Saudi Arabia Sets Wheat Purchase Price Higher Than Global Ones
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In January 2023, SAGO, an agency within MEWA of Saudi Arabia, was renamed the General Food Security Authority (GFSA). The authority projects MY 2022/23 (July 2022 – June 2023) domestic Wheat production at 600,000 MT, down 40% from the USDA’s official estimate of 1000,000 MT. The Wheat production areas were reviewed using an average yield of approximately 6 MT per HA. In Saudi Arabia, Wheat is planted at the end of November until the second week of January, and it is delivered to GFSA from April to October. GFSA purchases all locally produced Wheat at a set premium price compared to the price is set annually, and GFSA will buy locally produced Wheat this year at a gross price of $467 per MT.
Farmers on 50 hectares of farmland are part of a voluntary program with MEWA and can produce Wheat or alfalfa. Since MY 2020/21, MEWA has encouraged local farmers to produce up to 1.5 MMT annually for delivery to GFSA (the exclusive purchaser of domestic and imported Wheat). However, it has been difficult for MEWA to convince local farmers to produce Wheat at the maximum set production level since alfalfa is more profitable than Wheat. Alfalfa produces for up to three years, yielding 6 – 9 cuts a year depending on planting region and weather conditions. As a result, farmers typically make more money producing alfalfa than Wheat. While MEWA licenses local Wheat production, currently, GFSA is the exclusive buyer of licensed producers.
There is no indication that MEWA will mandate increased domestic Wheat production for MY 2023/24. Many experts believe farmers prefer producing alfalfa for at least one of the following three reasons:
– Growers have more experience and knowledge of alfalfa than Wheat.
– Alfalfa is more profitable since it makes multiple cuts for up to three years per planted seed.
– The Wheat crop is thoroughly irrigated, but cooler temperatures and cloudy weather during most of the growing season significantly reduces Wheat yields.
Traditionally, Saudi Arabia grows a hard-winter variety known as “Yecoro Rojo” which was developed by the International Maize & Wheat Improvement Center in cooperation with the Mexican Ministry of Agriculture in Mexico. GFSA prefers Saudi Arabian Wheat to imported Wheat due to its hard kernel and lower moisture content, which allow for extended storage times.
MY 2022/23 total Wheat consumption is forecast at 4.3 MMT, up 10% from the previous year, but like USDA’s official estimate. Demand for Wheat increased 5-10% annually over the past several years due to boosted demand from the food service sector. As a result, Saudi Arabian Wheat consumption is projected to increase by approximately 7% to 4.6 MMT in MY 2023/24. The demand for bread and other food products is projected to remain strong over the next few years. As per GFSA, no Wheat is used as animal feed in the Kingdom. According to AgFlow data, Saudi Arabia imported 1.8 million tons of Wheat in Jan-Jun 2023. In June, Romania (320,139 tons) outpaced Russia (312,500 tons).
Saudi Arabian Government’s Wheat Purchase Price (GPP)
GFSA recently set a price of SAR1,750 ($467) per MT as the GPP for domestic Wheat production. Farmers will receive a net payment of approximately SAR1,662.50 ($443) per MT after a 5% deduction for Zakhat (Islamic religious tax), and an additional 4% will be deducted in case of foreign matter (impurity). Last year, GFSA paid $430.67 per MT for local Wheat. The domestic purchase price is purposefully higher than international prices.
The average CFR import price for GFSA purchased Wheat for MY 2022/23 was $405.10 (USD) per MT. The GFSA Board of Directors updates the local Wheat
purchase price for each production season in early January.
Other sources: USDA
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