Production:

Saudi Arabia's wheat production in MY2014/15 is projected to be 425,000 MT, which is about 36 percent lower than production in the previous year. This year will be the last time the Saudi government purchases domestically produced wheat from licensed farmers according to the Grain Silos and Flour Mills Organization (GSFMO), which has been implementing the government decree of 2008 to phase-out wheat production in Saudi Arabia by 2016. This decree has stipulated that GSFMO will reduce wheat production quotas for registered farmers by 12.5 percent annually in order to end wheat cultivation by 2016. The main reason for the policy change was a strong concern over the depletion of the country's scarce water reserves, as the wheat crop is 100 percent irrigated. This policy was a drastic departure from the country's longstanding strategy of achieving wheat self-sufficiency that has been pursued since the early 1980s.

In a February 2015 statement, the GSFMO reiterated its intent to end purchasing locally produced wheat in MY2015/16, and that the MY2014/15 harvest will be the last crop purchased. The GSFMO has stated that the Saudi government is not worried about fully relying on imports to satisfy the Kingdom's wheat consumption and strategic reserve needs.

Despite GSFMO's reaffirmation to end wheat production as scheduled next year, some local farmers continue to lobby the government to reverse its decision and support wheat production after 2015. Farmers say that they have borrowed huge loans to establish their wheat production and will not be able to pay back their debts if the wheat purchasing program is terminated. The farmers say that implementation of the wheat production phase-out has already rendered a large number of wheat farmers without jobs. Meanwhile, the Saudi government is encouraging wheat farmers to engage in alternative sustainable agricultural activities such as greenhouse farming and adopt advance drip irrigation techniques to produce fruits and vegetables. The Saudi government has not announced any penalties on farmers who might continue wheat production to produce wheat after the 2015 production season. Thought it is not expected that a large number of farmers will continue wheat production without government support or its guarantee to purchase their crops, a limited number may continue to grow in some areas such as Al-Qassim and Hail regions for the production of traditional bakery products. The average retail prices of wheat flour used for these products is reported to be about $1.33 per kg, while the GSFMO's flour is sold at retail price of $0.32 per kg. We estimate that total Saudi wheat production for MY 2015/16 would not exceed 30,000 MT.

The table below shows the development of wheat production and area planted in Saudi Arabia since 2007/2008.

Marketing Year

Wheat Area Planted (HA)

Wheat Production

(,000 MT)

2007/2008

450,330

2,350,000

2008/2009

326,161

1,720,000

2009/2010

195,884

950,000

2010/2011

219,505

1,349,000

2011/2012

192,818

1,184,000

2012/2013

117,000

700,000

2013/2014

110,000

660,000

2014/2015

71,000

425,000

2015/2016 (Post projection)

5,000

30,000

Source: GSFMO and Ministry of Agriculture

Consumption:

Wheat is an important item in the Saudi diet. It 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 about 235 grams per day, or about 85.7 kg annually. Total Saudi wheat consumption in MY 2013/2014 is estimated at 3.3 million MT and is projected to increase by 3 percent next year. It should be noted that Saudi Arabia has not imported feed wheat since MY 2011/2012. For PS&D purpose, we estimate that wheat residue 2013/14 to be about 50,000 MT.

There have been several press reports in the past two years about shortages of wheat four supplies in some parts of the Kingdom, particularly in the of cities Jeddah and Makkah. These shortages typically happen during the back-to-school season as well as during the holy month of Ramadan (Islamic month of fasting when large numbers of foreign pilgrims come to Saudi Arabia to perform Umrah rituals). This year, however, flour shortages have received significant press coverage and some blamed the GSFMO for its inability to supply the deeded quantities on time to meet the seasonal demand fluctuations. The shortage reportedly created a black market in the Jeddah area, where subsidized wheat flour was reportedly sold at twice its official price.

The GSFMO has denied that shortages of wheat flour actually happened and blamed dishonest flour distributors for creating "artificial shortages" in order to make financial gains. In responding to shortages reports, GSFMO created a hotline where bakeries could call and report if they did not receive their quotas from their assigned distributors as scheduled. The GSFMO said that it keeps more than 2.5 million bags of wheat flour as emergency reserves that could be released into the market in case of any unexpected shortages. In MY2013/14, the GSFMO increased the quantity of milling wheat supplied to the local markets by 8 percent, to 3.25 million MT to cover some flour shortages and maintain adequate levels of flour reserves.

Trade:

The GSFMO is the exclusive importer of food grade wheat in Saudi Arabia. The organization imports both hard and soft wheat directly through public tenders open to registered international exporters and it does not buy through grain brokers. It has been buying wheat from various origins including the EU, North America, South America and Australia. From time to time, however, GSFMO receives some shipments of Indian wheat. The GSFMO imports wheat through two main ports, the Jeddah Seaport on the Red Sea and the Dammam King Abdul Aziz Seaport on the Arabian Gulf. The GSFMO has been making plans to increase the number of Saudi seaports that can receive imported wheat to five by adding three smaller seaports in Diba, Jazan and Yanbu (all located on the Red Sea) by 2016.

In MY2013/14, Saudi Arabia imported 3.38 million MT of milling wheat, an increase of about 80 percent over imports in MY2012/13. The main reasons for this huge jump in 2013/14 imports include a decline in domestic wheat production in MY2012/13 by more than 40 percent and a buildup of the strategic wheat stock reserves that year. The GSFMO has been mandated to increase the country's strategic wheat reserves levels to meet annual consumption needs and to guard against any possible disruptions in international wheat markets, as the Kingdom gets closer to fully rely on imports. In the past, GSFMO kept wheat strategic stocks at levels sufficient to six months of consumption requirements.

The table below shows Saudi wheat imports in MY 2012/13 and MY 2013/14 by countries of origin.

Supplying Country

July 2012-June 2013

Market Share

July 2013-June 2014

Market Share

Australia

409,134

21.8%

376,562

11.1%

Lithuania

372,734

19.8%

450,492

13.3%

Canada

178,500

9.5%

253,172

7.5%

U.S.

169,140

9.0%

68,401

2.0%

Poland

164,326

8.7%

524,249

15.5%

Germany

120,745

6.4%

1,347,089

39.8%

India

94,142

5.0%

45,244

1.3%

Latvia

63,000

3.3%

106,000

3.1%

France

0

0.0%

206,852

6.1%

Other

309,094

16.4%

3,398

0.1%

Total

1,880,815

100%

3,381,459

100%

Source: Global Trade Atlas

Germany was the leading wheat supplier to Saudi Arabia in MY 2013/14, with exports reaching 1.347 million MT and controlling almost 40 percent market share. Germany increased its exports to Saudi Arabia by more than 11 fold last year compared to a year earlier. Other suppliers that benefited from the drastic increase in Saudi Arabia's wheat import included Poland, Lithuania, Canada, France and Latvia. While the U.S. and India lost significantly.

In MY2014/15, Saudi total wheat food import is forecast to reach 3.5 million MT, an increase of more than three percent compared to last year. Total wheat import in MY2015/16 is projected to reach 3.8 million MT, an increase of more than 12 percent compared to MY2013/14. The significant increase is needed to make up for discontinued domestic wheat production and to maintain strategic reserves close to the domestic consumption level.

Stocks:

The GSFMO owns and operates silo complexes in major cities around the Kingdom with a total combined storage capacity of 2.95 million MT at the end of 2014, an increase of about 41 percent over 2011. The GSFMO has signed contracts to build five additional silos in Makkah, Qassim, Jazan, Aseer, and Al-Hasa, which will increase the total storage capacity to 3.7 million MT by the end of 2015. Currently, GSFMO maintains more than 2.5 million MT in strategic wheat stocks but it has plans to increase it to close to the annual wheat consumption level in MY 2015/2016.

Policy:

The Saudi government continued to enforce its 2008 policy to phase-out wheat production by 2016. The main reason for the policy change was a strong concern over the depletion of the country's scarce water reserves, as the Saudi wheat crop is 100 percent irrigated. This policy was a drastic departure from the country's longstanding strategy of achieving wheat self-sufficiency that has been pursued since the mid-1980s. In a February 2015 statement, the Grain Silos and Flour Mills Organization (GSFMO) reiterated its intent to end purchasing locally produced wheat in MY2015/16, and that the MY2014/15 harvest will be the last crop to purchase. The GSFMO has stated that the Saudi government is not worried about fully relying on imports to satisfy the Kingdom's wheat consumption and strategic reserve needs.

Although the initiative to phasing-out wheat production in Saudi Arabia was mainly targeted at saving water resources, many Saudi farmers switched from wheat cultivation to producing forage crops, such as alfalfa and Sudan grass, which consume three times the amount of water needed for wheat production. The total area planted with forage crops increased from 151,301 HA in 2007 to 195,605 HA in 2014. The Saudi governments is considering issuing a new decree to phase-out forage production and depend on imports to meet the country's green forage needs estimated at about 4 million MT annually.

The Saudi government is also encouraging agricultural companies to invest in foreign countries that have comparative advantage in producing certain crops and re-export their products back to Saudi Arabia. The crops targeted by this initiative include wheat, rice, barley, yellow corn and green forage. The Saudi government is providing financial incentives to encourage Saudi investors (companies and individuals) to take part in this food security initiative and invest overseas.

The GSFMO has received approval from the Saudi government to privatize all of its nine flour mills complexes and some of its storage facilities. The GSFMO plans to sell the flour mills complexes in four separate groups through a competitive bidding process to various interested buyers. Foreign investors will be allowed to compete with domestic investors to buy and operate the mills. The new milling companies will act as clients of the GSFMO to process and distribute wheat flour to existing and future customers approved by the agency at government set prices. The new mills, however, would be allowed (if they chose) to import their own wheat for the production of non-subsidized specialty flours for processing of high quality bakery products and pasta. It is likely that GSFMO will start the flour mills privatization in 2016, when the expansion of flour mills is completed. The GSFMO plans to maintain the ownership and operate most wheat silos across the Kingdom in order to manage the strategic wheat reserves and ensure the country's food security objectives. The Saudi Government is currently conducting a study to restructure the GSFMO and prepare it for the post-privatization era of flour mills, given that GSFMO would still remain the exclusive government agency to import subsidized milling wheat and operate most of the silos.

Marketing:

The GSFMO is the sole wheat buyer and distributor of wheat flour in Saudi Arabia. All licensed bakeries, industrial users and supermarkets get their flour requirements directly from designated GSFMO's flour mills located in their cities or from assigned agents in their respective areas. There are more than 525 appointed distributors, with about 100 that have multi-outlets, and sever a total of 11,606 establishments, of which 6,500 are licensed bakeries. The distributors provide the packaged flour to licensed bakeries in a 45 kg sack and to retailers in 1, 2, 5, or 10 kg sacks. Industrial users purchase in bulk/metric tons.

Market Development Activities:

Since the resumption of wheat imports in 2008, the U.S. Wheat Associates (USWA) regional office has been coordinating various market development and trade servicing activities in Saudi Arabia. The capacity building activities, which included seminars, training and exchange programs, were designed to assist the GSFMO's purchasing staff in understanding the quality attributes of various U.S. wheat varieties. The USWA offered workshops to address diverse wheat purchasing issues, including risk management, contract terms, quality specifications, wheat inspection and other global market considerations related to wheat supply and demand, as well as freight and shipping costs.

Prices:

Large bakeries and industrial users purchase wheat flour directly from GSFMO flour mills, while smaller bakeries and retailers receive their assigned quotas from GSFMO appointed distributors. GSFMO packs wheat flours in five sizes: 45 kg bags for bakeries and 1, 2, 5 and 10 kg bags for retail. Industrial customers purchase in bulk of 1,000 kg. The GSFMO's wholesale prices vary on the flour type and extraction rate. The wholesale price of a kg of consumer packed wheat flour range between $0.27 and $0.33, bakers purchase from $5.3 to $8 per 45 kg, while industrial users purchase in bulk for prices that range between $117.3 and $160 per MT. The prices have not changed for over three decades.

Exports:

Saudi Arabia's exports of wheat products in 2012 were estimated at 156,765 MT. These products included macaroni and pasta products, accounting for 49 percent, biscuits for 37 percent, wheat and wheat flour for 9 percent, and bread for 5 percent. Saudi wheat products are mostly destined for GCC countries, with some quantities exported to Asian and African countries. For MY2013/14, it is estimated that 145,000 MT of wheat equivalent were exported from Saudi Arabia as wheat products. Total Saudi wheat products export is forecast to increase by 5 percent annually in the next two years.

The Saudi government is concerned about the exports of food and agricultural products that utilize government's subsidized raw materials such as wheat flour. In December 2012, the Saudi Ministry of Commerce and Industry (MOCI) levied a $533 per MT export tax on poultry products exports to reimburse the Saudi government for various subsidies local poultry farmers receive to produce the exported chickens meat. The government is reportedly conducting studies on the percentage of wheat flour used in the production of exported food products to determine how much export tax to charge to reimburse for using the subsidized wheat flour. According to the GSFMO, domestically produced and sold wheat flour receive more than 70 percent in government direct subsides.

Production, Supply and Demand Data Statistics:

Wheat

2013/2014

2014/2015

2015/2016

Market Begin Year

Jul 2013

Jul 2014

Jul 2015

Saudi Arabia

USDA Official

New Post

USDA Official

New Post

USDA Official

New Post

Area Harvested

100

110

83

71

0

16

Beginning Stocks

2,148

2,153

2,927

2,749

0

3,119

Production

600

660

500

425

0

30

MY Imports

3,429

3,381

3,450

3,500

0

3,800

TY Imports

3,429

3,381

3,450

3,500

0

3,800

TY Imp. from U.S.

70

68

0

60

0

120

Total Supply

6,177

6,194

6,877

6,674

0

6,949

MY Exports

0

145

0

150

0

155

TY Exports

0

145

0

150

0

155

Feed and Residual

150

50

200

55

0

55

FSI Consumption

3,100

3,250

3,300

3,350

0

3,450

Total Consumption

3,250

3,300

3,500

3,405

0

3,505

Ending Stocks

2,927

2,749

3,377

3,119

0

3,289

Total Distribution

6,177

6,194

6,877

6,674

0

6,949

1000 HA, 1000 MT, MT/HA