Home / Blog / Privatization of Flour Mills Represents Wider Government Goals
As Saudi Arabia continues with the wide-reaching overhaul of its economy, this month saw the Kingdom progress with its plans to privatize its flour mills. The long-awaited shift saw the completion of a $540 million (SAR 2.027 billion) acquisition of the First Milling Company (MC-1) by Al-Raha Al-Safi Food Co.
The purchase by the Al-Raha Al-Safi consortium was led by Saudi Arabian firm Al-Mutlaq Group and also includes Al-Safi Holding Co., Abunayyan Trading Co. and the U.A.E based Essa Al-Ghurair Investment LLC.
HSBC has been reportedly acting as the sole financial advisor for the process, with the purchase facilitated by the National Centre for Privatization (NCP) and the Saudi Grains Organization (SAGO), one of the world’s largest wheat and barley importers. The sale had attracted interest from some of the largest multinational agribusinesses and is expected to be seen as a bellwether for the future sale of other large Saudi state assets.
Chairman of Al-Raha Al-Safi Food Co., Tariq Al-Mutlaq was keen to stress the significant effect the acquisition will have on product development and technology in the Kingdom. “The acquisition represents an attractive opportunity for the private sector to invest in one of the largest flour markets in the Middle East and North Africa with high and appealing growth rates, and to further boost private sector productivity and improve product quality,” he added.
The First Milling Company (MC-1), the largest of four currently being sold, was established in October 2016 and operates through branches in Jeddah, Qassim, Tabuk and Al-Ahsa. MC-1 reportedly processed 811,000 tons of flour, 178,000 tons of feed and 172,000 tons of wheat derivatives in 2019.
Data provided by the Saudi Grains Organisation (SAGO) suggests that total Saudi wheat consumption in 2017-18 was approximately 3.5 million tonnes, with wheat flour consumption at about 2.8 million tonnes. Via the Saudi Grains Organisation, the Kingdom has traditionally imported and milled wheat, but has been gradually moving toward privatization for a number of years.
The Third Milling Company, with its largest branch in the southern city of Khamis Mushait, was sold for US$200 million (SAR 750 million). It was purchased by a consortium made up by Al-Rajhi, Al Ghurair Foods and Masafi.
The flour-milling sector was highlighted early on as prime for privatization under the Kingdom’s Vision 2030 realization programs. The successful awarding of the sales can be seen to reflect the attractiveness of this sector to investors. The acquisition of MC-1 will undoubtedly be closely monitored by industry experts and shall be seen as a litmus test for the government’s further planned privatization of its mills and grain silos.