Saudi Arabia embarks on privatization of its flour milling sector

SAUDI ARABIA – Saudi Arabia has started privatizing its flour milling sector, as part of a wide-reaching overhaul of its economy, with the Kingdom recently privatizing two of its four flour milling companies for US$740.5 million.

Saudi Arabia has traditionally imported and milled wheat, and then sold the resulting flour at subsidized prices. But it has been moving toward privatization for a number of years.

In 2018, Saudi Arabi’s Council of Economic and Development Affairs approved a privatization program for the sale of the four flour milling companies by SAGO, the state’s grain buyer, reports World Grain.

They were split off from the Grain Silos and Flour Mills Organization who had been the exclusive wheat importer and miller in Saudi Arabia. Responsibility for wheat importation and storage was taken over by SAGO.

The two already privatized milling companies were reportedly sold through a competitive bidding process to two consortiums of Saudi and the United Arab Emirates (UAE) investors.

The first milling company was sold for US$540.1 million to the Raha AlSafi consortium led by the Saudi company Al-Mutlaq Group. It is headquartered in the Red Sea city of Jeddahhas with flour mills in western, central, northern and eastern Saudi Arabia.

The consortium included another two Saudi firms – Al-Safi and Abunayyan Holding – and the UAE company Essa Al Ghurair Investment.

The First Mills Company has a processing capacity of 4,200 MT of wheat milling and 900 MT of feed.

The third mills company headquartered in the southern city of Khamis Mushait, was sold for US$200 million to the buying consortium made up by Al-Rajhi, a Saudi company, and two UAE companies – Al Ghurair Foods and Masafi.

The company has flourmills in southern, western and northern Saudi Arabia with a 3,451 MT of wheat milling and 1,400 MT of animal feed processing capacity per day.

The remaining two mill companies i.e second and fourth are expected to be sold in the next few weeks.

The second mills company is headquartered in Riyadh. It has mills in central, southern and northern Saudi Arabia with 4,350 MT of daily wheat milling capacity.

The Dammam based Fourth Mills Company has flourmills in eastern, western and central Saudi Arabia. It has daily wheat and animal feed milling capacity of 3,150 MT and 300 MT, respectively.

SAGO begun accepting pre-qualification bids on July 16 for the companies.

SAGO Role after Privatization

While there is interest in ending the wheat subsidy and supporting low income Saudis directly, it is not known when or if that will occur, reports USDA Foreign Agricultural Service.

If it does, there may be more opportunity for high quality wheat and product differentiation. Until a royal decree changing the wheat subsidy policy is issued, the privatized flour mills will continue to receive wheat from SAGO, and mill and distribute it at subsidized rates.

Most of the revenue of the private mills is expected to come from milling fees. The privatized mills are allowed to import wheat for non-subsidized flour. This could be used for premium products, but volumes are expected to be small.

SAGO will remain the sole importer of subsidized milling wheat and will maintain ownership and operation of most of the wheat silos across the country.

It will manage the strategic wheat reserves and ensure the Kingdom’s food security objectives.

Its other roles will include; Issuing import permits for unsubsidized wheat to interested flour mills; Setting regulations related to wheat flour quality; Maintain strategic wheat reserve; Inspecting flour mills to ensure compliance with quality regulations; Encouraging and regulating competition among private flour mills; and Ensuring enough wheat flour is produced and delivered

In MY2019/20 (July 2019/June 2020), Saudi Arabia imported 3.45 million MT of wheat worth US$809.17 million via tenders issued by SAGO.

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