Wheat & feed market in Saudi Arabia

Steps & Implications

flour to the entire population of the Kingdom of Saudi Arabia

GSFMO Overview and Objectives

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

GSFMO Overview

To form an integral industry of grain storage, flour production and processing of animal feed

To establish any other relevant food industries

To market its products

To purchase grains and create a convenient reserve stock to face emergency circumstances

To meet the goals of the approved agricultural policy

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operating sector value chain

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.

GSFMO Roles and Responsibilities

Roles and Responsibilities

Milling

Storage

KSA Wheat Sector Operations Value Chain

Transpo-rtation

Procurement

Distribution and Sales

Grain Silos & Flour Mills Organization

Grain Silos & Flour Mills Organization

Grain Silos & Flour Mills Organization

Grain Silos & Flour Mills Organization

Grain Silos & Flour Mills Organization

Private Sector Farmers

Entities Involved

GSFMO Involved

Production

flour milling, ~3 MMT for wheat storage and ~3K MT/day for feed

GSFMO Flour Mills, Silos and Feed Mills Capacities

Flour Mills Capacities
(MT/day) (2015)

Silos Capacities
(000’ MT) (2015)

Feed Mills Capacities
(MT/day) (2015)

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GSFMO Presence across Saudi Arabia

Riyadh

Kharj

Jeddah

Hail

Madina

Qassim

Najran

Jazan

Northern Province

Khamis Mushait

Jawf

Wadi El Dawaser

Tabuk

Jumoum

Dammam

other Wheat Derivatives to its clients

Flour Products

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

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

GSFMO Products

GSFMO Products

imports of international wheat by end of 2016

GSFMO Wheat Supply

Local Wheat Vs. Imported Wheat Supply
(MMT) (2008 – 2016)

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Local Wheat (%)

85%

33%

40%

36%

28%

25%

18%

12%

0%

Imported Wheat (%)

15%

67%

60%

64%

72%

75%

82%

88%

100%

Comments

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

Historical

Planned

looking to expand its imports base to include soft wheat

GSFMO Imported Wheat – By Country
(Percentage) (2012)

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European Union

GSFMO Sources of Wheat

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
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

Steps & Implications

a total of ~40 Million in 2025

Saudi Population Growth
(Million) (2004 – 2025)

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Historical

Forecast

resulting in higher flour consumption habits

Average Caloric Intake Benchmarks
(Cal/Capita per Day) (2010)

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Average Flour Consumption Benchmarks
(Cal/Capita per Day) (2012)

3.6 MMT which is equivalent to around 4.5 MMT of wheat demand

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Forecast

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Yearly Flour Demand Forecast
(MMT/Year)
(2012 - 2025)

Yearly Wheat Demand Forecast
(MMT/Year)
(2012 - 2025)

Flour and Wheat Demand in KSA

continuously address KSA’s wheat demand

GSFMO Capacity Upgrades and Expansion Plans

Flour Mills Plans
(MT/day)
(2013 – 2025)

Silo Plans
(000’ MT)
(2013 – 2025)

Feed MillsPlans
(MT/day)
(2013 – 2025)

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Daily Wheat Supply / Demand Forecast
(Mt/day) (2013 – 2025)

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Wheat (MT/Day)

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Steps & Implications

a privatization program…

Privatization in KSA

Government’s Strategic Objectives

Improving the efficiency of the national economy and enhancing its competitive ability to meet the regional and international challenges
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
Expanding the ownership of productive assets by Saudi citizens
Encouraging (national and foreign) local investments
Increasing employment opportunities, optimizing the use of the national work force, and ensuring the continued equitable increase of individual income
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

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storage activities

Distribution

Milling

Storage

Transportation

Procurement

Value Chain

Current
Players

GSFMO (imports)
Private Farmers
Private agricultural
Development companies

Private distributors and wholesalers
Private retailers and bakeries

Grain Silos Flour Mills Organization (GSFMO)

Sudais, Al-Mousallam,
ARASCO, Al-Habbad,
Al-Shorreih

Assumed to remain public
Government assumed to continue to perform procurement role
Leverages purchasing power and ensures availability of wheat

Privatization
Potential?

Rationale

GSFMO currently is the sole entity performing storage and milling activities
All milling and some storage activities will be privatized

Status

Scope of GSFMO Privatization

GSFMO Scope of Privatization

manage the wheat strategic reserve for KSA

ILLUSTRATIVE

GSFMO Current Vs. Future Role

Current State – Pre-privatization

Future State – Post-privatization

Silo Operations

Flour Mill Operations

Feed Mill Operations

GSFMO Current Scope of Work

GSFMO Future Scope of Work

Wheat-sector Regulatory Function

Flour Mill Operations

Feed Mill Operations

Strategic Reserve – Silo 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

Steps & Implications