Food industry: Growth and challenges

The Saudi food sector, which is largely dependent on imports, has, however, taken a giant leap in terms of food processing and vegetable, dairy and poultry production. In fact, many of the Kingdom’s food and drink giants have set up huge food processing units. Of late, they have started expanding their facilities, modernizing existing units and more importantly looking to expand their presence overseas.
Meanwhile, the Kingdom has announced plans to increase its industrial areas from 14 to 24. These industrial areas will also attract huge investments in the food sector. One such industrial area, Sudair Industrial and Business City, 120 km from Riyadh, was inaugurated earlier this month by Riyadh Gov. Prince Salman. This city, now in its first phase of development, is expected to attract investments worth SR150 billion in a staggered schedule.
There are some 3,657 factories currently operating in the Kingdom with total investments of SR256 billion involved. The bulk of this investment is directed toward petrochemical and plastics production in Jubail and Yanbu.  Private companies and leading individual businessmen dominate the food sector. Almarai, the Gulf’s largest dairy firm by market value, is one such firm. Almarai made two agreements in 2008: One with the Egyptian dairy and juice manufacturer, International Company for Agricultural Industrialization Projects (Beeaty) and another with the Jordanian drinks firm, Taibah’s Investment and Advanced Food Company. Almarai had said that through these acquisitions it is looking to diversify its revenue sources, and says that it plans to boost its investment budget to $1.6 billion for five years to 2013.
The Savola Group, another expansion-oriented Saudi Arabian firm, was reported to have said that the current global financial crisis could have positive implications for its operations, as it has presented new acquisition opportunities. In a public statement, Savola said that it is now reviewing its investment priorities, particularly with regards to new projects.
These developments, especially in terms of acquisitions made by Saudi companies, indicate the growth and strength of the food industry in Saudi Arabia.  The Kingdom is also considering building a new port in Jeddah to handle rising imports such as wheat and barley under a food security plan. In fact, food security has topped the policy agenda in the Gulf region following rampant inflation in 2008 that underscored the dependence on imports and forced countries to invest abroad to ensure supplies of staples like rice and wheat. This policy has also resulted in a growing interest to invest in the food sector inside the Kingdom. Saudi Arabia has emerged as a global buyer of wheat and is also trying, with the help of private Saudi investors, to secure farmland in Africa and elsewhere abroad to import more food. “Since Saudi Arabia abandoned its wheat cultivation program two years ago, due to dwindling water resources, it became a major buyer of wheat from global markets,” said a report released by Grain Silos and Flour Mills Organization.
According to the report, Saudi Arabia will be importing three million tons of wheat per year from 2009 until 2016. While the Kingdom will go on importing wheat and other grains, it has also urged companies to invest in farm projects abroad. In April, Riyadh set up a company with SR3 billion in capital to invest in farmland abroad, focusing on wheat, rice, sugar and soybeans. State-owned Saudi Industrial Development Fund is granting financing facilities to firms exploring agricultural investments abroad.
Several Saudi firms also launched farmland investment abroad in countries such as Indonesia and Ethiopia. The Kingdom, which can ensure food security on the strength of its economy, mainly from oil income, will have problems in terms of sustaining its independence in the food sector. Saudi renewable water resources are insufficient and the country’s population growth is among the highest in the world.
Another trend is the increased demand for prepared and packaged foods that hit the Saudi market after 1995. Changing and busy lifestyles as well as aggressive marketing from food companies have created a demand in this segment.
With about 70 percent of Saudis in their teens, and their preference for Western-style foods, international fast food chains such as KFC, Pizza Inn, FreshBerry, Burger King, McDonald’s, Taco Bell, Pizza Hut, Dominos, and local chains such as Herfy, Al-Baik, Al-Tazaj, Dajen and Kudu continue to expand and are found in major urban areas. The expanded market has prompted many international companies such as Kraft/General Foods, Del Monte, Pepsi, Coca-Cola and Danone to set up licensing agreements with local manufacturers in Saudi Arabia to produce their brands.
Among some of the solid indicators for the increasing opportunities there is Carrefour, which has announced plans to double the number of hypermarkets that it operates in Saudi Arabia in the near future.

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