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Reaching Through Politics to Serve a Growing Importer

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Cary
Two weeks ago, an otherwise ordinary trade servicing visit planned to the Kingdom of Saudi Arabia took one of those unexpected turns.

By: Cary Sifferath, Regional Director for Middle East and Africa, U.S. Grains Council 

My 21 years of work with the U.S. Grains Council (USGC) has taken me many places and into many unusual situations. Two weeks ago, an otherwise ordinary trade servicing visit planned to the Kingdom of Saudi Arabia took one of those unexpected turns when it was announced just hours before I boarded my flight that King Abdullah - the world’s oldest ruling monarch who oversaw a country that controls 16 percent of the world’s known oil reserves – had died.

Saudi Arabia is a rarity in the world of modern governance and commerce, still ruled by the sons of its founder who buried an all-powerful king in a traditional unmarked grave in the desert. In the United States, the country often conjures up images of vast landscapes of sand full of liquid gold, Islamists who hate both the royal family and Westerners, or women so restricted from modern life they can’t even drive themselves. But 27 million Saudi citizens are relatively affluent and want to enjoy meat, milk and eggs just like others around the world, and the country is dependent on all manner of agricultural imports for their increasingly diversified diets.  

As world markets hoped, the handover of power from Abdullah to his brother Salman was smooth, and a succession plan has been announced for the next two kings. In fact, the country is relatively stable in a region full of ongoing violence. Once on the ground, I found things to be business as usual - at least as usual as possible when oil is hovering near $50 a barrel. Murmurs of concern about the ruling family’s ability to keep life in the Kingdom comfortable for its people are muted by $750 billion in hard currency reserves that will hold the country steady even with several years of lower oil prices.

The Saudi economy is supported by a subsidy system that shields industries and consumers from true market costs of many basic needs. Subsidies for feed ingredient imports were last reviewed in 2011, a time during which commodity prices were higher than they are today, which means U.S. coarse grains are even more well-priced than they are on the world market. It’s unlikely the new king will change these subsidies for some time to help ensure ongoing stability.

The Kingdom is also moving toward reducing overall water usage, which will increase demand for imported corn and fiber products like distiller’s dried grains with solubles (DDGS) and corn gluten feed. An increasingly popular feed source known as wafi feed replaces traditionally-preferred barley and forage with a cube made of a mixture of feed grains and fiber sources of feed ingredients. U.S. coarse grains can provide the forage, protein and fiber sources needed for these rations.

In the near and long terms, Saudi Arabia is a market in which U.S. coarse grain exports have significant opportunity for expansion. In 2014, the Kingdom imported 2.2 million metric tons (86.6 million bushels) of corn, including 950,000 tons (37.3 million bushels) from the United States and around 9,000 tons of DDGS. ARASCO, the Saudi national agricultural company, will open two new feed mills in the first half of 2015 and, in the coming years, should increase its own corn imports from 1-1.2 million tons (40-47 million bushels) per year to 2-3 million tons (78-118 million bushels) per year. Two large importers have already purchased 475,000 tons (18.7 million bushels) of U.S. corn for January through July shipments and roughly 15,000 tons of DDGS are also scheduled to be shipped in the first three months of 2015.

With the continued upheaval and violence in Syria, Iraq, Libya, Yemen and beyond, the stable leadership change in Saudi Arabia is a welcome calm. It is also a sign of the ruling family’s commitment to maintain the Saudi Arabian economy, which includes a growing coarse grain demand that needs to be serviced by the Council on behalf of U.S. farmers. 


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