With a plethora of Asian markets right at our fingertips, Saudi Arabia might not be the obvious choice for Australian food and beverage exporters. But it’s certainly a market to watch with huge potential for the right product! The country is home to the largest food and beverage industry in the Middle East, valued at an impressive US$45 billion. With that said, let’s take a look at key factors encouraging and inhibiting export success in Saudi Arabia.
Economic Growth Built on Oil Reserves
The Saudi Arabian economy is built on one resource – oil. Through exporting oil, Saudi Arabia has managed to become the 4th most prosperous Arab nation, and the 15th most prosperous globally. But, while oil accounts for over three-quarters of Saudi exports, this lack of diversification has cost the economy before. By relying on oil exports, the country is vulnerable to price fluctuations, meaning a fall in prices can spell disaster for the economy.
However, this risk isn’t visible today. In fact, Saudi Arabia posted its highest quarterly economic growth in a decade in Q1 2022, at 9.9% amid rising oil prices. This is expected to contribute to an overall 7.6% growth in GDP for 2022, making Saudi Arabia the fastest growing global economy of 2022, according to the IMF. Yet, while the country’s consumer base maintains a high per-capita income and purchasing power, the ongoing impacts of the pandemic can’t be ignored, as economic shocks caused by the pandemic and a spike in the country’s VAT rate have hit consumers’ pockets, reducing their discretionary spending.
Dependent On Food Imports To Sustain the Population
Like its fellow Middle Eastern neighbours, Saudi Arabia’s climate is arid, with temperatures soaring above forty degrees in summer. This means that the country is, for the most part, dependent on food imports to feed its population of almost 35 million, as the country simply lacks the water needed to grow a high quantity of agricultural products. In fact, food ingredient imports alone reached over US$2.8 billion in 2021! For exporters, this means a larger potential range of products can be supplied into the Saudi Arabian market, especially when it comes to fresh agricultural categories such as meat, dairy products, fruit and vegetables. Plus, Saudi Arabia’s significant expat population of 12 million sustains demand for a diverse range of imported foods!
Exporters Limited By Trade Barriers
There’s no doubt that Saudi Arabia has already come a long way when it comes to their participation in global affairs and trade. Since the 1990s, the government has focused on structural reforms aimed at encouraging privatisation, reforming investment policies and liberalising foreign trade. However, there’s still a long way to go. Despite being a member of the World Trade Organisation, foreign companies are prone to difficulties when it comes to areas like IP protection, localisation requirements and technical standards/regulations. For instance, foreign firms are seeing local content requirements rise as the government seeks to encourage businesses to purchase goods and other inputs from local suppliers.
Barriers such as these mean that exporters should carefully consider the Saudi Arabian market through in-depth market research prior to entry in order to maximise the chances of export success. But despite these barriers, there are many encouraging factors! For instance, most basic consumer goods, like tea, rice and barley corns can enter Saudi Arabia tariff-free, and tariff rates for other product categories usually fall at around 5%.
Relationship with Australia
So, what does Australia’s trading relationship with Saudi Arabia look like? Well, the two countries’ maintain a friendly relationship built upon commercial ties. Both share membership in the G20, and Australia’s engagement with the Gulf Cooperation Council, of which Saudi Arabia is a member, strengthen this relationship. Looking at specific goods traded, Saudi Arabia remains an important consumer of Australian meat and agricultural products including beef, lamb, wheat and dairy, as well as other categories such as pharmaceuticals and cosmetics. However, as of yet, no free trade agreement has been established between the two countries, or between Australia and the GCC region.
Health Is Wealth While Premiumisation Is On the Rise
With a consumer base made up of young, skilled workers, Saudi Arabia maintains an affluent consumer market. Consumers care deeply about product quality and are becoming increasingly demanding of brands in this regard, supporting the growth of premium manufacturers. Looking at food and drink specifically, this translates into a desire to purchase from premium brands, as well as organic and gourmet products. In fact, organic food is one of the fastest growing areas in health and wellness in Saudi Arabia, creating several opportunities for exporters in this space with certified organic product lines. Mainstream retailers are already taking note of this trend by stocking a wider variety of organic products, as well as other free-from and diet-friendly foods, like gluten and dairy-free foods. Non-GMO and all-natural foods are also much-appreciated by the population.
COVID-19 certainty contributed to this rising health-consciousness among the population. As with all markets around the world, consumers were focused on actively preventing catching the virus. This led to a more holistic, preventative approach to health, with consumers seeking out healthier ingredients. At 10% of the population, veganism levels are also much higher than the global average of 4%, with consumers moving to plant-based diets primarily for health reasons. But, there are also other forces at play which have seen consumers care more deeply about their health. Among the largest is obesity. Almost 40% of the adult population is overweight, and therefore, they’re looking for ways to manage their food intake and improve their fitness to support overall well being.
Adherence to Saudi Arabia’s Religious Laws Is Essential
As a predominantly Muslim nation, there are rules and restrictions in place which are not commonplace in Australia. When it comes to food and beverage products specifically, alcohol and pork are prohibited. A recently proposed regulation has also recommended extending the requirement for Halal certification beyond simply imported meat and meat-based products and to all imported chilled and frozen foods, including milk, oils, long-life products and confectionery. So, while halal certification may not currently be required for all exporters, it will certainly make the road to market much easier!
A Focus on Foodservice
Saudi Arabian consumers are keen customers when it comes to eating out at cafes and restaurants. The result? A thriving foodservice sector! Following the turmoil caused by the pandemic in 2020, 2021 saw consumer foodservice make a partial recovery, although the channel was still heavily reliant on takeaway and home delivery orders due to lingering fears surrounding the pandemic. Cafes, full-service restaurants and independent operators all saw part of this recovery, with sales growing compared to 2020 levels.
Looking to the future, Saudi Arabia’s foodservice sector is expected to thrive once again, as the government’s Vision 2020 focuses on developing tourism and entertainment sectors to draw in tourists from around the world, strongly benefitting the foodservice industry. Rising disposable incomes and health consciousness will have a big impact on the industry to come, supporting demand for juice bars and healthier menu items such as gluten-free options and, while growing tourism flows from Asia and the West will also see limited-service restaurants benefit from tourist demands to try authentic Middle Eastern cuisine. But limited-service players will be the real winners, with chained players especially benefiting from higher tourism flows as they expand into smaller cities across the country.
Supermarkets and E-Commerce As Big Pandemic Winners
Saudi Arabia’s modern grocery retailing environment is promising for Australian exporters. For one, the country’s supermarkets have the capacity to carry a wide range of products, from fresh to frozen and chilled items. The pandemic also created big wins for the retailing channel in 2020 as consumers were driven to buy just the essentials, however 2021 painted a slightly different picture as growth normalised and supermarkets began to see the impacts of rising VAT rates, which saw many consumers switch to discounters and hypermarkets. The future is looking bright for exporters though! With growth slowing, the channel is becoming increasingly competitive, prompting players to increase their focus on imported, organic and unique global foods products to survive amid competitive pressures.
E-commerce has no doubt also seen extraordinary growth thanks to the pandemic, with younger and more affluent consumers more and more confident when it comes to buying online, thanks to not only its affordability, but the availability of a wider range of products. While growth will slow from the peaks seen during the height of the pandemic, e-commerce is certainly expected to stay, especially as consumers such as the Kingdom’s rising female workforce, becomes increasingly time-poor and players such as Carrefour continue to invest in improved delivery services.
And that’s our look at the Saudi Arabian market, so let’s wrap up with a few key insights! Oil has played a major role in securing strong–yet often unpredictable and turbulent–economic growth for the country. GDP growth is among the highest worldwide in 2022, supporting stronger consumer sentiment and a high purchasing power, yet rising VAT rates and COVID-19 recovery remain key threats. Saudi Arabia is highly dependent on food imports, strengthening opportunities for exporters, yet market entry can be difficult to navigate due to local regulations and requirements.
While many imports can enter tariff-free and the Kingdom maintains a strong relationship with Australia, no trade agreements are in place, potentially limiting price-competitiveness in the market. Rising premiumisation and health trends are supporting demand for organic, free-from and premium foods, while Halal certification is key. Both Saudi Arabia’s foodservice and retail sectors present promising opportunities for exporters in the premium, imported and health-food spaces, while e-commerce growth will create further room for success. Health isn’t the only thing on consumers’ minds though, with a growth in meat substitutes and convenience foods indicating greater ethical consumption and a growing consumer base for quick, ready-to-make or eat meals and snacks.
We hope you’ve found these insights on the Saudi Arabian market helpful. As always, if you’ve got any questions or want to discuss export opportunities for your company, feel free to drop us a line at Export Connect – we’d love to hear from you.