Subsidies have a lot to do with the specific nature of the fundamentals energy, water and food. Since countries greatly differ from each other in these resources, they may be victim of false competition or lacking resources due to free trade instead of fair trade. As a consequence subsidies exist in many countries and the Kingdom is no exception, says Johan Van Der Ven, president of Arasco Feed.
"The question is not whether subsidies are right or wrong but whether the subsidies serve their purposes and are fair for all market participants. I trust that Saudi government reviews its subsidy policy from time to time and remodel the current policy toward latest insights in the requirements of our environment," he told Arab News in an exclusive interview." "A more balanced subsidy system will benefit cost of farming and price of consumer products."
Excerpts:
Q: Being the largest animal nutrition company in MENA region, how does Arasco Feed operate?
A: Arasco was founded 31 years ago as an agricultural services company. Since then, grain handling evolved in feed milling and nowadays Arasco is the leading animal nutrition company in Saudi Arabia. We consider science and strategy as our main business drivers and are investing considerable amounts in order to modernize and scale up the company. We launch in October our new ERP system SAP that will improve and speed up our business processes considerably. By March next year we will operate two new animal-feed mills and by doing so we will add two million tons of production capacity. The first one, in Al-Kharj, is planned to go live at this year-end. Also our grain terminal in Dammam is being modernized and expanded. Our storage is designed to avoid any bacterial contamination by birds, any mice or insect pest. That makes Arasco unique in the Kingdom. We are also unique in our industry because we are between the top ten companies in the Kingdom to work for. Then, our strategy is unique too and goes beyond the interest of our valued customers. Our business revolves around them. But different from other companies we put also the interest of the Kingdom as central in our strategies and business execution while not forgetting the consumer. This threefold strategy makes Arasco a winner for all.
Q: Arasco operates two feed mills in the Kingdom. What is the company's production capacity and are you planning to increase the capacity in the near future?
A: Our current production capacity is nearly two million tons and within the next six months we will operate two more new feed mills. During 2015, we will upgrade our oldest feed mill in Al-Kharj and that will bring our total feed manufacturing capacity to 4 million tons. To put it in its dimension, Arasco will belong to the top 25 players in the world.
Q: What is Arasco's strategy for the next two-three years?
A: Our strategy focuses on being the prime enabler of sustainable animal farming in the Kingdom. Sustainable farming must provide a proper income for the farmer and a fresh and tasty product for consumers - affordable and nutritious. That is our mission and we execute it very determined, knowing that we do best for the Kingdom and its people. We will support farming operations to adapt their business models to new requirements for sustainable farming. Therefore, we will invest in innovative products, nutritional services and consultancy based on know-how. Since there are distinct differences between, for example, sheep farming and dairy operations, we will make sure that we listen well to customers and translate that for and with them in best solutions. We are very aware that while focusing on strategy we lost the close contact with customers as we had before. While strategy development is merely behind us, we must now execute it and bring our customer intimacy back where it was and belongs to be.
Q: What is the role of Idac Silliker in Arasco Feed division?
A: Animal feed and laboratories have a close relationship, all over the globe. Animal nutrition is a very advanced science and requires vast knowledge of physiology and biochemistry. Next to that, food safety demands that feeds are under constant control. In our case Idac Silliker provides us with the analytical services as required. We are privileged that we can rely on a player with world-class services, which is forward thinking and helps us with the solutions we seek. Idac Silliker is a joint venture with its own responsibility outside of Arasco Feed. This is important for our customers because it emphasizes that we demand transparent and neutral test results, we have nothing to win by hiding anything and hence we enjoy Idac Sillikers' independency.
Q: What is the outlook for the Kingdom's agriculture sector?
A: Animal farming is preferred to happen close to the consumer. Consumers all over the world prefer food that they can trace back to a local producer; it feels safer. Moreover people prefer fresh meat, eggs and dairy products. While our environmental challenges are very different from elsewhere, animal farming is very well possible over here. We should as a country become self-sufficient and offer consumers fresh products that easily can be traced to the source.
Q: What is Saudi Arabia's biggest challenge in agriculture?
A. We have a few. Water scarcity is obvious but not everybody realizes that sound solutions are available. We at Arasco believe firmly that our contribution can be safe up to 20 percent of water nowadays used for irrigation. Then, a second challenge is limited practical agricultural know-how and farming discipline. Good farming practice is a combination of both and we need to improve a lot, especially in poultry. Farm management systems and data mining are key tools for success.
Q: Do you believe Saudi Arabia should build its own domestic food supply?
A: I am very convinced that countries need to secure their six fundamentals - energy, water, food, housing, health and safety. It is amazing how little nowadays is necessary to grow vegetables; the science behind this is superb. We can do this easily here in the Kingdom and good initiatives are under way. Also animal farming is very well possible; our cows have the highest production per animal in the world. Not the American cows, not the Canadian nor the Dutch, but the Saudi ones. There is no reason why we should not intensify since we are supported by innovations that suit us very well.
Q: How do you see the issue of subsidies and how are they affecting the agro-industry?
A: I believe that subsidies have to do with the specific nature of the fundamentals energy, water and food. Since countries greatly differ from each other in these resources, they may be victim of false competition or lacking resources due to free trade instead of fair trade. As a consequence, subsidies exist in many countries and the Kingdom is no exception. The question is not whether subsidies are right or wrong but whether the subsidies serve their purposes and are fair for all market participants. I trust that Saudi government reviews its subsidy policy from time to time and remodel the current policy toward latest insights in the requirements of our environment. A more balanced subsidy system will benefit cost of farming and price of consumer products.
Q: How does Arasco view the problem of water depletion and managing water resources vs. self-sufficiency?
A: As I said, water is one of our key challenges. For animal production we need feed. We need feed to produce food. For food security, we need self-sufficiency. This is in a nutshell the basis for our chosen strategy - we want to be a prime contributor to the food on the plate of the consumer, to be a prime supporter of lowering pressure on the environment and to be a prime enabler of the Kingdom's self-sufficiency. To us this meant that we have to do all of this while solving the water issue. Don't forget that without solving it more and more water would be needed in the years to come to make all of this happen. That has driven our passion for complete feed - feed that is made of quality ingredients originating from countries specialized in large-scale production of agri-commodities like corn, soya and wheat, and valuable co-products like soybean meal. We at Arasco do not rely on the quality, price and availability of only 2 feedstuffs (like barley and alfalfa) but copied good feeding practices of leading agricultural countries and innovated those to fit our unique situation. Our supply chain assures that feed and the resulting food are made from affordable, high quality ingredients. This philosophy leads our customers to substantially less needed water.
Q: What measures Saudi Arabia should take to provide food security?
A: The government should provide for fair competition between market parties, for an even playing field. It should be prevented that cheap imports limit the farming community to mature to self-sufficiency. The FDA is a perfect initiative and on top of that we need veterinary bodies that can control and support the industry. I have experienced during my career that this can be one of the major governmental contributions to create a world-class animal protein value chain. And we cannot do without a system of tracking and tracing of individual animals; that is high on my wish list too. Finally: educate, educate, educate.
Q: How secure are the raw material imports?
A: The import of raw materials is not an issue as world history since the Second World War has proven. And I expect that this will not change. But of course we cannot be naive and need to take responsibility to secure food as one of the 6 fundamentals. Within 6 months from now Arasco is able to store on its premises in bio-secure silos around 450,000 tons of raw materials. On top of that we will at any moment have more than 150,000 tons in vessels owned by Bahri and Arasco steaming to the Kingdom. This is an equivalent of some 400 million chickens. Believe me if the choice is to import the chickens from Brazil or their feedstuffs, we will very much prefer to do the latter, as is also preferred by consumers — fresh, not frozen.
Q: What is your commodities hedging strategy — how do you manage volatility?
A: We apply common risk management instruments in order to reduce volatility and have different strategies for different raw materials. We are risk avoiding and are good at that, but not perfect. Therefore we keep ourselves very well informed on a continuous basis and that maybe our most important hedge — knowledge, experience and an organization eager to learn.
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