Economic Update

Saudi Arabia: Focus on food security

The Middle East | 25 Apr 2011

While the Kingdom may be transitioning away from domestic wheat production, Saudi Arabia is stepping up efforts to ensure food security by increasing imports and investing in agricultural projects overseas.

Historically, the country heavily subsidised the cultivation of wheat. At their height in the 1970s, subsidies for this crop stood at more than $900 per tonne. During the 1990s Saudi Arabia was producing almost 4m tonnes of wheat per annum, enough to meet local demand and in some years provide a surplus for export, mainly to Eastern Europe and Syria.

However, in 2008 the government announced that it planned to phase out domestic production of the cereal, aiming to reduce output by 12.5% per year, with a goal of eliminating it entirely by 2016. This policy shift was in line with the Saudi government’s increasing emphasis on water security.

Indeed, the cultivation of wheat is a particularly water-intensive process, with one tonne of wheat requiring approximately 1000 cubic metres of water. With a growing population and an expanding industrial base, the flow of water to the agricultural sector became more and more difficult to sustain.

The government’s policy of subsidising wheat production was part of a large goal of achieving food security. Indeed, as Fahad Balghunaim, the Saudi minister of agriculture, pointed out during a recent interview with local media, food security can be realised only through a combination of domestic production and maintaining reserves of imported goods.

However, local cultivation of agricultural products – whether of wheat or otherwise – is not always possible, or economically sensible, if adequate supplies of water are not available. As Balghunaim noted, “The country’s limited water supply means that local production cannot be increased substantially to meet demand.”

The Kingdom has recently turned to imports to supplement its food supply. Some estimates put this year’s wheat imports at around 2m tonnes, while inbound rice shipments will exceed 1m tonnes. Although some of these imports are for immediate consumption, a sizeable portion will be stored.

A report by the US Department of Agriculture, issued in early March, said that Saudi Arabia was “building up strategic stock levels for selected grains to avoid future food crisis”, with planned stockpiles intended to be maintained at 50% of domestic demand. In the longer term, imports are forecast to hit 3m tonnes per year once local production winds down.

The shift to imports to meet the country’s needs will require investment, however, with reports last year that the government was considering building a new port at Jeddah on the Red Sea to handle shipments of wheat, barley and other dry foodstuffs. While the existing Jeddah Islamic Port is the Kingdom’s largest cargo handling facility, it is not designed to process dry bulk cargos such as grain.

In addition to encouraging an increase in imports, the government, in conjunction with privately owned Saudi companies, is also looking at the possibility of buying or leasing arable land overseas. This strategy, which has been adopted by several countries in the GCC, aims to ensure domestic food supply from foreign fields. With volatile commodity prices in recent years, securing the means of production in foreign countries is seen as a more reliable way to supply critical foodstuffs.

In January, the commerce and industry minister, Abdullah Zainal Alireza, said that the government had identified 27 countries for agricultural investment, adding that a “technical team has already visited 14 countries to explore investment prospects”. Other countries are working to attract Saudi investors. During a recent visit to Saudi Arabia, Turkish Prime Minister Recep Tayyip Erdogan invited the Kingdom to invest in every sector of his country’s economy, including agriculture.

Despite the increased interest in securing food supplies from abroad, these measures by no means signal the end of the domestic agricultural sector. Instead, they portend a period of transition. As Abdullah Al Rubaian, the chairman of the Saudi Agricultural Development Fund, told OBG, “The Kingdom has comparative advantages in certain agriculture products, and we are taking steps to boost these strengths. As water is a scarce resource in the Kingdom, we would like the industry to focus on less water-intensive crops and agro-industries.”

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