthy foods is expected to gradually eat into the share of cereals in the total food consumption. Subsequently, cereals consumption is expected to show an annualized growth of 3.0% between 2014 and 2019, slower compared to the 4.4% and 3.8% annual rise in meat and fruit consumption, respectively. During the forecasted period, food consumption in Qatar and the UAE is expected to grow at a CAGR of 5.5% and 4.8%, respectively, the fastest across the GCC. Saudi Arabia is the largest food consuming nation in the GCC and is anticipated to remain so for the foreseeable future. Food consumption in Saudi Arabia is estimated to show an annual average growth of 3.0% from 2014. Oman, Kuwait and Bahrain also show similar growth patterns ranging from 2.7% to 3.2%. Rising population is one of the key drivers of food consumption in the GCC as it naturally increases the demand for food. Based on the International Monetary Fund (IMF) data, the population in the Gulf is projected to increase at a 2.4% CAGR between 2014 and 2019 to reach 57.6 million. The already high rate of urbanization across the GCC is only set to rise in the future which will also impact the GCC Food Industry. Urban lifestyles have raised the standard of living of individuals and changed their eating pattern, resulting in a shift in the diet towards protein-enriched foods as well as packaged and fast foods. Consumption of such premium products has contributed to the growth of the food industry. The region's per capita income is likely to increase at an annual average rate of 2.5% between 2014 and 2019. Rising income levels have led to strong preference for discretionary and high-priced food products such as organic, cut-vegetables, ready-to-cook, marinated meat, and flavored milk. This has, in turn, drawn international as well as local food retailers and manufacturers to establish and expand their presence in the region. International tourist arrivals in the GCC region are expected to show an annual average growth of 7.8% between 2014 and 2024, adding to the demand for food, especially packaged products and cooked meals in restaurants. Modern retail formats of hypermarkets and supermarkets are gaining popularity among busy consumers in the GCC, as they cater to diverse tastes and preferences through their wide array of food products and brands. Rising demand for packaged foods: The GCC packaged food market is booming due to rising demand for international foods from a growing base of expatriates as well as young consumers. This demand for packaged foods is well-served by the increasing penetration of organized retail stores offering a broad variety of food products and brands. Emerging private labels: The concept of private labels is steadily evolving as a highly profitable option for food retailers in the region, as it lifts profit margins by eliminating the intermediaries in the value chain. There is a huge scope for further growth considering the relatively higher share of private labels in total sales value in matured markets. The region's high reliance on imports reflects the need for an advanced food processing industry. In order to reap the already evident benefits of processing food locally, governments are encouraging domestic and global food producers to establish new manufacturing units. While Saudi Arabia and the UAE are the hubs for processed foods in the GCC region, other member nations are also investing in developing their processing capabilities. Increase in healthy and organic food consumption: Rising lifestyle-related ailments are gradually leading to increased health consciousness in the region, thereby driving the consumption of healthy, organic, and dietary foods. The organic food market in the Gulf region, estimated at $300 million in 2009, is anticipated to reach $1.5 billion by 2018. Growing consumption of meat, the key product among halal foods, along with a rise in the segment of population following Islam is likely to increase the demand for halal food in the region. Halal food imports into the GCC region are expected to almost double from $25.8 billion in 2010 to $53.1 billion by 2020, registering a 7.5% CAGR. The GCC governments have been investing in fish farming initiatives to boost domestic seafood production and meet the rising demand. As a result, aquaculture has evolved as the fastest growing food processing sub-segment in the region. Saudi Arabia and Oman are the largest investors in the region's aquaculture sector. The Gulf nations are hosting and attending events to study and implement technological developments that could enhance their agricultural output. Hydroponics and Aquaponics are among the technologies the region has already adopted. Though the food industry in the GCC is growing, it is not devoid of challenges. Securing a steady supply of food remains a key challenge for the GCC governments due to their dependency on imports. Another hurdle in increasing food supply is the lack of effective private sector participation in domestic food projects due to price controls, labor laws, and lack of clarity on government regulations with regard to incentivizing the private players with land allotments. An unstable socio-political environment in the Middle East poses a threat to the import of food into the region. Being largely dependent on food imports, the Gulf nations are always exposed to the fluctuations in international food prices. The GCC region is facing extreme water scarcity due to persistent decline in its renewable water resources. An inadequate water supply is adversely impacting the region's limited agricultural productivity. Logistic and regulatory procedures involved in managing a global supply chain pose a challenge in ensuring that quality products reach the consumers in a timely manner. The supply chain infrastructure, in its current state, presents a significant scope for improvement in the Gulf. Rising consumer awareness about adulteration and tighter regulatory oversight on food safety have drawn attention towards taking corrective measures, which are vital to the growth of the industry. Despite various challenges and change in trends, GCC's food sector will continue to grow on the basis of GCC's demographics and other robust macro factors. "The food demand in the GCC is driven by several factors including a growing population base, increasing affluence and rising tourist inflow within the region. High health awareness and a developing taste for a westernized diet, introduced by the increasing expatriate population, are bringing about a change in the region's dietary habits, creating demand for organic and international foods. In contrast, the GCC's food production is restricted due to its arid climate, less arable land, and water scarcity, making it heavily reliant on imports. However, the region's abundant oil revenues have supported its food imports as well as enabled the governments to make multi-billion dollar investments towards improving the country's food security," said Sameena Ahmad, Managing Director, Alpen Capital (ME) Limited. "The GCC countries are overwhelmingly reliant on food imports to meet their growing requirements. The inherent growth potential of the industry largely due to population growth, changing consumption patterns, continued modernization of the value chain and the vibrant tourism industry which is complemented by the regional governments' efforts to enhance food supply, is encouraging international as well as local players to enter and expand their foothold in the sector. We see growing interest from these companies to invest in the food sector which expectedly will play a major role to significantly reduce the food imports by the region in the foreseeable future," added Mahboob Murshed, Managing Director, Alpen Capital (ME) Limited. — SG
