Saudi Arabia has reintroduced domestic wheat production, despite concerns over water consumption for irrigation.
The International Grains Council (IGC) estimates Saudi Arabia’s 2019-20 wheat production at 700,000 tonnes, up from 500,000 tonnes in 2018-19, and zero the year before that. It puts 2019-20 sorghum production at an unchanged 200,000 tonnes.
The IGC forecasts Saudi Arabia’s total 2019-20 grains imports at 14.8 million tonnes, up from 13.7 million the year before. Imports of wheat are forecast at 2.9 million tonnes, down from 3.1 million the previous year. Imports of maize in 2019-20 are put at 5 million tonnes, up from 4 million tonnes. Barley imports are forecast at 6.9 million tonnes, up from 6.6 million the year before. Saudi Arabia also is expected to import an unchanged 1.4 million tonnes of rice in 2019-20.
The USDA attaché explained how the country’s wheat production has gone from zero to the current level.
“Saudi Arabia partiality rescinded a virtual ban on domestic production of wheat that had been in place for three years,” a report on the grains sector from April 2019 explained. “Wheat production is being permitted to provide medium- and smaller-size forage producers with an alternative field crop.”
A ban on wheat production had been imposed at the end of 2014-15 because of concern over the use of water.
“Many have been forced to cease forage production because of the Saudi government’s decision to reduce domestic forage production by 42.5% effective from Nov. 3, 2018,” the attaché said. “The main reason for the significant reduction in the Kingdom’s forage production is concern over the depletion of the country’s groundwater. Domestic wheat and forage production depends on 100% irrigation, but wheat uses much less water than alfalfa.”
According to the attaché, the Ministry of Environment, Water and Agriculture (MEWA) put forage production in 2015-16 at 10.75 million tonnes. MEWA was projecting 2018-19 forage output at 6.17 million tonnes.
“Under the new policy, farmers cultivating less than 100 hectares prior to the issuance of the decree in December 2016 are given the option of planting either wheat or forage only on 50 hectares,” the report said. “Farmers who opt to produce wheat or forage are required to obtain a farming permit from MEWA to plant the licensed crop two seasons before they are allowed to switch.”
Saudi Arabia is in the process of privatizing its flour milling industry, selling off the mills operated by the Saudi Grains Organization (SAGO, previously known as the Grain Silos and Flour Mills Organization) in the form of four milling companies. The flour mills involved have a total daily milling capacity of 12,630 tonnes (wheat equivalent) and process 3.3 million tonnes of wheat a year.
It was reported in April that Saudi Arabia-based AlRajhi Holding Group and Al Ghurair of Dubai were putting together a joint bid to acquire the four milling companies. Other reports have mentioned interest from ADM and Bunge.
The privatization is happening under a program approved by Saudi Arabia’s Council of Economic and Development Affairs.
The USDA attaché explained in a report published in April 2019 that the government had approved the establishment of four milling companies and restructured the Grain Silos and Flour Mills Organization (GSFMO) under a new name, the Saudi Grains Organization (SAGO) on Nov. 9, 2015.
“The Saudi government authorized the Public Investment Fund (PIF) to set up the four flour milling companies,” the report said. “The PIF has completed the required restructuring and formed the four companies, which have commenced operating independently. The four companies are named: First Mills Company, based in Jeddah; Second Mills Company, based in Riyadh; Third Mills Company, based in Khamis Mushit; and Fourth Mills Company headquartered in Dammam.
“The PIF has reportedly finalized required procedures to sell the mills to interested buyers through a competitive bidding process before the end of this year,” the report said. “Foreign investors are allowed to partner with Saudi investors to co-own and operate these flour mills. It was reported that foreign investors are allowed up to 49% ownership in the flour mills.”
The attaché explained that the new milling companies will be clients of SAGO.
“They will process and distribute wheat flour to government-approved customers at agreed subsidized prices,” the report said. “The new mills would be allowed, if they so choose, to import wheat for production of non-subsidized flour after obtaining import permits from SAGO.”
“Most of the revenue of the private mills is expected to come from the milling fees charged to SAGO,” the attaché said, putting the mills’ daily capacity at 14,000 tonnes.
After the privatization of the mills, SAGO will remain the sole importer of subsidized milling wheat and will retain ownership of most of the country’s wheat silos as well as managing strategic wheat reserves.
Growth in demand for wheat flour is limited because of the departure of expatriate workers, which the attaché said is because of policy measures put in place by the government.
Demand growth also is constrained by the increase in the cost of living in the Kingdom over the past couple of years due to sharp increases in utility charges, and the implementation of a 5% value added tax (VAT) in January 2018.
“These two factors have reportedly contributed to significantly reducing food waste, including bread and wheat flour wastage, which has been estimated at 30% nationwide,” the report said. “Preferences for other food alternatives such as imported pasta products, rice, as well as increased fruit and vegetables consumption, has been an additional factor.”
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 report said.
The average per capita consumption of wheat in Saudi Arabia is currently estimated at about 107 grams per day, or about 39 kg annually.
Most demand is for white flour, but there is small but growing demand for whole wheat flour because of perceived health benefits.
“It should be noted that Saudi Arabia has one of the highest diabetic and obesity rates in the world,” the attaché said.
Saudi Arabia traditionally has been a major importer of barley for feed. However, in a November 2019 report, the attaché noted that demand from the livestock sector has fallen, because of the availability of pasture due to heavy rain over the winter of 2018-19.
“The rains produced good pasture conditions that continued until July 2019,” the report said. “The free forage not only reduced demand for barley and hay, it also decreased demand for processed feed by about 20%.”
Further abundant rain was forecast for this year’s winter season.
No interest in biotech
Although Saudi Arabia has adopted regulations that allow the importation and planting of biotech seeds under strict conditions, Saudi farmers have not shown an interest in importing and planting biotech seeds, a separate attaché report from December 2018 said.
“Although the regulations allow the importation of biotech planting seeds, no Saudi companies have imported any,” the report said. “Even though Saudi Arabia began implementing agricultural biotech labeling in 2001, the labeling requirement has not affected imports of biotech agricultural products such as feed grains as all imported corn and soybean/soybean meal are for animal feed. However, no retail packed food products with positive biotech labeling have been imported into the Kingdom to date.”