By Anil Patil/Commodity Online
Crude can’t replace food. This reality is fast emerging as a big worry for Saudi Arabia and other Gulf nations. Concerned over the recent food crisis and the looming threat of a food scarcity, Saudi Arabia and other oil-rich Gulf nations are all set to invest in agriculture land overseas.

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As part of a programme, Saudi Arabia has formed a company — a partnership between the public sector and domestic private companies — to ensure adequate food supplies to the Gulf country at cheaper prices. The firm will buy land in developing nations and focus on cultivating items that either cannot be grown in the kingdom such as rice and sugar or need plenty of water supplies such as wheat, barley and animal fodder.

In another development, Saudi Arabia said it would start reducing purchases of wheat from local farmers by 12.5 per cent per year from this year, abandoning a 30-year programme to grow wheat that achieved self-sufficiency but depleted water supplies. Riyadh’s plan was to start importing wheat next year and move to 100% reliance on foreign purchases by 2015.

Saudi Arabia’s desert-like landscape, stretching almost 5,000 miles across the Middle East, stands in stark relief to the green, fertile lands of Turkey and Europe to the north and the central African jungles of Uganda and the Democratic Republic of Congo to the south.

However, looking closer, from the perspective of an airplane flying over the kingdom, one would notice that the great sand sea of Saudi Arabia is pockmarked by a series of small dark circles, like clusters of mould staining the virgin land. These incongruous black, green and brown circles no more than half a mile in diameter are in fact wheat farms. The large fields, perfectly circular, as if drawn on the land with a protractor, are part of the kingdom’s substantial agricultural sector.

Like its imports of Scottish sand, it comes as something of a surprise that the desert kingdom has been a significant producer of grains. In 1992, Saudi Arabia produced 4.1 million tonnes of durum wheat, much of which was exported to former eastern bloc countries or donated as aid to Arab regimes like Syria. The countries of the Gulf Cooperation Council (GCC) have long used the oil profits to defy the forces of nature so that the desert offers up not only oil but also food, trees and flowers.

However, times are changing. Despite their determination, Arab Sheikhs are finding it harder and harder to make the desert bloom in the face of the laws of nature and of economics. By the end of last year, annual production of wheat in Saudi Arabia had fallen to 2.7 million tonnes, and as 2008 has progressed the inevitable decline has continued. It now seems clear that the Kingdom’s self-sufficiency in wheat will evaporate sooner rather than later.

The government has acknowledged this irreversible process, asserting that the country will rely completely on imports by 2015. The catalyst for this decline has been the steady withdrawal of government subsidies, a process expedited by Saudi Arabia’s accession to the World Trade Organization (WTO) in December 2005. At their height in the 1970s, these subsidies reached almost $1,000 per tonne. They have been declining ever since, however, and the government is now considering alternative subsidies to encourage farmers to give up farming altogether.

Saudi Arabia has paid a heavy price to build up its grain reserves, with 85 per cent of the kingdom’s current water use being directed towards agricultural production. This water comes from non-replenishable fossil aquifers, which are being sucked dry by the use of 1,000 tonnes of water to produce every single tonne of grain.

Caught between the rock and the deep sea, Saudi Arabia and other Gulf nations have been looking for ways to tackle the situation. The immediate answer to this problem is produce food in fertile land available in other nations. Like a godsend for the desert nations, Pakistan has decided to provide agricultural land to Arab countries for overcoming the crisis of food grains.

Pakistan is of the opinion that providing agricultural land to Saudi Arab and United Arab Emirates will improve ties with the brotherly Muslim countries. The Arab countries have been offered agricultural land on large-scale, so that they could build up big farms.

On the other hand, Pakistan government has been holding talks with Saudi for obtaining crude worth about $6 billion on deferred payments in a bid to overcome the international price hikes, while efforts were afoot for attracting the existing petro-dollars in the Arab world for direct investments in Pakistan. Yet, the move from self-sufficiency to food dependency could hardly have come at a worse time for Saudis.

The global food industry is in turmoil, as a combination of factors has sent prices soaring over the past year. Wheat prices alone have risen by 130 per cent in the year to March 2008.

The price of oil has been the saviour for the Gulf nations but it is now having some unwanted side effects. The region, which is soaked in liquidity, has been hit particularly hard by inflation, with rates topping 10 per cent in both the United Arab Emirates and Qatar. Although much of this inflation is fueled by property rent increases, food inflation is also a serious concern. Saudis understand best of all that oil markets will be tight and oil prices will stay high for the foreseeable future.

They are asking what are the implications of high oil prices for national security and political stability and, of course, one factor is the price of food. A recent report on food inflation in the GCC by the Gulf Research Center warns of consequences of food shortages, including violent demonstrations by low-skilled laborers, tensions between foreigners and locals, and greater calls for democratic representation from nationals.

Rather than rely on the vagaries of the market and unstable import sources, countries across the GCC, through sovereign wealth funds and development agencies, are seeking to buy up the means of production itself. From the Abu Dhabi Fund for Development buying 70,000 acres of farmland in Sudan to Saudi Arabia negotiating for farmland in Pakistan, Ukraine, Sudan, Egypt and Turkey, the governments of the Arabian Peninsula are substituting barren desert for fertile foreign soil to feed their growing populations.

While analysts agree that oil production is nearing its peak, with no giant fields left to be discovered, Gulf states work on the assumption that increasing food production is a much simpler matter. There are plenty of fields lying barren in the developing world and, like the oil prospectors of old, Gulf companies and funds supported by their governments are searching for new sources of production.

The strategy is not only seen as a way of increasing security of supply but also, like oil, of controlling a lucrative commodity. Abu Dhabi will grow alfalfa, an animal feed, on its new land in Sudan. The price of the grain rose by 60 per cent in the UAE in 2007.

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