Recent reports providing data on investments in the food and beverage (F&B) sector indicate its increasing importance to the Middle East’s economy. The growing demand for imported food and the rise in household income have coincided with an uptick in F&B private equity (PE) investments. Between 2010 and 2015, 10 of the 15 PE deals in the region, were F&B-related. In 2014, F&B ranked third in terms of value per investment among industries in the MENA.PE activity is influenced by larger government-led efforts to encourage private sector investment in non-oil sectors. The UAE is leading the Middle East’s movement towards a knowledge and innovation-based economy. As of 2015, non-oil sectors comprise two thirds of the UAE’s GDP. The country is the most economically diversified in the GCC.

Investing in agriculture is a must

One key risk driver for the F&B industry in the region is high dependence on food imports across countries, and the lack of investment in supply chain sustainability. In Saudi Arabia, imports represent 60 percent of the total food market, and Kuwait imports 100 percent of its food.

The Middle East as a whole is the world’s largest grain importer. Grains are the GCC’s most consumed food category, forecasted to represent 46.5 percent of food consumption by 2019. In fact, the price of grain is cited as one of the most important indicators of political turmoil.

While it is impossible for the region to produce the bulk of its consumption needs due to water and other resource constraints, smart production and supply chain innovation is still necessary to mitigate vulnerability to industry shocks. The region requires private sector investment at the bottom of agricultural supply chains where food is actually produced. The sector is also a development driver, and a source of livelihood for 70 percent of the region’s rural population.

Corporate investment is specifically critical to industry innovation. It brings smart capital, expert networks, consumer touch points, and sheer market reach that young companies often need to charter new ground. It is also the beginning of what could become a new regional M&A space down the line.

Corporates are slow to act

A 2016 Wamda report landscaping nascent corporate innovation programs in the region notes that the private sector, particularly corporates, can play a powerful role in industry disruption and innovation. It can create startup partnerships, investments, and other programs to fuel new business and technology growth.

Despite notable development in regional corporate innovation in telecommunications, media, and IT, corporates are still slow to act across industries.

59 percent of the funding of the Middle East-based startups launched in 2015 came from individual wealthy investors, startup activists, and NGOs. Just 15 percent were backed by regional corporates.Exacerbating this challenge are limited public policy frameworks to encourage corporate investment in entrepreneurship. Within an enabling policy framework, corporates have a risk-sharing partner, which is usually the government. Some countries, particularly in the GCC, have already taken note. For example, the Dubai Food Park, a government-driven initiative, is a $1.5 billion investment to make the Emirates a leading regional hub in the food sector. Public sector leadership in incentivizing local production has also contributed to the GCC’s dominance in the date palm sector.

How corporates can kick-start change

Large agriculture and F&B companies must do more to invest in innovation and sustainability along with supply chain. These recommendations are targeted to corporate executives who have already identified a few innovation priorities, and want to start implementing.

1. Where possible, work closely with the public sector to co-invest: Though the potential for this may vary between countries, corporates should utilize public partnerships for co-investment  and risk-sharing in infrastructure, programs, and policy that support startup growth. These engagements should be part of any corporate innovation strategy, and are particularly important in agriculture where risks and instability are high.

2. Don’t reinvent the wheel: there are successful corporate innovation programs around the world. Learn from the experiences of existing players and consider developing learning outposts in agriculture innovation hubs globally like Sonoma County, USA and Cambridge, England.

3. Encourage experimentation to build regional startup pipelines: agriculture is not the liveliest startup space, and you can’t invest in startups that don’t exist. Create R&D labs in-house or outside of your company to encourage experimentation that can lead to spin-offs and future investment pipelines. You can begin by exploring startup investment and partnership opportunities outside of the region with agricultural enterprises, investors, and technologists that are redefining the industry, while also identifying and engaging local talent. The industry needs to reach a critical mass of startup activity before significant regional investment can be created.

4. Show interest and presence: plug into startup ecosystems globally, connect with technologists, and show support for a diversity of entrepreneurial activity in the markets that impact your growth. Creating visibility and excitement about the vision and commitment of your brand will help you attract the best founders later on.

5. If you don’t know how to work with founders, find people who do: ideally this will be a mix of those with experience in the industry, but also those from outside of it. These team members and advisors will help build internal capacity for both executives and business unit leadership to work with entrepreneurs in a way that leads to meaningful business outcomes. These could be in new partnerships, investments, or other forms of collaboration. Buy-in and engagement from upper and mid-level management is critical to successfully operationalizing a corporate innovation strategy.

Whether it is the next big startup, or a major political upheaval, the region is a fertile ground for change. Innovation in these industries is not just important for business, it is critical for the livelihoods and security of our generation and the next.

Feature image via Pixabay.