Hunter,
Looking forward to catching up this afternoon. Please
share with your partners the article below regarding
the Saudi government groping for a strategy to ensure it continues to meet the
appetites of a growing population. The feedback from our friends in the
MENA region is our Agribusiness Fund is one answer.
We should have an indicative pipeline of transactions
shortly.
Best,
Brian
______________________________________________________________________________________________________________________________________________
·
MAY
16, 2010, 5:27 P.M. ET
A
Desert Kingdom's Quest for Food Security
Rich
in oil money but poor in arable land, the Saudi government is groping for a strategy
to ensure it continues to meet the appetites of a growing population
By
SUMMER
SAID And TIM
FALCONER
During
the recent boom years it became common to talk about how many of the huge
building projects in Dubai – like the Palm Island – had joined the Great Wall
of China as among the few man-made structures that could be seen from space.
But
satellite pictures of the Arabian peninsula have for years shown green dots in
the Saudi deserts on the edges of the Najd Central Plateau. These are the
country's circular farms – the average areas of which are around 54 times that
of a soccer field. Testament to the ingenuity it requires to grow food in a
desert nation, they are created by a combination of huge government subsidies,
the latest farming techniques and water pumped from underground caverns to
rotating sprinklers.
View
Full Image
Corbis
The
Journal Report
See
the complete Gulf
Region report.
Only
about 2% of the country's enormous landmass is arable. Saudi Arabia is spending
an ever-greater proportion of its petrodollars overseas – a strategy that some
critics label "agricultural imperialism" – to secure a supply of food
that will help alleviate shortages at home.
Saudi's population is growing at a rate of
more than 2% each year and is expected to rise to 29 million by 2015 and almost
32 million by 2020, according to Riyadh-based Banque Saudi Fransi. The sheer
pace of population growth makes Saudi's food supply problems all the more
acute.
Pradeep
Unni, a senior research analyst with Richcomm Global Services in Dubai, says:
"Meeting the demands of the growing population's food needs is a tough
challenge for Saudi Arabia." He argues that the kingdom's decision to use
oil revenues to secure agricultural land contracts in different countries is
the correct one. He adds: "The cost of producing food grains under the
Saudi Arabian climatic conditions makes this choice an economically viable
one."
The
kingdom already imports the bulk of its food. But the decision to buy or rent
land in countries such as Pakistan, Sudan and Ethiopia is a relatively new
development. It is a trend that analysts say is unlikely to reverse anytime
soon. However, some have warned that investing heavily in poor and politically
unstable countries may open Saudi Arabia to a new set of risks.
So
far, the Saudi government has mostly done deals with near neighbors that
already have close links to the Gulf Cooperation Council area. Jarmo Kotilaine,
the chief economist at NCB Capital in Riyadh, says the underdeveloped
agricultural sectors of countries such as Sudan and Pakistan means that there
is room for yield improvement, while their geographic proximity helps keep
transportation costs low.
Saudi
Arabia's dietary staples – rice and wheat – make up a significant portion of
overall food imports. In recent years the kingdom has struggled to contain
soaring rice and wheat prices as demand consistently outstrips supply.
Saudi
doesn't grow its own rice and mainly imports the notoriously thirsty crop from
India, Thailand, Pakistan and the U.S. Last year alone it bought more than one
million tons of rice, according to the U.S. Department of Agriculture's Foreign
Agricultural Service. Last November, in an attempt to trim the kingdom's
grocery bill, the government removed a two-year-old subsidy on rice imports,
which were adding up to about SAR1.5 billion ($400 million) a year.
In
January 2008, Saudi Arabia decided to reduce its production of wheat by 12.5% a
year, abandoning a 30-year-old program to grow its own, having achieved
self-sufficiency but at the cost of depleting the desert kingdom's scarce water
supplies. Saudi consumes around 3 million tons of wheat a year.
It is such difficulties in balancing the
supply and demand of food that have led to a number of recent high profile
acquisitions of foreign farmland. These include an agreement signed by the
BinLaden Group, a privately owned family conglomerate, in August 2008 to invest
at least $4.3 billion, on behalf of Saudi investors, to develop 500,000
hectares of rice farmland in Indonesia.
In February last year, Hail Agricultural Development
Company, or Hadco, which is owned by Saudi dairy firm Almarai, said it plans to
invest about $45.3 million over the next two years to develop 9,239 hectares of
farmland in northern Sudan for wheat, corn and feed for livestock.
Corbis
Analysts
expect these kinds of deals to proliferate in the coming years.
John
McKillop, the managing director of Clyde Agriculture, an Australian-based farm
manager, recently visited Dubai as part of a regional roadshow to sell his
company's portfolio of 12 farm properties. The importance of food security in
the Middle East makes the region an obvious place for him to tout his wares.
"The
motivation for the likes of Saudi is food security whereas a U.S. investor
might be more focused on the return on the asset," says Mr. Mckillop.
The
process of buying up large swathes of land in foreign countries is politically
sensitive and has opened up the country to the charge that it is potentially
exploiting poorer nations and opening itself up to political risk.
"Gulf
countries, including Saudi Arabia, have been looking at nations that are
unstable politically, socially and economically, which is a risk on the longer
term," says a senior executive at a leading Middle Eastern food
commodities trading firm who declined to be named. "But beggars can't be
choosers. This seems to be only way out for the region."
Andrew
Ferrier, the chief executive of New Zealand's Fonterra Cooperative Group, the world's
biggest dairy exporter, agrees but reasons that Saudi Arabia is in a strong
bargaining position.
"[Saudi
Arabia has] a lot of commodities that are in incredible demand like oil, and
they need a lot of commodities in demand like grains. They should be in a
strong position to trade on this over the very long term," says Mr.
Ferrier.
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