UAE food and beverages sector put at "Medium Risk" amid new price challenges, rising competition amid online distribution

• Covid-19 lockdowns have disrupted global trade and put agrifood supply chains under strains. 

• Overall sector outlook is stable in this regional hub, recovery in sub-segments like Horeca will be driven mainly by Covid developments and tourism dynamics.

DUBAI: Euler Hermes, the world’s largest trade credit insurance provider, said in its latest regional assessment, that the sanitary crisis triggered by COVID-19 has had a dual impact on the F&B industry in the UAE. The beverage segment in particular suffered setbacks in a domino effect amid the slowdown of travel in the UAE and globally. Subsequent lockdowns have disrupted the steady growth of global trade and put agrifood supply chains under strains. This has led to a skyrocketing demand for online food deliveries, increasing the demand for packaged meals and higher local consumption. However, HORECA’s (hotels, restaurants, catering) loss has been retail’s gain, and the sound financial performance of large food manufacturers has cushioned the aforementioned fallout.

On regional implications, Jean Claus, CEO, Euler Hermes GCC, said:

“By nature the agrifood sector is a non-discretionary industry and therefore demand and growth is uncorrelated to the economic cycles of the region. Despite the disruptive developments for travel, tourism, and food supply chains amid the pandemic, the UAE and the GCC overall have fared well in relation to food supply as they had put in place food security measures well before the Sars-CoV2 crisis. Food supply chains are likely to be fundamentally altered in the future with more stress on shorter turnaround time, reliance on e-commerce to reach more customers, growing consumer preference for healthy, nutritious and high-quality food imports.” 

The UAE, like its GCC neighbors, relies on imports to meet food requirements with local agricultural production contributing 0.1 percent to GDP. With tourism markets cautiously reopening, the F&B industry has received some tailwinds in recent months, e. g. with Germany or China having been put on the green list of Abu Dhabi (German and Chinese visitors can enter Abu Dhabi quarantine-free).  

Euler Hermes GCC has put the F&B sector of the UAE and all six GCC countries (UAE plus Saudi Arabia, Kuwait, Bahrain, Qatar, Oman) at “Medium Risk”, whereby the long-term outlook remains stable made the sector’s resilience and the growing regional and world population. The UAE being a major F&B export/re-export hub in the region has emerged as a center for food processing and packaging amid the sharp rise of online ordering and delivery services. 

Mr Claus added:

“Given the nature of the sector and the stable outlook, mid-large players enjoy sufficient support from banks and investors supported by good cash position and robust cash cycle. The sector saw high to stable growth across all segments, exceptions being entities, which were exposed to HORECA sector and were unable to offset business loss in H1 2020. Manufacturers in consumer staples segment like dairy producers, meat processing firms saw high growth with double digit profitability ranging from 20-30% on the back of high consumption.” 

UAE and GCC F&B companies enjoy healthy financial support from financial institutions, international investments from abroad and from local governments. Euler Hermes GCC’ evaluations have found that the average financial structure for these companies 60/40 in favor of bank funding and financial markets financing. Food retailers also enjoy high cash reserves with short cash cycles. Several players, however, defaulted due to mis-management or misuse of cash for non-core business purposes such as real estate.

Appendix:

Euler Hermes does not issue direct policies in the Middle East. It operates in partnership with and provides reinsurance support to a number of selected locally licensed insurance companies, which issue Trade Credit Insurance Policies designed and approved by Euler Hermes in its capacity as a Reinsurer. 

Euler Hermes is the global leader in trade credit insurance and a recognized specialist in the areas of surety, collections, structured trade credit and political risk. Our proprietary intelligence network analyses daily changes in corporate solvency representing 92% of global GDP. We give companies the confidence to trade, and be paid. We compensate your company in the event of a bad debt, but more importantly, we help you avoid bad debt in the first place. Whenever we provide trade credit insurance or other finance solutions, our priority is predictive protection. But, when the unexpected arrives, our AA credit rating means we have the resources, backed by Allianz to provide compensation to maintain your business. Headquartered in Paris, Euler Hermes is present in 50+ countries with 5,800 employees. In 2019, our consolidated turnover was €2.9 billion and insured global business transactions represented €950 billion in exposure. For more information, please visit: eulerhermes.ae 

© Press Release 2021