A new Indian-Saudi joint venture is building a rice distribution hub in Dubai to link Indian production to consumers in the Middle East, as the company seeks to tap into Gulf concerns over the security of food supply.
Innovo Speciality Foods, a joint venture between Indian entrepreneur V Raman Kumar and Saudi Prince Mishaal bin Abdullah bin Turki Al Saud, is investing Dh100m ($27m) in a storage, processing and packaging finishing facility in Jebel Ali free zone that is expected to reach a capacity of 100,000 tonnes of basmati rice this year.
Innovo will also lend $100m to its production partner, Lakshmi Energy and Foods, to fund capital costs and expansion of its large milling facility near Chandigarh.
Mr Kumar, who sold his healthcare technology business to private equity in 2012, said securing supply for a region known for its heavy consumption of rice was both a commercial proposition as well as a strategic move to serve the Gulf states’ food security needs.
“Food between the Gulf and India is going to be a big deal over the next 10 years, so it is strategically important to be in that business,” he said, with investment in the Gulf rather than India attractive thanks to a lower cost of capital.
The UAE, along with other Arab Gulf states such as Saudi Arabia and Qatar, has been investing in overseas farm land and agricultural food producers as they seek to secure their populations against disruption in global commodities markets.
The Arab Gulf states import about 70 per cent of their food needs.
The UAE has only three months of stores of staple items. The Middle East consumes 4m tonnes of Indian and Pakistani basmati a year.
Iran is the largest consumer, with 2m tonnes a year, while Saudi Arabia has annual domestic demand of 1.4m tonnes and the UAE accounts for about 500,000 tonnes a year.
Mr Kumar said customer demand was strong as Innovo sought this year to sell 100,000 tonnes of rice into the Arab Gulf states and another 50,000 tonnes to Iran.
To comply with global sanctions on Iran, Indian rice imports to the Islamic republic are conducted on a swap basis for crude sold to India.
Mr Kumar said he hoped to export more rice to Iran from the Dubai facilities if sanctions were dropped as diplomacy over the Islamic republic’s nuclear programme made progress.
The company also hopes to raise turnover to $500m as it doubles sales to 300,000 tonnes over the next three years.
But Innovo faces competition from large Indian rice company KRBL and Abu Dhabi’s Al Dahra Agriculture, which last year took a 20 per cent stake in Kohinoor, another Indian rice miller.
Mr Kumar’s partner, Prince Mishaal, will aim to secure Saudi government interest in expanding the rice hub concept to the oil-rich kingdom, as well as Innovo’s future plans to expand into other staples, such as sugar and edible oils.
“Food security projects really should be public-private partnerships,” said Mr Kumar. “We hope to show that our model works and seek to partner with Abu Dhabi and Saudi Arabia.”