Changing preferences, more homegrown options, driving growth of UAE organic produce market

Photo: The Ripe Market at Zabeel Park in Dubai, UAE, on Feb 24, 2017. Siddhi Sainani/Shutterstock.com

Global Muslim expenditure on food was an estimated $1.17 trillion in 2015, with revenues from halal-certified food estimated at $415 billion. While Muslims the world over understand the importance of halal, an increasing number are also starting to become conscious of healthier eating options. Enter organic food.

In 2004, the United Arab Emirates’ first specialist food shop, Organic Foods & Café, debuted in the Dubai neighbourhood of Satwa. Fast-forward a decade later, estimated sales of organic packaged food in the UAE reached $16.3 million in 2013, according to a Euromonitor International report.

Today’s demand for organic and ethically-sourced products – such as free range, for example – is higher than ever. The same Euromonitor report estimated that retail sales are forecast to grow by 31 percent to top $21.1 million in 2018.

Over the past few years, not only has the UAE witnessed a surge in the launch of small, local organic products companies but major multinational players are also responding to the growing demand.

The country’s largest hypermarket chain, Carrefour UAE, told Salaam Gateway it has increased its range of organic products by 150 percent in 2017. (Carrefour declined to provide us numbers other than year-on-year percentage growth so we cannot accurately size their organic business.)

Miguel Povedano, executive regional director UAE at Majid Al Futtaim Retail – which owns Carrefour in the region – told Salaam Gateway that, over the past year, the hypermarket has seen double-digit percentage increase growth in consumer demand for organic and ethically-sourced foods.

“We can’t disclose the official numbers; however, we can confirm that Carrefour has seen double-digit growth and that the category has significant potential,” he said.

“The sales growth rate of organic fruits and vegetables is 84.5 percent versus last year. This year, [during the] first 15 days of January, the growth rate of organic fruits and vegetables [was] 201.3 percent. The growth rate of Carrefour Bio products has more than doubled [to] 239.5 percent.

Over the past few months, Carrefour also launched a ‘Healthy Kitchen’ aisle in two stores in Dubai focusing on the supermarket's healthy and organic range of dry food.

And the company's organic offerings will become more widely available over the next year after Majid Al Futtaim acquired Geant hypermarket franchise owner Retail Arabia last month from BMA International. The acquisition will mean a total of 13 Geant stores across the UAE will be rebranded into Carrefour supermarkets by 2018, taking the chain’s store count from 67 to 80.

ORGANIC SHIFT

This increase in demand for organic is driven by a greater awareness about healthier eating, which was cited as one of the most influential trends in the food industry during 2016.

According to Povedano, the trend has been led by the country’s large Western expatriate population—estimated to be around eight percent of the 9 million residents—which has a high disposable income.

The sentiment is echoed by Darsana Nair, head of sales IMEA at U.S.-based and Nasdaq-listed Hain Celestial Group, which specialises in natural/organic food, and personal care products. It operates in North America, Europe, and India and reported $2.1 billion in net sales for the first nine months of its 2017 fiscal year. Its U.S. and UK businesses contribute around 70 percent of sales. 

“Western countries have led the shift towards organic products both in scale and in terms of certification of products,” she said. “The fact that so much is written and said about eating healthy has also contributed to people choosing organic products.”

A large part of that shift in the UAE has been driven by millennials, said Nair.

“The young population are frequent travellers; they show high affinity towards high-quality products from the U.S. and Europe.”

PAYING THE PRICE

However, both businesses and consumers are paying higher prices for going organic, with smaller business hit harder.

Daniel Vahanian, co-founder of local juicing company Organic Press Juices, admits the costs of going organic are significant.

“The price difference is quite high compared to conventional produce,” he said. “When it comes to our products, we are about the same or even marginally higher than other countries due to the constraints that we face when sourcing organic produce. The majority of items are imported from around the world, making costs go up.”

“[However,] consumers do understand and know what they are paying for.”

Other small business owners share his sentiment.

“There are more and more people in UAE who are becoming aware of non-organic food quality and its content. Preservatives, pesticides, hormones, chemicals and a significantly decreased nutritional value are all reasons to shift to organic produce,” said Natasha Stephenson, managing partner at all natural food company Muncherie.

“It would be 30 to 40 percent cheaper for us to produce less healthy products by adding preservatives to extend shelf life, as well as use non-organic raw materials," said Stephenson.

“Low shelf life is a big issue for us, as we keep our products fresh. [We] are against preservatives and pasteurisation which kills most of the nutritional value,” she added.

Higher costs of up to 50 percent are the norm for Organic Baby Bites. “The cost of sourcing organic food is around 30 to 50 percent higher than the non-organic comparable,” said founder Lyndsey Carphin.

And costs are even higher for Kamilla Omarzay, founder of food delivery service The Snack Society, who says it’s 55 to 60 percent more expensive than if she were to use regular products.

“For example, [in the U.S.] I would pay 35 Emirati dirhams ($9.50) for 1 litre of Grade A maple syrup. The same thing would cost me 70 dirhams ($19) in the UAE.”

On the other side of the spectrum, the advantages of scale mean the focus for a major brand like Carrefour is on the effectiveness of the supply chain rather than costs associated with it.

“It is not about cost; it is about creating an effective supply chain and having agreements with a number of good suppliers, locally and internationally, who can provide the products and the volumes that meet the demand,” said Povedano.

Looking ahead, increasing interest, and demand, in organic will likely contribute to a reduction in prices for both business and consumer, as will the lowering of supply chain costs from growing local.  

HOMEGROWN

Figures from the U.S. Trade Bureau Data reveal the UAE and the rest of the Gulf Cooperation Council (GCC) countries are the biggest importers of organic products from the U.S., buying almost $25 million in 2014 from only $4 million in 2011. 

Consistency and increasing local produce could be the key to growing the local organic food market in the UAE in the long run.

Organic farmland in the UAE has grown from 2,360 acres in 2009 to 45,890 acres in 2016, and in March the Ministry of Climate Change and Environment (MOCCAE) launched a new programme to make local organic produce more readily available and affordable.

According to Povedano, the programme has already expanded Carrefour’s network of local suppliers.

“The company has taken steps to support local farmers through partnering with Dubai SME and the MOCCAE to display, promote and sell the products of local farmers at Carrefour. This includes working with 22 different farms in the UAE.

“The UAE currently produces about 60 organic crops including tomatoes, eggplants, herbs, lettuce, zucchini, lemon, cucumbers, dates and a number of legumes. In our fruit and vegetable section, the majority of our supply comes from local farmers; however, we also need to respond to the increased demand for organic fresh food. Therefore, we work with international suppliers as well,” said Povedano.

SME owners look forward to a lot more homegrown produce. “As a local producer we are looking to encourage local farmers to expand their growing range and will support that all the way so we can source locally as much as possible,” said Muncherie’s Stephenson.

Weather is obviously a major challenge. “While organic farms are increasing in the region, fruit and vegetables that can be accessed all year round in other countries are limited to seasonality with the climate in the Middle East,” said Organic Baby Bites’ Carphin.

SUPPLY CHAIN SHAKEUP

Is the current demand for organic sufficient to warrant a supply chain shakeup in the UAE? It’s a little too early to tell.

“Organic-certified products are usually more expensive than conventional due to the cost of responsible farming and harvesting, higher standards for animal welfare, limited supply and high cost of certification,” Joe Zaccour, founder of organic and health food store Biorganic told Salaam Gateway.

“We need to ensure a proper and accurate traceability of the whole supply chain process ensuring that all practices and certifications are met and compliant with the highest organic standards. In a nutshell, the costs are higher, and the processes are way more complex than conventional sourcing,” said Zaccour.

Hain Celestial’s Nair added that while there is a demand for organic products, more awareness around their benefits is still needed.

“I don’t foresee a need to shake up the supply chain,” she said. “Increased velocity will ease the pressure on the supply chain and bring in more options in sourcing.

“To grow this category, certain investments are required from the retailer, as well as the brands involved. Separate segments need to be created within core categories to showcase organic products,” she explained, citing the example of a ‘shop-in-shop’ experience and stressing that consumers need to differentiate for three main reasons: visibility, shopability and addressing purchase barriers.

“The organic range within each category is limited, and it may go unnoticed in the primary category. The people who buy organic across one category are likely to make similar choices across other categories as well."

BOTTOM LINE

The biggest barrier to purchase organic products is still price.

"Prices on organic brands could be ‘x to y’ percent higher than mainline brands. At the ‘shop-in-shop’ counters, there is sufficient space to communicate the goodness of the produce and improve value perception,” said Nair.

Since organic is still a niche segment, it will take a significant amount of time before the investment pays off for any retailer, she said.

“However, given that the organic segment is being aided by strong tail winds originating from changing consumer preferences, I believe, at the end of the day, it will be worth the investment,” she added.

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