Saudi Arabia's new grain supply policy
May 17, 2011
by Chris Lyddon
When you change your grain supply policy totally, you have to make the infrastructure fit the new policy. Saudi Arabia’s decision to switch to importing wheat from a long standing policy of self-sufficiency meant it was left with too little storage. Much of the storage there was in the wrong place. A massive program of investment aims to remedy the situation.
Saudi Arabia made the decision in 2007 to end its long-standing policy which, according to a recent attaché report, it had followed since the 1980s of self-sufficiency in wheat by 2016.
Saudi Arabia was achieving self-sufficiency by using fossil water from deep aquifers for central pivot irrigation.
“Wheat production places large demands on underground non-renewable aquifer water, resulting in an increasing imbalance between water recharge and water discharge,” the attaché said. “As a result, the underground water level in the aquifer has fallen in grain- and forage-producing regions.”
Klaus Velten, general manager of Buhler Saudi Arabia, explained the situation.
“Let’s go back some years ago when the Kingdom of Saudi Arabia basically was self-sufficient in their wheat supply. At that time they did not have any worry about their strategic wheat reserves and because they produced everything in the country,” he told World Grain. “And now, as they have changed their policy entirely because of the water situation, they started to really assess the situation and want to have a strategic supply almost of one year’s consumption. That’s plenty of wheat considering that probably very soon they will have cracked the three-million-tonnes-a-year mark.
“The most significant turning point and the trigger for this new massive investment program by the government really is the change in the policy when it comes to wheat. They have a lot of experts and consulting companies, specialized companies in water management. It was reported by those experts that if they keep going the way they have done until now, probably their water resources would last for another generation and then it’s pretty much dry. That prompted them to make a 180-degree turnaround and abandon the policy of being self-sufficient and to go back to import. Their entire planning, their entire investment planning and production planning was based on 100% local production.”
That change has triggered a major investment in new silos and harbor installations. Velten identified another element in the Saudi government’s thinking: increased population which would mean increased demand. He put population growth at a high of 3%, which would mean a requirement for new milling capacity every year.
Although Saudi wheat production rose in 2010 to reach 1.26 million tonnes, according to the U.S. Department of Agriculture attaché, up from 950,000 the year before, it is now well below the levels reached a few years ago. In 2005, Saudi wheat production was 2.65 million tonnes.
Wheat is an important part of the Saudi diet. “Wheat is the one of the most important staple grains in Saudi Arabia where most of it is consumed in the form of flat bread,” the attaché said. “Most of the modern domestic bakeries found in major cities of the country produce several types of European bread including French baguettes, hamburger buns and toast.”
The attaché predicted a 14% rise in imports in the 2011 marketing year to reach 2 million tonnes. “(The) Saudi government wants to increase wheat imports in MY2011 to maintain ending stocks at least at 50% of total domestic consumption,” the report said. It noted that since starting wheat imports in September 2008 Saudi Arabia has so far issued eight import tenders to import about 4.5 million tonnes of wheat. The largest of those tenders was issued on June 16, 2010 and allows the import of 990,000 tonnes of wheat by April 2011.
That means a total of 18 vessels, each carrying 55,000 tonnes of wheat, will go through the two major Saudi ports, Jeddah and Dammam from Oct. 20, 2010 to April 30, 2011, under this one tender.
The problem is that it has to go somewhere. The official Saudi Press Agency reported earlier this year that the country planned to double grain storage capacity to cover demand for a year.
According to that report, the Grain Silos and Flour Mills Organization plans to add wheat-storage capacity at ports in King Abdullah Economic City, Yanbu and Dhiba. Each addition would have a capacity of 120,000 tonnes.
The attaché said that the Grain Storage and Flour Mills Organization has a plan to increase wheat storage capacity to 3.5 million tonnes by 2016. Currently it operates 12 silo complexes in major cities with a total storage capacity of 2.52 million tonnes.
Velten explained that Saudi Arabia’s problem was not so much a shortage of storage as the fact that the storage is in the wrong place. “Yes, they have a lot of silos in the country but not so much on the coast,” he said. “So that’s why any additional capacity will have to be installed on the coast.
“I think this is now really strategically a very important task which the government pursues to have more port facilities at the coastline of Saudi Arabia.”
Storage in ports would enable Saudi Arabia to import large quantities and maintain stocks.
He suggested that half of the necessary 3 million tonnes of storage capacity was in place already, “probably not at the right place, because having been a wheat producer in your own country all those silos and elevators are distributed all over the country in farmland.”
“They certainly will need that because they will use it for their strategic stock, but they will have to have import facilities,” he said. “They have to improve their equipment and capacity to keep up with the demand.”
Velten explained how the Saudi Arabian wheat sector works.
“The entire wheat management is controlled by the government through the Ministry of Agriculture. Grain Silos and Flour Mills Organization, which operates under the Ministry of Agriculture, is responsible for the purchasing of wheat, for importing it and distributing it, and injecting the subsidy at the right point, and as of today, also for producing the flour. They are also responsible for distributing it, making it available to the people. All wheat elevators are operated by the Grain Silos and Flour Mills Organization.”
He pointed out that his company, Buhler, has been active in Saudi Arabia for many years.
“The first facility I think which was built by Buhler was in 1978 in Jeddah,” he said. “Since then, of course, we participate in all the tenders and projects, and I would assume that we have approximately now 65% share of the market when it comes to flour milling.”
Buhler is currently implementing two large projects for GSFMO.
“One is a new flour milling system — complete, turnkey. We’re building everything on an empty space which has a capacity of 1,200 tonnes a day. We have a second project which is the rehabilitation of an existing flour milling installation in premises in Jeddah. That new rehabilitated mill will also have a capacity of around 450 tonnes a day.” Updated storage needed
Bob Tatlow, sales manager for the Middle East at British processing equipment supplier Alvan Blanch, came up with some other reasons why Saudi Arabia needed more storage. But he also pointed out that the Saudi climate makes it relatively easy to keep grain outdoors, something which has meant limited pressure to make sure there was sufficient storage in ports.
“Historically, they’ve always done it as the proverbial grain mountain,” he said. “If you went to any of the importers there, they had a big yard and there was a big pile of grain stuck in the middle of it. That’s the way it’s always been.”
However, the danger of contamination by birds and rodents made improved storage facilities desirable.
“There are some big feed mills going in at the moment,” he said. “There are some big storage silos going in with those feed mills. There are importers looking to put portside terminals in, and so they are obviously reverting from just literally yards to storage as well.
“Other than obviously pigeons eating the grain, there’s no reason why you can’t store it outside because the climatic conditions are good. It’s just losses through moving it around by belts, buckets and pneumatics really.”
He identified another shift in government policy which has changed Saudi Arabia’s grain storage needs.
“Historically, the Saudi government has been subsidizing grain coming in,” Tatlow said. “Now they’re actually subsidizing it after it’s been processed.”
One reason for the change was that feeding barley direct, traditionally done on a large scale in Saudi Arabia, is not the most efficient way to use the grain.
“The government paid “x” amount of subsidy toward that and they were losing “x” amount of barley because it was not being digested by the animals,” he said. “In some ways, that’s a little bit of a waste. That’s why they are keen now just to subsidize the processed stuff.”
Saudi Arabia is the largest importer of barley in world. According to the attaché, in the 2009 marketing year total Saudi Arabian barley imports reached about 7.7 million tonnes. The government is promoting alternative feeds in a big way to bring down the total. “If anything, there is going to be a tendency for imported grain to be processed,” he said. “And if it is going to be processed, there are obviously two or three ways that you do that which is actually either flaking it or milling it, and putting it in some sort of ration in a pellet form.”
Processing is more efficient if you start with grain in silos.
“You can pull from the silos with mechanical handling straight into the processing plant,” he said. “That’s another reason why they’re starting to look at silos rather than just leaving it in big piles. In the old days, all that was actually happening, if you can imagine, was the big piles were in the yards. They had these big belt conveyors generating the piles, then they had big belt conveyors feeding the containers with bagging units underneath.”
It could mean a very simple layout, he said, “literally one belt conveyor feeding a big pile and another one being fed by a front-end loader straight into a container and about half a dozen guys loading 50-kg sacks,” he said. “That was a simple way of doing it. But, of course, now that they’re looking at processing for the subsidies it’s a different story.About the GSFMO
Grain Silos and Flour Mills Organization (GSFMO) has a prominent role in the achievement of the economic development in the Kingdom of Saudi Arabia and in the provision of citizens’ needs of staple food materials.
GSFMO was established by the Royal Decree issued on February 1972 within the framework which was prepared by the government.
Its main objectives are:
•to form an integral industry of grain storing, flour production and animal feed factories;
•to establish any other related food industries;
•to market its products inside and outside the Kingdom;
•purchasing grains and having the capacity of storing a suitable reserve to face emergency circumstances; and
•to meet the goals of the approved agricultural policy.
To achieve this, GSFMO said it has worked with well planned steps and with many successive stages until it became one of the basic forts of the Saudi economy in the area of securing and supporting the food security and it became a basic foundation for the food industry.
To learn more about the GSFMO, visit the company’s website at www.gsfmo.gov.sa
, which was recently launched.