Rethinking the Agricultural Sector after the Pandemic

Here are the key challenges that small agricultural businesses in the United Arab Emirates are facing due to the COVID-19 pandemic and how the government can help

The COVID-19 pandemic has posed both challenges and benefits to the global agricultural sector. In countries such as the UAE, agricultural products are heavily imported. The pandemic accelerated local farming as the speed of product turnover became crucial with the increased demand. According to the World Bank (1), agriculture accounted for 3.078$ billion in revenue in 2019 and is predicted to grow at a compound annual growth rate of 1.55% in the 2020-2024 period.

*Predicted. Source: World Bank, Statista

Nevertheless, as a newly tapped market, the UAE agricultural sector is facing a lot of difficulties. The agricultural ecosystem is still developing, causing small businesses problems with low customer education levels, little prior knowledge plus shortages in talents, supplies, and research.

As the pandemic is causing uncertainties in economics, regulations, and customer behavior it is also generating additional profound obstacles and changes.

This article will explore three fundamental challenges attributable to the pandemic for small UAE agricultural businesses, originally discussed in the Lockdown Economy interview with Nikita Patel, the founder of Oasis Green, a hydroponics vertical farm in Dubai (2). For each of these challenges, a call to action to provide assistance is issued for the national government and international organizations. By managing these challenges decisively and responsively, the government could support the small and medium enterprises (SMEs) to survive this crisis and promote long-term economic growth.

Difficult pricing and positioning due to economic hardship

The pandemic has caused turbulence in the global economy comparable to the damage caused by the 2008 financial crisis. In the UAE, the GDP fell from $421 billion in 2019 to $354 billion in 2020 (3), a 16% decrease. The unemployment rate also doubled from 2.28% in 2019 to a staggering 5% in 2020 (4), reaching a 20 year all-time high.

Source: International Money Fund, Statista

The low purchasing power has made pricing difficult for the local farming businesses to ensure both consumer accessibility and profitability for sustainable growth. Moreover, due to UAE climate conditions, growing agricultural products locally is costly and technology-demanding. This causes the country to be highly dependent on imports. For this reason, the consumers generally perceive imported products to be superior to domestic ones, making it all the more difficult for local businesses to position themselves price-wise.

The call: Provide financial assistance and supply-side policies to local farming businesses

Many SMEs in the agriculture sector are forced to set non-premium pricing to compete with large organizations and increase accessibility to the end buyers. To ensure their ability to survive in these difficult times, the government could provide SMEs financial assistance, such as subsidies and low-interest rate loans. This would promote their growth while reducing the country’s reliance on imports.

In addition, the government should focus on building the agricultural ecosystem to establish a sustainable domestic agricultural community. To achieve this, non-financial supply-side policies are essential; easing regulations to decrease barriers of entry and sourcing talents from overseas. It could also promote agricultural research to find the best practices tailored to diverse UAE environments.

Changing consumer behaviors are making demand forecasts challenging

Different agricultural products have different life cycles and all take at least 30 days to grow. Consequently, demand forecasting has always been challenging in the agricultural sector. On top of that, the pandemic has also made irrevocable changes in consumer behaviors.

73% of UAE consumers shop online more since the onset of the pandemic and purchased more groceries online according to the study by Mastercard (5). Other trends such as the increase in health consciousness are also changing buying behaviors. Therefore, agricultural businesses will need to be more agile in adapting their supply methods by using different tools to better forecast demand.

In the business-to-business channels, there is a general shift in the demand structure, as less demand is coming from open markets and hospitality sectors. In addition, local farming businesses are seeing an increase in demand as their vendors want to ensure that their supply is consistent in terms of quality and pricing. These changes may pose further difficulties to demand forecasting in this new and growing sector.

The call: Impose regulations to control purchasing behaviours and reduce wastage

Inaccurate demand forecasts can lead to either food shortages or food waste. To prevent this, policymakers could promote the signing of off-take agreements, where the demand is pre-determined by both suppliers and buyers. By signing these agreements, the agricultural companies could grow a set amount of plants and ensure they would be sold to certain buyers.

On the other hand, the government should also react responsively to food-related crises. It should impose rules to ensure regular buying behaviours and reduce unnecessary hoardings. In this aspect, the UAE government has been showing great awareness and leadership, according to local business Oasis Green.

In-person marketing is impacted by lockdown restrictions

For small businesses, marketing is very important to enter the market and capture customers, especially in the early stages. However, during the pandemic, various levels of lockdown restrictions are imposed globally, making in-person marketing such as launch events difficult. The global marketing spending in 2020 was projected to be $712 billion in 2019 and turned out to be $691 billion (6), demonstrating the impact of the coronavirus outbreak.

For this reason, it is now more challenging for businesses to build a personal connection with customers. Many businesses have turned to digital means such as online advertisements and social media. The CMO survey’s results showed that social media spending has increased from 13.3% of the total marketing budgets in February 2020 to 23.2% in June 2020 (7), a dramatic 74% lift.

However, with the limited budget and size of small agricultural businesses, they will still need support from the government to truly create brand equity and continue to grow.

The call: Promote local farming through public channels

Besides financial assistance in marketing, the government could also focus on promoting local farming businesses through public channels such as Twitter, Instagram, and even through the news on national TV channels.

In addition, as previously mentioned, there is a low customer awareness in the UAE of locally produced food and consumers tend to prefer imported goods. To raise awareness of the benefits of local products, the government could try to host public events and exhibitions on local goods. Finally, it could also develop specific programs to increase customer awareness and promote local farming. For example, the City of Seattle has developed a Food Action Plan (8) which puts a strong emphasis on growing local food and strengthens the regional food economy.

Conclusion

The road to complete recovery from the COVID-19 pandemic is still long, and the agricultural sector will remain important, especially for countries like the UAE. Nevertheless, with governmental help, this booming sector will grow even faster and continue to create both social and economic values.

Written by Yat Wan Yvone Wo, a volunteer researcher at the Think Tank AlterContacts

Edited by Konstantinos Valtetsiotis

September 2021

In 2020 Think Tank AlterContacts launched the Lockdown Economy, an international non-profit grassroots social-economic and educational initiative to help small businesses and self-employed professionals overcome the challenges of the pandemic and reactivate the economy. It is registered by the United Nations as an Acceleration Action for SDG. From May 2020 until July 2021 we have been collecting insights from small business owners and self-employed professionals from different business sectors and countries to see how the COVID-19 pandemic affected their business, their life, and future. This article is based on the field research of the Lockdown Economy.

References

The World Bank, Agriculture, forestry, and fishing, value added (current US$) - United Arab Emirates. Available at: https://data.worldbank.org/indicator/NV.AGR.TOTL.CD?locations=AE
Think Tank AlterContacts, Lockdown Economy Initiative, Lockdown Economy UAE in a Hydroponics Vertical Farm with Nikita Patel. Available at: https://www.youtube.com/watch?v=zYU1PqMsGQA
Statista, United Arab Emirates: Gross domestic product (GDP) from 1986 to 2026. Available at: https://www.statista.com/statistics/297605/uae-gross-domestic-product/
Statista, United Arab Emirates: Unemployment rate from 1999 to 2020. Available at: https://www.statista.com/statistics/297778/uae-unemployment-rate/
Mastercard, 73% of UAE Consumers are Shopping More Online Since the Start of Pandemic, Reveals Mastercard Study. Available at: https://newsroom.mastercard.com/mea/press-releases/73-of-uae-consumers-are-shopping-more-online-since-the-start-of-pandemic-reveals-mastercard-study/
Statista, Revised advertising spending worldwide in light of the coronavirus outbreak from 2019 to 2024. Available at: https://www.statista.com/statistics/1103992/impact-covid19-ad-spend-world/
The CMO Survey, The transformation of marketing: emerging digital, social, and political trends. Available at: https://cmosurvey.org/results/
Seattle gov, Food action plan. Available at: http://www.seattle.gov/environment/sustainable-communities/food-access/food-action-plan

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