by Sean Cowman – Markets Manager, AEGIC.
In Part One of this two-part series I explained some of the key factors underpinning Saudi Arabia’s long history of using barley for animal feed. Historically speaking, Australian barley has long dominated this market, however, due to a number of reasons the status-quo has recently been upended, effectively ending Australia’s dominance of the Saudi market for barley.
Black Sea and Baltic Sea barley now dominate the Saudi market. This shift in trade-flows coincided with greater demand from China for Australian barley, which often at paid a premium for Australian FAQ barley resulting in greater volume directed to more lucrative markets in China. A key point of appeal with the Chinese market is that it provides Australian barley with exposure to China’s huge beer/malt market, as well as its growing animal feed demand.
The Chinese Fair Average Quality (FAQ) barley market offered Australian barley an attractive price premium relative to alternative animal feed markets. The demand from China grew strongly in recent years, as shown in Figure 5 below, with a large swing in Australian barley exports from Saudi Arabia to China from 2014.
Figure 5 – Australian barley exports by major destination – 2004-2018 (mt)
However, the past two years (2019 and 2020) has seen this growth in Chinese market grind to a halt, with China’s the anti-dumping claim against Australian and the continued impact of African Swine Fever (ASF) on China’s pig industry negatively impacting Australian barley exports.
China’s application of an 80% tariff on Australian barley imports from May 2020, for a period of five years, will see Australian barley exports redirected towards other markets, including Saudi Arabia. However, despite Saudi Arabia remaining the largest importer of feed barley globally, the political and economic landscape within the Kingdom is moving towards reducing it barley imports and moving more to compound feeds.
The Kingdom’s push towards growing production of processed feed
The Saudi government has been encouraging a shift from raw, unprocessed barley to processed feed instead, with an ambitious goal of reducing barley imports by around 2 million tonnes, from 8mmt to 6mmt by 2021.
The USDA reported in 2018/19 barley actual usage was 6.3mmt (initially forecast to be 7.0mmt). In 2019/20 barley usage is estimated to increase 6.7mmt due to poor pasture condition year on year.
Figure 6 – Saudi Arabia’s barley consumption from 2004-2020 (Source: USDA)
For the past several years, the Saudi government has subsidised a range of imported feed grains and feed ingredients, including –
- yellow corn
- soybean meal (SBM)
- dried distillers grains with soluble (DDGS)
- corn-gluten feed (CGF)
- barley straw
- sunflower meal
- sugar cane molasses
- alfalfa hay
- rice hulls.
The purpose of this support was to help grow the volume of locally-produced, processed feed and support domestic livestock producers by giving them greater access to nutritionally dense feed sources at competitive prices.
The subsidy rates are calculated according to energy and protein contents of each feed ingredient. Compound feed is priced to the market at similar levels to government subsidised feed barley (USD9.60 for 50kg bag). Despite the obvious commercial and nutritional density benefits of compound feed being available to buy for the price normally paid for unprocessed barley, Bedouin herders – the largest buyers of the feed barley in Saudi Arabia – remain unconvinced and continue to prefer unprocessed barley. This is despite the government’s ongoing education and awareness campaign aimed at selling the idea of using compound feed. For example, the Ministry Of Agriculture (MOA) provided research findings showing that more than 20 percent of raw barley fed to livestock passes undigested through the animal’s GI tract before being rectally ejected. Despite such government advocacy for compound feed, so far at least, Bedouin herders remain wedded to their historical preference for unprocessed feed barley. Among other considerations is familiarity and use in feeding barley compared to processed feed.
The Arabian Agricultural Services Company (ARASCO) is the largest Saudi animal feed processor, with compound feed production capacity of 4mmt. A key component of ARASCO’s marketing is its messaging that compound feed is a more efficient source of nutrients and, appealing to national interests, a more water efficient option for the Kingdom. In recent years, ARASCO has maintained the price of compound feed at a similar level to the government’s sales price for unprocessed barley of the same weight.
In 2018, the Saudi government provided around USD$1.5 billion in feed subsidies – of which around USD$1 billion (two-thirds) was spent on barley alone (source: USDA). The remaining balance was split across another 23 grains and feed ingredients, including hay, corn and soybean meal.
In early 2020, the Saudi government made revisions to their animal feed subsidy program. Namely –
- As of the 1st of January, 2020, the animal feed subsidy for 23 imported feed grains and ingredients was ceased
- From the 12th of January 2020, domestic feed barley sales prices were increased by 11%. This equated to an increase of around USD$1.07, from around USD$9.60 to USD$10.67 per 50kg bag.
- A new feed subsidy payment was introduced for small livestock famers with less than 300 animals. The subsidy is calculated per head and paid monthly.
- The poultry industry to directly receive new, annual, production-based subsides
- Increased subsidies on a range of forage and forage products.
- In comparison, the same quantity of processed feed sells for only USD$0.05 more than raw barley.
The total level of funding allocated to these support measures, across four livestock categories (sheep, goat, camel, and cattle) is reported to be around USD$320m per annum (source: USDA). The new barley pricing policy allows for prices to be adjusted to reflect prevailing international prices.
Any move from unprocessed, direct-fed grains to processed, compound feed benefits those nations who product and export corn, soybeans or soybean meal eg USA. These energy-dense feeds are heavily favoured by compounders looking to produce rations with the least cost per kilojoule.
As part of its water conservation imperative, in 2016 the Saudi government decided to halt almost all production of hay by 2019. For reference, in 2016, Saudi Arabia hay production was 4mmt in 2017 (total forage production was over 10mmt). The new government policy increases import subsidies on a range of forage products by up to 134% to stimulate and support imports. Saudi Arabia imported 685,000mt of hay in 2016 and over a 1 mmt in 2017 (up from zero five years earlier). It is estimated the imports of forage hays could increase to 3mmt. In Saudi Arabia, hay (mostly alfalfa hay) is predominantly used in dairy production, however, some forage is also used by feed millers and the traditional livestock sector.
Saudi market for Australian barley exports in the medium to longer term
For the foreseeable future, Saudi barley import volumes will be at the mercy of government policies and, in particular, subsidies for barley, relative to other grains and locally produced compound feed. The government will have the daunting task of navigating a workable pathway through a number of competing interests. In the context of barley imports, chief among these challenges will be striking the right balance between the Kingdom’s need to conserve dwindling water supplies, the needs of the vocal Bedouin herders and the financial impact of support for the various local sectors that either produce or consume animal feed.