JEDDAH – Agriculture and food sector in Saudi Arabia and the larger GCC region will witness healthy demand as rising income levels, changing lifestyles, and increasing population will drive the demand for diversified protein-rich and processed food, Al Rajhi Capital said in its report on the sector released Wednesday. The report said favorable demographics will continue to benefit companies in the food sector, yet near term concerns have emerged. These factors present growth opportunities for Saudi companies like Savola and Herfy. According to EIU estimates, the Saudi retail sales market has touched $83.3 billion in 2011, of which contribution from food sales is estimated to be around 50 percent at $41.7 billion. According to the EIU, the food sales market is expected to grow by around 1.7 times to $69.9 billion by 2016, contributing around 53 percent of the retail sales market, which is expected to reach $131.2 billion by then. Growing population and income levels Saudi Arabia is the largest member in the GCC region in terms of population size (28.4mn in 2011, according to the Central Department of Statistics and Information). Apart from the relatively massive population size compared to other countries in the region, a significant portion of it is young making the country one of the best markets for food and beverage companies. According to UN data, 32 percent of the Saudi population belonged to the 0-14 age group, while around 50 percent belonged to the 15-40 age-group in 2010. Although Saudi Arabia's GDP per capita is one of the lowest among the GCC countries, it is among the top-50 in global rankings. The report noted that personal disposable income levels will continue to progress northward in the Kingdom (10 percent CAGR over 2011-2016, according to EIU) with development across all sectors, supported by the strong foundation of its oil and petrochemical exports. Consequently, this will lead to higher and more varied spending patterns in household consumption, which augurs well for sectors like food. The Kingdom's dairy sector will witness growth in volumes but at a cost, the report noted. Milk consumption is one of the main factors driving the GCC dairy market, of which Saudi Arabia currently accounts for more than 60 percent. According to BMI, demand for milk has grown by around 6 percent annually over the past few years, up from approximately 4 percent in the early 2000s. Almarai has a dominating presence in all the milk products, including laban (an Arabic form of buttermilk) and zabadi (yoghurt) in the GCC region. Al Rajhi Capital forecast demand for milk products will be healthy. The share of milk and fruits will increase in future due to emphasis on a healthier lifestyle, considering the growing concerns about obesity among the local population. According to the Nielsen Company, the GCC dairy market was worth $ 3.2 billion in 2011 and is expected to grow at a CAGR of 9.5 percent over the next three years. Almarai dominates the GCC dairy segment, capturing a 35 percent market share despite presence of multinationals like Nestle (second with 8 percent market share) and Alsafi-Danone (7 percent). Most of the company's strength is derived from the sales it generates in the Kingdom (71 percent of the company's revenue in 2011), of which milk and its derivatives constitute around two-thirds. – SG
