Transcript Slide 0

Grain Silos & Flour Mills Organization
(GSFMO)
Kingdom of Saudi Arabia
Wheat and Feed Market in Saudi Arabia
By H.E. Eng. Waleed El Khereiji
Director General of Grain Silos & Flour mills Organization
Saudi French Opportunities Forum (9-12th April 2013)
GSFMO Background & Overview
KSA Wheat & Flour Market Overview
GSFMO Privatization Program
Next Steps & Implications
1
GSFMO is a national institution that aims to supply wheat and
flour to the entire population of the Kingdom of Saudi Arabia
GSFMO Overview and Objectives
I
GSFMO Overview
 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
 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
To form an integral industry of grain
storage, flour production and processing
of animal feed
II
To establish any other relevant food
industries
GSFMO
Objectives
III
To market its products
IV
To purchase grains and create a
convenient reserve stock to face
emergency circumstances
V
To meet the goals of the approved
agricultural policy
2
GSFMO fulfills its mandate through managing the full wheat and
flour operating sector value chain
GSFMO Roles and Responsibilities
KSA Wheat Sector Operations Value Chain
Distribution
and Sales
Grain Silos & Flour Mills
Organization
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
Roles and Responsibilities
 Purchase wheat from local farmers according to a set price and
import the remaining demand from international suppliers for
KSA
 Operate 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
 Coordinate with Ministry of Agriculture on local wheat
procurement, in order to complement it with international
imports
 Coordinate annually with Ministry of Finance on budget
preparation and with Ministry of Planning and Economy on
Strategies
 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 regarding food
additives, e.g. vitamin D, Folic Acid, etc.
3
GSFMO operates 14 branches with total capacity of ~13K MT/day of
flour milling, ~3 MMT for wheat storage and ~3K 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
Jawf
Qassim
Riyadh
Madina
Qassim
Kharj
Jumoum
Jeddah
Wadi El
Dawaser
Khamis
Mushait
900
Jumoum
1,200
Dammam
1,350
Khamis
Mushait
Najran
600
Riyadh
Total
Flour Mill
Silo
Khamis
Mushait
40
Madina
60
Dammam
80
Tabuk
100
Jawf
100
Jeddah
120
Kharj
Jumoum
Hail
Feed Mills Capacities
(MT/day) (2013)
Riyadh
300
Jeddah
300
Dammam
300
200
250
Qassim
300
600
1,650
2,550
Jazan
Jeddah
Silos Capacities
(000’ MT) (2013)
2,580
12,630
Qassim
485
Wadi El
Dawaser
500
Riyadh
Total
Khamis
Mushait
1,400
Total
2,900
535
2,770
Feed Mill
4
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
5
As the sole wheat procurer, GSFMO is gradually shifting towards
100% imports of international wheat by end of 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%
6
GSFMO ensures its wheat supply from several countries and is
currently looking to expand its imports base to include soft wheat
GSFMO Sources of Wheat
GSFMO Imported Wheat – By Country
(Percentage) (2012)
Import of Soft Wheat
 GSFMO has opened up new channels
for soft wheat exporters, such as
France, by including soft wheat for the first
time in its last tender
USA
8%
Argentina
8%
40%
Australia 15%
29%
Canada
European
Union
 The kingdom 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
7
GSFMO Background & Overview
KSA Wheat & Flour Market Overview
GSFMO Privatization Program
Next Steps & Implications
8
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
9
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) (2010)
(Cal/Capita per Day) (2012)
Yemen
Korea
2,030
Indonesia
Sudan
2,150
18
33
Sudan
2,270
Korea
42
India
2,300
Peru
43
Peru
Indonesia
World
2,430
India
2,540
Yemen
2,780
Chile
2,960
Jordan
2,980
+14%
49
63
Germany
67
USA
69
World
71
72
Egypt
3,160
Canada
KSA
3,176
KSA
77
Portugal
77
Russia
3,270
Germany
3,530
France
Canada
3,530
Chile
France
3,550
Jordan
Portugal
3,580
Russia
USA
3,770
Egypt
+8%
82
90
106
110
120
10
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)
2.9%
3.5
2.6
2.7
2.8
3.0
2.5
2.5
2.9
2.4
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)
3.4
2.3
2.0
2005
3.3
3.6
3.2
3.1
2.9%
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
11
Accordingly, GSFMO has adopted milling capacity upgrades and
expansion plans to continuously address KSA’s wheat demand
Daily Wheat Supply / Demand Forecast
16,050
(MT/day)
(2013 – 2025)
Flour Mills Plans
GSFMO Capacity Upgrades and Expansion Plans
(Mt/day) (2013 – 2025)
3,420
Wheat (MT/Day)
12,630
17,000
16,000
Current Capacity
Future Plans
Total Future
Capacity
15,000
+15%
14,000
+38%
13,000
(000’ MT)
(2013 – 2025)
Silo Plans
4,300
11,000
1,530
9,000
8,000
Future Plans
Total Future
Capacity
4,400
(2013 – 2025)
+28%
10,000
2,770
Current Capacity
Feed MillsPlans
(MT/day)
12,000
7,000
6,000
5,000
4,000
3,000
2,000
1,500
2,900
1,000
0
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Current Capacity
Future Plans
Total Future
Capacity
Wheat Supply
Wheat Demand
12
GSFMO Background & Overview
KSA Wheat & Flour Market Overview
GSFMO Privatization Program
Next Steps & Implications
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
…that will cover all milling (both flour and feed) and some storage
activities
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
Grain Silos Flour Mills Organization (GSFMO)
Distribution
Private distributors
and wholesalers
Private retailers and
bakeries
Privatization
Potential?
Status
Rationale
 Assumed to
remain public
 GSFMO currently is the sole entity
performing storage and milling activities
 Government
assumed to
continue to perform
procurement role
 All milling 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
Next Steps & Implications
17
Moving forward, GSFMO will seek to develop its capabilities and
materialize its privatization program
Next Steps
I
Soft Wheat and Employee
Development

Given that GSFMO is shifting towards higher importations of wheat vis-à-vis domestic wheat, it
is developing a better understand of the implications and considerations of importing new
types of wheat on its current milling practices, in particular soft wheat

As such, GSFMO is currently considering the appropriate plans and designs to adopt
soft wheat imports into its milling operations

Moreover, GSFMO is seeking flour mills and bakeries experts to introduce employee
training programs for soft wheat milling and baking techniques in an attempt to grow
capabilities related to this new product

GSFMO Privatization Program is well underway, and the process of determining the
composition of milling bundles for future private operators is being finalized

Moving forward, GSFMO will start to scout local and potentially international private players in
order to identify prospective investors for the GSFMO Privatization Program

When it will be ready to privatize, GSFMO will invite potential investors to participate in
the bidding for its milling and silo assets associated with the privatization program
II
Privatization Program
18