The Saudi Arabian food-processing sector has experienced rapid growth in recent years, with a number of local companies reporting strong growth this quarter, as discussed in BMI’s recently published Saudi Arabia Food & Drink Report for Q408. The Saudi government supports the food and drink industry by providing attractive financing and subsidies on selected equipment, and through the imposition of high tariffs on imports that compete with locally-produced equivalents. Important sub-segments in Saudi Arabia’s food processing industry, including meat-processing, dairy, juice and confectionery manufacturing, have developed to such an extent in recent years that they are now meeting the majority of domestic demand.

In June 2008 local company Savola Group announced its ambition of increasing its world market share in cooking oil from 2% to 10%, as well as doubling its global sugar refining production capacity to 4mn tonnes over the next five years. Savola has said that it plans on achieving this by investing heavily in a series of acquisitions of existing firms and by purchasing farmland in a number of foreign countries. The company has already increased its cooking oil output by over 100% in the last three years and has shown its willingness to invest aggressively in order to expand its operations and make gains on competitors.

Due to the lack of arable land in its home market, Savola must look abroad for agricultural land and has named Sudan, Egypt, Ethiopia and Ukraine as target countries where it plans to buy the land necessary to grow seeds such as sunflower and corn seeds. Savola has also earmarked at least US$100mn for the purchase of stakes in existing agribusiness firms to secure sugar and edible oil supplies, at a time when global demand has been skyrocketing, and competition for these diminishing commodities has been growing fiercely.

Savola is not the only company expanding production. In July leading dairy and juice producer Al Rabie Saudi Foods announced plans to expand its range of health beverages and dairy products. The company noted that this is in response to growing demand both regionally and globally. This follows an announcement by Al Rabie that it will launch an expansion programme to build up its local and export markets through investments aimed at enhancing distribution networks, in particular non-traditional channels. Also in July, another local dairy producer Almarai announced that it had recorded a 42.3% rise in second-quarter net profit thanks to continued sales growth. Both of these developments reflect the increasingly competitive nature of the local dairy industry. Higher incomes, increasing use of white goods, growing consumer interest in healthy eating, and the continued emergence of major domestic manufacturers have seen the sector transform itself from a minor cottage industry into a major economic contributor in little over a decade, while improved production practices have been matched by improvements in the standard of cattle introduced, and this has helped transform Saudi Arabia from a dairy importer to a fast-growing dairy exporter. These developments all reflect the pace of development of Saudi Arabia’s burgeoning food and drink industry.