"Saudis plan to grow crops overseas"
By Andrew England in Riyadh, June 13 2008
Saudi Arabia has unveiled plans to develop large-scale overseas agricultural projects to secure food supplies, revealing that Riyadh is in discussions with Ukraine, Pakistan, Sudan, Turkey and Egypt.
Abdullah al-Obaid, the deputy agriculture minister, told the Financial Times the government was planning to set up projects of at least 100,000 hectares in several countries to grow crops such as wheat, corn, rice, soyabeans and alfalfa, a feed for livestock.
The move, which is also aimed at building up strategic reserves, comes as food prices have doubled over the past two years and a series of trade restrictions by exporting countries have limited the oil-rich kingdom's ability to secure supplies.
The massive rises in food prices, particularly wheat and rice, have caused a number of Arab countries to look to develop schemes in other nations. Food costs have also been a significant contributor to the double-digit inflation that is causing mounting concern in the Middle East.
Saudi Arabia, the region's largest economy and the most populous state in the Gulf, buys in most of its food products.
It is the world's largest importer of barley and one of the five largest importers of rice.
The main exception is wheat, of which it produces around 2.5m tonnes per year - the result of a heavily subsided project started in the 1970s, which has cost the government billions of dollars.
However, the kingdom decided earlier this year to phase out wheat by 2016 to protect its finite water resources, realising the project was unsustainable. Officials are also concerned about farmers growing alfalfa - which consumes a huge amount of water - to feed dairy cattle.
Saudi Arabia will be set to become one of the world's top wheat importers when it phases out domestic production of the grain.
Mr Obaid said the plan to set up agricultural projects was driven by the rise in food prices, the need to secure future food sources and the desire to offer opportunities to the Saudi private sector.
Mr Obaid said officials had contacted many countries, which had reacted positively, "so we are going to select".
These included agreements that a certain percentage of whatever was produced was exported back to Saudi Arabia; that the governments would negotiate a bilateral agreement to protect any investments; and that the Saudi private sector would be the main investor, either alone or as part of a joint venture.
The government's role would be to facilitate and "cover" the investment, as well as help with infrastructure.
"They [the private sector] have the technology, they have the experience and they have the money," Mr Obaid said. "We would like to secure our strategic food grains, especially wheat, rice, corn, soyabean and alfalfa."
However, some people question whether the Saudi private sector, which includes dairy producers and wheat farmers, would be interested in such projects.
There would also be hurdles to overcome to invest in countries such as Sudan, which suffers from an inefficient bureaucracy, instability and a dilapidated infrastructure.
Some countries, such the US, are also concerned that bilateral agricultural agreements could distort world food markets.
Meat prices surge as poor weather hits US feed crops
By Javier Blas in London
Published: June 17 2008
The world economy faces a fresh wave of food inflation as the price of meat surges on the back of record prices for corn and soyabean, the main fodder crops for farm animals.
Both crops jumped to fresh highs yesterday after US farmers said heavy rain and low temperatures over the past six weeks had damaged millions of acres of crops and meant several million more acres had been left unplanted.
Traders said rising prices for corn and soyabean would reverberate through the food supply chain, pushing up the cost of meat, poultry and dairy products. The surge in corn prices would further affect a range of foodstuffs, including breakfast cereals and sweeteners.
The United Nation's Food and Agriculture Organisation yesterday warned that higher feeding costs, strong demand and tight supplies were pushing up the retail prices of meat.
"In the face of strong demand, meat supplies are tight and this situation is contributing to the increase in prices," the FAO said. "Higher feed costs are . . . pushing up retail prices," it added in its monthly food price index report.
In Chicago, live cattle futures for delivery in April 2009 - a key contract - yesterday surged to 115.5 cents a pound, the highest for any cattle contract traded in the US. The spot live cattle contract traded at 96.075 cents a pound, approaching a record high for spot contracts.
Meat prices have increased by almost 15 per cent in the past six months, accelerating from a 5 per cent rise in the previous six-month period, according to the FAO.
The rise in meat prices will be felt most strongly in richer countries such as in Europe and the US. Poor countries rely more on staples such as wheat and rice and suffered during last year's price surge in those cereals.
Sudakshina Unnikrishnan of Barclays Capital said the impact of extremely wet weather in the US had continued to buoy the grain markets. The concern now, she said, was that farmers might decide it was too late to plant their fields and would, instead, cash in their crop insurance policies.
The US is the world's largest corn exporter, accounting for 70 per cent of global trade, and the second largest exporter of soyabean, with a market share of almost 40 per cent. It is also a large exporter of beef.
The expected fall in corn production means global corn stocks, measured by days of consumption, would fall by next summer to the lowest level since the early 1970s, according to Deutsche Bank.
Spot corn prices in Chicago yesterday reached a record of $7.60 a bushel, with contracts for delivery next summer trading for the first time above $8 a bushel. Spot soyabean prices rose to a fresh high of $15.93 a bushel.
www.ft.com/foodprices
Copyright The Financial Times Limited 2008 - reproduced for scientific refrence purposes only.
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