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Grain Silos & Flour Mills Organization (GSFMO) Kingdom of Saudi Arabia Wheat and Flour Market in Saudi Arabia By H.E. Eng. Waleed El Khereiji Director General of Grain Silos & Flour mills Organization Opportunities for the agricultural Sector and Food Industry Moderator (16-18th September 2013) I GSFMO Background & Overview II KSA Wheat & Flour Market Overview III GSFMO Privatization Program IV Facts and Opportunities for cooperation Between Saudi Arabia& USA in agriculture and food sector V Conclusion 1 GSFMO is a national institution that aims to supply wheat and flour to the entire population of the Kingdom of Saudi Arabia Objectives GSFMO Overview (I) Grain Silos and Flour Mills Organization (GSFMO) is considered one of the leading national institutions that has a prominent role in the achievement of economic development in the Kingdom of Saudi Arabia, and in the provision of citizens’ needs of most important food materials. • To form an integral industry of grain storage, flour production and processing of animal feed • To establish any other relevant food industries (II) • To market its products (III) GSFMO was established by the Royal Decree issued on February 1972, which was prepared by the government to provide all means of development and progress to the Saudi people (IV) ((V)) • To purchase grains and create a convenient reserve stock to face emergency circumstances • To meet the goals of the approved agricultural policy 2 GSFMO fulfills its mandate through managing the full wheat and flour operating sector chains GSFMO Roles and Responsibilities Operating Sector Chains Distribution and Sales Grain Silos & Flour Mills Organization& Private Sector Milling Grain Silos & Flour Mills Organization Storage Grain Silos & Flour Mills Organization Transportation Grain Silos & Flour Mills Organization Procurement Grain Silos & Flour Mills Organization Private Sector Farmers Entities Involved Production GSFMO Involved GSFMO (Roles & Responsibilities) Purchase wheat from local farmers according to a set price until 2015 and import the remaining demand from international suppliers for KSA. Also it operates all the flour mills in Saudi Arabia and ensure adequate investments to maintain enough supply to satisfy the growing demand. Manage all wheat storage operations in KSA, both strategic and operational storage, in order to satisfy the increasing demand Enforce food quality regulations at the point of purchase in storage silos and import tenders, such as protein content, weight, moisture, falling number, etc. Implement directives by the Ministry of Health & Saudi Food and Drug Authority regarding food additives, e.g. vitamin D, Folic Acid, etc. 3 GSFMO operates 11 branches with total capacity of ~11430 MT/day of flour milling, ~2.5 MMT for wheat storage and ~2900 MT/day for feed GSFMO Flour Mills, Silos and Feed Mills Capacities GSFMO Presence across Saudi Arabia Northern Province Jawf Tabuk Flour Mills Capacities (MT/day) (2013) Tabuk 600 Madina 600 Hail 600 Dammam Hail Qassim Jawf 600 Riyadh Madina Qassim Kharj Dammam Jeddah Wadi El Dawaser Khamis Mushait Khamis Mushait Riyadh Najran 900 1,350 Total Flour Mill Silo Khamis Mushait 40 Madina 60 Dammam 80 Tabuk 100 Jawf 100 Jeddah 120 Kharj Hail 2,550 2,580 300 11,430 485 Wadi El Dawaser 500 Total Riyadh 300 Jeddah 300 Dammam 300 Qassim Qassim Riyadh Feed Mills Capacities (MT/day) (2013) 200 1,650 Jazan Jeddah Silos Capacities (000’ MT) (2013) 600 Khamis Mushait 1,400 Total 2,900 535 2,520 Feed Mill 4 New plants and expansions GSFMO Flour Mills, Silos and Feed Mills New Expected Capacities New plants and Expansion Flour Mills (MT/day) Silos (000’ MT) AL ahsa Jeddah Duba Port Madina Hail AL ahsa Tabuk Dammam Eastren Region Jazan 60 150 Northern Province Jawf Feed Mills (MT/day) 600 600 Khamis Mushait 80 Jazan 120 Dheba 120 Yanbu 120 Eastren Region 120 Jeddah 140 Dammam 140 Kharj 300 Madina 300 Tabuk 300 Jawf 300 Hail 300 Madina Kharj Yanbu Port Jumoum Kharj 600 Al ahsa 600 Jeddah Khamis Mushait Jazan Jumoum 1,200 Jumoum Total Flour Mill Silo Feed Mill 3,750 Total 250 1,150 Total 1,500 5 GSFMO offers a wide range of Flour products, Feed products and other Wheat Derivatives to its clients GSFMO Products Flour Products I GSFMO produces varieties of flour: – Powder flour (75-80% Extraction) – Fine flour (70-74% Extraction) – Ordinary Flour (85% Extraction) – Whole Wheat Flour (95% Extr.) Feed Products III GSFMO Products II GSFMO produces feed-pound (50 kilograms) of high-quality poultry feed and livestock feed (fattening / double), in addition to other feed products Other Wheat Derivatives GSFMO produces a number of wheat derivatives including: – Jareesh – Harees – Bran for Human consumption 6 GSFMO is gradually shifting towards 100% imports of international wheat by 2016 GSFMO Wheat Supply Local Wheat Vs. Imported Wheat Supply (MMT) (2008 – 2016) Historical Comments Planned In 2008, the Saudi government adopted a new policy to gradually reduce domestic wheat growing due to water scarcity The new policy envisaged replacement of domestic wheat procurement through imports; by 2016 all of the Kingdom’s wheat demand will be met by imports GSFMO started applying the new policy in 2008 by importing 303 thousand tons of wheat; this quantity was increased six fold in 2009 to reach 1.92 MMT On the other hand, the local procurement of wheat was decreased from 1.72 million tons in 2008 to 778 thousand tons in 2012 3.40 2.90 2.70 2.40 1.95 1.92 1.72 1.28 0.94 2.02 1.97 1.10 0.78 0.80 0.60 0.30 0.40 0.00 2008 2009 2010 2011 2012 Local Wheat Local Wheat (%) Imported Wheat (%) 2013 2014 2015 2016 Imported Wheat 85% 33% 40% 36% 28% 25% 18% 12% 0% 15% 67% 60% 64% 72% 75% 82% 88% 100% 7 GSFMO ensures its wheat supply from several countries and is currently looking to expand its imports base to include Hard & Soft wheat GSFMO Sources of Wheat GSFMO Imported Wheat – By Country (Percentage) (2008-2013 till July) Import of Hard & Soft Wheat GSFMO imports hard wheat & it has opened up new channels for soft wheat exporters. USA Brazil Argentina 52% Australia 20% Canada European Union Saudi Arabia is studying local consumer demand to assess potential needs for soft wheat, which is suited for products such as biscuits, and accordingly, GSFMO will gradually increase imports of soft wheat Saudi flour mills were traditionally built to process hard wheat, but the newly established flour mills are able to handle both hard and soft wheat 8 GSFMO Background & Overview II KSA Wheat & Flour Market Overview GSFMO Privatization Program Facts and Opportunities for cooperation Between Saudi Arabia& USA in agriculture and food sector Conclusion 9 KSA’s population is expected to grow at 2.4% per annum reaching a total of ~40 Million in 2025 Saudi Population Growth (Million) (2004 – 2025) Historical Forecast 2.4% 29.0 30.4 28.4 29.7 31.2 2011 2012 2013 2014 2015 31.9 32.7 33.5 34.3 2016 2017 2018 2019 35.1 35.9 36.8 2020 2021 2022 37.7 38.6 2023 2024 39.6 24.2 2004 2025 10 KSA average daily caloric intake is 14% above the world average resulting in higher flour consumption habits Average Caloric Intake Benchmarks Average Flour Consumption Benchmarks (Cal/Capita per Day) (Cal/Capita per Day) Yemen Indonesia Korea Sudan Sudan Korea India Peru Peru India Indonesia Yemen World Germany Chile USA Jordan World Egypt Canada KSA +14% KSA Russia Portugal Germany France Canada Chile France Jordan Portugal Russia USA +35.6% Saudi Arabia is Higher than world average by 14% -2.7% +8% Egypt Saudi Arabia is Higher than world average by 8% 11 In 2025, flour demand in Saudi Arabia is expected to reach 3.6 MMT which is equivalent to around 4.5 MMT of wheat demand Flour and Wheat Demand in KSA Historical Forecast 3.2% Yearly Flour Demand Forecast (MMT/Year) (2012 - 2025) 2.0 2005 3.4 3.5 2.6 2.7 3.0 2.5 2.5 2.9 2.4 2.8 2.3 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 4.1 4.2 4.3 4.5 4.0 2021 2022 2023 2024 2025 Historical Forecast 3.2% Yearly Wheat Demand Forecast (MMT/Year) (2012 - 2025) 3.3 3.6 3.2 3.1 2.5 2005 2.9 3.3 3.7 3.2 3.6 3.1 3.5 3.0 3.4 3.8 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 12 GSFMO Background & Overview KSA Wheat & Flour Market Overview III GSFMO Privatization Program Facts and Opportunities for cooperation Between Saudi Arabia& USA in agriculture and food sector Conclusion 13 In line with the Government strategy, GSFMO is now embarking on a privatization program… Privatization in KSA Government’s Strategic Objectives 1 Improving the efficiency of the national economy and enhancing its competitive ability to meet the regional and international challenges 2 Encouraging private sector investment and effective participation in the national economy, and increasing its share of domestic production to achieve growth in the national economy 3 Expanding the ownership of productive assets by Saudi citizens 4 Encouraging (national and foreign) local investments 5 Increasing employment opportunities, optimizing the use of the national work force, and ensuring the continued equitable increase of individual income 6 Reducing public expenditure and reducing the burden on the government budget by giving the private sector opportunities to finance, operate, and maintain certain services that it is able to provide Sectors Targeted For Privatization Gov. shares in Arabic/ Islamic Investment Companies Agricultural Services Airport Services Industrial Cities Services Government shares in Public Companies Wheat Mills and Storage facilities Air Transportation and Related Services Municipal Services Government Hotels Desalination Port Services Education Services Sports Clubs Water and Sewage Collection Highways Telecom Services Health Services Social Services Railways Postal Services 14 GSFMO Scope of Privatization Scope of GSFMO Privatization Value Chain Current Players Procurement GSFMO (imports) Private Farmers Private agricultural Development companies Transportation Sudais, Al-Mousallam, ARASCO, Al-Habbad, Al-Shorreih … Storage Milling Sales Grain Silos Flour Mills Organization (GSFMO) Privatization Potential? Status Rationale Assumed to remain public Government assumed to continue to perform procurement role GSFMO currently is the sole entity performing storage and milling activities All milling, sales and some storage activities will be privatized Leverages purchasing power and ensures availability of wheat 15 Post-privatization, GSFMO will regulate the entire wheat & flour sector and manage the wheat strategic reserve for KSA ILLUSTRATIVE GSFMO Current Vs. Future Role Current State – Pre-privatization Future State – Post-privatization GSFMO Current Scope of Work GSFMO Future Scope of Work Wheat-sector Regulatory Function Silo Operations Flour Mill Operations Strategic Reserve – Silo Operations Feed Mill Operations Flour Mill Operations Feed Mill Operations Operational Reserve – Silo Operations Private Companies’ Scope of Work Comments GSFMO is expected to privatize only part of its grain storage silos – the minimal capacity needed to ensure smooth milling operations of the flour mill companies; the remaining storage capacity will be retained by GSFMO (for strategic reserve purposes) In the future, GSFMO is expected to undertake the role of wheat-sector regulator, entailing: – Setting regulations related to food quality – Inspecting flour mills to ensure compliance with quality regulations – Regulating the competition among the private flour milling operators – Ensuring that the market structure fosters fair competition amongst operators in the sector New Function 16 GSFMO Background & Overview KSA Wheat & Flour Market Overview GSFMO Privatization Program IV Facts and Opportunities for cooperation Between Saudi Arabia& USA in agriculture and food sector Conclusion 17 Facts and Opportunities for cooperation Between Saudi Arabia& USA in agriculture and food sector Facts (I) (II) (III) • USA is one of the leading suppliers of Hard & Soft Wheat in the world and it has been the most stable source for wheat over the years; so the stability of the global market of wheat is being served both by the USA and Kingdom of Saudi Arabia as a common goal. • Over the period (2008-2013) GSFMO imported about one million tons of US wheat which represented 12% of total wheat imports. • There are co-operation and coordination between GSFMO and USWheat association where GSFMO hosted its Wheat Crop Quality Trade Seminar for the third year in a succession and we prepare for fourth Seminar . Also GSFMO’s representatives participated and spoke in all USWheat association regional seminars. Opportunities we are looking forward to receive competitive prices from US origin in the coming tenders especially in views of an improved outlook for “new crop” 2013/2014. USA Institution & Companies are invited to introduce training programs for international wheat exchanges and flour mills techniques. We welcome USA Companies collaborate with GSFMO Privatization of flour mills plants. to in 18 GSFMO Background & Overview KSA Wheat & Flour Market Overview GSFMO Privatization Program Facts and Opportunities for cooperation Between Saudi Arabia& USA in agriculture and food sector V Conclusion 19 Conclusion USA Companies and institutions are welcomed to collaborate with GSFMO in I III III II Participation in Hard &Soft Wheat tenders Privatization Program Employee development 20 Thank You www.gsfmo.gov.sa 21