Economic View

On the wholesale food industry and boosting the contribution of non-oil-related products

To what degree do advancements in water management, treatment and desalination benefit the agriculture sector?

SEIFALLAH SHARBATLY: Saudi Arabia has a severe water problem. Despite efforts by both the public and private sector to meet growing demand for water, we barely have enough drinking water. The is especially the case for horticulture. The Kingdom is one of the few countries without a constant supply of water through the year. Until the 1980s Saudi Arabia was rich in groundwater that had accumulated over millennia; it was enough to dig 30-40 metres to find groundwater. The reserves were enough to fulfil drinking water needs for at least 100 years. However, in the years since much of the water was diverted to agriculture. Today, it is required to dig between 700-800 metres.

There are some national programmes that provide Saudi investors with financial resources to plant fields outside the Kingdom in countries such as Ethiopia, Sudan and Egypt. This is not free of risks, however – in the case of a famine, it is unlikely that these foreign countries would permit the export of agricultural products. 

Another solution could be vertical plantations. There has been an uptick in such projects in Saudi Arabia. However, to date the proposed projects would not satisfy mass demand, and the cost per kilogram of this production method is exceptionally high. Despite trade tariffs and logistics fees, imports are substantially less costly than vertical plantations

It is possible that 20-30 years from now technological advances will decrease seawater desalination prices to the extent that it would be feasible to be used in agriculture. Today, 1 cu metre of desalinated water costs approximately R5.50 ($1.47), which is not sustainable for agriculture. It will be necessary for either water desalination costs to fall, or the Kingdom will need to continue with the trade of agricultural goods as it does today.

How could Saudi Arabia capitalise on its geographic position and technological advances to improve its performance in logistics?

SHARBATLY: Saudi Arabia could improve its logistics capacity by upgrading service offerings, introducing free zones and performing trans-shipment activities. Additionally, it could leverage technological advances and innovation, and adopt technologies and processes that cut time and costs. 

Saudi Arabia’s performance in logistics has been improving in recent years. Jeddah has two ports, Jeddah Islamic Port and King Abdullah Port (KAP). The former is an older publicly owned port, while the latter is a privately owned facility built in 2013. KAP offers reasonable prices and fast, professional services. It has raised the bar regarding logistics performance in the region, an example of how private competition can be beneficial to the market. 

A project that will improve performance even further is the construction of a rail line running from King Abdullah Economic City on the west coast to Dammam in the east. It will reduce shipping times in the Jeddah region from six to two days, with a significant impact on the fresh food industry. Approximately 60-70% of the UAE’s imports go through Saudi Arabia and Iran. The Kingdom is ready to localise these imports and become a centre for trans-regional shipments. 

Technology will have a notable impact on product shelf life. Thanks to advanced containers and new, safe chemicals, major industry players will be able to provide high-quality food that can stay fresh for an extended period of time. 

In the light of Vision 2030, what could be done to promote GDP from non-oil-related products?

SHARBATLY: Food safety is an important means to boosting the contribution of non-oil-related products to the economy. The Saudi Food and Drug Authority is tightening regulations and increasing controls over food quality. The need for certificates of origin is reducing the number of smaller-sized enterprises importing lower-quality products. The increased number of inspections – one every two to three months, on average – has increased awareness regarding storage best practices. These new policies challenge companies’ internal operations while improving the quality, price and demand for fresh food. 

Another primary driver of growth outside hydrocarbons is tourism. In September 2019 the Saudi Commission for Tourism and National Heritage announced that tourists from 49 countries could be issued one-year, multiple-entry visas. The visa’s low price and efficient processing procedures have done much to promote the industry. Religious tourism centred around Makkah and Medina is also expanding. Each year, the Kingdom hosts around 15m people for the annual Hajj and Umrah pilgrimages, and the government aspires to double this number by 2030. It also is working to turn Jeddah into the next Dubai, and to promote visits to Jeddah as a UNESCO World Heritage site. 

With Vision 2030, fresh leadership has set long-term strategies and established fruitful relationships with countries in the region and across the world. Saudi Arabia is eager to play a proactive role in the global landscape.