The region's meat market is under pressure in 2012
A look at how the supply chain can remain profitable against the odds
With the region’s meat market under pressure, Lee Jamieson asks the experts if the supply chain will remain consistent and profitable against the odds?
Meat suppliers and F&B operators across the Middle East are regarding 2012 with caution. 2011 was a difficult year for meat; and the region felt the pinch.
The Middle East’s meat market relies almost exclusively on imported produce, exposing suppliers and operators to price volatility on the open market. Fluctuation in the price is nothing new for the region’s F&B operators, as Ruth’s Chris Steak House executive chef Paul de Visser explains.
“At Ruth’s Chris Steak House Dubai, we only use imported US Department of Agriculture (USDA) prime beef, so our beef prices are constantly fluctuating throughout the year. The price is always high in holiday seasons like Christmas and New Year, but it drops again in the months that follow. This pattern usually occurs twice per year and generates some big price differences along the way.”
But 2011 was different. Food prices hit the headlines when a series of natural and political events coincided. Supply from key import markets was interrupted by floods in New Zealand, tsunami in Japan and drought in Argentina. Further strain was put on the supply chain by fuel inflation and the Arab Spring.
The Food and Agriculture Organisation (FAO) reports that international meat prices in 2011 were 16% higher than in 2010, but some suppliers in the Middle East report a price increase of closer to 50% for chilled meat.
The coming year
Could 2012 offer more stability? Certainly, in the context of the past 12 months, stability has returned to the meat market. This time last year, the FAO Food Price Index hit an all-time high of 238 points. By December last year, the figure had stabilised at 211.
However, a United Nations report from October warns that higher and more volatile food prices may just be around the corner.
“I think we will continue to see price increases for meat sourced from countries like Australia and New Zealand because they currently have strong economies,” explains Meat Co executive chef, Roy Soundranayagam. “Thanks to an increase in the exchange rate with the Australian and New Zealand Dollar, we have seen the cost price of meat increase by around 12% in the past year.”
As a brand built around bovine products, sharp price rises can pose a real business challenge for Meat Co. The company imports choice cuts like fillets, rump steaks and one-kilogram beef tomahawks from a number of source markets including New Zealand, Australia, USA and Brazil. With the exception of Brazil, supply from these markets has been under stress in the past year.
“Furthermore, the issues that Japan is currently facing are causing the Middle East’s restaurants that used to buy beef from the market to look elsewhere.”
More demand, less supply
Demand for meat in the region continues to grow despite the supply issues of 2011, thereby hiking up prices.
In Saudi Arabia alone the meat per capita has jumped from 47.5 kg to 51.4 kg in five years, according to data from Euromonitor International. In 2011, the volume of meat in the Saudi meat market stood at 1,376,000 tonnes, up from 1,147,000 tonnes in 2006.
Higher consumption and bigger populations has led to increased competition for the region’s F&B operators.
“I think supply will remain stable, but the competition between restaurants keeps on growing,” says Ruth’s Chris Steak House’s Visser. “There are currently more than 50 steakhouses in Dubai and the number keeps growing!
“Therefore, you have to deliver on things like great quality and service to keep your head above water.”
Meat suppliers are also anticipating price rises fuelled by new demand from emerging economies.
“We think that 2012 will be a tough year for meat importers,” explains Aramtec food service manager, Hossam Shabayk. “We will experience an increase in demand from big countries like India, Russia and China – yet, the availability of cattle in big production powerhouses has dropped to unforeseen levels. This will all result in high meat prices.”
The need for price stability has led F&B operators to exert more control over the supply chain. This idea has informed the approach of Gaucho, the steakhouse brand that expanded into the region during this difficult period; opening in Beirut in November 2010 and in Dubai late last year.
Gaucho exerts its influence throughout the supply chain from the farms in Argentina to the end consumer.
“We work with a selection of 30 farms in Argentina that collectively produce our beef for us, so we are able to control the quality and quantity from source,” explains Gaucho international operations director, Ryan Hattingh.
“The beef industry has experienced high demand over the past few years and prices have varied considerably, but because we don’t buy meat on the open market, we don’t face the same supply issues ourselves.
“The challenge for us is in the logistics and clearing processes. Every country has different rules and procedures that need to be followed, but once you have done the research and established these practical details, it’s pretty straightforward.”
Tick, tick, tick…
With demand outstripping supply for high quality meats, the supply chain is under more financial pressure than ever before – and some might argue that profit is being squeezed out by the strict government controls imposed on the region’s market.
The shelf life of all frozen meat is limited to 18 months in countries like the UAE and Kuwait. In Qatar it is just 12 months. The time it takes to transport and clear the product through customs cuts heavily into the shelf life and reduces the amount of time suppliers have to sell it.
“Our frozen meats are transported by sea over a maximum of 30 days from any destination,” explains Horeca Trade business development manager, Pascal Haddad, “so we still have 10 months – 85% of the remaining shelf life – to play with.
“Chilled meats are more challenging to import because the aging process can increase the bacteria count – something the government pays very close attention to. So we transport our chilled meats by air to preserve the shelf life of the product and give us and the other operators just enough time to distribute the meat in the local market.
“But this adds a remarkable cost to the product.”
Tackling the logistics
Cold store to cold store logistics have always been difficult during the Middle East’s summer months, but there are concerns that the existing cold store infrastructure across the region is not keeping pace with demand.
“The quality of some cold stores in the Middle East has been compromised because of inadequate facilities,” explains Trilogi Logistics Services group general manager, Pieter van Wyk, “and they are not set up to receive and dispatch large volumes of frozen and chilled meat. Major investment is needed to improve these facilities.
“As a cold chain distributor, we have invested in infrastructure to support the full cold chain cycle. Technology has improved considerably to support the transportation of frozen and chilled meat with the transports having remote access to the temperature controls within the distribution pipeline. But going forward, the local and regional facilities in the region really need to be upgraded to meet future challenges.”
Consumers to the rescue
It is likely that consumer demand will trigger greater investment in the region’s meat supply chain. All indicators are clear: this is a growth market – and it will therefore be sure to attract the attention of international operators with the economies of scale and necessary investment to enter and penetrate the market.
“The entrance of these global players will force existing suppliers to innovate and fluctuate their pricing and profitability in order to gain market share; else they will be forced out of the market,” comments Horeca’s Pascal Haddad.
“I think that the Middle East’s meat market still has a lot of potential for growth because consumers are learning more about these products and suppliers will need to stay on trend with the products they offer.”
One organisation keeping a close eye on the region is the Embassy of Chile in UAE. The Embassy is aggressively marketing Chilean beef and lamb in the UAE after identifying its potential market growth – especially for approved halal meat.
“Through our network of trade offices around the world we constantly monitor international markets and their potential impact on Chilean exports,” explains Embassy of Chile trade commissioner, Carlos Salas.
“We are diversifying our exports and can identify a very good opportunity to open a market for halal meat in the Middle East.
“So far we have eight halal-certified slaughterhouses in Chile for the UAE market and good export infrastructure. While we can ship frozen meat direct by boat, we do not yet have a direct flight to enable us to reach the market with chilled meat.”
2012 will be a year of both opportunities and threats for the Middle East’s meat market – but above all else, we should remember that this is a growth market fuelled by a swelling population and consumer demand for high-quality meat products.
With such clear drivers behind its growth, the region’s meat market will doubtless withstand whatever 2012 has in store.
On the Market
Premium Argentinian Beef
Horeca Trade is one of the few operators to import premium Argentinian Beef. The cattle is grass fed to ensure a tender and marbled meat and spends the last three months on grains to improve taste.
Margaret River Wagyu Beef
This Australian meat has a distinctive taste and is distributed vacuum-packed and chilled for freshness.
Pureland Premium Black Angus Beef
Rastelli specialises in halal slaughtered, pure Angus beef and employs an independent scientific testing method to ensure the Angus heritage of the animals. They are finished on a high-moisture, all-vegetarian, corn-based diet to ensure the taste quality.
Rastelli Global International