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Saudi Arabia Agribusiness Report Q1 2012

The Saudi Arabian governments drive to reduce grain production in order to conserve water in the desert country has turned it into one of the worlds largest importers. We are therefore cautious about the grains sector and expect Saudi Arabia to grow increasingly reliant on imports of rice and wheat over our forecast period. Overall, we expect the poultry sector to outperform as a result of continued public and private investment into the industry.

Poultry production growth to 2015/16: 17.7% to 696,800 tonnes. The Saudi government has made poultry output growth a priority, recognising it as one industry for which the country can be close to self-sufficient.

Corn consumption growth to 2015/16: 26.7% to 2.6mn tonnes. Corn is an important part of the local diet as well as a popular source of poultry feed,

Milk production growth to 2015/16: 17.5% to 2.1mn tonnes. Demand for whole milk powder will rise as it remains a more affordable and durable commodity, also reflecting the weak distribution infrastructure in many regions.

2012 real GDP growth: 4.1% average, down from 6.3% in 2011. Predicted to average 3.9% from 2011 to 2016.

2012 consumer price inflation: 4.7% average, down from 5.1% 2011.

Saudi Arabias announcement that it will increase wheat imports in 2010/11 and 2011/12 is a direct consequence of the kingdoms decision to gradually phase out all water-intensive crops, including wheat, by 2016. In fact, the countrys Grain Silos & Flour Mills Organization declared on October 19 2011 that it plans to import 1.9mn tonnes of wheat in 2010/11 and more in 2011/12. Wheat production has decreased since 2004/05 after the country halted subsidies for the grain in order to save water. In fact, wheat production has fallen on average 9.0% annually since 2005/06, and the production deficit has increased by 29.6%.

Saudi Arabias Ministry of Commerce and Industry has decided that prices of fresh milk and milk products will be governed by the regulations of food supply for extraordinary conditions. The government will closely monitor changes in dairy prices and take action against market players selling products at prices diverging from pre-determined prices.

Poultry prices in Saudi Arabia have significantly risen in the past year and are expected to stay elevated in the medium term. This is owing to insufficient production growth in the country as well as declining output from major producers such as France and Brazil, from which the countrys poultry imports come. Also, local poultry farmers have complained of increasing production costs linked to high feed costs.

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