In our efforts to keep members informed on the progression of the Saudi Vision 2030, a social, cultural, and economic transformation plan that reflects the strengths, capabilities, and ambitions of the Kingdom, we are publishing summaries of the sections of the “Delivery Plan for the National Industrial Development and Logistics Program (NIDLP)”.
The NIDLP aims to transform Saudi Arabia into a leading industrial powerhouse and a global logistics hub in promising growth sectors (with focus on Industry 4.0), which would generate ample job opportunities, enhance the Kingdom’s trade balance, and maximize local content.
The program focuses on four key sectors: Industry, Mining, Energy, and Logistics, as well as enablers including the development of Policies and Regulations, Financial Enablement, Infrastructure, Industrial Lands, Special Economic Zones, Research, Development and Innovation.
Section 4.A.7: Food Processing
Overview
As you know, the global food and beverage market is expected to grow due to a rising population and income. Saudi Arabia, whose share of the global sector is $40 billion, aims to grow its food processing activities in segments with competitive advantages such as dates, dairy, and confectionery products. Currently, imports meet a significant amount of consumption whereas import and re-export activities are somewhat limited. Meat and poultry, dairy, fruits, and confectionery products account for the majority of imports.
The Saudi market for Confectionery, Starch Products, and Coffee is valued at $8 billion, of which an estimated $6.4 billion worth of products is imported. Growing at a CAGR of 6 percent, the market is expected to reach over $12.3 billion by 2021. Local manufacturing, which includes production of starches from rice and potatoes, grain and rice milling (e.g. production of flour, rice, wheat), as well as bakery products, cocoa, sugar confectionery, is valued at over $1.2 billion. An estimated $1.2 billion of products is exported. Recent market trends emphasize value-led growth via “premiumization” of confectionery products (e.g. high-end chocolate). In addition, manufacturers are also turning to “snacking” via miniaturization (e.g. portable yoghurt pots as snacks) or through new products to satisfy consumers’ demand for healthy and convenient products.
Saudi Arabia imports a significant amount of confectionery products, partially due to large local demand, especially for Chocolate. Moreover, the segment has large demand across the region. With Saudi Arabia’s relatively cheap labor costs and free trade agreements with many countries, there is potential for expansion of local manufacturing to meet not only the growing local demand but also regional and international demand, particularly in the MENA and Asian markets. Partnering with major suppliers of raw materials at competitive prices and expanding the production of chocolate and biscuits will enable Saudi Arabia to increase exports to these target markets.
The Saudi market for Dairy is valued at $4.7 billion. Growing at a CAGR of 6 percent, the market is expected to reach over $6.4 billion by 2021. The dairy segment is among the Kingdom’s established manufacturing platforms. Local manufacturers have developed significant expertise in terms of efficiency and the manufacturing process. In addition, the Kingdom also possesses developed distribution networks as well as state-of-the-art technologies. Considering these factors Saudi Arabia possess a significant comparative advantage in this segment to increase local and regional market share.
The Saudi market for Fruits, Nuts, and Vegetables is valued at $8.3 billion. Growing at a CAGR of 6 percent, the market is expected to reach over $11.54 billion by 2021. Despite certain challenges related to logistics and natural resources, Saudi Arabia’s date production can overcome them and scale, particularly by focusing on higher value-added products while also improving packaging standards. Another avenue for development would be through low-value high-volume date exports to Islamic countries across the Middle East and North Africa, Asia, and Sub-Saharan African regions.
The Saudi market for Meat and Poultry is valued at $12 billion. Growing at a CAGR of 7 percent, the market is expected to reach over $17.3 billion by 2021. Poultry production is a well-established segment in the Kingdom possessing strong processing capabilities. The current increase in global demand for Halal products provides the Kingdom with the opportunity to become an exporting hub for such products. Despite certain challenges related to climactic conditions, this segment can still grow through investments in advanced processing machinery and cold chains.
The Saudi market for Seafood is valued at $2.64 billion. Growing at a CAGR of 7 percent, the market is expected to reach over $3.8 billion by 2021. The Kingdom plans to invest in aquaculture which will provide for significant opportunities to expand exports to new markets. Another avenue for development in this segment would be a focus on convenience seafood products such as frozen seafood which can help grow exports, particularly in light of recent consumer trends.
The Saudi market for Beverages is valued at $2.61 billion dollars. Growing at a CAGR of 6 percent, the market is expected to reach over $5.1 billion by 2021. While this segment is met mostly through local production, the segment should be preserved while the products offered should reflect rising health consciousness among consumers.
The Saudi market for Animal and Vegetable Oils is valued at $1.6 billion dollars. Growing at a CAGR of 9 percent, the market is expected to reach over $2.54 billion by 2021. Due to limitations concerning agricultural activities, unrefined and refined oils are largely imported. This exposes the Kingdom to price risk related to the volatility of the price of imports and supply risk.
Objectives
Given that the global food and beverage market is growing both globally and locally, the Kingdom aims to capitalize on this lucrative sector by expanding local production in the segments where competitive advantages exist, as well as tackle certain challenges currently faced by food processors.
A focus on the production of dairy, seafood, and date products in addition to positioning Saudi Arabia as a Halal meat hub, is an essential part of the strategy. Additionally, the Kingdom aims to provide food processors with the support needed to facilitate growth in several the key sectors, while also maintaining currently established sectors.
Challenges
Confectionary, starch products, coffee:
- Heavy reliance on imports of raw material which impacts food security, increases costs, and exposes Saudi Arabia to price fluctuations.
Fruits, nuts, and vegetables:
- Lack of confidence in Saudi products due to improper labelling and packaging
- Lack of technical know-how and capital to invest in advanced
- A need for machinery for date processing to increase productivity and efficiency
- Limited types of fruit and vegetables can be grown in Saudi Arabia
Dairy:
- Water and energy intensive
- Disadvantage due to water scarcity and expectation of rising energy costs
Meat and poultry:
- Heavy reliance on imports of raw materials which can impact food security, and exposes Saudi Arabia to price fluctuations
- Climactic conditions not ideal for raising livestock or growing feeds
- Shortage in abattoirs and cold chains
Seafood:
- Shortage in cold chains
- Seafood’s unique handling requirements
Beverages:
- Saudi Arabia’ increased tax on soft drinks which may impact sales
Animal and vegetable oils:
- Reliance on imports, exposing Saudi Arabia to price risk prices and supply risk
- Oil is being imported and then refined due to lack of agricultural capacity.
Sectoral Strategy:
To facilitate the growth of the food processing sector in Saudi Arabia, competitiveness should be enhanced through investments to improve competitiveness and drive new areas of growth. To do this, the Kingdom must:
- Increase awareness for industrial standards, e.g. food quality standards
- Improve the enforcement mechanisms for industrial standards
- Build food parks to connect farmers, processors, packagers, and retailers together
- Develop cold chain logistics
- Establish specialized industrial clusters which offer food technology testing
services
- Enact strategic trade partnerships policies
- Launch a media campaign to encourage people to buy Saudi food products
- Expand food processing training centers to ensure graduates are getting
sufficient technical and hands-on experience in manufacturing
Segment Strategy:
Confectionary, starch products, coffee:
- Partner with major exporters to secure raw material at competitive prices
- Expand production of biscuits and chocolates.
- Focus on confectionary that is convenient for snacking & introduce healthy products (e.g. sugar-free products)
- Expand export markets to Asia
Fruits, nuts, and vegetables:
- Improve product-labelling and packaging to counter foreign perception
- Focus on production of higher value-add date products (e.g. date paste)
- Focus on production of low-value high-volume date products
- Grow branding and distribution efforts to expand exports
- Increase availability of capital for advanced machinery
- Improve custom-handling process to reduce delays and damaged goods.
Dairy:
- Adopt a ‘laissez faire’ approach as sector is significantly developed
- Focus on healthy dairy to cater to customer healthy tastes (e.g. lactose-free milk)
- Build an enabling infrastructure and ecosystem to help sector grow
- Support sector investment in renewable energy to offset energy reforms
- Support energy efficiency and operational improvement as part of broad energy support program
Meat and poultry:
- Invest in advanced processing machinery and cold chains
- Promote Saudi-made Halal meat to both Islamic and non-Islamic countries through branding and trade agreements.
- Grow processed meal segments.
Seafood:
- Expand exports through investments in fishing and fish processing activities.
- Capitalize on existing aquaculture and develop fishing and fish processing activities by forming fishing clusters
Beverages:
- Preserve current manufacturing activities
- Focus on healthy drinks (e.g. sparkling water and sugar-free soft drinks)
- Improve packaging and labelling of drinks to make them more sophisticated (e.g. glass
packaging for premium water bottles instead of plastic)
Animal and vegetable oils:
- Preserve current manufacturing activities
For a copy of the NIDLP deliver plan, please visit https://www.arabia-saudita.it/files/news/2019/02/nidlp_2019_en.pdf
