Required Report - public distribution

**Date:** 3/3/2004

**GAIN Report Number:** SA4005

SA4005

**Saudi Arabia**

**Grain and Feed**

**Annual Report**

**2004**

**Approved by:**

![](media/image1.wmf)Quintin Gray

Agricultural Trade Office, U.S. Embassy

**Prepared by:**

Hussein Mousa

**Report Highlights:**

Local barley production ban got into effect this crop season. Barley
imports this Marketing Year (MY) 2003 is forecast to go down by about
one million tons due to good rain fall in the northern part of the
Kingdom which resulted in a better pasture conditions this year compared
to last year. About 2 million tons of wheat will be harvest this crop
year. The Government guaranteed purchase price for locally grown wheat
will be reduced from US\$ 400 per metric ton to US\$ 266.67 per metric
ton commencing from the 2004/2005 crop, which will be harvested in the
spring of 2005. Saudi Arabia is forecast to face wheat production
shortage next year due to expect exit a large number of small farmers
from wheat production. No rice is produced in the Kingdom. In Calendar
Year (CY) 2003 Saudi Arabian rice imports were estimated at more than
one million metric tons, an increase of over 27 percent compared to CY
2002.

Includes PSD Changes: Yes

Includes Trade Matrix: Yes

Scheduled Report

Riyadh \[SA2\]

\[SA\]

####### Table of Contents

[**I. Local Barley Production 1**](#i.-local-barley-production)

[1. Production, Supply and Distribution Table (PSD) Table for Barley
1](#production-supply-and-distribution-table-psd-table-for-barley)

[2. Barley Imports 1](#barley-imports)

[3. Barley Specifications 2](#barley-specifications)

[4. Government Subsidy on Imported Barley
3](#government-subsidy-on-imported-barley)

[5. Trade Matrix 4](#trade-matrix)

[Source: Trade Sources 4](#source-trade-sources)

[Source: Trade Sources 4](#source-trade-sources-1)

[Source: Trade Sources 5](#source-trade-sources-2)

[II. Wheat Production 6](#ii.-wheat-production)

[1. Reduction in the Local Wheat Production Subsidy
6](#reduction-in-the-local-wheat-production-subsidy)

[2. Production, Supply and Distribution Table (PSD) for Wheat
6](#production-supply-and-distribution-table-psd-for-wheat)

[3. Possible Reasons for the Reduction in the Wheat Subsidy
7](#possible-reasons-for-the-reduction-in-the-wheat-subsidy)

[A. Meet WTO Accession Requirements
7](#a.-meet-wto-accession-requirements)

[B. Pave Ways for Flour Mills Privatization
7](#b.-pave-ways-for-flour-mills-privatization)

[III. Overview of the Kingdom's Rice Market
9](#iii.-overview-of-the-kingdoms-rice-market)

[1. Production, Supply and Distribution Table (PSD) Table for Rice
9](#production-supply-and-distribution-table-psd-table-for-rice)

[2. Saudi Rice Imports 9](#saudi-rice-imports)

[3. Reasons for Increased Demand for Indian Rice
10](#reasons-for-increased-demand-for-indian-rice)

[4. Trade Matrix 11](#trade-matrix-1)

[5. Saudi Rice Cleaning and Bagging Plant
11](#saudi-rice-cleaning-and-bagging-plant)

###  {#section .unnumbered}

# I. Local Barley Production

The Saudi Government's decision to stop local barley production subsidy,
decreed in February 2003, took effect this crop year. Prior to the
decision to stop buying locally produced barley at \$267.67 per metric
ton (mt) from this crop year, the Government each year used to set a
local barley production quota at one million mt each year. However,
local farmers (the majority of whom are small farmers) produced less
than 200,000 mt. Farmers did not find the Government Purchase Price
(GPP) of \$267.67 per metric ton attractive enough to engage in barley
farming. They claimed that their production cost was very close to the
GPP. Water conservation and Government costs saving are the main factors
behind the Government's decision to drop the local barley production
subsidy.

## 1. Production, Supply and Distribution Table (PSD) Table for Barley 

## 

+----------------+-------+--------+-------+---------+-------+--------+
| **PSD Table**  |       |        |       |         |       |        |
+----------------+-------+--------+-------+---------+-------+--------+
| Country        | **    |        |       |         |       |        |
|                | Saudi |        |       |         |       |        |
|                | Ara   |        |       |         |       |        |
|                | bia** |        |       |         |       |        |
+----------------+-------+--------+-------+---------+-------+--------+
| Commodity      | **B   |        |       |         |       |        |
|                | arley |        |       |         |       |        |
|                | (     |        |       |         |       |        |
|                | (1000 |        |       |         |       |        |
|                | HA)   |        |       |         |       |        |
|                | (1000 |        |       |         |       |        |
|                | MT)** |        |       |         |       |        |
+----------------+-------+--------+-------+---------+-------+--------+
|                | 2002  | R      | 2003  | E       | 2004  | Fo     |
|                |       | evised |       | stimate |       | recast |
+----------------+-------+--------+-------+---------+-------+--------+
|                | USDA  | Post   | USDA  | Post    | USDA  | Post   |
|                | Off   | Es     | Off   | E       | Off   | Es     |
|                | icial | timate | icial | stimate | icial | timate |
|                | \[    | \      | \[    | \[New\] | \[    | \      |
|                | Old\] | [New\] | Old\] |         | Old\] | [New\] |
+----------------+-------+--------+-------+---------+-------+--------+
| #### Mar       |       | 0      |       | 07/2003 |       | 0      |
| ket Year Begin |       | 7/2002 |       |         |       | 7/2004 |
+----------------+-------+--------+-------+---------+-------+--------+
| Area Harvested | 17    | 17     | 0     | 0       | 0     | 0      |
+----------------+-------+--------+-------+---------+-------+--------+
| Beginning      | 1257  | 1111   | 2611  | 2362    | 2301  | 2312   |
| Stocks         |       |        |       |         |       |        |
+----------------+-------+--------+-------+---------+-------+--------+
| Production     | 100   | 100    | 0     | 0       | 0     | 0      |
+----------------+-------+--------+-------+---------+-------+--------+
| TOTAL Mkt. Yr. | 7064  | 6991   | 5500  | 6000    | 0     | 6500   |
| Imports        |       |        |       |         |       |        |
+----------------+-------+--------+-------+---------+-------+--------+
| Oct-Sep        | 7500  | 7560   | 5500  | 6500    | 0     | 6900   |
| Imports        |       |        |       |         |       |        |
+----------------+-------+--------+-------+---------+-------+--------+
| Oct-Sep Import | 0     | 0      | 0     | 0       | 0     | 0      |
| U.S.           |       |        |       |         |       |        |
+----------------+-------+--------+-------+---------+-------+--------+
| **TOTAL        | **8   | **     | **8   | *       | **2   | **     |
| SUPPLY**       | 421** | 8202** | 111** | *8362** | 301** | 8812** |
+----------------+-------+--------+-------+---------+-------+--------+
| TOTAL Mkt. Yr. | 0     | 0      | 0     | 0       | 0     | 0      |
| Exports        |       |        |       |         |       |        |
+----------------+-------+--------+-------+---------+-------+--------+
| Oct-Sep        | 0     | 0      | 0     | 0       | 0     | 0      |
| Exports        |       |        |       |         |       |        |
+----------------+-------+--------+-------+---------+-------+--------+
| Feed Dom.      | 5800  | 5840   | 5800  | 6000    | 0     | 6300   |
| Consumption    |       |        |       |         |       |        |
+----------------+-------+--------+-------+---------+-------+--------+
| TOTAL Dom.     | 5810  | 5840   | 5810  | 6050    | 0     | 6350   |
| Consumption    |       |        |       |         |       |        |
+----------------+-------+--------+-------+---------+-------+--------+
| Ending Stocks  | 2611  | 2362   | 2301  | 2312    | 0     | 2462   |
+----------------+-------+--------+-------+---------+-------+--------+
| **TOTAL        | **8   | **     | **8   | *       | **0** | **     |
| DISTRIBUTION** | 421** | 8202** | 111** | *8362** |       | 8812** |
+----------------+-------+--------+-------+---------+-------+--------+

## 2. Barley Imports

Barley imports this Marketing Year (MY ) 2003 is forecast to go down by
about one million tons due to good rain fall in the northern part of the
Kingdom which resulted in a better pasture conditions this year compared
to last year. Livestock farmers are expecting the good pasture to last
until early May.

Overall demand for imported barley is forecast to remain strong due to
lack of alternative competitive feed in the Kingdom. The demand for
other alternative forage such as alfalfa is expected to remain very low
as long as the Saudi Government keeps on subsidizing imported barely. It
is the policy of the Government to eliminate or sharply reduce alfalfa
production due to its high usage of non-renewable aquifer water. Since
the Government's ban on alfalfa exports three years ago, a large number
of farmers have exited alfalfa and other forage production. Nowadays,
the main growers and users of alfalfa are dairy farmers.

Barley imports for the first six months of MY 2003 (July 2003-December
2003) increased by more than 31 percent compared to the same period last
year (4,040,608 mt vs. 3,075,449 mt). MY 2004 barley imports are put at
6.5 million metric tons per forecast by trade contacts, an increase of
500,000 metric tons compared to the current MY due to mainly expected
increase in livestock imports from major supplying countries. Currently,
the Kingdom imports more than 7 million live sheep/goats annually.
Imported livestock are usually kept by traders for up to three months
during which they are mostly fed barley since it is the most inexpensive
animal feed in the Kingdom (due to the government subsidy program)
compared to other feed alternatives

Calendar Year 2003 (In January-December 2003), the Black sea suppliers
(Ukraine and Russia) lost their dominance in the Saudi barley market to
the EU. According to information obtained from barley traders, 7,955,894
metric tons of imported barley were unloaded at the six Saudi ports last
year, an increase of about 28 percent compared to Jan-Dec 2002
(6,216,807 mt). Seven EU states combined supplied 47.42%, followed by
Ukraine 32.33%, Russia (10.8%), Turkey (4%), Australia (2.8%) and Canada
1.4%.

Jeddah remained the main barley import port among the six Saudi ports
that handle imported bulk barley. In calendar year 2003, Jeddah Islamic
Port handled 48 percent of all barley imported, followed by Dammam
(19%), Jubail (16%), Yanbu (9%), Gizan (6%) and Diba (2%.)

## 3. Barley Specifications

Saudi barley importers normally buy barley based on standard
specifications of the country of origin (EU, United States, Canada, and
Australia). The following are specifications for U.S., European and
Australian origin imported barley obtained from a major Saudi grain
importer:

U.S. Barley

Sound, Loyal & Merchantable quality

Test weight per bushel 45 lbs. minimum

Moisture maximum 14.5 percent

Foreign Matter maximum 2 percent

Damaged kernels maximum 4 percent

Colored barley not less than 5 percent of total shipped quantity

Goods to be free from live weevils, insects, diseases, foreign smell and
materials.

**[EU and Australia]{.underline}**

Sound, Loyal & Merchantable quality

Colored barley not less than 5 percent of total shipped quantity

Goods to be free from live weevils, insects, diseases, foreign smell and
materials.

1\. In case of EU or Turkish origin:

Test weight: 62/63 KG/HL.

Moisture 15 percent

Foreign Matter: Max 2 percent

2\. In case of Australian origin: As per Australian Grain Board
Specifications

Saudi traders often employ brokers to buy barley. Several traders use
brokers based in Beirut.

## 4. Government Subsidy on Imported Barley

On June 11, 2000, the Saudi government issued a decree to temporarily
reinstate a barley subsidy program following an outcry by traditional
livestock farmers who were unable to feed their herds when the retail
price of 50 kg of barley reached SR 31 (\$8.27) and the C&F (free port)
at Saudi ports averaged \$130 per metric ton. Traditional farmers
feeding sheep, camels, and goats use about 80 percent of imported
barley. The farmers depend heavily on barley when pasture conditions in
the Kingdom are poor.

The decree instructed barley importers to sell a bag of 50 kg of
imported barley at Saudi Riyals (SR) 18 (\$4.80) or \$96 per metric ton
at importers bagging facilities. The maximum retail price to end-users
was set at SR 20 (\$5.33 or \$106.67 per metric ton). In return, the SAG
pays 5 percent of the C&F price at Saudi ports as a profit to importers
for barley imported and sold at the government set price (\$4.80 per 50
kg of barley) as evidenced by sales invoices and SR 54 (\$14.40) per
metric ton to cover expenses related to L/C opening, unloading,
transporting barley from sea port to bagging plants, and other related
costs. Due to the Government subsidy, barley users are not worried about
fluctuations in the world barley prices. Per trade contacts, world
barley price reached US\$ 180 per metric ton this year compared to
maximum price of US\$ 120 per metric ton last year. Regardless of the
world barley prices, local barley users pay only US\$ 96 dollars at
local importers bagging facilities.

## 5. Trade Matrix

  ----------------- --------------- --------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ---------------
  ***CALENDAR YEAR                                                                                                                                    
  2003 SAUDI ARABIA                                                                                                                                   
  BARLEY IMPORTS                                                                                                                                      
  LISTED BY                                                                                                                                           
  SUPPLYING                                                                                                                                           
  COUNTRIES***                                                                                                                                        

                                                                                                                                                      

  ***Month***       Ukraine         Germany         France        Russia        Holland       Turkey        Australia     Canada        Other         Total

                                                                                                                                                      

  ***January***     219883          0               0             54565         56800         0             0             0             0             331248

  ***February***    274899          137484          51239         104442        26939         0             0             0             0             595003

  ***March***       326352          219768          169583        118674        164350        106685        0             0             0             1105412

  ***April***       194568          156707          62302         50000         223152        80737         0             0             4500          771966

  ***May***         143129          169840          60474         84333         10035         36534         0             0             30874         535219

  ***June***        99704           85530           221159        54418         60927         54700         0             0             0             576438

  ***July***        57806           82033           124404        37106         0             0             0             0             119019        420368

  ***August***      0               549668          54771         54704         109515        36608         0             0             87849         893115

  ***September***   243386          277271          13066         50248         98964         0             55593         0             50000         788528

  ***October***     276626          38630           130854        63818         0             0             35519         0             57000         602447

  ***November***    595013          49502           0             98600         0             0             60168         20147         60684         884114

  ***December***    140762          54084           0             85970         0             0             76107         95113         0             452036

  *** ***                                                                                                                                              

  ***Total***       **2,572,128**   **1,820,517**   **887,852**   **856,878**   **750,682**   **315,264**   **227,387**   **115,260**   **409,926**   **7,955,894**
  ----------------- --------------- --------------- ------------- ------------- ------------- ------------- ------------- ------------- ------------- ---------------

## 

## Source: Trade Sources

+--------------+---+------------------------------------------------------+---+---+
| **Marketing  |   |                                                      |   |   |
| Year 2002    |   |                                                      |   |   |
| Saudi Barley |   |                                                      |   |   |
| Imports Data |   |                                                      |   |   |
| (July        |   |                                                      |   |   |
| 2002-June    |   |                                                      |   |   |
| 2003)**      |   |                                                      |   |   |
+--------------+---+------------------------------------------------------+---+---+
|              |   |                                                      |   |   |
|              |   |                                                      |   |   |
|              |   |                                                      |   |   |
+--------------+---+------------------------------------------------------+---+---+
| **Month**    |   | Quantity in Metric Tons                              |   |   |
+--------------+---+------------------------------------------------------+---+---+
|              |   |                                                      |   |   |
+--------------+---+------------------------------------------------------+---+---+
| July         |   | 504,617.00                                           |   |   |
+--------------+---+------------------------------------------------------+---+---+
| August       |   | 570,456.00                                           |   |   |
+--------------+---+------------------------------------------------------+---+---+
| September    |   | 457,969.00                                           |   |   |
+--------------+---+------------------------------------------------------+---+---+
| October      |   | 715,717.00                                           |   |   |
+--------------+---+------------------------------------------------------+---+---+
| November     |   | 352,121.00                                           |   |   |
+--------------+---+------------------------------------------------------+---+---+
| December     |   | 474,569.00                                           |   |   |
+--------------+---+------------------------------------------------------+---+---+
| January      |   | 331,248.00                                           |   |   |
+--------------+---+------------------------------------------------------+---+---+
| February     |   | 595,003.00                                           |   |   |
+--------------+---+------------------------------------------------------+---+---+
| March        |   | 1,105,412.00                                         |   |   |
+--------------+---+------------------------------------------------------+---+---+
| April        |   | 771,966.00                                           |   |   |
+--------------+---+------------------------------------------------------+---+---+
| May          |   | 535,219.00                                           |   |   |
+--------------+---+------------------------------------------------------+---+---+
| June         |   | 576,438.00                                           |   |   |
+--------------+---+------------------------------------------------------+---+---+
|              |   |                                                      |   |   |
+--------------+---+------------------------------------------------------+---+---+
| **Total**    |   | **6,990,735.00**                                     |   |   |
+--------------+---+------------------------------------------------------+---+---+

### Source: Trade Sources 

  ------------------ ------- ---------------------------- --------------------------
  Fiscal Year 2002                                        
  Saudi Barley                                            
  Imports (October                                        
  1,2002-September                                        
  30, 2003)                                               

                                                          

  Month                      Quantity in Metric Tons      

                                                          

  October                    715,717                      

  November                   352,121                      

  December                   474,569                      

  January                    331,248                      

  February                   595,003                      

  March                      1,105,412                    

  April                      771,966                      

  May                        535,219                      

  June                       576,438                      

  July                       420,368                      

  August                     893,115                      

  September                  788,528                      

                                                          

  **Total**          ** **   **7,559,704**                

                                                          
  ------------------ ------- ---------------------------- --------------------------

### Source: Trade Sources 

# II. Wheat Production

All aspects of wheat continue to be controlled by the Ministry of
Agriculture's agency Grain Silos and Flour Mills Organization (GSFMO.)
Government policy is for farmers to produce only enough wheat to meet
domestic needs, currently about two million mt. Saudi Arabia does not
export or import wheat or wheat flour, with the exception of small
quantities of mixed wheat flour for special baking needs. Some Saudi
based grain importers do sometimes import wheat from the U.S. for
exports to nearby countries.

## 1. Reduction in the Local Wheat Production Subsidy

The Government guaranteed purchase price for locally grown wheat will be
reduced from US\$ 400 per metric ton to US\$ 266.67 per metric ton
commencing from the 2004/2005 crop, which will be harvested in the
spring of 2005. The Government's decision was announced on December 29,
2003. Also for the first time for over a decade, the Government allowed
large shareholding companies to produce between 300,000 mt and 600,000
mt wheat annually starting from next year's crop season. It is worth
mentioning that large shareholding agricultural companies were excluded
from receiving government subsidies on wheat and barley production in
1993.

## 2. Production, Supply and Distribution Table (PSD) for Wheat 

+-----------------+---------+------+------+--------+--------+---------+
| ###             |         |      |      |        |        |         |
| ##### PSD Table |         |      |      |        |        |         |
+-----------------+---------+------+------+--------+--------+---------+
| **Country**     | **Saudi |      |      |        |        |         |
|                 | A       |      |      |        |        |         |
|                 | rabia** |      |      |        |        |         |
+-----------------+---------+------+------+--------+--------+---------+
| **Commodity**   | **Wheat |      |      |        |        |         |
|                 | (1000   |      |      |        |        |         |
|                 | H       |      |      |        |        |         |
|                 | A)(1000 |      |      |        |        |         |
|                 | MT)**   |      |      |        |        |         |
+-----------------+---------+------+------+--------+--------+---------+
|                 | 2002    | Rev  | 2003 | Es     | 2004   | F       |
|                 |         | ised |      | timate |        | orecast |
+-----------------+---------+------+------+--------+--------+---------+
|                 | USDA    | Post | USDA | Post   | USDA   | Post    |
|                 | O       | Esti | Offi | Es     | Of     | E       |
|                 | fficial | mate | cial | timate | ficial | stimate |
|                 | \[Old\] | \[N  | \[O  | \      | \      | \[New\] |
|                 |         | ew\] | ld\] | [New\] | [Old\] |         |
+-----------------+---------+------+------+--------+--------+---------+
| **Market Year   |         | 07/  |      | 0      |        | 07/2004 |
| Begin**         |         | 2002 |      | 7/2003 |        |         |
+-----------------+---------+------+------+--------+--------+---------+
| Area Harvested  | 446     | 446  | 446  | 446    | 0      | 320     |
+-----------------+---------+------+------+--------+--------+---------+
| Beginning       | 1271    | 1053 | 1332 | 1050   | 1357   | 1043    |
| Stocks          |         |      |      |        |        |         |
+-----------------+---------+------+------+--------+--------+---------+
| Production      | 2000    | 2000 | 2000 | 2000   | 0      | 1600    |
+-----------------+---------+------+------+--------+--------+---------+
| TOTAL Mkt. Yr.  | 161     | 3    | 125  | 3      | 0      | 400     |
| Imports         |         |      |      |        |        |         |
+-----------------+---------+------+------+--------+--------+---------+
| Jul-Jun Imports | 161     | 3    | 125  | 3      | 0      | 400     |
+-----------------+---------+------+------+--------+--------+---------+
| Jul-Jun Import  | 4       | 2    | 0    | 2      | 0      | 100     |
| U.S.            |         |      |      |        |        |         |
+-----------------+---------+------+------+--------+--------+---------+
| **TOTAL         | *       | **30 | **34 | **     | **     | *       |
| SUPPLY**        | *3432** | 56** | 57** | 3053** | 1357** | *3043** |
+-----------------+---------+------+------+--------+--------+---------+
| TOTAL Mkt. Yr.  | 0       | 0    | 0    | 0      | 0      | 0       |
| Exports         |         |      |      |        |        |         |
+-----------------+---------+------+------+--------+--------+---------+
| Jul-Jun Exports | 0       | 0    | 0    | 0      | 0      | 0       |
+-----------------+---------+------+------+--------+--------+---------+
| Feed Dom.       | 50      | 50   | 50   | 50     | 0      | 40      |
| Consumption     |         |      |      |        |        |         |
+-----------------+---------+------+------+--------+--------+---------+
| TOTAL Dom.      | 2100    | 2006 | 2100 | 2010   | 0      | 2040    |
| Consumption     |         |      |      |        |        |         |
+-----------------+---------+------+------+--------+--------+---------+
| Ending Stocks   | 1332    | 1050 | 1357 | 1043   | 0      | 1003    |
+-----------------+---------+------+------+--------+--------+---------+
| **TOTAL         | *       | **30 | **34 | **     | **0**  | *       |
| DISTRIBUTION**  | *3432** | 56** | 57** | 3053** |        | *3043** |
+-----------------+---------+------+------+--------+--------+---------+

When implemented, the decision to reduce the GPP will be the second
price cut in the past ten years. In June 1995, the Government reduced
the local wheat purchase price from US\$ 533) to US\$ 400 per metric
ton). At that time the measure was reportedly implemented to conserve
budget and water resources.

## 3. Possible Reasons for the Reduction in the Wheat Subsidy

## 

According to local agricultural analysts, the Saudi Government reduced
the wheat purchase price to achieve two goals:

### A. Meet WTO Accession Requirements

It has been widely believed that the Saudi Government has been facing
difficulties at the WTO talks in Geneva with leading wheat producing
countries who insist that the Saudi Government open up its wheat market
by doing away with (or reducing significantly) the local wheat subsidy
as one of the conditions that the Saudi Government has to meet to get
their support in the agricultural negotiations.

Though the GPP is still a lot higher than the C&F prices of imported
wheat, it is believed that most small local producers will not be able
to produce their assigned quotas since their production cost is very
close to the GPP due to productivity per hectare estimated at lower that
5 metric tons. This was the major reason why local small farmers where
not attracted to barley production when the GPP was \$267.67 per metric
ton. Despite the Government barley production quota of 1 million metric
tons in the past few years, local farmers were only able to produce less
than 200,000 metric tons annually, which allowed the Government to drop
local barley production subsidies starting from this year's crop season.

It is possible for the six-shareholding companies and a couple of large
family owned farms to produce the government assigned quotas
economically. According to crop managers of large shareholding farms, it
is possible to produce a ton of wheat between US\$ 133.33 to \$200,000
depending on the geographical location of the producing farm. Large
firms have indicated that they have enough expertise to produce 8 to 9
metric tons of wheat per hectare meaning they have no difficulties
meeting government assigned wheat production quotas. Despite the high
productivity of large farmers, they apparently have limited productive
lands since most of the installed central pivots as well as water wells
have not been used since 1993 when large stock holding farmers were
eliminated from receiving wheat production subsidies. It takes a huge
investment in fertilizers, chemicals as well as in digging new wells to
make the long abandoned desert land productive again. Even those
financially capable farmers want to wait and see the outcome of the
ongoing WTO negotiations to decide whether or not to upgrade their lands
to take advantage of expected exit of a large number of small farmers
from wheat production.

Given the fact that the majority of the Kingdom's 4000 wheat farmers
will not be able to economically produce wheat and that large farmers
will not probably invest huge amounts of needed capital in upgrading
their previously productive wheat lands, it is high likely that the
Kingdom will be turning to imported wheat to make up for the expected
wheat shortage next year. It is estimated that the country may import at
least 400,000 metric tons of wheat next year. When that happens, it will
be the first time in over two decades that the Government will
officially turn to imported wheat to satisfy part of the domestic wheat
consumption estimated at around 2 million metric tons per annum.

### B. Pave Ways for Flour Mills Privatization

The Saudi Government has been holding talks with World Bank officials
concerning privatization of the country's six flourmills. The total
combined milling capacity of the six mills is 5,600 mt of wheat per day.
Another sign of the Government's privatization intent was its decision
last year to reduce the import tariff on wheat from 100 percent to zero
percent. However, prospective importers need to obtain an import license
from the Grain Silos and Flour Mills Organization (GSFMO), an entity
responsible for implementing Saudi Government's grain policy. Thus far,
no importer has approached the organization to obtain an import license.
If and when the mills are privatized, traders will be allowed to buy
wheat on the world market. According to some reports, the government
will continue the current wheat subsidy policy even if it goes out of
the flour milling business. If the mills are privatized, the
responsibilities of purchasing and selling locally produced wheat are
expected to pass from the GSFMO to the Ministry of Finance and National
Economy. The Ministry will be responsible for purchasing wheat at the
GPP and selling it to local millers at subsidized rates, paying the
difference between the GPP price of USD\$ 267.67 and the world market
prices for wheat.

# III. Overview of the Kingdom's Rice Market

No rice is produced in the Kingdom. In Calendar Year (CY) 2003 Saudi
Arabian rice imports were estimated at more than one million metric
tons, an increase of over 27 percent compared to CY 2002. Imports this
year are forecast to show a marginal increase of about 1 percent
relative to the last year's level (see PSD table). The huge increase in
imports last year is attributed to a strong consumer demand locally due
mainly to the high population growth rate of 3.5 percent, increasing
number of pilgrims that come to Mecca (more than five millions pilgrims
come to Mecca each year to perform Ummra and Haj rituals) and exports
mainly to Iraq through Jordan and Kuwait. Also the Saudi Government
procures rice locally for food donations to nearby countries affected by
natural disasters

Since rice is a staple food in the Kingdom, the Saudi government does
not impose import tariffs, providing Saudi traders the opportunity to
re-export imported rice to nearby destinations.

## 1. Production, Supply and Distribution Table (PSD) Table for Rice

+--------------------+--------+-------+--------+-------+-------+-------+
| **PSD Table**      |        |       |        |       |       |       |
+--------------------+--------+-------+--------+-------+-------+-------+
| **Country**        | *      |       |        |       |       |       |
|                    | *Saudi |       |        |       |       |       |
|                    | Ar     |       |        |       |       |       |
|                    | abia** |       |        |       |       |       |
+--------------------+--------+-------+--------+-------+-------+-------+
| **Commodity**      | *      |       |        |       |       |       |
|                    | *Rice, |       |        |       |       |       |
|                    | Milled |       |        |       |       |       |
|                    | (1000  |       |        |       |       |       |
|                    | HA     |       |        |       |       |       |
|                    | )(1000 |       |        |       |       |       |
|                    | MT)**  |       |        |       |       |       |
+--------------------+--------+-------+--------+-------+-------+-------+
|                    | 2002   | Re    | 2003   | Est   | 2004  | For   |
|                    |        | vised |        | imate |       | ecast |
+--------------------+--------+-------+--------+-------+-------+-------+
|                    | USDA   | Post  | USDA   | Post  | USDA  | Post  |
|                    | Of     | Est   | Of     | Est   | Off   | Est   |
|                    | ficial | imate | ficial | imate | icial | imate |
|                    | \      | \[    | \      | \[    | \[    | \[    |
|                    | [Old\] | New\] | [Old\] | New\] | Old\] | New\] |
+--------------------+--------+-------+--------+-------+-------+-------+
| ####               |        | 01    |        | 01    |       | 01    |
|  Market Year Begin |        | /2002 |        | /2003 |       | /2004 |
+--------------------+--------+-------+--------+-------+-------+-------+
| Area Harvested     | 0      | 0     | 0      | 0     | 0     | 0     |
+--------------------+--------+-------+--------+-------+-------+-------+
| Beginning Stocks   | 182    | 150   | 85     | 92    | 150   | 158   |
+--------------------+--------+-------+--------+-------+-------+-------+
| Milled Production  | 0      | 0     | 0      | 0     | 0     | 0     |
+--------------------+--------+-------+--------+-------+-------+-------+
| Rough Production   | 0      | 0     | 0      | 0     | 0     | 0     |
+--------------------+--------+-------+--------+-------+-------+-------+
| MILLING RATE       | 0      | 0     | 0      | 0     | 0     | 0     |
| (.9999)            |        |       |        |       |       |       |
+--------------------+--------+-------+--------+-------+-------+-------+
| TOTAL Imports      | 938    | 852   | 1150   | 1086  | 0     | 1100  |
+--------------------+--------+-------+--------+-------+-------+-------+
| Jan-Dec Imports    | 1150   | 852   | 950    | 1086  | 0     | 1100  |
+--------------------+--------+-------+--------+-------+-------+-------+
| Jan-Dec Import     | 0      | 93    | 0      | 110   | 0     | 120   |
| U.S.               |        |       |        |       |       |       |
+--------------------+--------+-------+--------+-------+-------+-------+
| **TOTAL SUPPLY**   | **     | **1   | **     | **1   | **    | **1   |
|                    | 1120** | 002** | 1235** | 181** | 150** | 261** |
+--------------------+--------+-------+--------+-------+-------+-------+
| TOTAL Exports      | 60     | 10    | 60     | 70    | 0     | 80    |
+--------------------+--------+-------+--------+-------+-------+-------+
| Jan-Dec Exports    | 60     | 10    | 60     | 70    | 0     | 80    |
+--------------------+--------+-------+--------+-------+-------+-------+
| TOTAL Dom.         | 975    | 900   | 1025   | 950   | 0     | 1010  |
| Consumption        |        |       |        |       |       |       |
+--------------------+--------+-------+--------+-------+-------+-------+
| Ending Stocks      | 85     | 92    | 150    | 158   | 0     | 168   |
+--------------------+--------+-------+--------+-------+-------+-------+
| **TOTAL            | **     | **1   | **     | **1   | **0** | **1   |
| DISTRIBUTION**     | 1120** | 002** | 1235** | 181** |       | 261** |
+--------------------+--------+-------+--------+-------+-------+-------+

## 2. Saudi Rice Imports

India has remained the main beneficiary from the growing Saudi rice
market. Basmati (white and parboiled) and Parimal rice are the leading
Indian varieties imported. Based on data received from trade contacts,
rice exports to Saudi Arabia from India in 2003 reached 820,000 metric
tons, an increase of about 37 percent compared to 2002. Indian rice is
now accounts for about 76 percent of all rice exported to the Kingdom.
Basmati is still the dominant Indian rice variety in the Kingdom.
However, its market share went down by 14 percent in 2003 in favor of a
less expensive and marginal quality Parimal variety.

With a 10 percent market share, the United States has remained the
second largest rice supplier to the Kingdom (followed by Pakistan &
Thailand). According to the U.S. Customs data, U.S. rice exports
increased from 93,398 mt in 2003 to 110,012 mt in 2003 (an increase of
about 18 percent). The diminished boycott America campaign that started
early in 2001, consumer confidence on the safety of American rice after
the lead scare of early 2002, and price competitiveness are the main
factors for the import increase last year. The three factors are
expected to further increase the U.S. rice exports to the Kingdom in
2004.

## 3. Reasons for Increased Demand for Indian Rice

Saudi rice traders believe Indian rice exports will continue to benefit
most from the growing rice market than American rice for the following
reasons:

**⇒** A significant percentage of Saudis and expatriates with low
incomes have shifted from U.S. rice to Indian Parimal rice (PR106).
Indian Parimal parboiled rice was introduced in the Kingdom 10 years ago
and has rapidly gained in popularity. Indian Parimal was instrumental in
prompting a significant decline in exports of Thai parboiled rice to the
Kingdom.

**⇒** Competitive prices of Parimal rice. Parimal rice is by far the
least expensive parboiled rice available in the Kingdom. Retail price of
45 kg of Parimal rice as of March 2003 was US\$ 16 compared to up to US
\$21.33 per 45 kg for a dominant brand U.S. parboiled rice sold in the
Kingdom.

**⇒** The Saudi rice trade acknowledges that the quality of U.S. rice is
superior to Parimal rice, but concedes that the vast majority of
consumers are unable to ascertain the difference between the two
varieties. Sources allege that illicit traders often pass off Indian
rice as American rice, by bagging Indian rice in bags associated with
U.S.-origin rice. This practice, according to the trade, has been going
on for several years, but is virtually impossible to stop.

**⇒** The availability of dozens of brands of Basmati and non-Basmati
rice, mainly from India, on the Saudi market has greatly increased
competition at the expense of U.S. brands. There appears to be less than
10 different U.S. brands on the Saudi market.

**⇒** While Indian and other rice are perceived as \"natural\" rice,
U.S. rice has been frequently perceived as \"manufactured,\" according
to the Saudi rice trade. U.S. rice companies should work hard to dispel
this myth.

## 4. Trade Matrix

The table below shows exports of rice to Saudi Arabia from leading
suppliers, for calendar years 2003 to 2002. The data was provided by FAS
offices in India, Thailand, and Pakistan and are based on official
Customs Data and/or trade contacts from these countries.

  ---------------------- -------------------------- --------------------- --
                         **CY2003**                 **CY2002**            

                                                                          

  India                  820,000                    600,000               

  US                     110,012                    93,398                

  Pakistan               80,739                     70,427                

  Thailand               45,427                     58,309                

  Other                  30,000                     30,000                

                                                                          

  Total                  **1,086,178**              **852,134**           
  ---------------------- -------------------------- --------------------- --

## 5. Saudi Rice Cleaning and Bagging Plant

The Saudi company AJWA is the only rice cleaning and bagging plant in
the Kingdom. AJWA buys rice in bulk from the United States and other
destinations, particularly India, and cleans and bags the rice under its
own brand names. The firm stopped bagging Uncle Ben's rice from the U.S.
three months ago since the Saudi Uncle Ben's agent is now sourcing from
the Uncle Ben's Spanish plant. The AJWA complex was built in 1995 and is
located in Jeddah Port. It has the capacity to store 120,000 mt of rice
and to process up to 450,000 mt of rice annually.

AJWA is responsible for unloading the vast majority of bulk grain
shipments to Jeddah port. The plant is located next to three berths that
it rents from the Port Authority. The berths can handle vessels carrying
up to 100,000 mt of grains.

**END OF REPORT**