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Pt 2: Saudi Arabia ended its domestic wheat production program that lasted for more than three decades

By AgroChart, March 2016

Barley

Production:

The Saudi government terminated its domestic barley production program in 2003, bringing an end two decades of domestic production of feed barley. Local Saudi barley production is currently estimated at about 15,000 MT, and is mostly for human consumption.

The government has stopped feed barley production in order to conserve scarce water resources, as the Saudi barley crop is 100 percent irrigated.

Consumption:

Domestic barley consumption for MY 2015/16 is projected to be in line with the USDA's estimate of 8.5 MMT, up five percent compared consumption in MY2014/15.

This increase is due to a strong demand for barley as a result of poor pastures conditions caused by inadequate rainfalls this winter season and the continuation of the Saudi government's subsidy on imported barley, which makes barley very price competitive with other feed alternatives. When it is readily available, barley is often used by livestock farmers in the place of forage.

For MY2016/17, barley consumption is forecast to remain strong due to expected reduction in local green forage production, with expectation that the MOA will start implementing its decree to phase-out forage cultivation in Saudi Arabia.

Livestock growers switch to barley when prices of green forage are relatively higher. In the longer term, barley consumption in Saudi Arabia will depend on the level of government subsidy as well as barley price competitiveness compared to other feed grain substitutes, such as processed feed, feed-wheat, corn or sorghum.

Traditionally, white barley has been the preferred animal feed for domestic Bedouins and approximately 80 percent of imported barley is used in feeding sheep, camels, and goats.

Bedouins feed raw barley to their livestock with a large percentage being wasted. The MOA reports that more than 30 percent of the raw barley fed to livestock is discharged without being digested, thereby providing no benefit in terms of weight gain or nutrition to the animals.

For the past several years, the Saudi government has been subsidizing the imports of 31 feed grains and feed ingredients to encourage increased local processed feed production to offer domestic livestock farmers with adequate quantities of more nutritional processed feed formulas at competitive prices.

This, the MOA says, will significantly reduce the country's dependence on large quantities of imported feed barley. The MOA points out that livestock use of more feed concentrates, mixed with barley, are necessary to reduce barley wastage, increase weight gain and reduce production costs.

Various government supports to the domestic feed processors have helping in increased supplies of compound feeds at competitive prices.

The Arabian Agricultural Services Company (ARASCO), the largest Saudi animal feed processor, has kept its wholesale price of the 50 kg-bag of “Wafi" compound feed at ex-factory price of $9.07, which is equal to the price that the Saudi government charges for unprocessed barley of the same weight.

Historically, the demand for barley has fluctuated based on its price compared to the prices of processed compound feed and green forage.

Several domestic feed processors are currently expanding their production facilities to increase compound feed output in the next few years.

ARASCO, the country's leading feed processor, will increase its processed feed output from an estimated production of 650,000 MT in 2014 to about 3 MMT by the end of 2016 given a kilo of Wafi compound feed replaces 1.5 kilos of grain barley, ARASCO's expected 2.35 MMT of additional compound feed production is expected to decrease barley imports by 3.325 MMT if the company achieves full production as planned.

The local barley production, which is estimated at 10,000 MT, is mostly used in preparing specialty food items such as soups and some traditional Saudi dishes during the fasting month of Ramadan.

Barley is also used in bread making and/or mixed with whole wheat flour. Currently, local food barley is sold for $1.87 per kilogram in small neighborhood shops and flour mills.

Trade:

Exporting countries' trade data shows that during the first six months of MY2015/16 (July-Dec 2015), Saudi barley imports totaled 5.6 MMT, an increase of more than 7 percent over the same period in MY2014/15.

Trade contacts indicated that the Saudi Grain and Fodder Company (SGFCO), the exclusive barley importer in Saudi Arabia since 2011, purchased 3 MMT of barley at the end of 2015 for February-April arrivals.

Most of this quantity was reportedly purchased from the black-sea countries.

The demand for barley is stronger this year due to poor pasture conditions caused by inadequate rainfalls this winter season, as well as to the continuation of the Saudi government subsidy on imported barley, which makes barley very price competitive with other feed alternatives.

Post projects that in MY2015/16 total Saudi barley imports would be around 8.5 MMT, about four percent higher than imports in MY2014/15 and similar to USDA's official estimate.

Traditionally, demand for feed barley increases sharply when the prices of green forage are high. The Saudi government's recent announcement to terminate domestic green forage production by 2019 should drastically increase barley imports, provided that the government will continue to subsidize barley imports.

During the first six months of MY2015/16, Ukraine was the leading exporter of barley to Saudi Arabia, with 2,120,400 MT and accounting for 38 percent of total barley imports.

However, the Ukrainian exports were about 14 percent lower compared with levels in the same period in MY2014/15. Russia was the second leading exporter with 34 percent, followed by Romania with 10 percent and Germany at 6 percent.

While all suppliers gained significantly in the first six months of MY2015/16, Australia, traditionally a major feed barley exporter, was absent from the Saudi barley markets this year. The U.S. did not export any barley to Saudi Arabia in the last two years.




In MY2014/15, Ukraine remained the leading barley supplier to Saudi Arabia, with 34 percent market share, followed closely by Russia with 33 percent and then by Germany as a distant third with 13 percent. In MY2014/15, Saudi barley imports from Ukraine, Russia and Germany increased by 72 percent, 81 percent and 13 percent, respectively, when compared to its imports in the previous marketing year.

While Australian barley exports were absent from the Saudi market in MY2014/15, Argentinian and French exports declined by about 95 percent and 89 percent, respectively, during this year compared with MY2013/14.

It is worth mentioning that U.S. barley exports have been absent from the Saudi market for the past three years.



It should be noted that ever since the Saudi Ministry of Finance (MOF) started controlling barley imports in 2011, by granting a market monopoly to the Saudi Grain and Fodder Company (SGFC) to import and distribute barley shipments, information on actual barley imports and stock levels has not been readily available.

Stocks:

SGFC does not release data on Saudi strategic barley data. However, it is estimated at more than 30 percent of the total consumption.

Policy:

The MOA has an ambitious policy that aims at reducing the Kingdom's barley imports to 1.5 MMT by 2020. The MOA says by 2020, imported barley will be used only as an ingredient to produce compound feed, and will not be offered for direct livestock feeding.

To facilitate for the smooth implementation of the policy, the Saudi government has been encouraging the establishments of animal feed processing companies and the expansion of existing ones in order to drastically increase compound feed production to offer domestic livestock farmers with adequate quantities of more nutritional and alternative processed feed formulas at competitive prices.

The government offers prospective investors with various incentives which include, long term interest free loans and import subsides on 31 feed grains and feed ingredients.

The current list of animal feed products eligible for import subsidy includes, yellow corn, soybean meal, distillers dried grain with soluble (DDGS), corn-gluten feed (CGF) and sorghum, barley straw, sunflower meal, sugar cane molasses, alfalfa hay and rice hulls.

The subsidy rates are calculated according to energy and protein contents of each feed ingredient, and the levels of subsidies have been recently modified.

Import subsidies on 48 percent protein soybean meal and corn are $137 and $82 per MT, respectively, while the import subsidy on sugar cane molasses is $33 per MT, $99 per MT for DDGS and $91 per MT for CGF.

Marketing:

Domestic Barley Price

Sufficient barley supplies have been readily available at competitive prices throughout the Kingdom. Currently, large livestock farmers and licensed wholesale barley distributors can purchase the 50 kg sack of barley at the packing facilities at the government set price of 36 Saudi Riyals (SAR) or about $9.6 per 50 kg.

The government allows the barley dealers to resell the 50 kg sack at a maximum retail price of 40 SAR ($10.6).

Barley Distribution Channels

Barley shipments usually arrive through five Saudi ports: Jeddah and Dammam (the first and second largest seaports in the country) in addition to three other smaller ports in Yanbu, Diba and Jazan on the Red Sea.

After the shipments are discharged at ports, they are transported by trucks to the nearest SGFC barley bagging facilities outside the port areas.

The bagged barley is usually picked up by the pre-assigned dealers or large end-users from the distribution centers under the direct supervision of Alshamil Company.


This content is provided by Global Grain Events for informational purposes only, and it reflects the market and industry conditions and presenter’s opinions and affiliations available at the time of the presentation.

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