Wikileaks: Saudi foreign agriculture investment plans: Opportunities for increased trade, assistance, and US jobs

Viewing cable 10RIYADH102, SAUDI FOREIGN AGRICULTURE INVESTMENT PLANS: OPPORTUNITIES

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	UNCLAS SECTION 01 OF 06 RIYADH 000102 
 
SENSITIVE 
SIPDIS 
 
DEPT FOR E(YUN), EEB/TPP/MTAA, EEB/IFD/ODF, NEA/ARP, NEA/RA 
USDA FOR JOHN BREWER 
NSC FOR PRADEEP RAMAMURTHY 
STATE PLEASE PASS TO USTR FOR CHRIS WILSON 
 
E.O. 12958: N/A 
TAGS: EAGR EINV ECON EAID SENV PGOV PREL SA
SUBJECT: SAUDI FOREIGN AGRICULTURE INVESTMENT PLANS:  OPPORTUNITIES 
FOR INCREASED TRADE, ASSISTANCE, AND U.S. JOBS 
 
Ref: A. 09 RIYADH 1447 
     ¶B. 09 RIYADH 713 
     ¶C. 09 RIYADH 575 
     ¶D. 08 RITYADH 1258 
     ¶E. 08 RIYADH 1174 
 
RIYADH 00000102  001.2 OF 006 
 
 
¶1. (U)  This is an action request for EEB and USDA.  Please see 
paragraph 17. 
 
Summary and introduction 
------------------------ 
 
¶2. (SBU) After decades of heavy support for domestic agriculture 
that made this arid Kingdom one of the world's largest wheat 
exporters for many years, the Saudi government has changed its focus 
to implementing a new plan to enhance food security.  It will do 
this by phasing out wasteful agricultural subsidies and investing in 
agricultural projects abroad.  Saudi companies have already 
announced significant investments in Sudan, Ethiopia, and Egypt. 
Saudi officials have noted that the U.S. is one of the 16 countries 
they have selected as priorities for investment.  The SAG has 
carefully selected countries to balance crops, geographic diversity, 
and political risk.  This initiative also offers potential areas for 
cooperation on foreign assistance.  It also offers an opportunity to 
promote investment and job research in the U.S., which would be a 
tangible demonstration of the value of outreach to the Muslim world 
and offer an opportunity to broaden and deepen our strategic 
relationship.  End summary. 
 
Agricultural plan moving forward successfully 
--------------------------------------------- 
 
¶3. (SBU) Assistant DG for Foreign Trade at the Ministry of Commerce 
and Industry, Taha Alshareef, explained Saudi Arabia's food security 
strategy to Econcouns January 13.  Alshareef said Minister of 
Commerce and Industry Abdullah Alireza leads a ministerial committee 
in charge of implementing the King Abdullah Initiative for Saudi 
Agricultural Investment Abroad, along with the Ministers of 
Agriculture, Finance, and Foreign Affairs.  For his part, Alshareef 
sits on the initiative's steering committee, which includes four 
deputy ministers.  He said several technical teams focus on specific 
implementation issues, including country selection, bilateral 
investment treaties, offtake agreements, financial assistance, and 
strategic food reserves.  Stakeholders such as host country 
landowners also are included in the process, he said.  Priority 
countries for Saudi agricultural investment include Argentina, 
Brazil, Cambodia, Canada, Ethiopia, Indonesia, Kazakhstan, Mali, the 
Philippines, Senegal, Sudan, Tanzania, Turkey, Ukraine, the U.S., 
and Vietnam. 
 
¶4. (SBU) Alshareef said the Saudi government would not invest 
official funds under the initiative, stressing that the private 
sector would either invest directly in farms or develop partnerships 
with farmers overseas, as best fits the condition of the country. 
He said the Saudi government is creating a 3 billion riyal ($800 
million) fund under the Saudi Public Investment Fund (PIF) to invest 
in agriculture abroad and that he is a member of its board.  KPMG is 
the initiative's financial and administrative advisor, he said, and 
16 firms have been invited to develop the company's business plan. 
Alshareef said the steering committee recently met with Benning & 
Company to discuss a proposal for construction of strategic food 
reserve facilities in Saudi Arabia and abroad -- a key priority 
under the initiative. 
 
¶5. (SBU) Alshareef noted the original Royal Decree announcing the 
initiative specifically listed the United States as a country of 
interest, due to its annual agricultural surplus.  Alshareef said 
officials working on the initiative wanted to send a technical team 
to the U.S. to explore opportunities for investment.  Alshareef said 
that as Saudi companies identify specific opportunities, the SAG 
will pursue Bilateral Investment Treaties (BITs) with the specific 
countries in that regard.  He said the SAG may be interested in 
concluding a BIT for agriculture with the United States. 
 
Ag ministry touts program's foreign aid aspect 
--------------------------------------------- - 
 
¶6. (SBU) A high-level Agriculture Ministry contact indicated to Ag 
Attache that an important objective of the King's initiative is 
helping poor African countries develop their agriculture sector. 
The SAG is willing to help develop infrastructure to facilitate 
Saudi agricultural investment in these countries more effectively. 
The contact said the Saudi government will make sure that a 
 
RIYADH 00000102  002.2 OF 006 
 
 
significant percentage of the agricultural products produced by 
Saudi companies abroad will be available for sale domestically at 
competitive prices in the countries in which the food is grown.  He 
described the King's initiative as investing in hundreds of 
thousands of hectares of fertile land to produce large quantities of 
selected commodities to meet Saudi demand as well as to improve 
productivity to increase food supplies sharply in the targeted 
countries. 
 
¶7. (SBU) Contacts in the Ministries of Commerce and Agriculture also 
told Ag Attache that Ethiopia has offered Saudi agricultural 
investors one million hectares of fertile farm land on a long term 
lease and expressed its willingness to furnish attractive investment 
packages to meet requirements outlined in King Abdullah's 
initiative. 
 
Riyadh symposium 
---------------- 
 
¶8. (SBU) On December 13, the Riyadh Chamber of Commerce and Industry 
hosted a symposium on Saudi Arabia's foreign agricultural 
investments.  It was attended by Minister of Commerce and Industry 
Abdullah Zainal Alireza and Minister of Agriculture Fahad Bin 
Abdulrahman Balghunaim, as well as other senior Saudi officials, 
Riyadh-based diplomats, representatives of international 
organizations, major domestic agricultural development companies, 
individual investors, and academics. 
 
¶9. (SBU) Minister Alireza inaugurated a workshop entitled 
"Experience, Opportunities, and Challenges in Agricultural 
Investment Abroad."  The Minister told symposium attendees that 
Saudi Arabia has reached an advanced stage of negotiations with 
several agricultural producing countries regarding its food security 
plans.  The Minister detailed progress that has been made since the 
initiative was announced in 2008.  He explained that the initiative 
was a response to high agricultural commodity prices which prevailed 
in 2007 and early 2008, as well as export restrictions or bans 
imposed by major agricultural products exporters such as India, 
Russia, Argentina, and Vietnam. 
 
¶10. (SBU) According to the Minister, the initiative is intended to 
prepare Saudi Arabia for any future international food crises by 
providing a guaranteed food supply and maintaining sustainable 
living standards for the Saudi people.  To achieve the Kingdom's 
food security requirements, Saudi investors should produce 
agricultural commodities in priority countries and export sufficient 
quantities to the Kingdom to meet domestic demand, as well as to 
build strategic reserves of basic food products such as rice, wheat, 
barley, and livestock products. 
 
¶11. (SBU) The following is a detailed summary provided at the 
workshop of the King Abdullah Initiative.  Begin text: 
 
King Abdullah Initiative for Saudi Arabian 
Agricultural Investment Abroad for Food Security 
--------------------------------------------- --- 
 
-- The plan aims to achieve food security by guaranteeing food 
supply for Saudi Arabia and building up strategic stock reserve 
levels to avoid future food crises by providing incentives to Saudi 
companies and individuals to invest in foreign countries that have 
comparative advantage in agricultural production. 
 
-- Saudi private companies and individual investors will take the 
leading role in investing in strategic agricultural crops overseas. 
However, Saudi government funds could also consider joining hands 
with Saudi investors in agricultural investments abroad. 
 
-- King Abdullah's Initiative identified countries that are rich in 
agricultural resources and offer investment incentives as well as 
enforce encouraging administrative regulations. 
 
-- The Government will establish strategic reserves for major 
commodities to meet domestic demand in case of shortages in the 
world agricultural food supply. 
 
-- The potential host country should allow the export of adequate 
quantities of produced crops to Saudi Arabia to meet its domestic 
consumption and to contribute in building up strategic reserve of 
major commodities in Saudi Arabia. 
 
-- Saudi agricultural investments overseas will be long term 
commitments through different options such as land ownership, long 
 
RIYADH 00000102  003.2 OF 006 
 
 
term lease or joint ventures. 
 
-- The newly established $800 million Saudi government fund will 
provide credit facilities to firms that will be engaged in 
agricultural investments abroad.  The fund will be also used to 
build infrastructure, if needed. 
 
-- The host countries should allow the Saudi investors to select the 
agricultural crops they want to produce. 
 
-- The Saudi government will facilitate Saudi foreign agricultural 
investments by negotiating and signing bilateral agreements with the 
selected countries to protect and facilitate Saudi investments 
abroad. 
 
Strategic crops targeted 
------------------------ 
 
Under King Abdullah's Initiative, the Saudi government targets eight 
crops:  rice, wheat, barley, yellow corn, soybean meal, oil seeds, 
sugar, and green fodder (mainly alfalfa, Rhodes Grass and Sudan 
Grass.)  The following are estimate of annual Saudi consumption of 
strategic crops (in million metric tons): 
 
Crop         Quantity 
----         -------- 
Wheat        2.7 
Barley       7.0 
Yellow Corn  2.0 
Soybean meal 0.8 
Rice         1.3 
Sugar        0.7 
 
Agricultural processing and projects 
targeted by the initiative 
------------------------------------ 
 
-- Vegetable oil processing 
-- Concentrated animal feed production 
-- Construction of silos 
-- Seed production 
-- Construction of abattoirs 
 
Ministerial committee to facilitate 
Saudi agricultural investments abroad 
------------------------------------- 
 
A royal decree was issued in 2008 to form a ministerial committee 
(MC) led by the Minister of Commerce and Industry to implement the 
King Abdullah Initiative.  Other members of the committee include 
the Minister of Agriculture, and deputy ministers from the 
ministries of Foreign Affairs, Finance, Agriculture, and Commerce. 
The MC formed a steering committee and a technical committee to 
initiate visits to targeted countries to evaluate investment 
opportunities. 
 
The MC evaluates the following conditions to consider a country to 
approve for Saudi agricultural investments: 
 
-- Political and social stability. 
 
-- Legislative and organizational stability. 
 
-- Economic stability including implementation of market based 
economy. 
 
-- Abundance of natural resources including suitable climate, 
fertile land, and abundance of water resources. 
 
-- Availability of labor at competitive cost. 
 
-- Strategic location of a country, which includes proximity to 
Saudi Arabia, to reduce transportation time and cost. 
 
-- Existence of laws/regulations that fight administrative 
corruption. 
 
-- Availability of attractive incentives for investors. 
 
-- Clear and transparent investment regime. 
 
-- Strong political relationships with Saudi Arabia. 
 
 
RIYADH 00000102  004.2 OF 006 
 
 
-- Exemption from paying customs fees on equipment and other 
products required for agricultural investment. 
 
-- Exemption from income tax on agricultural production and 
processing for reasonable period. 
 
-- Guaranteed right to export to the Kingdom of adequate quantities 
of agricultural commodities produced by Saudi companies to cover 
consumption and build up strategic reserve. 
 
-- Assurances for Saudi investors to choose among eight targeted 
commodities for foreign investments 
 
-- Possibility of long-term investment through land ownership or 
long term land lease. 
 
-- Willingness to sign binding bilateral agreement to protect and 
guarantee long term Saudi agricultural investments. 
 
-- Guaranteed availability of all needed agricultural investment 
resources including fertile land and abundant water resources that 
will allow production of large quantities of some of the strategic 
crops such as rice and wheat at sufficient quantity and at low and 
stable prices. 
 
Countries targeted 
------------------ 
 
King Abdullah's Initiative currently targets the following six 
countries:  China, India, Mali, Senegal, the U.S., and Ukraine.  The 
MC has the authority to suggest additional potential countries. 
 
Additional countries included 
----------------------------- 
 
The Saudi MC added another 15 countries to the list of targeted 
countries after conducting feasibility studies regarding 
agricultural investment opportunities of each country.  The 
countries are Canada, Pakistan, Turkey, Ethiopia, Poland, Sudan, 
Indonesia, Vietnam, the Philippines, Myanmar, Kazakhstan, Romania, 
Uruguay, Brazil and Argentina. 
 
Countries visited by the MC 
--------------------------- 
 
Since King Abdullah's Initiative was announced in 2008, the MC led 
by the Minister of Commerce and Industry has made exploratory visits 
to Ethiopia, Turkey, Ukraine, Egypt, Sudan, Kazakhstan, the 
Philippines, Poland and Vietnam.  The Saudi government is preparing 
a draft treaty that will be submitted to targeted countries to 
govern Saudi Arabia's Agricultural Investments Abroad. 
 
Possibility of Establishing Partnership 
with Chinese Companies in Africa 
--------------------------------------- 
 
The Saudi government encourages Saudi companies to join forces with 
specialized Chinese companies involved in agricultural production in 
Africa because of their strong presence in Africa. The government 
encourages Saudi companies to partner with their Chinese 
counterparts in livestock and fish production in order to benefit 
from Chinese expertise in developing and running agricultural 
investments in Africa. 
 
Saudi Companies Implement 
King Abdullah's Initiative 
-------------------------- 
 
-- The first shipment of high quality Ethiopian rice produced using 
facilities provided under King Abdullah's Initiative arrived in 
Saudi Arabia at the end of January 2009. 
 
-- In early February 2009, a consortium of Saudi investors indicated 
plans to invest $267 million in agricultural projects in Ethiopia 
and Sudan after completing feasibility studies.  Also, Hail 
Agricultural Development Co (HADCO), one of the six large private 
agricultural companies in Saudi Arabia, announced its intention to 
invest $45.3 million in Sudan to produce wheat and corn.  It was 
announced that the Saudi government-owned Saudi Industrial 
Development Fund would provide soft loans to cover 60 percent of the 
total investment cost. HADCC, which was established in northern 
Saudi Arabia in the early 1980s, produces wheat, corn, dates, 
grapes, olives, animal feed, broiler meat, and table eggs. 
 
RIYADH 00000102  005.2 OF 006 
 
 
 
-- In 2008, SAVOLA Group, the largest retail chain and foodstuff 
processor in Saudi Arabia, announced its plans to invest millions of 
U.S. dollars in purchasing and developing thousands of hectares of 
agricultural lands in several countries including Egypt, Sudan, 
Ukraine, Brazil and Ethiopia. The firm aims at guaranteeing an 
uninterrupted supply of sugar and edible oils for its production 
facilities, with plans to purchase land and develop agriculture 
infrastructure to grow beet sugar, rice, edible oils (sunflower, 
corn, and canola) and other commodities. 
 
-- Al Rajhi's International Investment Company disclosed at the 
December 13 symposium plans to spend at least $400 million by 2011 
to produce wheat, corn and sorghum in Egypt and Sudan in next few 
years.  The firm has started the cultivation of 42,000 hectares in 
the Egyptian Toshka project and expects the first harvest by the end 
of May 2010. In addition, the company provided information on its 
ongoing project in Sudan to cultivate sorghum on 52,521-hectares. 
 
-- Jenat, another consortium formed in March 2009 by four Saudi 
companies (TADCO, Almarai, JADCO and Food Products Co) announced 
plans to invest $40 million in Sudan and Ethiopia to produce wheat, 
barley and animal feed. 
 
End text. 
 
What the Saudis want to know about U.S. agriculture 
--------------------------------------------- ------ 
 
¶12. (SBU) As noted above, the United States is one of the initial 
six countries that the royal decree authorized the Ministerial 
Committee to evaluate for possible Saudi agricultural investments. 
Saudi potential investors and government officials are aware of the 
availability of vast fertile agricultural land in the U.S. that 
could produce most of the strategic crops targeted by King 
Abdullah's Initiative.  However, Saudi officials are seeking more 
information on U.S. rules and regulations governing foreign 
investments in the U.S. agricultural sector.  They have asked 
specifically for the following: 
 
-- Information on kinds of incentives that the U.S. and Saudi 
governments offer to attract foreign investment in the U.S. 
agricultural sector. 
 
-- Rules and regulations that govern foreign ownership of U.S. 
agricultural lands. 
 
-- The possibility of long term leasing of agricultural lands. 
 
-- The cost per hectare of agricultural land for the different 
options (buy, lease, and/or joint venture). 
 
-- List of states that produce the eight strategic commodities 
(rice, wheat, barley, yellow corn, soybean meal, oil seeds, sugar, 
and green fodder). 
 
-- List of states that depend on rain fed cultivation versus 
irrigation based agriculture. 
 
Comment 
------- 
 
¶13. (SBU) We believe the Saudi government is committed to pursuing 
this initiative which allows it to foster the growth of Saudi 
companies and reduce aspects of food price increases.  Doing so 
would have significant environmental benefits (especially in slowing 
depletion of nonrenewable fossil aquifers). 
 
¶14. (SBU) The initiative's plan to invest in African countries also 
offers the opportunity to form partnerships to support our own 
foreign assistance priorities.  Although the idea of Saudi farms in 
Africa may sound farfetched, the Kingdom has for years hired foreign 
managers and laborers to administer its farms and other 
agribusinesses (e.g., most Saudi wheat farms currently have Egyptian 
managers).  We think the Kingdom may be able to replicate its 
agribusiness model in Africa successfully, especially since it 
probably will be willing to pay above-market prices for the food 
produced. 
 
¶15. (SBU) In recent years, food security has not been a major 
problem in Saudi Arabia although food prices have become politically 
sensitive.  The Kingdom's grocery shelves long have been fully 
stocked with a wide variety of cheap foods, not only filling the 
 
RIYADH 00000102  006.2 OF 006 
 
 
needs of large Saudi families but also serving the diverse tastes of 
its large expatriate workforce.  However, food makes up a large 
percentage of the average Saudi family's expenses, and with 2009 per 
capita GDP just above $13 thousand dollars (driven down 22% from 
last year due to lower oil prices and the international financial 
crisis), the Saudi government wants to prevent food insecurity from 
creating political instability.  Saudi food prices accelerated 
rapidly in 2007, causing significant public complaints and calls for 
government intervention.  Older Saudis, like the King, still 
remember the days before oil production brought an end to hunger in 
the Kingdom.  They view the United States as blessed with 
agricultural wealth in the same way that they have been blessed with 
prodigious oil reserves. 
 
¶16. (SBU) We believe Saudi officials would strongly welcome the 
opportunity to develop investments in the United States.  We would 
welcome Washington agencies' assessments of interest in this 
program, which we believe could both support job creation in the 
United States and potentially advance our foreign policy goals in 
some very poor countries.  If Washington agencies believe this is 
worth pursuing, we believe it could play a very significant role in 
expanding our bilateral strategic relationship.  End comment. 
 
¶17. (SBU) Post requests EEB and USDA assistance to provide relevant 
information (see paragraph twelve) we can pass Saudi officials 
working on the King's initiative. 
 
Smith