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Saudi Arabia: Going With The Grain

In a bid to ensure long-term food security, Saudi Arabia is looking at plans to invest in farms in Thailand, the world's largest exporter of rice.
With international rice prices soaring due to poor harvests last season, and growing concerns by producing countries over maintaining adequate supplies for their own populations, importers such as Saudi Arabia are having difficulties finding sufficient stocks on the global market. Saudi Arabia is one of the world's biggest buyers of rice, importing 960,000 tonnes last year, close to 5% of total global consumption.
Though the shortages may be only of a limited duration, with the UN Food and Agriculture Organisation (FAO) releasing a report in early May saying rice production should rebound after a poor 2007 and could hit record levels this year, Saudi Arabia is taking the long view.
According to media reports, both private sector companies and Saudi officials have held talks with Thai investors about setting up joint ventures to buy up or develop rice farms in Thailand. Under the proposed partnerships, production would be exported to Saudi Arabia, with any surplus shipped on to neighbouring countries in the Gulf region.
Speculation that Saudi Arabia could invest in overseas rice production has been around for a while, though it has been the latest round of price hikes that have prompted action.
In early April, Adnan A Al Naeim, the secretary-general of the Asharqia Chamber of Commerce, said Saudi Arabia was at the mercy of rice producing countries such as India.
"The Kingdom is not a rice-producing country; we are always under the control of exporters who dictate prices," he said in an interview with the local media on April 4. "The best option we have is to become rice producers ourselves by investing in agriculture in countries that still have vast land for rice production."
According to Richard Feltes, senior vice-president and director of commodities at brokerage firm MF Global in Chicago, the move by Saudi Arabia and other countries to buy into agricultural production marks the end of the era of wealthy nations relying on cheap and abundant world surpluses to meet their food needs.
"That is all shifting now," he said in an interview with US media on May 9. "We're going from 'just in time delivery' to what I call 'just in case reserves'. That's because some two dozen food-rich nations, from Argentina to Vietnam, recently imposed export restrictions on staples like soybeans and rice to stem inflation at home, and that has countries like Saudi Arabia fearing the worst."
Saudi Arabia has also been moving on the diplomatic front to make sure its rice needs are met. A number of its main suppliers, most notably India, which provides the majority of Saudi requirements, have imposed bans or restrictions on rice exports as a measure to ensure domestic demand is met and price rises do not hit locals too hard.
In late April, Abdullah Zainal Alireza, Saudi Arabia's minister of commerce and industry, said the government would press New Delhi to resume rice exports to the Kingdom. In March, the Indian government had asked traders to halt exports of most types of rice, though the restrictions did not initially include the high quality basmati variety that forms the bulk of imports to Saudi Arabia. However, supplies of basmati are drying up, with the Indian government imposing a new $200 per tonne export duty.
The Saudi government has stepped in to protect local traders, with Alireza saying on April 19 that he would move to speed up the payments of subsidies paid to rice importers after complaints that the Ministry of Finance had been slow in releasing funds. It has been estimated that the subsidies, which are currently 26 cents a kilogram, would total $120m this year.
There are additional concerns prompting Saudi Arabia to consider offshore investments in agriculture. The country's own farming sector is being scaled back in an effort to conserve limited water resources.
Saudi Arabia's recoverable water reserves are dwindling rapidly, with estimates that existing supplies are only sufficient to last ten years or fewer. Agriculture is the largest user of water in the Kingdom and the government plans to cut back farming production drastically, announcing plans in January to totally phase out its wheat growing programme by 2016 and import all of the country's needs.
Though Saudi Arabia is better placed than most countries to be able to pay inflated international prices for rice and other commodities, and provide price support at home, a move to invest now in grain-producing countries could be the key to a sustainable harvest for the future.

© Oxford Business Group 2008

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