Monday, 26 April 2010 16:07
Saudi Arabia’s agriculture sector is in a period of great transition. The government has identified five key segments to focus on as water conservation and use policies take a more prominent role in decision-making. With arable land scarce, the future for agriculture in the Kingdom is likely to involve international cooperation, food security agreements and investment abroad.
During the 1980s the government aggressively pursued a policy of self-sufficiency, encouraging farmers to grow crops such as wheat, and subsidising them by paying a high price for their output. This policy eventually ran into the reality of water scarcity in the Kingdom. According to the Food and Agriculture Organisation of the UN (FAO) in 2006, agriculture accounted for 88% of water use in Saudi Arabia, with municipalities and industry accounting for the remaining 9% and 3%, respectively.
Now, the government is in the process of revising its plans for agriculture for the years and decades ahead, maintaining a focus on self-sufficiency while keeping an eye to long-term water sustainability. Dr Fahad A S Balghunaim, Saudi Arabia’s minister of agriculture, told OBG that in the future he sees at least five segments in the agriculture sector that can be sustainable and in which the country can be competitive. The five are poultry, aquaculture, greenhouse agriculture, technology and dairy production.
Saudi Arabia already has some of the world’s most advanced and efficient dairy farms. Although local consumption is low, at 60 litres per year per capita compared with 120 in Europe, the large youthful population presents a great opportunity for producers. Abdulaziz M Al Babtain, the chief executive of the National Agricultural Development Company, the first agriculture company in the Kingdom established by the government in 1981, told OBG that consumption patterns have changed over the past years. “We see greater demand for single-serve portions, whereas in the past dairy producers sold three-litre bottles of milk, so we must keep up with the changing market requirements.”
Abdulrahman A Alfadley, the chief executive of Al Marai Company, the largest vertically integrated dairy farm in the world, told OBG that he “would like to see an increase in dairy consumption in Saudi Arabia. Currently, the country is one of the lowest per-capita consumers of dairy in the world and we are trying to increase this level through raising awareness and offering quality products at competitive prices.”
Poultry is another area with strong local demand. According to the FAO, poultry is the main meat consumed by weight in Saudi Arabia, with the country ranking among the highest consumers of chicken per capita in the world, and consumption rates are still increasing. “Saudi Arabia is 50% self-sufficient in poultry production and there is more opportunity for growth in this segment,” adds Balghunaim.
Aquaculture is a natural fit for the Kingdom due to its nearly 2000-km coastline on the Red Sea, not to mention the Gulf. Saudi companies are already raising and exporting shrimp to over 30 countries around the world, and the National Prawn Company has been certified by Japanese authorities – the world’s most stringent – to produce sushi-grade prawns for the Japanese market.
Greenhouse agriculture and technology are two areas where Saudi Arabia has great ambitions for the future. The country is currently developing new farming techniques through the Sustainable Agriculture Research and Development Centre, and working on technologies and techniques for arid climates that it hopes to export to other nations.
When talking about agriculture in the Kingdom, one cannot avoid the subject of water, particularly its scarcity and the long-term implications for the sector. “Saudi has scarce water resources,” says Zouhair Eloudghiri, the chief executive of food processor and distributor Savola Foods. “It would be dangerous to use this resource for agriculture instead of saving it for future generations. We can buy wheat from Australia but not drinking water.”
Indeed, water scarcity is one of the main drivers for the government’s push to internationalise the Kingdom’s food supply through food security agreements, cooperation with other nations and overseas agricultural investment.
In March, Thai Prime Minister Abhisit Vejjajiva announced the signing of a memorandum of understanding establishing the Thailand Food Security Stockpile and Distribution Center (TFSSDC) in Bahrain. The TFSSDC will strive to ensure the food supply chain to the entire Gulf Cooperation Council (GCC), using Bahrain as a gateway. “We have a huge agriculture base and would be in position to ensure enough food stockpiles for the entire GCC,” said Vejjajiva. Additionally, Saudi Arabia and Tunisia also recently agreed to begin cooperating in various spheres related to agriculture.
Acquiring land abroad for agricultural purposes is a controversial topic. Many countries with scarce arable land have considered or initiated land lease or purchase agreements with other nations, but opinions remain divided on the long-term viability of such deals. Whether, for example, governments would allow agricultural exports in time of shortages remains an unanswered issue.
“There is great potential for local agriculture companies to invest in farm land abroad. Through this backwards integration local companies can access raw materials directly, reducing exposure to price volatility on the international markets. Future agriculture hectares for Saudi Arabia will be outside of the country,” says Abdulmalik Abdulah Alhusseini, the executive president of agricultural services company ARASCO.
Eloudghiri remains more cautious. “Farming is very investment-intensive, has a very long-term return and has geopolitical implications. Saudi companies will need to secure ownership stakes or multilateral treaties to ensure crop delivery,” he told OBG.
To this end, the privately funded SR2bn ($533m) International Agriculture and Food Investment Company (Agroinvest) was launched in 2009, focusing on domestic investment and farm acquisitions abroad. The Saudi Industrial Development Fund has also been providing financing to companies looking at overseas agricultural investments.
There is no single solution to food security in Saudi Arabia. The long-term answer will likely require some combination of focused and efficient use of land and water at home and various types of agreements, cooperation and investment abroad. With a growing population and scarce resources, the time for the agricultural transition has arrived.
Source: Oxford Business Group