Saudi Arabia has become a major importer of wheat and barley since abandoning plans in 2008 to become self-sufficient – as farming in the desert was draining scarce water supplies. Demand for wheat is expected to grow at an annual rate of 3.2 percent to reach 4.5 million tonnes by 2025. Due to the decreasing domestic agricultural production and strong domestic demand for food and feed, the country is encouraging agricultural investments abroad for products to be then imported. This initiative targets wheat, rice, barley, yellow maize, soybeans and green forage.
Home to an estimated 15.7% of the world’s proven oil reserves and the single largest economy in MENA, Saudi Arabia is a key player not only in the region, but also globally. Since its establishment in September 1932, the Kingdom has poured its considerable resources into a series of large-scale economic development, diversification and modernisation initiatives. In the last few years, Saudi Arabia has also attracted global attention for the momentum of its socio-economic transformation taking place under the auspices of the Vision 2030 development blueprint.
The Saudi Arabian economy is the largest in the Gulf region, and it is the only G-20 member country in the region. Saudi Arabia has an oil-based economy with petroleum accounting for approximately 62 percent of government revenues, 44 percent of GDP in 2016. In response to sustained low oil prices and realizing that a primary commodity-based economy is not sustainable, the Saudi Arabian Government (SAG) launched in 2016 a broad and ambitious socio-economic reform plan known as Vision 2030. The program is aimed at diversifying the economy, creating private sector jobs for a growing population, and placing government finances on a sounder footing.
Agriculture production growth was tremendous in 1980’s and 1990’s. Saudi Arabia amended its policies in 1980’s and became fifth largest wheat producer in the world. Saudi increased production of all the crops till 1990’s until they became a steady and continuous producer of cereals. However, Saudi Arabia is now a net importer of wheat, barley and other cereals since 2016. By using advanced technologies Saudi Arabia was able to increase their agriculture production up to a certain level but has to decrease production because of future water demands.
In light of the decreasing domestic agricultural production and strong domestic demand for food and feed, the country is encouraging agricultural investments abroad for products to be then imported. This initiative targets wheat, rice, barley, yellow maize, soybeans and green forage.
FOOD PROCESSING SECTOR GROWING
The Saudi food processing sector has been rapidly growing due to government support of food processers, rising per capita income and major demographic and socio-economic changes. These factors have supported an increase in the number of Saudi food processing companies, from 691 firms in 2005 to 938 firms in 2016. Investment in this reached $23 billion in 2016. Attractive investment conditions have lured some multinational corporations to establish production facilities in Saudi Arabia. Most Saudi food manufacturers depend on imports to secure their needs of food ingredients and raw materials. In 2016, Saudi Arabia imported about $2.345 billion worth of food ingredients for further processing. All food products, including wheat flour, bread and rice, are levied a five percent value added tax, which was implemented for the first time in the Kingdom in January 2018.
SAGO: THE EXCLUSIVE
WHEAT FLOUR MILLER IN SAUDI
Formerly known as Grain Silos and Flour Mills Organization, Saudi Arabia Grains Organization (SAGO) is a Saudi government agency with exclusive authority to purchase food wheat, and mill and distribute wheat flour in Saudi Arabia. The agency imports wheat directly from the international market through public tenders. The organization mills wheat and sells wheat flour domestically to bakeries, industrial users and supermarkets according to their needs at a highly subsidized rate. The company offers wheat flour and its derivatives, as well as animal feed, at very low prices. SAGO has nine mills in major regions of the Kingdom. Its buying activity jumped in the late 2000s after it started to wind down domestic wheat production which relied on a costly irrigation programme.
SAGO SELLING FOUR STATE MILLS
As a part of a wide-reaching overhaul of its economy, Saudi’s state grain buyer SAGO is selling four mills. The sale of Saudi’s flour milling sector has drawn interest from some of the world’s largest agribusiness firms. Archer Daniels Midland and Bunge – two of the world’s four biggest agribusiness firms – are among several international companies that have previously expressed interest in bidding for SAGO’s assets as part of consortiums. The new milling companies will be clients of SAGO. These flour mills have a combined daily milling capacity of 14,000 MT. the government does not want to relinquish total control of wheat silos, deeming these to be strategic to ensure food security objectives, but to privatize only a small portion of the grain silos.
SAGO also has been making plans to increase the number of Saudi seaports that can receive imported wheat to five in the next few years by adding three smaller seaports in Diba, Jazan and Yanbu (all located on the Red Sea).
Saudi Arabia consumes more than 2.7 million tons of wheat flour and its derivatives annually, according to estimates by SAGO. The Makkah region tops in demand for flour with 28 percent of the total, followed by Riyadh with 24 percent. Wheat is mostly consumed in the form of flat (pita) bread or local hamburger buns known as ‘Samoli’ and other western-style bread, such as French baguettes and pizza. The average per capita consumption of wheat in Saudi Arabia is currently estimated at 40 kg annually.
White flour constitutes the bulk of wheat flour consumed in Saudi Arabia. In recent years, however, there has been a small but growing demand for whole wheat flour due to its perceived health benefits. It should be noted that Saudi Arabia has one of the highest diabetic and obesity rates in the world. SAGO has increased its whole wheat production in recent years to meet the growing demand.
WHEAT PRODUCTION TERMINATED IN 2016
Saudi Arabia, the world’s largest importer of barley, ranks in the top 20 for wheat. The country completely terminated its wheat cultivation in 2016 by gradually reducing wheat production quotas and purchase programmes for registered farmers. A small wheat crop of no more than 10000 tonnes for traditional specialty bakery products prevails. Farmers of phased-out crops are encouraged to engage in alternative sustainable production activities such as greenhouse farming or production of fruits and vegetables using advanced drip irrigation techniques.
Here is some detail from USDA’s the Saudi Arabia Grain and Feed Annual 2018 report: Total Saudi wheat consumption in MY2016/17 is estimated at 3.550 million MT based on data provided by SAGO. Official data shows that the Kingdom consumed 2.6 million MT of wheat flour in MY2016/2017. Total wheat consumption is projected to decline over the next couple of years due to the likely departure of hundreds of thousands of expatriates.
Saudi Arabia imported about 3.633 MMT of milling wheat in MY2016/17, an increase of 27 percent compared to imports in MY2015/16. The main reason for the increased wheat imports is the need to maintain strategic wheat reserves of 8 months of consumption. Maintaining strategic wheat reserves at 8 months of consumption is a government policy, as the country depends entirely on wheat imports to meet local wheat consumption demand. SAGO owns and operates silo complexes in major cities around the Kingdom. The organization had total combined storage capacity of 3.23 MMT at the end of 2017, an increase of 70 percent over 2011. SAGO has signed contracts to build five additional silos in Mecca, Qassim, Jazan, Aseer, and al-Hasa, which will increase the total storage capacity to 3.7 MMT by the end of 2019.
Post estimates total Saudi wheat imports for MY 2017/18 at 3.258 million MT. In the first six months of MY2017/18, Lithuania was the top exporter of wheat to Saudi Arabia with 518,781 MT, accounting for 34 percent of the total Saudi wheat imports. Latvia was the second-largest exporter with 26.5 percent, and Germany was the third-largest supplier with 23.7 percent.
Saudi barley production is estimated at approximately 10,000 MT, and is mostly for human consumption. The government has stopped feed barley production to conserve scarce water resources, as the Saudi barley crop is 100 percent irrigated. Imported barley is used for animal feed. Domestic feed barley consumption in 2017/2018 is forecast to decline by about 14 percent to 8 million MT. Barley consumption is forecast to decline by another six percent in MY2018/19 compared to MY2017/18. The continued drop in consumption is mainly due to increased utilization of competitively priced processed animal feed products. Saudi Arabia’s barley imports for MY2017/18 are estimated at 7.8 million MT. The Saudi government has been encouraging the use of processed feed instead of raw barley with the aim to reduce barley imports by 1.5 million tonnes by 2020.
A MAJOR PLAYER IN THE GLOBAL CORN MARKET
Corn production is very limited in Saudi Arabia. Approximately 80,000 MT are produced for human consumption annually. Domestic dairy farmers plant a significant acreage of corn silage as digestible fiber and readily fermentable energy for their cattle. In MY2017/18, total corn consumption was estimated at about 4 million MT. Consumption in MY2018/19 is projected to increase by about 12 percent, to 4.45 million MT. Imported corn is primarily used for producing animal feed.
The continued decline in the Saudi barley imports and the expected drastic reduction in domestic green forage production will increase the demand for feed corn for the next few years. Corn continues to be a very important feed grain for poultry farms; it accounts for approximately 60 percent of feed ingredients used in poultry feed formulations.
Saudi corn imports in MY 2016/17 reached 3.42 million MT, an increase of 88 percent compared to 1.815 million MT imported in MY 2012/2013. As the domestic feed processing and domestic poultry farms continue to expand, Saudi Arabia will become a major player in the global corn market. MY2018/19 total Saudi corn import is projected to reach 4.4 million MT, an increase of about 29 percent.
While wheat and barley are exclusively imported by SAGO, feed corn is imported freely by the private sector in Saudi Arabia, with no import duties. In addition, the government encourages corn imports by providing an import subsidy of $82.40 per MT to importers.
RICE IS A STAPLE FOOD IN SAUDI ARABIA
There is no rice production in Saudi Arabia; the country relies on imports to satisfy the local market. Rice is a staple food in Saudi Arabia that is served for lunch and dinner. The majority of Saudis include rice as a major part of their daily diet. Saudi Arabia’s rice per capita consumption is estimated at 35 kg/year. For MY2017/18, total rice consumption is estimated at 1 million MT. Total rice consumption is expected to increase by about 2 percent to 1.1 million in MY 2018/19. Basmati is the most popular rice variety in the Saudi market.
Private companies freely import rice into Saudi Arabia. They are not assessed a duty, but no import subsidy is provided. MY 2017/18 rice imports are estimated at 1.05 million MT and post projects MY2018/19 imports at 1.1 million MT. India remains the dominant rice supplier to the Saudi market. It controlled approximately 74 percent of the market.