Abstract
In BMI' s latest Saudi Arabia Agribusiness Report, we look at how the oil rich
nation has sought to reduce
high food import dependence by expanding the
scope of national agricultural production. However, a
rapidly increasing
population in a desert kingdom possessing just 1% arable farmland has made
achieving
such aims domestically increasingly difficult. Moreover, the
government is unwilling to continue
diverting vital resources into
single-handedly propping up an inefficient domestic farming industry that
is
proving a major drain on the nation' s renewable water resources. As
such, 2009 is the year characterised
by Arab' ' land grabs' , where
developing countries have been targeted by the kingdom as having the
potential to feed the swelling food demands of the nation.
Saudi Arabia' s
keenness to acquire foreign farmlands may not have come as a surprise to those
with an
eye to the agricultural industry, yet the frequency with which
reports of deals and prospective deals have
abounded must surely have
raised a few eyebrows. We reported on local player Hail Agricultural
Development Company' s (Hadco' s) large-scale acquisition of Sudanese farmland
in the previous Saudi
Arabia Agribusiness Report, yet since then, Saudi
delegates have visited a host of developing countries,
mainly in Asia and
Africa, in order to replicate such deals.
The state government has
actively encouraged both public and private investment in
acquiring
foreign acreage as a way of offsetting domestic food insecurity, particularly
in grains
production. South Africa' s agricultural industry has been viewed
as a possible production hub, while the
Philippines, Ethiopia, Turkey,
Kenya and Egypt are just some of the other myriad countries that Saudi
investors have targeted. Despite falling oil prices, Saudi' s state coffers
remain relatively healthy, while
private investors seeking to
profit-maximise look well-placed to lower production costs within the
national self-sufficiency strategy.
In terms of BMI' s outlook,
notwithstanding wheat output - which will diminish through to 2016, as
state
support is gradually withdrawn - the dairy industry is foreseen to
perform relatively well, with milk
production forecast to expand by 10.27%
in line with demand growth.
The Al-Safi dairy plant, not far from Riyadh,
is the largest integrated dairy unit in the world and stands as
a
testament to what can be achieved through seemingly infinite oil revenues. It
produces around 220mn
litres of milk annually, which works out as a third
of total domestic consumption, and is home to some
37,000 dairy cattle -
imported from the EU and Canada - on an area covering 3,500 hectares.
Almost
every aspect of production is computer controlled; refrigeration to
maintain a cool climate in the bovine
housing units; mobile sunscreens;
milking is automated; dairy processing is also automated. The
processing
function is controlled by French dairy behemoth Danone, which is further
testament to the
competitiveness of the centre as a standard bearer for
Arab dairy production.
Yet,there is a notable downside to the plant' s
existence; the costliness of production is such that every
gallon of water
utilised in the local dairy industry represents a loss in terms of final
product prices.
Considering that each cow needs to consume 20 to 30
gallons of fresh water per day (this is discounting
the irrigation water
used for less water per unit of output), the cumulative affect of low than
average oil
prices, plus the payments needed to import and maintain
scientists, vets, laboratory technicians and
premium cows from abroad, may
represent cause for concern.
However, local demand for milk is expected to
remain strong through to 2013, while value added
derivative markets, such
as cheese, yoghurts and milk powder are all in a state of relative
infancy,
highlighting the potential to expand as a domestic force and an
export driven industry. In light of the
higher than average GDP in the
Gulf region, it is more than likely that household demand should fuel the
continued development of Saudi dairy.
| 
View Cart
