Bahrain Food and Drink Report Q4 2009

Bahrain has replaced the UAE at the top of BMI's regional Food & Drink Business Environment Ratings table for Q409. Despite its small population, the kingdom provides investors with one of the Gulf region's most upbeat per capita food consumption growth outlooks and an attractive investor-friendly regulatory environment. On the economic front, BMI expects Bahrain's GDP to contract by 0.12% in 2009, a fairly upbeat appraisal in view of our forecast that global output will decline by 2.3% this year. While the global downturn has affected the near-term outlooks of many multinational food companies, resilient and brandloyal consumers across the Gulf region have provided respite to companies like Fonterra and Kraft Food as discussed in BMI's recently published Bahrain Food & Drink Report for Q409.

Earlier this quarter, the New Zealand-based dairy giant Fonterra announced that it expects the Middle East region, specifically the wealthy Gulf region to be a key long-term growth market. The firm has reported double digit regional turnover growth in each of the last three years. Despite the downturn, the firm has correctly interpreted that rather than trade down to cheaper brands, most consumers (including those in Bahrain) have instead preferred to make savings by purchasing smaller sizes of Fonterra's valueadded brands, which has kept up volume sales. With further investment pending, the firm will be encouraged by BMI's forecast that through to 2013, food consumption in Bahrain will increase by 25.5% and reach BHD172mn (US$457mn).

US-based Kraft Food's bases its regional operations out of Bahrain. A dedicated regional manufacturing hub will allow Kraft to more efficiently tailor its products to the preferences of consumers. Similar to Fonterra, its regional business has performed well in 2009. Earlier this quarter, it reported a 12% year-onyear (y-o-y) increase in revenue in Q109 across its emerging markets with the Middle East and Africa region showing particular strength. With assets in the soft drinks industry through its popular tang juice portfolio, Kraft is well placed to capitalise on BMI's forecast that between 2009 and 2013, soft drinks value sale will increase by 20.6% and reach BHD35mn.

Although Bahrain does not provide the premiumisation potential of the UAE, Kuwait or Qatar, or the volume potential of Saudi Arabia, BMI's encouraging food consumption growth forecast and our bullish assessment of its regulatory assessment should ensure it continues to attract the attention of major players like Fonterra and Kraft.