Processed food to Saudi Arabia

(Last updated: 17 Jul 2007)

Trends and opportunities

The market

The major market and regional trend that impacts on the general business environment is a drop in oil prices. The Saudi Government’s finances remain heavily dependent upon oil revenues. Low oil price would impact on the government’s subsidy and support of basic food (and agricultural) projects and on the import of raw materials.

The consumer market in Saudi Arabia has become more complex and competitive. Consumer marketers, advertisers and food exporting nations recognise the key target market is the teens to late-20s group.

Mass communication and improved distribution networks nationwide are changing consumer demand patterns. The change is, largely, driven by the following key drivers: 

• The multinational character of the population means consumers have diversified needs and tastes.
• The buying trends of both Saudi and expatriates has become more sophisticated and demanding.
• Leverage of educational standards over the last two decades and growth and development in advertising have created a highly discerning consumer community in Saudi Arabia.
• The rapid change and growth of retail outlets means consumers are moving away from the small, local shops into large shopping centres and hypermarkets. There are now more than 250 Western-style supermarkets in Saudi Arabia with the number increasing. The largest chain supermarket company is Al Azizia Panda-United Ltd that operates more than 50 branches throughout the country. 
• More than 50 per cent of the national population is under 17 years, with an annual population growth rate of 3.5 per cent. Increasingly the purchasing patterns of this group resemble that of their Western counterparts.

Opportunities

Saudi Arabia's population is expected to double over the next 20 years making the country one of the Middle East's most promising in terms of size and buying power. This rapidly increasing population combined with developments in the buying habits of the Saudi people stands to generate good opportunities for food manufacturers, especially in the food processing industry. There also exists demand for machinery that serves the food-packaging sector.

Opportunities for Australian exporters in the Saudi food industry exist in specific segments according to Australia’s capabilities and the market demand:

• Meat – lamb (chilled and frozen), mutton, beef; and abattoir technology and equipment
• Dairy – milk powder, butter (bulk), cheese (canned and powder), ghee products; and technology and expertise in dairy, milk and cheese industries
• Fresh fruits and vegetables –mangoes, nectarines, kiwi fruit, stone fruits, carrots, celery, broccoli; and technology and expertise in food processing industry
• Confectionary – natural ingredients and health products, chocolate, macadamia nuts
• Honey and bees – honey (bulk and retail), bees; and bee breeding technology and expertise
• Processed food products – canned fruits and vegetables, juices, pastas and biscuits; and technology and expertise in food processing industry
• Bulk food materials – faba beans, chick-peas, corn, etc.

Competitive environment

The increasingly internationalised Saudi consumers continue to demand a wider range of internationally-branded products in greater variety with higher levels of sophistication that will always compete successfully with locally made goods. Some imported goods have gained immediate consumer recognition as quality products. International brand names such as Kraft and Sunwhite have attained this status.

Many of the commodity exporters who pioneered Australia's presence in the Saudi market in the 1970s continue to be key players there. Maintenance of market share, however, cannot be taken for granted. The Saudi agribusiness market is very competitive and suppliers need to be pro-active.

Tariffs, regulations and customs

The import custom duty on agricultural and food products is five per cent and all goods imported into Saudi Arabia must have the following documents:

• Notarised certificate of origin authenticated at the Saudi diplomatic missions and local chamber of commerce
• Similarly authenticated invoice (in triplicate) stating the country of origin, name of the carrier, brand and number of goods, along with a description including weight and value
• Packing list
• Bill of lading
• Documents indicating compliance with health regulations (eg. phytosanitary, dioxin free, if applicable)
• Insurance documents if shipments are sent CIF
• Radiation-free certificate, if applicable. This certificate can be obtained from Australian Arab Chamber of Commerce and Industries (AACCI)

Saudi Arabia imposes a ban on all types of pig-based substances. This includes substances used in the manufacture of food products or in additional flavours, toppings, crème, nuts, almonds, etc. If a shipment is tested at the destination port in Saudi Arabia and pig-related substances are found, it will be destroyed at the cost of the importer or manufacturer.

It’s also important to ensure that no alcohol, even the lowest percentage, is included in any food substance to be shipped to Saudi Arabia. Designs that incorporate human and animal shapes are not allowed to enter into Saudi Arabia. Although the Saudi authorities turn a blind eye to some shaped products in the market, the law could be applied at any time and the products will be impounded and/or destroyed. Imports from Israel are not permitted under Arab Boycott rules.

All imports are subjected to a rigorous customs examination. This applies equally to containerised cargoes whether by air or by sea. It should be noted that customs accept no responsibility for damage, delay, or losses.

Industry standards

The Saudi Arabian Standards Organisation (SASO) is responsible for establishing labelling guidelines and these are strictly enforced (particularly for halal products – animals slaughtered in the ritual way prescribed by Islamic law).

Only Saudi companies can obtain an import licence. Companies that import goods or practise as commercial agencies must be registered with the Ministry of Commerce and one of the Saudi Chambers of Commerce and Industry. Local law gives considerable protection to Saudi agents in the event of a dispute.

Saudi Arabia has the most exhaustive and detailed labelling requirements in the region. Food labels must contain:

• Product and brand names
• Production and expiry dates
• Country of origin
• Manufacturer's name
• Net weight in metric units
• List of ingredients and additives, in descending order of proportion
• All fats and oils used as ingredients must be specifically identified on the original label

Arabic language must be present on declarations and consumer instructions concerning the storage, preparation and other special handling requirements. Saudi regulations do, however, permit suppliers to place a sticker on their labels instead of having to produce a bilingual label. The stickers translate key ingredient information about the product in Arabic.

Saudi quality control laboratories at ports of entry may reject products entering Saudi Arabia that are in violation of existing laws. Random samples collected on all meat and poultry products entering the country are examined for salmonellae, E. coli, and volatile nitrogen.

Products arriving at port with less than 50 per cent of the time remaining between production and expiration date will be rejected. Saudi Arabia bans the importation of any genetically modified foodstuffs (GMF). The ban also includes any foodstuffs that contain ingredients that are genetically modified.

Marketing your products and services

Market entry

Essentially, Saudi Arabia has an open trading environment. A company may do business in Saudi Arabia in a variety of ways, from informal contractual relationships to forming a Saudi Arabian company. The best option will depend on the type of business, the duration of the involvement, and the nature of the transactions.

Direct export, the simplest form of doing business, generally allows for the sale of goods directly to Saudi Arabian customers provided the goods meet health and safety standards.  However, most companies employ a local Saudi agent to sell their goods effectively or to facilitate local business transactions. The choice of a local agent should be approached methodically - terminating or changing agents can be a difficult process.

The structure of the market is common to most free-market countries. The importers purchase from foreign companies and wholesale in traditional markets (souks) to retailers or directly to consumers. It’s essential to make personal visits to the market to fully scope and evaluate opportunities, become known to end users and decision makers, and to initially short-list potential local representatives.

Advanced advertising and promotion via television, print media and in-store promotions have made Saudi consumers more price, quality and nutrition conscious. They also seek out good value for money but will pay extra for quality.

Critical factors for success

In Saudi Arabia all wholesale and retail trade is reserved exclusively for Saudi nationals and entities wholly owned (100 per cent) by Saudi nationals. Although an Australian exporter can sell products in Saudi Arabia to end users via direct offshore sales – where the Australian company ships goods to a Saudi port of entry – the most common form of market entry is through an authorised Saudi representative or agent registered in Saudi Arabia.

Sales of goods offshore, where title passes before entry into Saudi Arabia, doesn’t render the Australian exporter liable for Saudi taxes. The exporter is not deemed to be doing business in Saudi Arabia. This is another reason why the exporter should not interfere with the ‘independent judgement’ of the agent or distributor there.

Saudi Arabia has an extensive set of legislation that governs the terms and conditions of agency agreements. Commercial agents may be an agent and/or distributor or franchisee. The Australian legal and commercial distinction between an agent and distributor is irrelevant in Saudi Arabia. The Ministry of Commerce (MOC) oversees the regulations governing Saudi commercial agencies. The agency regulations as they currently stand require Saudi commercial agents to register their commercial agency agreements with the MOC. Failure to do so can result in a fine.

Getting paid is a critical business issue in Saudi Arabia. Austrade advises clients to obtain payment from Saudi customers only by confirmed letter of credit or advance payment. If the agent insists on credit terms, this can be handled through a usance of up to 180 days after receipt of the necessary documents. As interest is not enforceable under Islamic Shari’a Law (regardless of the contract document), a Saudi agent has no incentive to pay on time - and often won’t.

Some exporters have sought to circumvent the Commercial Agencies Regulations by owning a business under the cover of a Saudi national in exchange for a set fee or percentage of the business. This commercial practice is expressly outlawed by the harbouring regulations. Any company or individual to be involved in this will face fines, imprisonment, and deportation.

Distribution channels

All imports into Saudi Arabia must pass through a Saudi agent/distributor registered with the Ministry of Commerce and Industry. Importers usually have their own storage facilities and handle all distribution, servicing the three major trade and business cities, Riyadh, Jeddah, and Dammam.

Importers may also have their own retail outlets, showrooms, and internal distribution operations within these cities. Most of Saudi Arabia's large importers/distributors of food have their headquarters in Jeddah. More than 80 per cent of food imports come through the Jeddah Islamic Port, the largest in the Middle East.

Saudi importers are constantly looking for a wider range of products and are demanding more support from the supplier for promotion and advertising. Distributors are routinely charged rent by supermarket executives for gondola space to introduce and test new products. The gross margins charged by supermarkets range from 10–35 per cent, depending on how sophisticated and modern the stores are.

Links and industry contacts

Government, business and trade resources for Saudi Arabia

Council of Saudi Chambers of Commerce & Industry - www.saudichambers.org.sa
Riyadh Chamber of Commerce and Industry – www.riyadhchamber.org.sa
ArabNet - www.arab.net

Jeddah Chamber of Commerce & Industry
P. O. Box 1264
Jeddah 21431
Saudi Arabia
Tel: (966 2) 651 5111
Fax: (966 2) 651 1698

Service providers

Saudi Arabian Standards Organisation (SASO) - www.saso.org.sa
Namma Cargo Services Ltd - www.nammacargo.com

Media

Arab News - www.arabnews.com
The Saudi Times - www.sauditimes.com
Middle East Food Magazine - www.chatilapublishing.com