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Saudi Arabia Food Situation - Case Study Example

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In the paper “Saudi Arabia Food Situation” the author focuses on Saudi Arabia's economic performance in 2015 and beyond, which will be mainly influenced by two main factors. The global oil prices retrenchment and the fiscal stimulus that resulted from King Salman’s ascension to power…
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Saudi Arabia Food Situation
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Saudi Arabia Food Situation Monmouth Saudi Arabia Food Situation Consumer Forecast The Saudi Arabia economic performance in 2015 and beyond will be mainly influenced by two main factors. The global oil prices retrenchment and the fiscal stimulus that resulted from King Salman’s ascension to power. The global prices retrenchment began early 2014 and has continued to deepen. Despite the expectation that the low prices of oil will weigh on business and consumer sentiment to some degree, the loose fiscal policy by the government will continue to underpin the non-oil economies expansion. After getting into power, Salma announced a salary bonus for the government employees for two months, a pledge that will automatically be paired with the private sector giving significant support to consumption. Due to these trends and factors, the economic analysts have projected a possible increase in the 2015 GDP to 3.6% for Saudi Arabia. The real private consumption can, therefore, be projected to about 5% in 2015. Besides the short-term boost provided by the wage payment bonus in 2015, the retail sales are expected to increase due to the structural factors. The boosting structural factors to the consumption include an increase in urbanization rates, favourable demographics and disposable income.The Saudi Arabia nationals participation in the private sector is increasing due to the government’sprogramme named “Saudisation.” Additionally, in 2014, the government came up with the minimum wage planfor both expatriates and Saudis in the private sector to be implemented in 2015 onwards. The minimum wages levels are SARS2,500 and SARS,300 (USD1,412) for expatriates and Saudis respectively. The social changes is also currently a major factor where women are gaining better employment opportunities and promotions and as a result increasing the household purchasing power. Saudi Food SWOT Analysis Strength Saudi Arabia is the biggest Gulf region market, boasting of a population of about 29 million. Saudi Arabia is a senior member of the Gulf Cooperation Council and has access to other common market. The nation offers a low-cost export base as compared to the competition in the region Saudi Arabia population is mainly the youthful generation, and it is growing and youthful and boosted by the fact that the population is increasingly accepting the Western consumer products.It is a good entry point for the foreign investors looking to invest for the long-term. The country boasts of the largest dairy industry in the Gulf region Just like the Gulf neighbours, Saudi Arabia’s population is highly educated and home to the expatriate and resourceful skills, making available a market for the high-value packed and processed foods. The North Africa and Middle East political challenges have made Saudi Arabia more comfortable as a reliable destination for the neighbouring countries. Weaknesses The Saudi Arabia consumers are more conscious of the prices of goods and services as compared to Kuwait, Qatar and UAE The high-value Saudi dairy sector is highly saturated. There is little or no enough room for new entries into the market. The food manufacturing companies are highly dependent on getting their ingredients from other countries due to the shortcomings of Agriculture in Saudi. The private sector that largely depends on the government Saudisation and the expatriate labour is a little expensive for the foreign investors Opportunities It is projected that the demand for processed and packed food amongst the Saudi consumers is likely to continue alongside an increase in tastes and preferences. The increase in demand is attributed to the changing lifestyle of the Saudis since life has become fast and busy. The increasing awareness of the importance of consuming healthy food has provided opportunity for the manufacturers who can produce healthy yet tasty foods. Again in line with the increasing awareness of healthy foods, the consumers highly demand the organic foods More women are joining the Saudi Arabia workforce. This means that the food manufacturers will have increased demand for foods Threats Despite Saudi Arabia’s massive natural resources, wealth, and the government hand-outs, there are still very high poverty levels in the country. Any Saudi government spending cutback will not be easy to implement since the country faces a persevering domestic unrest In early 2011, Saudi Arabia was faced with an outbreak of Arab Spring, this led to a dramatic change in persistent domestic unrest and regional environment in the Easter Province leading to massive challenges. The ever reducing oil prices could potentially affect the government spending negatively and as a result undermining consumer and investor confidence. Food Consumption 1. The food consumption growth y-o-y (year-on-year) in 2015 was +7.6%; the annual compound growth rate was +7.5% between the years 2014-2019 (CAGR) 2. The per capita food consumption growth Saudi in 2015 was +5.7%. CAGR was +5.8% for the same period. Saudi Arabia has one of the most stable food industries in the region. The country has a steady sales growth figures. The increase in food consumption is projected to lead to population growth in the long-term. The bullish forecast for the food industry is tallying with the positive economic projections for the country. The expansionary fiscal stance and the impressive government spending continue to spur the economy. The food processing sector continues to receive more investors, especially in the major fields like the diary. Which directly contributes to the growth of consumption in the country?The current development program for the organised retail channels is another factor that contributes to food consumption growth in Saudi. The organized retailing expansion will continue to promote the internal trade systems, which are projected to lead to cost savings and lower overheads that can be easily passed over to the consumer. By 2019, it is expected that the Saudi Arabia population shall have hit 32 million mark, an increase by about 2.5 million. Therefore, it means that Saudi is the only market in the region that offers growth potential in the long-term for the potential investor. Confectionery The 2015 total confectionery growth is +7.0%; the 2014- 2019 CARG is +6.5%. The 2015 total confectionery growth is +0.7%; the 2014-2019 CAGR is +6.5%. It is expected that Saudi Arabia to become the best performer in the region over the next five years in the confectionery and snacks categories. The confectionary value sales are projected to grow at about 6.5% annually between the years 2014 and 2019. Saudi Arabia has a low level of disposable incomes as compared to the neighbours, Saudi Arabia provides the biggest consumer base in the region, with a population greater than 30 million. Additionally, 45% of Saudi’s population is youthful (below 25 years). The youthful demographics have been found to love new and innovative goods/ products increasing opportunities for the manufacturers of the confectionery. Saudi Arabia is projected to have the biggest per capita sugar consumption globally. Which demonstrate that the region have a positive taste for snacks and confectionery. Fish The 2015 frozen fish volume sales growth is +7.4%. The 2014-2019 CAGR is +5.77%. The 2015 preserved fish volume sales growth is +6.9%. The 2014- 2019 CAGR is +5.3%. The fish sales are forecasted between the years 2014 and 2019, and there is a strong volume of sales growth. Preserved and frozen fish are grown at the same rate. The fish imports have also been observed to increase over the forecast period. Dairy The 2015 processed liquid milk volume sales growth is +3.5%. the 2014-2019 CAGR is +3.4% The 2015 butter volume sales growth is +4.0%. The 2014-2019 CAGR is +4.0%. The 2015 cheese volume sales growth is +2.7%. The 2014-2019 CAGR is +2.3%. The Saudi Arabia dairy industry is one of the top performing areas that promotes the expansion and growth of the food industry. The growing consumer interests in healthy foods, higher incomes and the increase in the number of foreign investors in the sector has promoted the sector to be a major economic contributor over the last ten years. The dairy products are projected to increase by the year 2019 in terms of sales volume. Butter will see the highest growth rate by 2019 followed by cheese products and liquid milk. Mass Grocery Retail The 2015 MGR (Mass Grocery Retail) value sales growth y-o-y (year-on-year) is +9.6% and the CAGR between the years 2014 and 2019 is +9.2% The 2015 supermarkets value sales growth is +8.6%. the 2014 – 2019 CAGR is +8.5% The hypermarkets 2015 sales growth y-o-y is +9.1%. The 2014 – 2019 CAGR is +8.8% The 2015 cooperatives value sales growth y-o-y is +8.9%. the 2014 – 2019 CAGR is +11.9% The 2015 convenience stores value sales growth y-o-y is +13.8%. the 2014 – 2019 CAGR is +11.9% The 2015 discount store value sales growth y-o-y is +13.6%. The 2014 – 2019 CAGR is +12.5%. The MGR sector in Saudi Arabia is predicted to continue growing strongly for the period 2014 to 2019. The total MRG value sales will grow by a 9.2% CAGR hitting a high value of SAW 203.4 Bn (USD 54.3 Bn). There are several reasons why it is believed that Saudi Arabia provides the best opportunities in the MGR industry for the next 5 years. First, the country has the largest population in the region and the most youthful and energetic population. Almost 55% of the Saudi population are 30 years and below. Secondly, the government high expenditure will continue to increase private consumption of the citizens through to the year 2019. Thirdly, the local food industry development in the new areas like processed food and canned food will continue attracting more companies and investors. In 2011, the MGR sales represented about 50% of all the national grocery retail, this is forecasted to increase to 73% by the year 2020 which is a great potential for growth. Trade The 2015 food and drink exports I -17.6%. The 2015 – 2014 CAGR is +0.4%. The 2015 food imports growth is +5.1%. The 20114 – 2019 CAGR is +5.8%. Saudi Arabia greatly relies on the food imports to fend for the growing population needs. Between the period 2014 and 2019, it is projected that the import will increase by a 5.8% CAGR while the exports will remain at the current stable rate. By 2019, SaudiArabia’ food trade deficit will increase to UD 24.4 Bn to USD 17.8 Bn. Despite the arid and hot climate in the region, Saudi has a bigger agricultural sector compared to its neighbours. Despite the big agricultural sector in the country, it till cannot sufficiently meet the need of all the citizens. The government already hatched a plan to be the bigger importer of wheat in the entire world for the purpose of conserving it resources by not growing wheat. Conclusion After the 2008 drought and food insecurity, Saudi Arabia has been implementing the same food security strategies carried out by the other Gulf States. The government has been specifically keen on securing big land deal and project to cater for the food shortage back at home and keep the food price low. One can only expect that this trend continue into the following several year. Saudi Arabia is a better place today as compared to the situation in 2008, in terms of consumption sector. The industry growth will be exponential for the better in the near future. With the consumer rationality and awareness, the government support and conducive environment for investment, by 2019, Saudi Arabia will have better food security. Reference SaudiArabia bureau of statistics: http://www.cdsi.gov.sa/english/ Read More
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