April 16, 2013

 

Saudi Arabia to stop wheat production by 2016

 

 

As it planned to halt its wheat production, Saudi Arabia is most likely to totally depend on wheat imports by 2016.

 

This is according to Waleed El-Khereiji, head of Grains and Silos Flour Management Organisation (GSFMO).

 

Many foreign traders have been scrambling for deals in the Saudi market after the Kingdom decided to scrap its 30-year programme to boost local wheat output that had reached self-sufficiency.

 

Since 2008, the government started reducing wheat purchases from local farmers at an annual rate of 12.5%, an official from the agriculture ministry said. He said the Kingdom halted its wheat production programme to save underground water.

 

GSFMO's announcement confirms that Saudi Arabia is waiting to receive the first soft wheat consignments from overseas exporters. The announcement, issued by GSFMO last year, was considering turning to import soft wheat to meet the growing demand from biscuit and other sweet food makers.

 

"In the past year, Saudi Arabia's local wheat accounted for SAR770 million (US$205 million), where the GSFMO received 770,000 tonnes of wheat from local farmers in Saudi Arabia at SAR1 (US$0.27) per kilogramme," said El-Khereiji.

 

He said, "2015 will be the last market year for local wheat production. We will be fully dependent on imported wheat from overseas destinations by 2016."

 

El-Khereiji said the quantity of wheat to be delivered this year from local farmers is estimated at 800,000 tonnes. Saudi Arabia's production of wheat is expected to decline by 9% in 2013 to reach one million tonnes compared to 2011-12.

 

To help the government achieve its plan, Saudi Arabia augments the reduction in domestic wheat output by importing from international markets. Also, the government is likely to maintain its guaranteed purchase price for domestic wheat producers at US$266.67 per tonne until 2016.

 

According to the US Department of Foreign Agriculture Services' reports, domestic wheat farmers receive a net payment of US$240 per tonne after a 5% deduction for zakat and another 5% deduction for foreign matters (impurity).

 

Wheat is one of the most important staple grains in Saudi Arabia where most of it is consumed in the form of pita/flat bread and other types of European bread such as French baguettes, hamburger buns, and toast.

 

Total Saudi food wheat consumption in the 2012-13 marketing year is estimated to increase by 2%, to about 2.9 million tonnes compared to the consumption level in 2010-11. The consumption of feed quality wheat as animal feed has been increasing for the past two years and is expected to reach about 700,000 million tonnes by the end of 2013, which will increase total domestic wheat consumption by 21% compared to 2010-11.

 

Saudi Arabia's total import volume in 2012-13 is forecasted to reach 2.5 million tonnes, of which 1.8 million tonnes of the commodity is imported by GSFMO for human consumption. According to GSFMO, they have been importing wheat with 14% and 12.5% protein content at the seller's option mostly from Europe, Canada, the US and Australia. However, GSFMO has occasionally received some high quality wheat shipments from Brazil, Argentina, Latvia and Lithuania.

 

GSFMO owns and operates 12 silo complexes in major cities around the country with a total combined storage capacity of 2.5 million tonnes. GSFMO plans to increase wheat storage capacity to 3.5 million tonnes by 2016.

 

In January 2012, GSFMO signed a US$149.3 million contracts to build a 120,000-tonne wheat storage silos and a flour mill with a daily milling capacity of 600 tonnes at the Jazan Port, where both projects will be operational in 2014. GSFMO maintains ending stock that covers at least a six-month domestic consumption level. The GSFMO aims at gradually increasing the country's wheat reserves to cover one year of domestic consumption by 2016. Wheat traders called for opening the door for more wheat exporters due to the high cost of water and the hot climatic conditions of Saudi Arabia.

 

"It is more important than ever to target international wheat exporters. Since the issuing of the decision, Saudi Arabia has been suffering from the declining availability of wheat, thus fuelling its prices," said Mohammed Adnan, a wheat trader. "We are expecting a bigger amount of wheat to come, with the government opening the door for Australian wheat," he said.