* Middle East nations have up to $1 bln to invest in farmland
* Most existing owners will continue to run their properties* S. Arabia eyes long-term off-take pacts for wheat
By Bruce Hextall
SYDNEY, Dec 12 (Reuters) -- Middle Eastern countries flush with oil funds want to invest up to $1 billion in Australian farmland as they extend a drive for food security to the world's second-largest wheat exporter, a grains official said on Friday.
Kuwait, Saudi Arabia and the United Arab Emirates are among the nations looking at Western Australia, the country's top wheat exporting state, scrambling to get a tighter grip on the food they consume after a supply scare earlier this year that drove the price of everything from wheat to rice to record highs.
"They're not talking about $2 or $3 million, they're talking about $20 million to up to $1 billion of investment in big projects," Peter Metcalfe, the director of grain industry development for Western Australia, said in an interview.
"One of the organisations has even had a look at buying the whole grain supply chain out of Western Australia."
That would involve taking over CBH Group, a farmers' co-operative that handles the bulk of the state's grain crop.
The spike in food commodity prices this year triggered a surge in overseas agricultural investment, as investors raced for Cambodian paddies or Brazilian cropland to cash in on the commodities boom while importers like South Korea and Kuwait rushed to protect themselves against a shortage.
While most prices have since collapsed, the urge for supply security has not ebbed.
Metcalfe said officials from his office had recently completed a visit to Saudi Arabia, the United Arab Emirates and Kuwait, where officials had expressed interest in buying Australian properties that t would continue to be run by Australian farmers.
Australia's leading investment bank Macquarie Group Ltd has reportedly been given a mandate by Kuwait to spend up to A$1 billion ($663 million) buying wheat farms in Australia.
Macquarie, which has previously worked on behalf of the Kuwait Investment Authority, declined to comment on the basis of client confidentiality.
MAJOR CROP
Western Australia exports more than 95 percent of its wheat crop, which is expected to be about 8 million tonnes this season, of Australia's total crop of 20 million.
Interest from flush Middle East governments comes at a time of consolidation in Australia's newly deregulated grain industry, as players seek global expansion to compete better with commodity trading giants such as Cargill Inc.
Late last month wheat exporter AWB Ltd said it was in merger talks with rival ABB Grain Ltd, in a deal likely to create Australia's largest wheat and barely exporter with a market value of more than $1.4 billion.
Saudi Arabia was keen to buy and develop wheat properties following its decision to phase out its own wheat production by 2016 as part of a water management plan, Metcalfe said.
Middle East interests have already bought a number of properties north of Perth, the capital of Western Australia, for live sheep and grain production, Metcalfe said.
"They're looking at buying wheat properties in terms of viable investment opportunities using economies of scale."
Purchases of Australian agricultural land would need to be approved by the country's Foreign Investment Review Board, but Metcalfe said such investments would ensure farm land in Australia was internationally priced.
The heart of Saudi Arabia's policy change is the high cost of securing water to grow crops in the kingdom.
The country's agriculture ministry plans to reduce the price it pays for home-grown wheat from 2009 by 12.5 percent each year as it seeks to end domestic production.
Saudi Arabia was also interested in long-term off-take agreements for wheat, similar to contracts that exist between Australian iron ore miners and Chinese steel mills, Metcalfe said.
"There was talk about offtake agreements, that's the intent, but to actually nail those down there's a long way to go yet as growers will want the highs and not the lows and the vice versa goes for buyers," he added.
(Editing by Clarence Fernandez)
