Research and Markets: Saudi Arabia Agribusiness Report Q2 2011

DUBLIN--(BUSINESS WIRE)--Research and Markets (http://www.researchandmarkets.com/research/7b09ed/saudi_arabia_agrib) has announced the addition of the "Saudi Arabia Agribusiness Report Q2 2011" report to their offering.

The Saudi Arabia Agribusiness service provides proprietary medium term price forecasts for key commodities, including corn, wheat, rice, sugar, cocoa, coffee, soy and milk; in addition to newly-researched competitive intelligence on leading agribusiness producers, traders and suppliers; in-depth analysis of latest industry developments; and essential industry context on Saudi Arabia's agribusiness service.

With global commodity prices including grains, milk and livestock continuing to rise or remain elevated, Saudi Arabia's ambitions for greater self-sufficiency are being increasingly scrutinised. The country has placed greater emphasis on decreasing barley imports, and continues to search for available land elsewhere to export goods back to Saudi Arabia. With a growing population, rising incomes and agricultural deficit neighbours, Saudi Arabia will remain vulnerable to higher import costs over the short term, which the country will be able to finance due to its massive current account surplus. Long-term solutions will be needed, however, to prevent the kind of food price inflation-related unrest that has been seen elsewhere in the region in Q111.

Poultry consumption will grow 11% to 623,000 tonnes by 2014/15. Demand is forecast to experience steady growth in coming years, in line with population growth and rising personal incomes. An expected surge in foreign labour and tourists will also help boost demand. However, wheat production will fall -74% to 257,000 tonnes in the same timeframe. Following a major change in government policy, wheat production in Saudi Arabia is declining sharply, with output expected to collapse in coming years.

Milk production will grow 13% to 1.53mn tonnes by 2014/15. This will come on the back of strengthening milk prices and rising demand. However, despite the investments made in the country's dairy industry and capacity, the processed dairy product sector is still negligible.

Industry Developments

Saudi Arabia is the world's largest barley importer. While there has been talk of the country axing barley import subsidies entirely, if subsidies are removed too quickly, buyers may find themselves paying a heavy financial cost. The Saudi government appears to recognise this, announcing in June 2010 that it was monitoring the market and was prepared to reintroduce subsidies if supply was threatened. BMI nevertheless expect that the country's barley imports and barley consumption will decline over their forecast period as alternative feed types begin to look more price-competitive against barley.

Saudi Arabia's dairy industry has been transformed over the past decade, with production rising dramatically. The country is now home to some of the most advanced dairy farms in the world. Fresh milk output in 1998 stood at 581,000 tonnes, yet just 10 years later this had grown by almost 75% to 1.01mn tonnes. BMI expect demand for dairy products in Saudi Arabia to remain strong, as they form a core element of the local diet. Even with high levels of food price inflation, BMI do not expect consumers to drop dairy products from their daily diet. Indeed, the country is expected to remain the highest consumer of dairy products in the region (ahead of the UAE), largely because of a larger population.

In December 2009, Fonterra announced that it had bought out its partner Saudi Dairy & Foodstuff (SADAFCO). Now that Fonterra is a major stakeholder in the firm, SADAFCO should benefit in a number of ways, most prominently through greater economies of scale. Over the medium term, the efficiency increase should help SADAFCO expand production while mitigating increases to grain prices, which can erode profit margins since they are a significant production cost. For example, the increases in grain prices in 2007 and 2008 contributed to SADAFCO's cost of sales increasing by 26% to SAR598mn, which the company had to compensate for by cutting its advertising costs.

For more information visit http://www.researchandmarkets.com/research/7b09ed/saudi_arabia_agrib

Key Topics Covered: SWOT Analysis