Saudis set aside $800m for foreign food

By Andrew England in Riyadh and Javier Blas in London

Financial Times, April 14 2009

Saudi Arabia is putting $800m into a new public company that will invest in overseas agricultural projects.

The move signals a large step-up in Riyadh’s efforts to outsource supply for the kingdom’s food needs.

The provision of public money, on top of private-sector efforts to secure supplies, follows last year’s food crisis and Riyadh’s decision to phase out production of domestic wheat to conserve water resources.

Abdullah al-Obaid, the deputy agriculture minister, said the new state company would support Saudi private companies investing abroad by forming joint ventures with the aim of reducing the country’s reliance on imports.

“Some say: ‘Why are you doing this when you have been importing for a long time?’ But we would like to secure [food supplies] ourselves, that is it,” he told the Financial Times. The $800m (€601m, £536m) initial capital was a “first stage” and could be increased, Mr Obaid added.

Richard Warburton, head of agribusiness at Bidwells, a UK-based consultancy, said such a fund was “enormous in the current agri-investment arena”. “Getting the operations done effectively will be enormously challenging at this scale,” he said.

The new company will be owned by the state’s Public Investment Fund and called Saudi Company for Agricultural Investment and Animal Production.

The oil-rich kingdom, which imports almost all its food, set out a programme last summer to invest overseas in agriculture after key food exporting countries implemented trade restrictions. Mr Obaid said Riyadh aimed to build up strategic reserves of rice and wheat equal to at least three to six months of consumption.

Saudi Arabia hopes that the private sector will be the main investor in the overseas projects, with the ­government facilitating the deals, providing credit, ­negotiating bilateral agreements and helping with infrastructure. Riyadh was working on a “final list” of at least 20 countries that it would recommend to Saudi companies, Mr Obaid said.

Officials had been in contact with countries from Africa, Asia and eastern Europe, as well as Australia and, recently, Argentina. The minimum size of a plantation would be about 50,000 hectares, he said.

Riyadh had earlier decided to phase out domestic wheat production by 2016 after realising that its wheat-growing programme – which was set up in the late 1970s – was no longer sustainable given the desert nation’s finite water resources. Saudi Arabia had been producing 2.5m tons of wheat a year but has begun phasing out the crop and traders expect that it will import about 1.5m tonnes of wheat this year, becoming a significant participant in the world’s cereal market.

Some Saudi companies, which have been growing wheat domestically, have said they are interested in the overseas initiative. However, some observers have questioned the appetite of the private sector to become involved and government money is considered critical to the programme’s success.

The plans have raised concerns about Saudi Arabia and other wealthy Gulf states exporting from poor countries in Africa which suffer from chronic food shortages. Mr Obaid tried to dispel those fears saying that although a “big portion” of the crops would be exported back to Saudi Arabia, the kingdom would leave some of the food it produced overseas for the local market.

“It’s unfair to come to any country and to produce food and take the produce outside while the people in that country are living in hunger,” he said.
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