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Middle-East Oils Market: Opportunities and Challenges
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Thursday, 01 February, 2018, 08 : 00 AM [IST]
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Shubhobid Mukherjee
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Edible or consumable oils are generally animal, synthetic or plant extracted, and they are used for frying, baking and other forms of cooking. Although the demand for edible oil is high in Asia-Pacific, with major contributing countries being India, China, and Japan, the demand for the same is witnessing a favourable growth in the Middle-East as well.
Edible oil is the most important form of cooking ingredient. Moreover, edible oils have non-food applications such as manufacturing of washing powders, personal care products and soaps among others.
Rudimentary processing
The oilseeds industry is a vast enterprise and almost every country across the globe produces oilseeds of a kind and most countries have at least one rudimentary processing industry that is engaged in the production of two basic products such as edible/edible oil and protein meal.
The use of oilseeds and their derivatives are inclusive of soy products, which include soy flour, soy milk, and soy sauce among others. Other uses are inclusive of pharmaceutical products such as isoflavones and phytosterols and industrial products like lubricants, paints, and personal care products among others. Vegetable oil can also serve as feedstock producing methyl esters which are known as biodiesel that can be used to fuel diesel engines.
The demand for edible oils in the Middle-East region is dependent mainly on imports since the region lacks agricultural capacity. The countries in the Middle-East do not possess comparative advantage in field crop production owing to adverse climatic conditions. Rainfall ranges between 50 mm and 250 mm which is way below what is required for the local production of edible oil. Moreover, soils are fragile and more than 95% of the land on the Arabian Peninsula is subject to desertification. This is major reason for the regions complete dependency on imports and this has exposed the region to mainly two forms of risks - supply risk and price risk.
Supply risk is generally related to the availability of food imports and price risk is related to the affordability of food imports. According to a market research study by Sheer Analytics and Insights, edible oil imports in Qatar accounted for more than 98% and exports accounted for less than 2% in 2015. Residents in Qatar comprise mostly of foreign workers with temporary residential status. The consumers in this region lead an affluent lifestyle which is backed by high purchasing power. Change in the lifestyle is influenced by the Western culture, especially, in terms of feeding habits. The consumption pattern is also affected due to the increasing health concerns among the consumers. However, the share of import is expected to drop down in the future, owing to the increase in local production, which is expected to push the demand for edible oils in the future. However, edible oil imports in the other countries in the Middle-East region accounted for more than 88% and exports accounted for less than 12%. Savola Group, which is based in Saudi Arabia, exports its products falling in the edible oil range to other countries and holds a considerable market share in Saudi Arabia. Emirates Refining based in the UAE, exports its products to other countries in the GCC and this company holds a fair market share in the UAE and other countries in the GCC region.
Moreover, the process of extracting various types of edible oils involves several processes that are capital-intensive. Solvent extraction, mechanical extraction, hydrogenation, and sparging are few of the methods that are implemented for extracting edible oils and fats. These processes require a large amount of capital investment, which becomes extremely difficult for any new player trying to enter this market. And, huge capital investment makes it difficult for any new player to survive in the edible oils and fats market for a long period of time. Therefore, the high cost of raw materials acts as a major barrier to the edible oils and fats market and the impact of this restraint is high at present.
Nutritional content
Rising consumption of processed food in the Middle-East is fuelling the growth of the edible oil demand. Keeping this factor in mind, the manufacturers operating in this industry are engaged in extensive research and development activities to manufacture high quality edible oils that would address the health requirements of the consumers. Refined edible oil is claimed to be healthy because it aids in the reduction of the cholesterol level in the human body. High quality edible oil contains high amount of poly-unsaturated fatty acids, mono-unsaturated fatty acids and vitamin E, and Omega-3. In addition, high quality edible oil can retain nutritional content at higher temperatures owing to high smoking point. Refining is a process where the natural oils are refined to remove any substances that may contribute to unwanted colouring, off odour and off flavour.
Changing lifestyle of the consumers in the Middle-East region in terms of feeding habits is primarily pushing the demand for edible oils in this region. Sheer Analysis and Insights study states that the demand for various forms of vegetable oils is further fuelled by the increasing demand for processed food. High purchasing power backed by the increasing busy lifestyle of the consumers has resulted in a change in the feeding habits of the consumers; a shift towards ready-to-eat or processed foods.
Hydrogenated vegetable oils are found in many processed foods such as chips, and fried foods among others. Moreover, the consumption of high quality edible oils has shown to reduce the incidences of cardiovascular disease and the LDL level in the human body.
Further, consumption of olive oil has shown to increase the level of good cholesterol in the human body. The rising tourism sector in the Middle-East is another key factor responsible for the growth of the edible oils industry.
According to the World Travel and Tourism Council, Qatar’s direct contribution from travel and tourism to the GDP was valued at US$ 4.23 billion in 2014 and is anticipated to rise at a CAGR of 7.3% in 2015 and is expected to show a growth of 4.7% annually from the period of 2015 to 2025. The value is expected to reach US$ 7.2 billion by 2025. The UAE’s direct contribution from the travel and tourism sector to the GDP was valued at US$16.77 billion in 2014 and the same is projected to register a growth of 4.9% in 2015 and the same is expected to register a growth of 4.1% from the period of 2015 to 2025, to reach a projected value of US$ 26.38 billion by the end of the forecast period.
Saudi Arabia’s direct contribution from the travel and tourism sector to the GDP was valued at US$18.24 billion in 2014 and the same is expected to maintain a growth of 6.2% in 2015 and is expected to register a growth of 4.3% during the period of 2015 to 2025, reaching a projected value of US$ 29.55 billion by 2025. The tourism sector has directly supported several jobs in the GCC region which has led to the increase in the purchasing power of the consumers. The rising tourism sector has complemented the growth of the B2B channels, especially the HoReCa sector, as the international hotel companies are looking to penetrate the GCC region for expansion opportunities, and this factor in turn is driving the growth of the edible oil industry in the GCC region. Moreover, owing to the rising tourism sector, which has supported several new jobs in the GCC region, the food service industry has witnessed a rise which, in turn has complemented the growth of the edible oils industry in the GCC region.
Product innovation
According to an analysis by Sheer Analysis and Insights, product innovation is a major strategy adopted by the manufacturers operating in the field of edible oils to sustain in this industry. The companies operating in this field resort to extensive research and development activities to bring out new offerings to its consumers. The companies operating in this field also focus on aggressive promotional activities since the consumers residing in the Middle-East region are price-sensitive when it comes to selecting a brand of edible oil. Consumers generally look for promotional offers while buying edible oil.
Saudi Arabia Vegetable Oil and Ghee Co. also known as Savola Group entered in the canola oil business by introducing Olite Canola Oil in the first quarter of 2015 at a price of US$5.0 for a 1.8 litre pet bottle. The packaging mentions the presence of Omega-3 which categorises the product as a healthier alternative. Danya Foods launched a range of cooking liquid by the name of cook’s range in the fourth quarter of 2014. Danya’s ranges of products are packaged in premium looking packaging to grab consumer attention. International Food Stuffs Company launched sunflower oil by the name of Noor Aroma, which has an aroma of fresh herbs. The price of the product post-launch was valued at US$6.3 for a 1.8 litre bottle. The company again focussed packaging and various in-store promotions to grab customer attention.
(The author is research manager, Sheer Analytics and Insights Pvt..Ltd)
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