While its hydrocarbons resources provide Saudi Arabia and its citizens with prosperity and the prospect of continued economic growth, its climate and hydrology mean the Kingdom cannot hope to sustain its growing population with food grown within its borders. Attempts to do so have to be offset against considerable environmental risks.
GRAIN DRAIN: Faced with concerns about a possible US-led grain embargo against OPEC in the 1970s, Saudi Arabia set about growing wheat in the desert with ingenuity and irrigation. However, the costs, both environmental and financial, added up over the following years. According to research published by Chatham House in April 2013, the push for self-sufficiency meant agricultural water demands represented 83-90% of total water demand in the country from 1990 to 2009, and some observers estimate that this may have resulted in as much as four-fifths of Saudi Arabia’s non-renewable water resources being depleted. In addition, the cost of wheat production subsidies between 1984 and 2000 is estimated to have exceeded $5bn a year, or 18% of the Kingdom’s oil revenues, according to Chatham House. By 1992 Saudi Arabia had become the sixth-largest producer of wheat in the world. In a policy change the government began phasing out domestic wheat production in 2008, and it is due to end altogether by 2016.
WHEAT IMPORTS: Since wheat imports resumed in 2008, Saudi Arabia has imported 10.5m tonnes from the EU, Australia, Brazil, Argentina, Canada and the US, among others, according to the US Department of Agriculture (USDA). The wheat and flour sector in Saudi Arabia is controlled by the parastatal Grain Silos and Flour Mills Organisation (GSFMO), which estimates total wheat import needs for 2013 at around 3.2m tonnes. It also estimates that the Kingdom has storage capacity for 2.52m tonnes, equivalent to about six months’ worth of domestic consumption of wheat. In 2013 Saudi Arabia bought a total of some 625,000 tonnes from its own wheat producers at a fixed price.
The GSFMO also operates the state’s flour and animal feeds mills, which can currently mill 11,430 tonnes per day of flour and produce 2900 tonnes a day of animal feed. These capacities are being expanded with the construction of five new animal feed mills with an added capacity of 1500 tonnes per day, six new mills able to process hard and soft wheat producing 3750 tonnes of additional flour, and 10 new grain storage silos, many strategically placed near ports in the Eastern Region and on the Red Sea, able to store an extra 1.15m tonnes between them.
In September 2013 Waleed El Khereiji, the GSFMO’s director-general, said that plans to privatise the storage, milling and sales side of its operation would open up opportunities for overseas investors with the requisite knowledge and expertise. Post-privatisation, GSFMO would continue to retain its wheat industry regulatory function and control of strategic wheat reserves, according to a presentation given to potential investors from the US.
POPULATION GROWTH: Investment in storage capacity reflects the country’s desire to build a buffer against any external shocks in supply or price, but also looks to the future. With a population growing at a rate of 2.7% per year, the country will have an estimated 40m mouths to feed by 2025 and domestic consumption is higher than the international average. GSFMO calculates the average per capita calorie intake at 3176 per day, which is 14% higher than the world average, while average flour consumption is 77 calories per person per day, 8% above the global average. By 2025 Saudi Arabia expects flour demand to have reached 3.6m tonnes, the equivalent to annual wheat demand of 4.5m tonnes. The 2014 budget reflects these demands, and plans to build new grain silos and expand existing ones are included in the SR61bn ($16.3bn) earmarked under water, agriculture and industry, a 5.7% increase on expenditure in 2013.
PRICE PRESSURES: In 2013 Chatham House published details of one of its debates and an academic paper on the issue of food security for Saudi Arabia and its GCC neighbours. Potential threats identified include supply shocks and food price rises. While GCC countries themselves may be able to withstand the impact of price rises as long as oil prices remain high, countries in the wider MENA region are more susceptible. According to Chatham House, high wheat prices precipitated by the 2010 Russian heat wave were identified as a contributing factor to the initial protests that led to the Arab Spring of 2011. Morocco, Tunisia, Algeria and Egypt have all experienced protests regarding food prices in recent years. In contrast, Saudi Arabia spends 4% of its foreign currency on food imports and has been able to weather food commodity price hikes like the one that took place in 2008. However, as government spending has increased in Saudi Arabia, so has the fiscal breakeven price of a barrel of oil, from $37 in 2008 to $84.50 in 2013. As long as Saudi oil can be sold for $100 a barrel or more, food price shocks can be mitigated, but concerns are growing and in the long term climate change may cause upward pressure on food commodity prices.
STRATEGIC CONCERNS: With no southern seaboard facing the Arabian Sea, Saudi Arabia’s imports must pass through a triangle of narrow straits, or choke points, with the Suez Canal and the northern mouth of the Red Sea at the apex, Bab El Mandeb adjacent to Eritrea and Somalia at its south-western end, and the Straits of Hormuz at the foot of the Gulf in the south-east. At present, 7.5m tonnes of wheat are shipped through the Suez Canal, 5.8m tonnes through Bab El Mandeb and 5.2m tonnes through the Straits of Hormuz, according to Chatham House. Political instability in Egypt and piracy concerns in Somalia could threaten two of these choke points.
These geopolitical concerns inform Saudi Arabia’s plans to expand its grain storage facilities and to place those stores closer to port areas so that supplies can be more easily shipped around the country if any of the three maritime import routes is compromised. However, grain storage costs can also be high. Chatham House researchers calculate that with a global benchmark price of $2 per tonne per month and a 12-month reserve of 3m tonnes, Saudi Arabia’s strategic stockpile could cost it $70m a year to service.
STOCK COSTS: However, the environmental and economic impact of food production in Saudi Arabia is not confined to wheat. The USDA estimates that the aquifers, after having been drained by wheat production, are now being affected by alfalfa, which is used as a feed in the dairy industry. While wheat production declined by 60% from 2006/07 to 2011/12, alfalfa output rose by 60%. Analysts also note that Saudi Arabia’s heavily subsidised meat and dairy herds increase imports of cereal crops for animal feed, and point out that its sheep consume nearly two-thirds of global barley exports. They say a 50% rise in barley prices as seen in 2007-08 could increase the import bill by $670m, based on 2010 import figures. Herds also have an impact on water reserves. According to the UN, it takes 3500 litres of water to grow 1 kg of rice, but 15,000 litres to produce 1 kg of beef.
To mitigate pressure on their own natural resources, Saudi Arabia and its GCC neighbours have looked to invest in agricultural land overseas. The non-governmental organisation Genetic Resources Action International tracks land purchases and calculates that GCC investors bought or leased 5.4m ha of land between 2006 and 2011. However, much of this is in famine-prone regions of Africa where national crises could lead to export bans or security issues.
ALGAE BLOOMS: A joint venture between Saudi Arabia’s National Prawn Company and Germany’s BASF could turn a man-made lake by the Red Sea into a source of valuable algae by the end of 2014. The plan is to produce more than 30,000 tonnes of algae between now and 2029 and to provide employment for 2800 people, including 400 Saudis. The algae are to be used in animal and human foodstuffs, as well as medicines and vaccines. Once again, ingenuity may produce valuable foodstuffs from the Arabian sands.