Saudi Arabia Agribusiness Report Q4 2009

Despite its placing among the highest GDP per capita nations in the world, Saudi Arabia's domestic food security shows little sign of improving. Import dependent in almost all major consumed food groups, diminishing water resources coupled with steady population growth is heaping pressure on both the public and private sectors to feed the population. BMI's Saudi Agribusiness Report for Q409 analyses industry fundamentals as local producers increasingly invest in overseas farmland to boost the outlook.

Since the late 1980's Saudi Arabia has been self-sufficient in wheat, even a major exporter for a short while. However, such success was predicated on robust government support, including subsidies and tax breaks, while domestic water supplies used to facilitate the irrigation-heavy activity competed with household water consumption. Since the turn of the century, production has continued to wane, while demand has increased - from both households and from the domestic poultry industry.

As grain prices surged in 2007 and 2008, against volatile oil prices, the inefficiency of the support system has been exposed and magnified, subsequently resulting in a decision by the Saudi government to slowly phase out the subsidies, thus ceasing entire domestic wheat production by 2016. This heaps considerably more pressure on the government to devise strategies to somehow lessen the costs of securing the grain Domestic agribusiness firms have been keen to exercise their financial might, contributing to solid growth, particularly in supply side investments. The dairy processing industry, already commercially and technically well developed has given rise to a number of key players seeking to expand domestically, as well as making their presence felt throughout the wider Gulf and Middle East region. Chief among these is Almarai, Saudi Arabia's leading dairy company by market size. Almarai controls every aspect of its value chain from the farm right through to downstream retail marketing and has been actively ramped up its expansionist aims through a series of acquisitions since 2008.

Saudi Savola Group, a primarily industrial firm but also with sizeable shares of the grain, edible oil, sugar and processed food markets, has said that it plans to spend at least US$100mn in order to secure minority shares in agribusinesses in high potential emerging markets, including Egypt, Sudan and the Ukraine. The government has lent its full support to these intentions Compared to African, Asian and Latin America import dependent countries, there has been no discernible social unrest from the rising Saudi food shipment bill, mainly because of the kingdom's stable GDP position. However, continually spiralling prices of consumption staples are particularly undesirable, regardless of income levels, and this could ultimately prove to undermine the popularity of King Abdullah's regime.

Of the goods covered in our outlook, sugar, milk and poultry are expected to post decent output growth through to 2013, as an increased level of investment reaps dividends. Corn and barley output will also swell, although from insignificant base positions, such growth will hardly make a dent in the domestic food supply. Consumption growth is expected across the board, outweighing supply growth in nearly every category and underpinning our assertion that ensuring food security will become an increasingly vital goal for the kingdom.