When we refer to the Middle East, we are talking about an area that encompasses a majority of western Asia and Egypt. The region is diverse in landscape, religion, politics and ethnicity. With a growing population, evolving demographic and social structures and reliance on food imports the potential for international food manufacturers is clear.

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The arid environment and shortages of resources such as water and arable land mean that many countries in the Middle East do not lend themselves to agricultural production. As a result, economies in the region are heavily dependent on imported foods. For instance, the Middle East imports around one-third of cereals traded globally.

This need, coupled with the wealth generated from the oil reserves discovered since the 1920s, means the Middle East benefits from long-established trading relationships with global partners.

High oil prices have also meant that the Middle East has seen some of the strongest economic growth rates since the financial crisis hit in 2008.

According to the IMF’s world economic outlook, in the 2008-2013 period the real GDP of Gulf Cooperation Council countries grew by 24%, an enviable rate compared to advanced economies who have seen economic growth prospects dragged down in an era shaped by debt and austerity. In the same period the UK’s GDP shrank by 0.5% and the Eurozone’s GDP dropped by 1.9%. Even the US, which recovered more quickly after the financial crisis, grew by 6.2% over last five years.

Leading the pack in the region, Qatar’s economy expanded by around two-thirds between 2008 and 2013 while Saudi Arabia’s economic growth neared 30%.

Outside the GCC, the picture is a little more patchy – but perhaps surprisingly strong given the global economic context and political instability in the region. Iraq’s economy expanded by 37.7% over the five years, Lebanon’s GDP rose by 21%, while Jordan and Egypt saw economic growth of 17.2% and 16.7% respectively despite political turmoil. Even Iran managed growth of 9.8% in the face of international sanctions.

Growing demand

Stellar economic growth is necessary to maintain and improve living standards of the rapidly expanding population in the region.

While population growth in the Middle East is starting to slow, it is still outpacing growth in developed markets and, indeed, birth rates in many other emerging markets. United Nation’s figures reveal the population of GCC countries jumped by 18.9% in the last five years. In countries like Saudi Arabia the birth rate has topped 20% consistently in recent years.

According to a report published by the Economist Intelligence Unit, by 2020 the GCC population is forecast to reach 53.5m, a 30% increase over the level in 2000.

Over the same period, the region’s real GDP is expected to grow by 56%.

A larger, richer population can only be good news for the food sector, with more mouths to feed inevitably resulting in higher demand.

The popularity of packaged foods among the growing and youthful population is also on the rise, Euromonitor analyst Fatemah Sherif tells just-food.

High birth rates have “led to a large and thriving young population”, Sherif says.

“This young population is more modern in approach to life than previous generations as they are almost always connected to the external world through the internet, thanks to growing penetration of internet and smartphones. Consequently, they like to embrace Western ways of living life, be it eating habits or other leisure activities… As a result, not only they welcome international food brands but they are also more open to new product varieties and innovation.”

Competitive environment

According to Sherif, a number of international players have experienced considerable success in their efforts to exploit the potential of Middle Eastern markets. “Some of the international companies which enjoy immense popularity… include Mars, Nestle, Unilever Group and Pepsico,” the analyst observes.

However, as they work to expand the multinationals are coming up against some dominant local players.

Outlining its investment thesis for the region, Alpen Capital observes that “all segments” of the food sector, with the exception of livestock, are “evidently monopolistic”.

“The food sector in the GCC from the perspective of listed food companies is highly consolidated with the three leading companies – Almarai, Savola and Kuwait Food Company (Americana) – contributing over three-quarters of total revenue of listed food companies,” Alpen observes. “With favourable demographic factors and stronger balance sheet positions, GCC food companies potentially offer attractive investment propositions for long-term investors.”

Consumption trends

Domestic and international players alike will look to leverage emerging consumption patterns in order to gain the front food as they compete to meet the needs of the growing and increasingly affluent population.

Urbanisation, busy modern lifestyles and more working families as women increasingly enter the workplace are all boosting demand for high-value processed foods and facilitating the growth of the modern retail trade.

According to a recent report published by Australia’s Department of Environment and Primary Industries, processed foods currently account for 15-20% of consumption.

“The largest market for processed foods in the region is Saudi Arabia, where 80% of retail food sold is imported and ‘consumer ready’. It is expected to increase further, as 70% of the population are under 30 years of age,” the report predicts.

In line with global trends, the region is seeing the shift to a diet that is more reliant on meat and dairy products and less reliant on carbohydrates and cereals.

At the same time, a jump in obesity and diabetes rates has become a crucial concern.

Six out of the top ten countries for prevalence of diabetes are in the Middle East, according to the International Diabetes Federation, while obesity rates in the region are among the highest in the world.

Consumers and regulators alike are becoming ever more aware of issues around healthy eating. As a consequence, functional foods look set to be a fast growing segment in the sector.

Bringing global learnings to the local context, multinationals are well-placed to capitalise on the increasing concern over health and wellness issues. Indeed, in March Nestle launched a “choose wellness” programme in the Middle East in a bid to combat lifestyle diseases and obesity in Lebanon, Jordan and the GCC.

Through its brands, including Nindo, KitKat and Cerelac, Nestle operates in some of the highest growth areas of the food sector in the Middle East. These include biscuits and snacks, confectionery, dairy and baby food.

Sherif suggests: “categories such as dairy, confectionery, sweet and savoury snacks and staples such as rice and bakery items are performing strongest.”

Growing demand is also evident for halal food, as higher income levels and mobility fuel what remains a niche sector elsewhere. Meanwhile, increasing awareness among food producers and growing government support have started to boost the organic sector.

These key areas are likely to form the battle grounds of tomorrow as food manufacturers vie for position in the Middle East.