meed-logo

line1 line2 line3
SIGN IN / REGISTER

UAE food producers struggle with global challenges

29 November 2022

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

The impact of the war, which began in February this year, has reverberated across the globe, creating uncertainty and insecurity in global food supply chains. 

The food industry is among the vital focus industrial sectors of the UAE’s Ministry of Industry & Advanced Technology’s (MoIAT) Operation 300bn plan, not only to enhance its contribution to GDP but also to support long-term food security and self-sufficiency by facilitating local production.

Food security strategy

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

“The UAE F&B industry has more than 550 manufacturing units and employs more than 80,000 workers with a value of production of over AED35bn and exports of more than AED15bn,” said Ahmed Bayoumi, CEO of Global Food Industries (GFI) and board member of the UAE Food & Beverage Manufacturers Group.

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

“The two strategies, food security and Operation 300bn, both have many programmes to support the industry. We also really appreciate the new free trade agreements and the building of new trade routes with India, Indonesia and Israel.”

Import dependence

The UAE and other Gulf nations – considered food-secure due to their economic and political stability – have not faced food shortages since the pandemic outbreak. But food security and limiting vulnerability to import disruptions remains a key strategic long-term goal for the UAE government, as it lacks control over its sources.

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

Compounding the situation is the harsh climate, with the expansion of local food production limited 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-stressed region globally, with the World Bank forecasting that the region will experience the highest economic losses from climate-related water scarcity compared with other global regions, at about six to 14 per cent of their GDP by 2050.

Conflict stress

Closed-off access to the lower-priced Black Sea grain since the outbreak of the war has induced commodity shortages and exacerbated inflationary pressures for purchasers already struggling with still fragile pandemic-disrupted supply chains, high import costs and spikes in energy costs.

“Because of the Ukraine war, sunflower oil and flour prices are up by almost 60 per cent,” a local food manufacturer said during the forum.

“Additionally, the Indian government has banned wheat exports from India. This has created an increase in commodity prices in the local market. It directly impacts me because almost all my products use wheat. Wheat flour is 60 per cent of my raw material.” 

The challenge, he said, is further compounded because commodity suppliers have been demanding advance payments as they capitalise on the shortages. 

But in the credit-driven UAE market, manufacturers are still bound by 90 to 120-day payment cycles.

“At the same time, I am restricted from increasing my prices,” the manufacturer said. “It is not healthy for the industry. There must be some intervention from the ministry to address this.”

Almost 99 per cent of food products in the UAE are no longer regulated in terms of pricing. This is due to the dialogue between the Ministry of Economy and the industry – credit where credit is due

Ahmed Bayoumi, Global Food Industries

Countering inflation

Inflation has risen to historic levels in many markets worldwide, significantly impacting consumers and businesses. 

In the UAE, the IMF forecasted that inflation will be at 5.2 per cent this year.

One local manufacturer at the forum said businesses have “no other way” to protect their finances and margins than to raise the prices of their goods.

“The government does not like to disturb consumers with price increases, but this is a very big challenge for manufacturers,” he said. “If manufacturers don’t increase prices, they will lose money.”

A 2022 Grant Thornton survey of 5,000 mid-market businesses across 28 countries, including the UAE, revealed that 87 per cent of businesses in the UAE have opted to pass the cost of surging inflation to consumers in a bid to protect their margins by increasing their prices, “at the same level or above our cost increases”.

According to the study, businesses have seen increases of 18 per cent in their energy and utility bills, 17 per cent in raw materials costs and 14 per cent in salaries or staff compensation. Businesses also saw a 16 per cent increase in outgoings related to equipment, as well as bank, interest and taxes.

The UAE government typically caps prices of staple food items to keep inflation in check and ensure shopping remains affordable for families. In April 2022, however, the Ministry of Economy said it was monitoring 300 frequently bought essential food items to identify products whose prices could be raised in line with rising import costs, subject to approvals.

“Almost 99 per cent of food products in the UAE are no longer regulated in terms of pricing,” said GFI’s Bayoumi. “This is due to the dialogue between the Ministry of Economy and the industry – credit where credit is due.

“There are only some basic staples that are regulated, and this was a major breakthrough after almost 20 years of everything being regulated.”

Achieving self-sufficiency

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

Ongoing challenges, however, are impacting the speed with which this vision can be achieved. 

“Producers who perhaps enjoy more subsidies or, due to currency fluctuations, can access the UAE market at low cost. This tends to come at the cost of demand for local manufacturers,” said Bayoumi.

The strong dollar, meanwhile, has been a “double-edged sword”.

“On the one side, it helps you with your imports from everywhere in the world. So, imports are cheaper in terms of raw materials or equipment. But, on the other hand, in terms of exports, nations using the Euro, for example, are screaming that they can’t buy our product anymore because they have appreciated by 20 per cent.”

“I think the UAE has to think to have some kind of ownership of lands abroad,” a manufacturer at the forum said. “This might open a big door for the UAE. That will secure our raw materials in terms of availability and prices.”

The UAE is already taking steps in this area, with efforts spearheaded by its investment vehicles. 

In 2020, Abu Dhabi’s International Holdings Company (IHC) said it would invest over $225m to develop and cultivate over 100,000 acres of farmland in Sudan to help secure high-quality agricultural output. 

Earlier this year, Abu Dhabi holding company ADQ bought a majority stake in Cyprus-headquartered agriculture company Unifrutti. The firm produces, trades and distributes more than 100 varieties of fresh produce, and sells 560,000 tonnes of fresh fruit a year. It has 14,000 hectares of farms across four continents and customers in 50 countries.

ADQ previously acquired a 45 per cent stake in French firm Louis Dreyfus, and has stakes in local companies, including fresh produce and agri-tech group Silal; forage and agribusiness group Al-Dhahra Holding; and food and beverage group Agthia.

Equal opportunities

Bayoumi noted that overall, demand within the UAE is recovering “very strongly” after the pandemic.

“Especially with visitor numbers growing, we see market demand growing, and we anticipate that this growth will continue going forward,” he said. 

“But also, competition is intensifying. More players are seeing the Gulf as one of the most attractive markets globally over the next three to five years, more players are coming into the market, and more players are vying for a piece of the cake.”

Medium-sized enterprises are at a further disadvantage when compared to regional giants.

“One of the things being discussed and under study is how medium-sized enterprises can be provided with access to centres of excellence that would pool resources in areas such as research and technology, which an individual entity might not be able to afford otherwise. That would make them more competitive over the long term versus the big players,” he said.

“The concentration of retail power also needs to be addressed. In the past, there were thousands of places to sell your product and hardly pay anything. Now two or three major retailers have 50 to 60 per cent of the market. They impose demands and if you do not comply, you could end up delisted or chucked off shelves.”

By Megha Merani

https://image.digitalinsightresearch.in/uploads/NewsArticle/10391937/main.gif
MEED Editorial

Register for MEED's guest program now to access this article.

Click here to register
Exclusive from Meed
Related Articles
  • UAE rides high on non-oil boom

    26 April 2024

    Commentary
    John Bambridge
    Analysis editor

    The UAE has demonstrated remarkable economic resilience in recent years, with its non-oil sector bouncing back relatively quickly from Covid-19 and emerging as the real driving force behind the country’s growth. 

    Despite slower oil activity due to the Opec+ oil production cuts and regional turmoil, the non-oil sector has continued to go from strength to strength and is enjoying a resurgent boom in its real estate sector, with levels of activity not seen since before the 2008 global financial crash.

    Among the other drivers of UAE non-oil growth are the country’s rapid expansion and rollout of free trade agreements, with it having signed comprehensive economic partnership deals with 12 countries to date. In the absence of much progress on GCC-wide trade agreements, Abu Dhabi is opening itself up to greater trade opportunities with other markets. 

    Another significant recent development was the UAE’s removal from the Financial Action Task Force’s ‘grey list’ in 2024, which has bolstered investor confidence and general business sentiment.

    On the projects side, there is a real estate and construction boom, with over $475bn-worth of private real estate developments and public building and housing programmes planned or under way. Transport schemes at the top of the agenda include the UAE-Oman rail scheme and a high-speed rail link connecting Abu Dhabi and Dubai.

    Also in the works is the $22bn Dubai Strategic Sewerage Tunnel project. Such a network would have served the city well in mid-April, when its infrastructure fared poorly against the hardest rainfall in 75 years.

    On the oil side of the economy, Abu Dhabi National Oil Company (Adnoc) remains committed to expanding its upstream operations and is expected to maintain robust spending on key projects in 2024. Close to $8bn-worth of combined midstream, downstream and petrochemicals contracts are also expected to be awarded this year.

    The conflict in Gaza poses an increasingly serious challenge to the region, however. The UAE has so far remained relatively quiescent on the conflict while concentrating on humanitarian operations. The country is clearly keen to retain the economic benefits that it has been enjoying since its normalisation of ties with Israel under the Abraham Accords.

    The newly kindled relationship is being tested, however, with the airstrike on the aid convoy of the World Central Kitchen drawing some of the harshest words from Abu Dhabi towards Tel Aviv to date. 

    The risk of rising escalation with Iran meanwhile could quickly quench the current exuberance of the UAE’s buoyant non-oil sector.

     

    MEED's April 2024 special report on the UAE includes:

    > GVT & ECONOMY: Non-oil activity underpins UAE economy
    > BANKING: UAE banks seize the moment
    > UPSTREAM: Adnoc oil and gas project spending sees steep uptick
    > DOWNSTREAM: UAE builds its downstream and chemicals potential
    > POWER: UAE marks successful power project deliveries
    > WATER: Dubai tunnels project dominates UAE pipeline
    > DUBAI CONSTRUCTION: Dubai real estate boosts construction sector
    > ABU DHABI CONSTRUCTION: Abu Dhabi makes major construction investments

    https://image.digitalinsightresearch.in/uploads/NewsArticle/11705846/main.gif
    John Bambridge
  • Morocco seeks firms for 400MW wind schemes

    26 April 2024

    The Moroccan Agency for Sustainable Energy (Masen) has invited companies to prequalify for a contract to develop and operate new onshore wind farms.

    The 400MW Nassim Nord wind power programme includes two wind farms. The first is a 150MW extension to the existing Nassim Koudia Al Baida wind park, located in the Fahs Anjra and Mdiq-Fnideq provinces.

    The second scheme, called Nassim Dar Chaoui wind park, will be located in the provinces of Tangier and Tatouiane. It will have a capacity of approximately 250MW.

    According to an industry source, Masen expects to receive the prequalification submissions on 24 June.

    The project will be implemented under a 30-year power-purchase agreement between Masen and the project company that will include the successful bidder.

    Masen, either alone or with a Moroccan public entity, will take a 35% stake in both the project company and the operation and maintenance (O&M) company that will be formed for the project.

    Masen is expected to issue the request for proposals for the Nassim Nord wind projects in September.

    Owned by Masen and France's EDF Renewables, the Nassim Koudia Al Baida scheme is Morocco's first wind independent prower producer (IPP) project, which had an initial capacity of 50MW. In 2022, additional financing from the  European Bank for Reconstruction and Development (EBRD) and Climate Investment Fund (CTF) aimed to double the plant's capacity, 

    Noor Midelt 2 

    MEED reported on 25 April that Masen has invited prequalified developers and developer consortiums to bid for a contract to develop the second phase of its Noor Midelt solar independent power producer (IPP) programme.

    Located in central Morocco, the Noor Midelt 2 IPP consists of a 400MW solar photovoltaic (PV) power plant with battery storage of two hours.

    The client expects to receive bids for the contract by 8 July.

    2030 target

    Morocco has set a target for 52 per cent of its energy to be produced from clean energy sources by 2030, one of the most ambitious targets in the Middle East and North Africa region.

    Morocco aims to bring its renewable capacity to 10,000MW by 2030. Of the total, solar PV is expected to account for 4,500MW, wind for 4,200MW and hydroelectric for 1,300MW.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/11717256/main.jpg
    Jennifer Aguinaldo
  • Jubail 4 and 6 bidders get more time

    26 April 2024

    Prequalified bidders received a two-month extension for the preparation of proposals for a contract to develop an independent water project (IWP) in Jubail, Saudi Arabia.

    Saudi Water Partnership Company (SWPC) issued the request for proposals (RFP) for the Jubail 4 and 6 IWP in January this year, four months after it qualified nine individual companies and consortiums that can bid for the contract.

    Located in Jubail in Saudi Arabia's eastern province, the plants will be able to treat 600,000 cubic metres a day (cm/d) of seawater using reverse osmosis technology.

    MEED understands the client now expects to receive bids for the contract by 30 June instead of 30 April.

    The following utility developers and investors qualified to bid for the contract: 

    • Abu Dhabi National Energy Company (Taqa)
    • Acciona (Spain)
    • Acwa Power (local)
    • Ajlan & Bros (local) / Rawafid Industrial Company (local)
    • Al-Jomaih Energy Water Company (local)  / Sogex Oman Company (local) 
    • GS Inima (Spain/South Korea)
    • International Power (Engie, France)
    • Marubeni Corporation (Japan)
    • Power & Water Utility Company for Jubail & Yanbu (Marafiq, local)

    Thirty-five companies, including 16 Saudi-based firms, previously expressed interest in the project. 

    The desalination plant will be located 18 kilometres south of Jubail Industrial City, adjacent to four existing desalination units – Jubail phase one, Jubail phase two, and the Jubail 3A and 3B IWP facilities.

    As with the previous seawater reverse osmosis (SWRO) IWP contracts already awarded in the kingdom, the successful bidder, through a project company, will develop the project and sell the entire capacity and output to SWPC under a 25-year water-purchase agreement (WPA).

    A credit support agreement from the government of Saudi Arabia backs SWPC’s obligations under the WPA.

    SWPC’s transaction advisory team for the project comprises Netherlands-headquartered KPMG Professional Services as lead and financial adviser, UK-based Eversheds Sutherland as legal adviser and Canada’s WSP as technical adviser.

    It also appointed UAE-based Future Water & Power Consulting to assist with the project tender and in finalising the site studies required for the bid.

    SWPC has awarded the contracts for six IWP projects in Saudi Arabia – Rabigh 3, Shuqaiq 3, Yanbu 4 (Ar-Rayis 1), Jubail 3A, Jubail 3B and Rabigh 4. A seventh contract for developing the Shuaibah 3 SWRO plan was also directly negotiated and awarded in 2022.

    The seven IWP schemes have a total combined capacity of 3.3 million cm/d.

    Ras Mohaisen

    SWPC recently received two bids for a contract to develop the Ras Mohaisen IWP scheme.

    The bidders are Spain’s Acciona and a team comprising the local firms Acwa Power, Haji Abdullah Alireza & Partners Company and AlKifah Holding.

    The Ras Mohaisen IWP will have the capacity to treat 300,000 cubic metres of seawater a day (cm/d) using reverse osmosis technology.

    It will also include storage tanks with a capacity of 600,000 cubic metres, equivalent to two operating days, and an electrical substation.

     

     

    https://image.digitalinsightresearch.in/uploads/NewsArticle/11716872/main.gif
    Jennifer Aguinaldo
  • Amiral cogen eyes financial close

    26 April 2024

    The developer team for the cogeneration independent steam and power plant (ISPP) serving the Amiral petrochemicals complex in Jubail, Saudi Arabia is expected to reach financial close for the project before the end of the second quarter this year.

    Saudi Aramco Total Refining & Petrochemical Company (Satorp) signed a power and steam purchase agreement with a team that comprises the UAE's Abu Dhabi National Energy Company (Taqa) and Japan's Jera in March. 

    A special purpose entity owned by Taqa (51%) and Jera (49%) will develop the Amiral cogeneration plant on a 25-year build-own-operate basis, extendable by five years on mutual agreement.

    Taqa and Jera will also undertake the plant's operation and maintenance (O&M) through an O&M special purpose entity.

    "The target is to reach financial close by the end of May or June," a source familiar with the project tells MEED. 

    The planned facility is anticipated to have a design capacity of about 475MW of power generation and roughly 452 tonnes an hour of steam from advanced combined-cycle gas-fired technology.

    The firms said the plant is expected to be operational by 2027.

    "The Amiral cogeneration plant will include state-of-the-art power and steam generation systems, gas and water receiving systems, and gas insulated switchgear interconnections while at the same time meeting stringent efficiency standards imposed by the Saudi Energy Efficiency Centre," the firms said on 28 March.

    "The project also has provision for the future installation of a carbon dioxide capture plant and is capable of hydrogen cofiring."

    South Korean contracting company Samsung C&T will undertake the engineering, procurement and construction (EPC) contract for the Amiral cogeneration ISPP project.

    Steam cracker complex

    Integrated with the existing Satorp refinery in Jubail, the new complex aims to house one of the largest mixed-load steam crackers in the Gulf that can produce up to 1,650 kt/y of ethylene and other industrial gases.

    This expansion is expected to attract more than $4bn in additional investment in various industrial sectors, including carbon fibres, lubes, drilling fluids, detergents, food additives, automotive parts and tires. It is also expected to create about 7,000 local direct and indirect jobs.

    Satorp reached the final investment decision on Amiral in December 2022.

    Aramco owns 62.5% of shares in Satorp, while France's TotalEnergies has a 37.5% stake.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/11716656/main.jpg
    Jennifer Aguinaldo
  • Acwa Power signs $356m Barka extension

    25 April 2024

    Barka Water and Power Company (BWPC), a subsidiary of Saudi utility developer Acwa Power, has received a letter of award from Nama Power and Water Procurement Company in Oman (PWP) for extending the power and water purchase agreement (PWPA) for the plant.

    The value of the contract extension is $356m, Acwa Power said in a bourse filing on 25 April.

    The award includes extending the operation of the power plant for eight years and 9 months with operations starting from 1 June 2024, and the water desalination plant for three years starting from 1 September 2024, with an extension option at PWP’s discretion for a further term of three years and another term of two years and nine 9 months for a total of 8 years and 9 months.

    BWPC is registered in Oman and listed in the Muscat Stock Exchange.

    The Barka independent water and power project (IWPP) is located 60 kilometres north of Muscat. It began commercial operations in June 2003, and a majority stake was acquired by Acwa Power in August 2010.

    At the time it started operations, the facility was contributing 6% of the electricity and 24% of the desalinated water in Oman.

    The gas-fired power plant has the capacity to generate 427MW of electricity using combine-cycle gas turbines, while the desalination plant that runs on multi-stage flash technology had an initial capacity of 91,000 cubic metres a day (cm/d).

    A succeeding independent water project entailed the development of a seawater reverse osmosis (SWRO) plant with a capacity of 45,000 cm/d, which became operational in 2014. A further expansion of the SWRO plant, with a capacity of 56,800 cm/d became operational two years later.

    Earlier this week, Acwa Power CEO, Marco Arcelli, said his company is in negotiations with long-term investors, such as pension funds, for the selective sale of assets.

    The report did not specify which assets are being considered for sale.  

    Last week, Arcelli told MEED that Acwa Power and Saudi sovereign wealth vehicle the Public Investment Fund (PIF) are discussing the fourth round of the renewable energy programme that PIF is implementing.

    However, he declined to comment on the outage of one of the company's concentrated solar power plants in Morocco, which is expected to result in $47m of lost revenue for the firm.

    https://image.digitalinsightresearch.in/uploads/NewsArticle/11713505/main.jpg
    Jennifer Aguinaldo