by Sean Cowman – Markets Manager, AEGIC.
The primary driver behind Saudi Arabia’s position as the largest global importer of feed barley, and importantly, as a key historical market for Australian barley exports, has been the Kingdom’s Bedouin tribes, who have long had a passion for barley as an animal feed. In Saudi Arabia, cereal grains such as barley and wheat are used for both food and animal feed purposes. Wheat is generally consumed as food, while barley is used mostly for animal feed.
The Saudi government is, at present, attempting to reduce the inefficiencies and ultimately, the costs associated with importing and subsidising feed barley to its domestic markets. A key component of this is a push towards the adoption of more ‘nutritionally efficient’ domestically manufactured compound feeds. However, there remains a degree of resistance to this change – particularly amongst politically influential Bedouin livestock users, who remain vociferous believers in the historical practice of direct feeding unprocessed barley to their livestock.
Wheat and barley use in Saudi Arabia – historical perspective
Due to their abovementioned precarious food sovereignty position, the Saudi government has historically played a major role in managing the country’s barley (and wheat) supply and demand. During the 1960’s and 1970’s, government subsidies favoured barley imports. Government policy changes in the 1980’s saw the Saudi government undertake a broad range of activities aimed at supporting the Kingdom’s food security and self-sufficiency. Government support of cereal crops including wheat and barley ultimately resulted in a surprisingly large local crops, with barley reaching a peak production of 2mmt in 2003.
However, it should come as no surprise to learn that growing wheat and barley in the desert isn’t ideal (agronomically speaking). A key difference between Saudi Arabia and other similarly import-dependent nations is that Saudi Arabia, courtesy of their position as a key world producer of oil had plentiful of Government funds to support ambitious dreams of self-sufficiency for the Kingdom in food and feeds. This led to the incongruous image of improbably lush, green fields of wheat and barley, encircled by a dry, dusty, desert. However, while Saudi Arabia’s deep pockets have been able to overcome most commercial or economic hurdles there has been one intractable constraint that financial resources alone cannot overcome – sustainable access to water.
Cereal production in Saudi Arabia relies almost entirely on irrigation. However, in the early 2000s there was a growing recognition of the country’s rapidly diminishing water resources, which resulted in a dramatic re-weighting of priorities away from grains self-sufficiency and towards the conservation of finite water resources. This effectively ended Saudi Arabia’s costly and water-intensive domestic grain production.
Rather than further exhausting the limited ground water resources to grow wheat and barley, the government instead ratcheted up their import grain procurement programs, with the focus instead shifting once again back to a strong reliance on feed barley imports.
Image – Australian grain growers in a crop under pivot irrigation at NADEC dairy farm, Haradh, Saudi Arabia, 2014. Image courtesy: Sean Cowman
Figure 1 – Saudi domestic barley production (‘000 mt) . Source – USDA
audi Arabia currently produces around 10kmt-15kmt (as at 2020), used mostly for human consumption in a range of local dishes such as soups, stews, breads and (non-alcoholic) beverages. An example of this is sobia – a refreshing, cold drink served during festive periods that is made from slightly fermented barley bread and a number of added spices.
BARLEY FOR ANIMAL FEED IN SAUDI ARABIA
Barley has a long history of use as an animal feed in Saudi Arabia. Barley is mainly used in conjunction with, and as a replacement for, green forage and dry forage eg alfalfa hay. Around 80 percent of imported barley is used as a feed for sheep, camels, and goats. Dairy farms feed formulations and poultry feeds are less reliant on barley inclusion in feed formulations.
At present, Saudi Arabia has around 14 million head of livestock (Ministry of Environment, Water and Agriculture, 2019), with an additional 8 million
head of livestock imported annually for fattening and slaughter.
The government has historically provided heavily subsidised barley to domestic buyers, which has meant that imported feed barley has always been readily available at relatively cheap values. This support is seen as an important mechanism for redistributing the economic benefits of the lucrative Saudi petroleum industry throughout the Kingdom and, more specifically, keeping the politically influential Bedouin tribes on side. Nomadic Bedouin tribes feed their livestock on pasture / forage grazing when in supply and use dry forage and feeds in conjunction with these, or replacement for depending on conditions. For example, imports of barley were down in 2019, as rainfall in the Kingdom provided plentiful pasture for livestock grazing. Barley remains a preferred purchased animal feed.
THE CHANGING DYNAMICS OF AUSTRALIAN BARLEY EXPORTS TO SAUDI ARABIA
The Saudi government controls the importation of barley via the Saudi Arabian Government Organisation (SAGO), through which all imports pass, via a tender open to invited international exporters. The management of Saudi Arabia’s grain imports (including wheat and barley) had previously fallen within the remit of the Ministry of Finance, however, in 2016 this responsibility was passed to SAGO.
In its current iteration, the SAGO managed tender process is recognised internationally for its greater transparency with regards to awarded quantities and prices compared to the iterations pre-dating SAGO’s assumption of responsibility. This transparency has also meant that the Saudi barley tender has subsequently become a global benchmark for world feed barley pricing.
The Saudi barley import tender is typically announced with relatively short notice, with the tender ultimately awarded only days later. While government tenders are not typically as appealing to traders compared to private trade, one aspect of the Saudi tender that appeals to traders is the provision for optional origin, with gives the seller a degree of flexibility in terms of executing the sale. For example, a seller may nominate Australian, US or European origin in their submission and, when the grain is scheduled to be shipped, they can elect to ship from the origin that provides them with the greatest margin or least risk. However, it is important to point out that a tender process that permits optional origin is tacitly acknowledging that the buyer views the barley as being full commoditised and undifferentiated.
Australian and Saudi Arabia have historically enjoyed a strong, mutually beneficial relationship that saw, for many years, Australia continue as the main supplier of barley to Saudi Arabia – the largest importer feed barley. The brightness and colour of Australian barley, relative to other origins, has historically been a key competitive selling advantage in this market and other markets in the region as the appearance is considered more favourable to the darker and often more dull appearance of barley from the northern hemisphere.