Oman Food Market

Market Overview, Recent Developments, Drivers and Trends
Date: June 29, 2019

Market Overview
Government intervention is transforming the food industry in Oman. With massive meat, poultry and dairy production projects with a value of USD616mn, the state aims to significantly reduce the country's dependence on food imports. We believe that this will put downward pressure on prices and substantially raise barriers to entry for foreign producers.

Recent Developments

Innovative projects are underway to boost agricultural capacity. Oman recently saw the launch of the country's first aquaponics farm, which combines fish farming with vegetable farming.

Oman's government is decisively proceeding with its food production projects. The state-owned enterprise Oman Food Investment Holding Company is on track to complete its meat, poultry and dairy projects with a total value of OMR237mn (USD616mn) in 2017-2018.

Popular Canadian fast-food chain New York Fries opened its fourth location in Oman in March 2018, in the My City Centre Sur shopping mall food court. Two additional locations are due to open by the end of the year.

Market Drivers And Trends
Meat And Poultry
The domestic meat and poultry production industry in Oman is expected to experience steep growth in the following four years. The industry has very few large meat producers, with Salalah-based A'Saffa Foods standing out as one of the largest players in the market. Oman imports around 80% of all of the red meat consumed in the country, and the government has shifted its efforts to promoting domestic food industries. The meat and poultry sub-sector will be transformed the most throughout the forecast sector. State-owned enterprise Oman Food Investment Holding Company (OFIC) has started two projects in the sub-sector, which will significantly increase meat and poultry production in the sultanate. First, the government is entering the red meat segment with a production plant in Thumrait, near Salalah in southern Oman. The project will cost OMR37mn (USD96mn) and will import livestock from East Africa. Second, OFIC is developing a large-scale poultry farm in Ibri, north Oman. The plant, which will employ more than 700 people, is going to produce 60,000t of meat in the first five years of operation and cost OMR100mn (USD260mn) to complete. As the two projects are completed in 2018-2019, OFIC will become one of the largest food producers in the sultanate.

As a result, the competition in Oman's meat and poultry production sector is going to increase and will likely put downward pressure on prices. We are expecting that this will influence consumer spending patterns, allowing the lowest-earning households to increase their consumption of meat and poultry products. The sub-sector is forecast to average a 9.6% annual growth rate for the next four years, beating the overall food industry. At the same time, entry to the Omani meat and poultry market is going to become more difficult for foreign producers. Importers currently compete in all segments of the meat and poultry sub-sector; however, their role is likely to shrink to predominantly niche, more expensive products that are not produced in Oman. The share of imports in the meat and poultry sub-sector, therefore, will shrink considerably after OFIC rolls out its projects and A'Saffa completes its expansion project.

Similarly to the meat and poultry industry, there are few large domestic producers in the dairy segment in Oman. A'Safwah and Modern Dairy Factory are two notable players, which control a commanding market share in the sultanate's industry. Both firms offer a diversified product offering of milk, yoghurt, laban and other dairy products; however, as in the other food sub-sectors, the majority of dairy production consumed in Oman is imported from abroad. As a result, the dairy segment is also targeted by the country's government and its policies of increasing food security and decreasing dependence of food imports. OFIC is developing Mazoon Dairy Co, a firm which will start with a stock of 4,000 cows and continuously expand to reach a capacity of 25,000 cows by 2026. The project aims to reduce the share of dairy imports from 69% in 2014 to only 13% in 2026, and could allow Oman to become a net exporter of dairy in the long run. The total value of the project is OMR100mn (USD260mn) and will lift Mazoon to the position of a leading dairy producer in the Gulf region.

In response to the rapidly growing domestic dairy supply, we expect that the consumption of milk and other dairy products will be on the rise in Oman. The transformation aligns with the government's intentions to promote a healthier diet among citizens. We expect that the dairy segment will become a half-a-billion dollar industry in Oman by 2021, yet it is questionable what role foreign producers will be able to play in the sultanate's market. Possibly lower prices and policy shift away from imports might make Oman's dairy market difficult to penetrate for foreign producers.

Wheat Products And Baked Goods
A few large flour mills are operational in Oman. Salalah Mills is the country's largest flour producer, which has a large enough capacity to export its production. The company had planned to increase its production by 40% with the opening of a new mill; however, it announced that it would be postponing its plans in May 2016, citing an unfavourable economic situation as the main reason. OFIC is also present in the market through its controlling ownership in Oman Flour Mills, which was established in 1977 and produces flour and wheat products to retail consumers in Oman. The producer will be expanding its share in the Omani market, as its subsidiary Sohar Flour Mills commenced the construction of a new flour production plant in Sohar in fall 2016. The facility opened in late 2017 with an initial daily capacity of 550 tonnes, with the potential to expand to 2,000 tonnes. The factory will serve as a tool for the sultanate's government to achieve its new domestic food production goals and joins meat, poultry and dairy investment projects in a broader strategy of reducing food imports.

However, we do not believe that this will translate into substantially higher wheat products consumption in Oman. The industry is highly saturated and some wheat producers in Oman are already net exporters, which makes it difficult to expect their higher participation in the domestic market.

The modern sugar and sugar products industry in Oman is relatively new and has few players. Sweets of Oman is a notable producer with a range of sweets, chocolates and assorted toffees. It exports to more than 40 countries and maintains a large market share domestically and in the region. Its competitors are smaller producers, which mostly target Oman's market and produce traditional sweets. Given that Oman's government is likely to step up its efforts in curbing sugar consumption, the main confectionary producers will be forced to innovate and diversify their product offerings. Growing tourism might become a profitable niche for sweets producers, as Oman has the capacity to attract affluent tourists from GCC countries and abroad, who are willing and able to purchase expensive sweets, generating wider profit margins for the country's producers.

Food Services
Oman's food services sector has expanded rapidly over recent years as barriers to foreign investment have eased and consumer demand has risen (including from a growing tourism industry). The country is now home to a range of popular international brands such as McDonald's, which has been present in Oman since 1994 and now has 23 branches across the country run under franchise by Al Daud Restaurants. Burger King, KFC, Subway and Pizza Hut are other well-established fast-food chains present in Oman. There is also a wide range of traditional Omani restaurants and regional chains such as Semson, as well as numerous coffee shops. Space for restaurants continues to expand with the ongoing development of new, modern shopping malls, which frequently include a food court, and are home to a range of domestic and international chains.

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