UAE food producers tackle global challenges

Local food and beverage (F&B) producers in the UAE say the industry is being severely constrained by rising input costs and unprecedented challenges posed by the Russia-Ukraine conflict.

The fallout from the war, which began in February, has rippled across the globe, bringing uncertainty and insecurity to global food supply chains.

The food industry is one of the key industrial sectors of the UAE Ministry of Industry and Advanced Technology (MoIAT) operating a 300 billion plan not only to increase its contribution to GDP, but also to support long-term food security and self-sufficient production by promoting local development.

food security strategy

For industry stakeholders gathered at the MEED-Mashreq Manufacturing Business Leaders Forum, the Covid-19 crisis and conflict in Ukraine further underscored the importance of implementing a food security strategy.

“The food and beverage industry in the UAE has more than 550 manufacturing units employing more than 80,000 workers, with an output value of more than AED35 billion and exports of more than AED15 billion,” said Ahmed, CEO and board member of Global Food Industries (GFI). Bayoumi said. UAE Food and Beverage Manufacturers Group.

“The Ministry of Climate Change and the Ministry of Industry are jointly spearheading efforts to increase the domestic food supply and make the UAE one of the most food-safe countries in the world,” Bayoumi explained.

“Both the Food Safety and Action 300 Billion strategies have many plans to support the industry. We are also very grateful for new free trade agreements and new trade routes with India, Indonesia and Israel.”

import dependence

The UAE and other Gulf countries – considered food secure due to their economic and political stability – have not faced food shortages since the onset of the pandemic. But food security and the vulnerability of limiting import disruptions remain key strategic long-term goals for the UAE government, given its lack of control over its sources.

GCC countries, including the UAE, typically import nearly 85 percent of their food.

Compounding the situation is the harsh climate, which limits the expansion of local food production due to the scarcity of natural resources such as water and arable land.

According to the World Resources Institute, the Middle East and North Africa is the most water-scarce region in the world, and the World Bank predicts that the region will suffer the most economic losses from climate-related water scarcity compared to the rest of the world at approximately 6% to 14% of its GDP in 2050.

conflict pressure

Closed access to lower-priced Black Sea grains since the start of the war has led to commodity shortages and added to inflationary pressures for buyers already struggling with pandemic-disrupted supply chains, high import costs and energy costs that remain fragile. Struggling with soaring costs.

“Because of the war in Ukraine, the price of sunflower oil and flour has increased by almost 60 percent,” a local food manufacturer said on the forum.

“Also, the Indian government has banned the export of wheat from India. This has caused an increase in commodity prices in the local market. It has directly affected me as I use wheat in almost all of my products. Wheat flour accounts for 60% of my raw materials.”

The challenge is further compounded because commodity suppliers have been demanding advance payments as they take advantage of shortages, he said.

But in the credit-driven UAE market, manufacturers are still constrained by payment cycles of 90 to 120 days.

“At the same time, I cannot raise prices,” the manufacturer said. “It’s not healthy for the industry. There has to be some intervention by the ministry to address this.”

Nearly 99% of food in the UAE is no longer subject to price regulation.This is due to a dialogue between the Ministry of Economy and industry – credit where credit is due

Ahmed Bayoumi, Global Food Industry

fight against inflation

Inflation has risen to historic levels in many markets around the world, with major implications for consumers and businesses.

In the UAE, the International Monetary Fund forecasts inflation at 5.2% this year.

A local manufacturer on the forum said businesses had “nothing else to do” to protect their finances and profits other than to raise prices on their goods.

“The government doesn’t like to bother consumers with price increases, but this is a very big challenge for manufacturers,” he said. “If manufacturers don’t raise prices, they lose money.”

According to a 2022 Grant Thornton survey of 5,000 mid-market businesses in 28 countries, including the UAE, 87% of businesses in the UAE are opting to pass on the cost of surging inflation to consumers to protect them by boosting profit margins profits. Prices, “at or above our cost growth levels”.

According to the study, businesses experienced an 18 percent increase in energy and utility bills, a 17 percent increase in raw material costs, and a 14 percent increase in wages or employee compensation. Business spending related to equipment, as well as banking, interest and taxes, also rose 16%.

The UAE government usually caps the prices of staple foods to control inflation and ensure households can afford to shop. However, the Ministry of Economy said in April 2022 that it was monitoring 300 frequently purchased basic food items to identify products that could raise prices in line with rising import costs, subject to approval.

“Nearly 99 percent of food in the UAE is no longer price regulated,” says GFI’s Bayoumi. “This is due to the dialogue between the Ministry of Economy and industry – credit where credit is due.

“Only some basic staples are regulated, which is a major break after nearly 20 years of all regulation.”

achieve self-sufficiency

The long-term vision of the UAE’s food security strategy is to achieve self-sufficiency, achieving an optimal balance between domestic production and securing access to overseas food production.

However, persistent challenges are affecting the speed at which this vision can be achieved.

“Producers who may enjoy more subsidies or due to currency fluctuations can enter the UAE market at low cost. This is often at the expense of demand from local manufacturers,” Bayoumi said.

At the same time, a strong dollar is a “double-edged sword.”

“On the one hand, it helps you import goods from all over the world. So, in terms of raw materials or equipment, imports are cheaper. But, on the other hand, in terms of exports, for example, countries that use the euro are screaming that they can no longer buy Our products are down because they’ve appreciated 20% in value.”

“I think the UAE has to think about having some sort of ownership over land overseas,” said one manufacturer at the forum. “This may open a door for the UAE. This will secure our raw materials in terms of availability and price.”

The UAE has already taken steps in this area, with its investment vehicle spearheading the effort.

In 2020, Abu Dhabi International Holding Company (IHC) said it will invest more than US$225 million to develop and cultivate more than 100,000 acres of farmland in Sudan to help ensure high-quality agricultural output.

Earlier this year, Abu Dhabi holding company ADQ acquired a majority stake in Cyprus-based agricultural company Unifrutti. The company produces, trades and distributes more than 100 types of fresh produce and sells 560,000 tons of fresh fruit annually. It has 14,000 hectares of farms on four continents and customers in 50 countries.

ADQ previously acquired a 45 percent stake in French company Louis Dreyfus and has stakes in local companies including fresh produce and agritech group Silal; forage and agribusiness group Al-Dhahra Holding; and food and beverage group Agthia.

equal opportunity

Overall, domestic demand in the UAE has recovered “very strongly” after the pandemic, Bayoumi noted.

“Especially with the growth in tourist numbers, we’re seeing demand in the market grow and we expect that growth to continue,” he said.

“But at the same time, the competition is also increasing. More and more players see the Gulf region as one of the most attractive markets in the world in the next three to five years, more and more players enter the market, more and more Many players are vying for a piece of the cake.”

Mid-sized firms are at a more disadvantaged position than regional giants.

“One of the things that’s being discussed and looked at is how to provide medium-sized companies with access to centers of excellence that would pool resources in areas like research and technology that might not otherwise be affordable for a single entity. In the long run, that would allow them to It is more competitive with big companies,” he said.

“The concentration of retail power also needs to be addressed. It used to be that there were thousands of places where you could sell your product for next to nothing. Now two or three major retailers have 50 to 60 percent of the market . They impose requirements, and if you don’t comply, you could end up being delisted or removed.”

by Mega Melani