Billboard in Riyadh, Saudi Arabia reading "Drink milk". Al Marai, the largest dairy producer in the Gulf, is part owned by Savola, Saudi Arabia's largest food company. The company operates internationally through a joint venture with PepsiCo that owns large-scale dairy farms in Egypt and Jordan. (Photo: CAPA)
By ADAM SCHRECK, AP Business Writer
DUBAI, United Arab Emirates (AP) — Saudi Arabia's largest dairy company said Wednesday it is buying Argentine farm operator Fondomonte S.A. for $83 million to secure access to a supply of animal feed.
The acquisition will give Riyadh-based Almarai Co. control of roughly 30,000 acres of farmland in the South American nation just ahead of tough new limits likely to be imposed by Argentina's government on foreign ownership of productive land.
Almarai said the deal is in line with the desert kingdom's policy of "securing supplies and conserving local resources."
Despite its scorching desert climate, Saudi Arabia for decades produced millions of tons of homegrown wheat with the help of generous farm subsidies. It is now trying to wind down domestic production because of concerns over dwindling water supplies.
Fondomonte operates three farms dedicated to producing corn and soybeans, according to Almarai. The Argentine company's website says it also grows barley, rice and sorghum.
Almarai said it plans to use the crops to feed chickens and cattle.
It expects to pay for the deal using in-house cash and loans based on Islamic principles, which generally prohibit the paying of interest.
"This is a relatively significant move, that they're actually acquiring a company," said Farouk Miah, an analyst at NCB Capital in Riyadh. "If anything, I think this is the beginning of a trend."
The Saudi purchase was announced as Argentina's Senate prepared Wednesday to approve strict new limits on foreign land ownership, designed to protect the South American country's food resources.
The proposed law, already passed by the House, would limit individual foreign ownership of rural land to 2,500 acres per titleholder, and bar any more purchases by foreigners once 15 percent of Argentina's land is foreign owned.
No one knows just how much Argentine land is already in foreign hands. The law would create a nationwide land registry to establish who owns what. President Cristina Fernandez has said the law would not take away land already owned by foreigners.
As their populations boom, oil-rich Gulf Arab nations have shown increased interest in buying up farmland and other agricultural assets overseas to ensure reliable food supplies.
Emirati investors have bought farmland in Pakistan, while Saudi Arabia's Binladin Group has sought to develop rice fields in Indonesia. Qatar's sovereign wealth fund set up a company in 2008 known as Hassad Food specifically to target agricultural investments abroad.
Almarai is one of the Middle East's largest food companies. It traditionally focused on milk and other dairy products like yoghurt and cheese, but it has recently begun expanding into new product lines such as juices, baked goods and poultry products.
That expansion means "it's even more critical for them to have secure supplies coming in," Miah said.
Associated Press writer Michael Warren in Buenos Aires, Argentina, contributed to this report.