Dubai: UAE’s food and beverage producers need to have a greater say on how retailers set margins on their products. Because right now, the relationship between F&B brand owners and retailers is an unequal one, according to the head of the UAE F&B Manufacturers Group.
If such a situation continues for longer, this would have a detrimental impact on smaller F&B producers.
“Retailers and manufacturers must have an equitable way of sharing margins - commensurate with the extent of risks and value being created by each,” said Saleh Lootah, who heads the industry group. “There is a disparity now in this regard, and it must be addressed for a strong and sustainable value chain.
“Today, the manufacturers bear the onus of ensuring food availability through their large-scale investments in plants, machinery and the cost of raw materials and labour. We are not in competition with the retail sector - they complete the value chain.
“What is needed is that manufacturers are given assurance on the margins, after which the retailers have the freedom to price according to what they feel is acceptable to the customers.
“We are not calling for equal or more shares of the margins. Our concern and priority is for the manufacturers to be given an assurance on the margins so they can stay in business.”
Touch and go
That F&B producers need all the help they can get is clear. Because there are ceilings on the price they can set on food and dairy staples, these manufacturers will need a slightly higher share of the profit margin. For many, their very existence depends on that.
Costs have shot up all over the place in the F&B industry – Lootah lists out the sort of increases they have to deal with.
“Raw material prices have increased 40-50 per cent, while freight charges have gone up 175-200 per cent,” he said. “Packaging costs have spiked by an average 45 per cent and the cost of labour by about 30 per cent.
“These prices are not going to reduce in the foreseeable future, which means, the industry needs urgent cost rationalisation support, without which the UAE manufacturers could see their products becoming less competitive.”
“Many F&B manufacturers are not equipped to withstand the multiple pressures they face already. With eroding profits and high costs, the outlook is not positive. There has to be urgent measures to support the manufacturers, who are the lifeline of the food value chain.”
High priority sector
The UAE has assigned local food production and food security at the highest priority, more so after the COVID-19 strike showed how vulnerable global supply chains are to external shocks. More areas are coming under farming in the UAE, retailers are encouraging intake of organic and locally produced fresh fruits and vegetables, and ‘agritech’ startups are getting a lot of attention.
But equal care will need to be given to F&B producer interests, says Lootah.
Can banks and other lenders help out by easing some of the producers’ obligations? “We will be looking at engaging with the government to enable a favourable environment for the manufacturing sector to grow, and ensure that the best products reach customers at optimal prices,” he added. “The banks can support this and in turn support the consumers and the manufacturing value chain of the F&B sector.”