Saudis plan to grow crops overseas

Financial Times | 13 Jun 2008

By Andrew England in Riyadh

Saudi Arabia has unveiled plans to develop large-scale overseas agricultural projects to secure food supplies, revealing that Riyadh is in discussions with Ukraine, Pakistan, Sudan, Turkey and Egypt.

Abdullah al-Obaid, the deputy agriculture minister, told the Financial Times the government was planning to set up projects of at least 100,000 hectares in several countries to grow crops such as wheat, corn, rice, soyabeans and alfalfa, a feed for livestock.

The move, which is also aimed at building up strategic reserves, comes as food prices have doubled over the past two years and a series of trade restrictions by exporting countries have limited the oil-rich kingdom’s ability to secure supplies.

The massive rises in food prices, particularly wheat and rice, have caused a number of Arab countries to look to develop schemes in other nations. Food costs have also been a significant contributor to the double-digit inflation that is causing mounting concern in the Middle East.

Saudi Arabia, the region’s largest economy and the most populous state in the Gulf, buys in most of its food products. It is the world’s largest importer of barley and one of the five largest importers of rice.

The main exception is wheat, of which it produces around 2.5m tonnes per year - the result of a heavily subsided project started in the 1970s, which has cost the government billions of dollars. However, the kingdom decided earlier this year to phase out wheat by 2016 to protect its finite water resources, realising the project was unsustainable. Officials are also concerned about farmers growing alfalfa - which consumes a huge amount of water - to feed dairy cattle.

Saudi Arabia will be set to become one of the world’s top wheat importers when it phases out domestic production of the grain.

Mr Obaid said the plan to set up agricultural projects was driven by the rise in food prices, the need to secure future food sources and the desire to offer opportunities to the Saudi private sector.

Although no deals had been finalised, government officials had been discussing the plans with numerous countries on the basis of some key "principles", Mr Obaid said.

These included agreements that a certain percentage of whatever was produced was exported back to Saudi Arabia; that the governments would negotiate a bilateral agreement to protect any investments; and that the Saudi private sector would be the main investor, either alone or as part of a joint venture.

The government’s role would be to facilitate and "cover" the investment, as well as help with infrastructure.

"They [the private sector] have the technology, they have the experience and they have the money," Mr Obaid said. "We would like to secure our strategic food grains, especially wheat, rice, corn, soyabean and alfalfa."

However, some people question whether the Saudi private sector, which includes dairy producers and wheat farmers, would be interested in such projects.

There would also be hurdles to overcome to invest in countries such as Sudan, which suffers from an inefficient bureaucracy, instability and a dilapidated infrastructure.

Some countries, such the US, are also concerned that bilateral agricultural agreements could distort world food markets.

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