The current foreseeable challenge that lies on the horizon for nations around the world is limited arable land and acute water shortage, which restricts agricultural production globally and also in the GCC.
Amid rising population and insufficient domestic food production, GCC countries rely heavily on imports; in 2010, food imports in the GCC region accounted for more than 70% of its total food requirement.
With limited food production capabilities, GCC governments are increasingly focusing on developing long-term relations with food producing nations globally. In addition, governments are investing significantly on developing the food processing sector in the region. GCC is gradually emerging as a major food processing and re-export destination.
Among GCC countries, the UAE leads the food processing sector due to its strategic location and strong logistics. This backdrop makes the growth and outlook of the food sector a very important issue for the GCC countries.
The total population of the GCC region expanded at an annual average rate of 3.6% year on-year compared to the global average of 1.1% during the period 2000–2010. Due to the population growth, increase in foreign tourists and per capita income, food consumption will reach 49.1 million metric tons (MT) by 2017, growing at a CAGR of 3.1% over the period 2012-2017. To meet 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 within the GCC markets.
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. At an average P/E of about 25.0x, GCC companies are at a premium to the US peers (22.1x) and the Asia-Pacific market average (12.8x). On EV/EBITDA metrics, too, GCC companies trade at a premium to the US peers (10.8x) and Asia-Pacific average (12.6x).
With a positive investment environment and key growth drivers of strong GDP growth and increasing per capita income, increasing GCC population and potential increase in per capita consumption in the region, the food industry is all set for expansion, growth and new opportunities.