1. Executive Summary
The GCC countries, with a total population of 40 million, are amongst the world’s richest in terms of oil and gas reserves and per capita wealth. However, when it comes to food sufficiency, due to water shortage and lack of arable land, these countries need to import almost 90% of their food requirements. This backdrop makes the growth and outlook of the food sector a very important issue for the GCC countries.
Domestic production is insufficient to meet the current requirements and food imports in the GCC region stood at USD25.8 billion in 2010. High dependence on imports makes the GCC food supply very vulnerable and highly dependent on the world food market. In the past, any form of disruption in food imports, either due to policy restrictions by exporting countries or natural calamities has affected the region significantly. As a result, food security is an important issue for the region and the countries have taken initiatives to enhance domestic production and at the same time to secure food imports through international agricultural investments.
1.1. Scope of the report
This report studies the GCC food sector with a focus on production, import and consumption volumes of key segments and their growth potential. It analyses the growth drivers, trends and future prospects for the sector. Additionally, it covers country profiles to gauge the market dynamics in each of the six countries and profiles major players by evaluating their performance against peers and the industry as a whole.
The food market can be broadly subdivided into the fresh/agricultural and processed food segments. The fresh food market consists of fruits and vegetables, marine products and grains, while the processed food segment comprises packaged food and beverages.
Packaged food includes dairy, meat and poultry, bakery and cereals, canned food, chilled food, confectionery, dried food, frozen food, oils and fats, sauces, dressings and condiments, snacks and spreads. The report does not include the beverages segment.
1.2. Industry outlook
The total population of the GCC region expanded at an annual average rate of 3.3% compared to the global average of 1.1% over 2000–10. According to the Economist Intelligence Unit (EIU), population in the GCC region is likely to increase further and cross the 50 million-mark by 2020 from the current level of 40.6 million. Food consumption per capita in the region is below the developed economies and is expected to grow at a
relatively higher rate, catching up with the developed economies standards.
We estimate that due to population growth and increased per capita income, food consumption will reach 51.5 million tonnes by 2015, growing at a CAGR of 4.6% over the period 2011-15, while the food consumption per capita will increase at a CAGR of 2.1% over the period 2011-15. Meeting this increasing demand for food arising out of the growing consumption is both a challenge for the GCC governments and an opportunity for
private sector players to expand with in the market.
The food sector in the GCC is highly consolidated with the three leading companies Almarai, Savola and Kuwait Food Company (Americana) contributing over three-quarters to total revenue of listed companies. All segments of the food sector, except livestock, are evidently monopolistic. At an average P/E of about 15.0x, GCC companies compare favorably at a moderate discount-to-P/E multiple of 16.0x for US companies and 16.9x for
Asia-Pacific market. Considering EV/EBITDA metrics too, GCC companies at 9.6x is at discount with peers in Asia-Pacific and relatively at par to those in the US. Given this low valuation and considering the strong growth potential that the regional market poses, we believe food companies in GCC offer an attractive investment proposition for long-term investors.
