A drive under way in Saudi Arabia to encourage businesses to invest in farming operations abroad could see the Kingdom improve food security and increase investment opportunities.
Until six years ago, the Kingdom’s policy makers advocated self-sufficiency for its local wheat cultivation, as well as some other products such as milk, meat and eggs. However, as it became clear that levels of subsidies required for farmers and limited water resources were making domestic wheat production unviable, the government decided to gradually wind down operations and opt instead to meet their wheat requirements through imports.
The Kingdom is expected to phase out domestic wheat production completely by 2016, as farmers are encouraged to shift their focus toward alternative crops. Since 2008, the Grain Silos and Flour Mills Organisation (GSFMO), the Kingdom’s grain-buying agency, has been reducing its domestic wheat purchases by 12.5% a year.
At the same time, wheat imports are increasing rapidly as the government looks to bridge the widening gap between falling domestic production and rising demand. Saudi Arabia is expected to import 1.96m tonnes of wheat for human consumption in the 2012-13 buying year, rising to around 2.2m tonnes in 2013-14, according to estimates from the local office of the US Department of Agriculture.
In coming years, wheat imports may be pushed even higher by demands from the livestock industry, which currently depends on barley for most of its animal grain feeds. Saudi Arabia is the world’s largest importer of the grain, though officials are now looking to replace at least some the Kingdom’s barley imports with wheat, the GSFMO said last June.
To meet this demand, the GSFMO announced in early March it had ordered 465,000 tonnes of hard wheat from the EU, Australia and the US for delivery at its main import facilities in Jeddah and Damman between June and August 2013. The GSFMO also said it planned a first-time purchase of 110,000 tonnes of soft wheat, a lower protein grain, which will be milled for use in non-bread products, such as biscuits and confectionary. With the scaling back of domestic production, domestic production is no longer able to meet local needs for soft wheat.
Although the state grain agency will continue to buy wheat directly, the government is actively encouraging private businesses to buy or lease land overseas with the aim of producing crops for domestic consumption. The state has given an assurance that it will work with other governments to guarantee investment security in overseas markets.
In early February, the minister of agriculture, Fahd Balghunaim, called on the private sector to boost international investment in the agricultural industry, describing the move as essential for guaranteeing the Kingdom’s food security. “There are good prospects for agricultural investments,” he said. “Agriculture is one of the lucrative areas for investments because there is growing demand for food. We expect more investments in the near future.”
The United Farmers Holding Company (UFHC), a Saudi consortium made up of Saudi Agricultural and Livestock Investment Company, Saudi Grains and Fodder Holding, and the Kingdom’s dairy giant, the Almarai Company, took its first steps toward entering the market in late March by offering $77m for Irish-based agribusiness Continental Farmers Group (CFG). The Irish company’s board of directors has given a recommendation for shareholders to accept the offer.
The deal would see UFHC gain control of 2700 ha of prime wheat land in Poland and 33,000 ha in Ukraine, either through direct ownership or long-term lease. CFG also cultivates a number of other crops, including oilseed rape, potatoes, sugar beet and maize. The group said winter cereals had been planted across 19,000 ha of its land. The company had also planned to increase its land to 50,000 ha by 2015, although whether a change of ownership could affect the expansion remains unclear.
Estimates suggest that the state and Saudi business concerns have already made a combined investment of more than $11bn in agricultural ventures across a number of countries, including Brazil, Canada, Ukraine, Ethiopia and Sudan.
However, the Kingdom is far from controlling the same area of domestic wheat cultivation – some 450,000 ha – that it did in 2008, at the peak of production. Therefore, as the country increases its dependence on international imports to meet domestic demand, the agrobusiness sector is poised to play an increasingly important part in boosting food security.