Interpreting Middle East Economic News and Analyzing Market Trends

Saudi Arabia steps-up foreign land purchases to sustain its growing food security needs

Middle East oil-producing nations have long sought to guarantee their food security.  In a land that is mainly unable to sustain agriculture, these countries have been aggressively looking for alternatives to ensure their food security.  Saudi Arabia has been one of the most active in this area due to its large and rapidly growing population. 

In the 1980s it resorted to converting vast amounts of desert into farming oases.  This proved to be more costly than it had expected.  It has now started moving away from this strategy by slowly removing water subsidies to farmers and promoting a different and more sustainable model going forward; vast purchases of farmland in fertile countries.

   

Saudi Arabia, the desert kingdom increasingly reliant on food imports, extended its drive to build farming operations abroad by buying Continental Farmers Group at a hefty premium.

A consortium of Saudi groups – comprising dairy giant Almarai, grain importer Al Rajhi and Salic, the agriculture arm of the country’s Public Investment Fund sovereign wealth fund – agreed to pay £0.36 a share for Continental Farmers Group, valuing the farmer in Poland and Ukraine at nearly £60m.

The shares closed in London on Wednesday at £0.24.

The acquisition is the latest in a series of foreign deals by Saudi Arabian investors which, according to an official estimate late last year, have spent about 40bn riyals ($11bn) on agriculture projects in Argentina, Brazil, Canada, Sudan and Ukraine.

The shift abroad comes against a backdrop of rapid population growth, at a time when the Saudi government is, to save water, phasing out support for much domestic agriculture – including production of wheat, a key crop for a country in which bread is a staple food.

String of investments

Indeed, Fahd Balghunaim, the Saudi agriculture minister, last month urged investment in agriculture to boost food security, terming it “one of the lucrative areas for investments because there is growing demand for food”. “We expect more investments in the near future,” he said, flagging the potential for support from Salic.

Al Rajhi – founded by Suleiman Al-Rajhi, the 93-year old banking billionaire rated as by Forbes as the fourth richest person in Saudi Arabia – is already a large investor in Ukraine agriculture.

Konstantin Grishchenko, then Ukraine’s foreign minister, met Mr Al-Rajhi two years ago on a trip to Ukraine to discuss potential investment.

Almarai, the world’s biggest integrated dairy group, including both milk production and processing operations, in 2011 paid $83m for 12,000-hectare Argentine farm operator Fondomonte, which now provides feed for the Saudi group’s dairy herd.

Khalid Al Malahy, director of the investment consortium, named United Farmers Holding Company, said the venture’s aim was “to make long-term investments in the agricultural sector, with the principal objective of developing sustainable sources of food grain and fodder on a global scale”.

Land portfolio

With Continental Farmers Group, founded 19 years ago, the consortium will in Poland gain ownership of 1,600 hectares of farmland, and leases on a further 1,100 hectares.

In Ukraine, Continental Farmers Group has leased 33,000 hectares of land in the fertile black earth region in the west of the country, although nearly 10,000 of that land has yet to be registered with authorities.

Read the full story from Agrimoney.

 

Saudi Arabia needs to quickly address its growing food needs.  There are no guarantees in guarantees, they seem to not work when you need them most (like trying to make a claim to your insurance company after a hurricane).  However, the country is moving in a more sustainable direction than trying to convert desert into farmland.

 

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