A key component in the UAE’s diversified industrial sector, accelerating growth in food and beverage (F&B) manufacturing is critical for both national food security and future economic opportunity, as Olaf Abi Aad, founder and CEO of Agzia explains.
By the end of 2023, the UAE’s food and beverage (F&B) sector is projected to achieve revenues totalling an impressive $37.8 billion, according to Saleh Lootah, chairman of the UAE Food and Beverage Manufacturers Group.
With the introduction of Operation 300bn, a 10-year strategy driven by the Ministry of Industry and Advanced Technology, manufacturing is set to play an increasingly important role in the UAE economy. This initiative seeks to expand the industrial sector’s contribution from AED133 billion to AED300 billion by 2031, by which time the F&B sector is anticipated to grow by 210 per cent compared to 2018, according to recent research by Emirates NBD.
On both regional and international fronts, the UAE industry’s potential is rooted in a multi-faceted approach to growth, leveraging the country’s unique advantages.
From the GCC to the world
The Made in the Emirates quality mark, which was launched to further promote the UAE’s reputation as a global destination for advanced industrial opportunity, carries substantial weight both domestically and globally.
Within the local market, the UAE is aiming to secure 50 per cent of some basic food requirements from local farms and products by the end of this year, and 100 per cent by 2030, according to the Ministry of Climate Change and Environment (MOCCAE). On regional and international fronts, categories such as dates and confectionary have had the most success penetrating the US, Asian and European markets, while dairy and juice producers, as well as the ready-to-eat snacking industry, have also done well in terms of exports.
Launched in September 2023, the UAE Food Platform represents a significant step forward in accelerating global trade opportunity. A digital initiative, the platform is designed to foster a data-driven ecosystem that will act as a centralised hub for the industry, bringing together F&B manufacturing players to streamline operations, leverage new technologies, facilitate market access and drive collaboration.
A key element of this is the Innovation Lab, which gives Emirati talent the opportunity to connect with leading F&B manufacturers to kickstart product creation and development. It also encompasses Ishraq, a platform to help equip nationals with the necessary skills and experience to establish a career in the wider food and beverage sector, including production.
Khalifa Economic Zones Abu Dhabi – KEZAD Group has also recently announced the development of Abu Dhabi Food Hub, which is poised to offer solutions to processing and distribution in the region, as well as work to ensure food security, food waste reduction and the promotion of sustainable agriculture practices.
These types of initiatives are always welcome from an industry point of view and, importantly, open up more opportunities for investors in these fields, as well as drive further innovation and sector growth in the future.
Navigating challenges and opportunity
Recent world events such as the Covid-19 pandemic and global unrest have had a dual impact on the sector, posing both challenges but also presenting opportunities.
One opportunity lies in mitigating disruption to global logistics and addressing the rising cost of container shipping. The UAE benefits from a strategic location between Africa and Asia, which allows it to fully utilise its world-class infrastructure – from the highways network to Jebel Ali Port and the under-development Etihad Rail project. Collectively, this puts the UAE in prime position to respond proactively to logistical dilemmas, allowing local F&B players to directly export their products.
Investment into, and adoption of, agritech solutions is also helping propel new agricultural opportunity, with the UAE’s sector expected to register CAGR of 3.5 per cent between 2022 and 2027, according to data jointly released by Sharjah Research Technology and Innovation Park and Deep Knowledge Analytics. The country is currently home to around 38,000 farms and MCCE statistics report total annual vegetable and fruit production of around 156,000 tonnes and 200,000 tonnes, respectively – and this will only grow.
The UAE has the potential to become a hub for transformative food technologies with the help of initiatives and organisations such as Knowledge Hub for F&B Manufacturing Development and Food Tech Valley, which aims to create a city that includes integrated food management.
One intriguing development is the UAE’s foray into the plant-based meats arena. In March 2023, the first 100 per cent vegan meat factory in the Middle East, THRYVE, was opened by IFFCO Group in Dubai Industry City. This field holds enormous promise as the transformation of alternative meats and proteins with the aid of next-gen technology is a global growth market.
Conversely, a major barrier to sector growth, domestically, is UAE population stagnation. For example, Dubai’s population has grown by around 600,000 residents in the past five years, according to Dubai Statistics Centre, with 1.43 per cent year registered in H1 2023. In order to stimulate future growth through increased consumer sales and the introduction of new products, we believe that a population increase of eight to 12 per cent is required, which would outpace the current rate of inflation.
On an international level, challenges revolve around cost increases, supply chain disruptions and import duties. The rising prices of raw ingredients, and packaging materials are beyond the industry’s control, but directly impact profitability.
A focus on solutions
All of these factors necessitate constant innovation, a push towards automation and efficiency improvements to combat increasing pressures and allow companies to grow. Such measures will not only boost export potential but also play a key role in enhancing food security within the UAE, with MOCCAE looking to secure the number one spot on the Global Food Security Index by 2051.
Growth strategies vary according to the size and product range of UAE-based companies, which comprise SMEs through to multinationals and large-scale manufacturers. The dairy segment, for example, consists predominantly of larger players, while SMEs dominate the snacking industry.
In the domestic market, these smaller players tend to focus on ‘quick fixes’ to meet evolving consumer demand, which often involves adopting trends such as gluten-free, high protein, sugar-free and reduced-fat products. This requires knowledge investment paired with accessible equipment spend, thus allowing SMEs to adapt swiftly.
Larger, more established players opt for CAPEX-intensive approaches to update their operations and increase production output. This can include transitioning from smaller rented facilities to larger owned warehouse and factories, for example, which recategorises a major P&L cost component as a potentially appreciated balance sheet asset. This enables businesses to be able to pump additional margin into other areas of opportunity, such as increased production capacity increase, automation and R&D.
Vertical and horizontal integration into related product categories can also drive growth on the domestic market. With Arabic bread, for example, since the shelf life is short, export potential is non-existent, so a producers might expand vertically backwards into milling or forward into retail operations. Horizontal integration could be diversification into synergistic products such as higher-value baked snacks, which offer more comfortable margins and extended shelf life. This helps overcome the hurdle of domestic distribution limits and explore export potential.
Taking on the export market
When we look at food with a longer shelf life, such as frozen and dried foods, frozen foods etc., this opens access to the export market. In the UAE, we see overall stable demand from Saudi Arabia, increased demand from Iraq, and interest extending to central Asian countries as well as stronger African economies including Kenya, Nigeria and South Africa.
Ambient stable confectioneries such as chocolate pralines, dates and packaged condiments have made it to retail shelves in these countries, along with semi-finished products like syrups, frozen and ready-to-heat products destined for use in hotels, restaurants and catering operations.
To succeed in this area, companies need to become more cost competitive. While it’s difficult to influence the direct price of materials, since this is dictated by global trade, companies need to look at indirect costs such as personnel or distribution models and look for profit across the organisation. Can you use a solar-powered system? Can you move the cost of distribution from fixed to variable? Can you recycle or upcycle production line byproducts?
Once all these touch points are addressed, the result is a competitive product that ticks the boxes both on quality and price. And quality and price are the gateways to global market opportunity.
Cementing reputation on the global stage
In the realm of food innovation, the industry is at a critical juncture. Strategies with a focus on innovation adoption are being developed, but there has been a tendency to follow global trends, rather than set them. An example of this would be in the alternative protein arena, where there is increased usage of imported pea protein, but as yet no investment into associated research and development.
This dynamic is in stark contrast to the country’s achievements in the digital and tech sectors. A shift is needed in the industry’s relationship with academia and research for the UAE to transition into being a leader in this field. The whole ecosystem of agri-food tech begins with fresh-thinking graduates and knowledgeable professors, then partnerships with labs and government-backed initiatives.
By playing to the UAE’s strengths, however, we can still grow exponentially. While the Emirates doesn’t have a network of large-scale farms nor significant arable land, which mitigates the ability to compete on quantity, it does have a globally acknowledged reputation for delivering in quality. To drive this even further forward, we need to continue to elevate internal quality standards.
The future growth of this industry very much depends on continued innovation, cost efficiency, attention to detail and the development of well-thought-out strategies that cater to both domestic and international markets.
The UAE is definitely on an upwards trajectory to becoming a contender in the highly competitive global F&B manufacturing landscape, but this is contingent on adopting a proactive approach to tackling challenges and embracing new opportunities. We are already an acknowledged global leader when it comes to innovation in multiple sectors, adding F&B manufacturing to the roster will further cement the country’s reputation as an investment destination of choice, a hub for trade and a benchmark for quality.