A growing population base, increasing affluence, and rising tourist inflow within the GCC are some of the major factors fuelling the food demand in the region. High health awareness and a developing taste for a westernised 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.
Backed by macroeconomic drivers, food consumption in the GCC is expected to grow at a 3.5% CAGR between 2014 and 2019 to reach 51.9 million metric tonnes (MT). 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.
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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% 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 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 urbanisation across the GCC is only set to rise in the future, which will also impact the GCC food industry.
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.
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 US $25.8 billion in 2010 to $53.1 billion by 2020, 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, labour laws, and lack of clarity on government regulations with regard to incentivising 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. Logistics 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.
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.
Bio: Mahboob Murshed is the managing director of Alpen Capital. The article includes excerpts from Alpen Capital’s recently published report on the GCC Food Industry.
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