Riyadh – Decypha: Despite the fact that the Saudi Arabian kingdom has an average sized population, approximately 80% of Saudi food consumption is imported. One of the crucial sectors that contribute to the country’s food wealth is the agriculture sector; the post-oil Saudi Arabia has allocated a total of SAR 8.1 billion of its 2017 budget to resources sector including the Ministry of Agriculture and Subsidiary Industries.
With a population growing annually by 2.5% , Saudi Arabia is playing an active role in boosting food security for its communities, increase global food production, and provide attractive opportunities in the agriculture sector for international investors, according to a report by the Saudi Ministry of Agriculture. The Saudi government plans to provide funds to encourage local investors to invest in Agriculture and to implement a well-established reserve for basic food products and prevent any future food crisis.
Market performance
Emphasizing sector success and contribution to GDP, the agriculture sector in the country has managed to increase to SAR 16,032 million in the first quarter of 2017 compared to SAR13,272 achieved in fourth quarter in 2016. The sector has previously recorded SAR 10,354 million as the lowest contribution to GDP, while the increase in the first quarter of 2017 has been the highest contribution of the sector to GDP, according to data by Trading Economies. The sector has also recorded a 2.2% increase to GDP in 2015 according to data collected by the World Bank.
The country’s agriculture road map to boos the sector involves developing several categories to meet food security standards including development of the poultry sector, applying new method of composite feed, develop the aquaculture sector, and establish foreign farmland investment such as grains and animal feed, according to the Ministry of Agriculture’s report. The development also includes formulating a Red Palm Weevil prevention program, developing organic products, controlling spread of veterinary diseases across livestock by 20% in 2020, using renewable water resources for agriculture benefits reaching a baseline of 416 by 2019, and improving land utilization.
The country ensures to provide a variety of products on Saudi supermarkets’ shelves through the agriculture sector. The targeted products include corn, soybeans, rice, sugar, oil seeds, green fodder, livestock, fisheries, various staple food products, wheat, and barely. Saudi Arabia also has agriculture relations with Sudan, Ethiopia, Turkey, Ukraine, Philippines, Egypt, Vietnam, Brazil, and Kazakhstan.
Saudi Arabia is implementing a prominent initiative in the sector called “King Abdullah King Abdullah s’ Initiative for Saudi Agricultural Abroad: A Way of Enhancing Saudi Food Security Saudi Food Security”. The initiative completes local agriculture and is supported by Saudi government that involve attracting foreign Direct Investment (FDI) through contract farming, joint ventures, schemes, and creating regional food reserves.
The country relies on groundwater for irrigating to its crops as it’s owns a total of 2.2 kilometers of renewable groundwater per year.
Government policies
Saudi government has been recently anticipating new policies to boost the agriculture sector including the recent ratification of the environment support contract worth $ 24.5 billion will help the country meet its goals of the 2030 vision and diversify its economy, according to an article by Reuters. The contract aims to achieve a collection of goals, that have not yet been named, that seek to reduce the country’s reliance on oil revenues. The Vision of 2030 includes the program of the National Transformation Plan worth SAR 13.94 billion allocated to Ministry of Agriculture and SAR 12.92 billion allocated to the Ministry of Water and Electricity. Saudi water portfolio has integrated in the Ministry of Environment, Water, and Agriculture.
The government policies feature further encouragement to private sector participation in the agricultural sector. The private sector will be provided benefits such as subsidies, interest-free loans, free distribution of uncultivated lands, development of infrastructure such as dams and irrigation canals, research services, farmers, and quarantine. These benefits have lead to the efficiency in providing crops such as wheat, dates, eggs, milk, among other products, according to a report by the Food and Agriculture Organization, an affiliate of the United Nations.
A significant pillar in the sector, the irrigation development was a result of the government policies that has been boosting agriculture production since 1970’s. As the sector mainly relies on groundwater to grow crops, farmers and private and public companies were granted digging permits that allowed them to drill wells with interest-free loans and a subsidy worth 50% of the cost of pumping stations. More interest-free loans were given to farmers if they equipped their farms with modern irrigation systems.
The Ministry of Agriculture is also currently providing subsidized tree seedlings to farms equipped with modern irrigation systems. Subsidized seedlings were provided in efforts to produce fruit crops, palm trees, and olive tree, among others. This initiative encouraged farmers to switch from wheat to fruit trees to match the government policy stating the reduction of wheat areas.
The government is currently gearing up to create an irrigating strategy that will cater all activities that will ensure implementing a promising agriculture plan by 2020.
Potential Projects & Market Trends
Although the country is running an array of agriculture projects, the country is also dominated by its dairy farms and is considering boosting the farms by using cow dung to also meet power needs, according to an article by Bloomberg. The National Agriculture Development Co. is developing biomass plant empowered by excrement from its bovines at a total cost of $ 200 million. Prominent dairy company Nadec is in current negotiations with developers who are willing to build the plant on its farms.
Saudi Arabia has been famous for local recognized trends such as offering a total of 3,800 kilometers worth of untapped land, growing its aquaculture through pumping a total of SAR 30 billion over 15 years and animal food-producing sector, and hosting the world’s largest date festival. The country hosts an annual date festival that features a variety of activities, but most importantly operates as a major market for thousands of farmers. The 45-day event generates income to date farmers and has been lately launched in Buraidah in Qassim governorate, according to an article by Arab News.
Saudi Arabia has the highest production of dates comprising 25% of the world date production while Qassim governorate owns approximately seven million palm trees. Dates have not only been used as a fruit but also were a result to many products such as date syrup, date paste, and date gift boxes. The Saudi Ministry of Agriculture encourages farming sates by allocating lands and helping farmers to easily acquire the needed farming equipment and provide them with long-term loans through the Saudi Agricultural Bank.
Market Challenges
Despite the promising awaited plans to advance the sector, the UN report implied that the irrigated agriculture requires reform and more focus on productivity and sustainability through encouraging the participation of both the private and the public sector. The current irrigation agriculture is jeopardizing investments and leading to reduction of several aquifers. Water resources in the country are low despite modern irrigation techniques. Recognizing these challenges the government is gearing up to increase productivity in efforts to tackle this major challenge of water scarcity.
Saudi Arabia plans to reduce water demand through diversifying agricultural production, reducing expansion of high water consuming farms such as date farms, increasing high added value crops, and cutting off land allocation in areas with limited water resources.
There have also been suggestions to tackle the water scarcity obstacle through implementing adequate irrigation management, estimating crop water requirements, using efficient tools that better manage irrigation, using meters to control water consumption, apply water pricing, among others.
Market Opportunities
The country stands on firm ground in providing global opportunities based on the ministry’s report. As the Middle East’s largest individual food importer, Saudi Arabia will be one of the 10 biggest wheat buyers worldwide by 2025. The country has been investing foreign farmland withholding a demand estimate of 4.5 million tons of wheat, and it also embarks a total of 145 local organic farms that could attract organic-products-oriented companies to the market.
Iraq plans to boost the agriculture sector alongside with trade and industry in the public and private sector as part of the plans to enhance ties with Saudi Arabia based on its cabinet’s decision, according to an article by The National.
Agriculture Sector Key Players
Among the well recognized key players in the sector is Al Marai that adds a market value worth of $ 7.1 billion and revenues $ 2.6 billion in 2015-2016. The company has been a leading pioneer in milk production and has partnered with several international companies including Alastair MacGuckian, according to a report by Marcopolis. Svola Group is another leading company in the sector with estimated revenues worth $ 0.426 billion, the company has managed to grow into a multinational group in the Middle East and the second largest company in the country. Saudi Dairy & Foodstuff (SADAFCO) is also a leading company in the sector with an added value to the market worth $ 1.7 billion, the company produces approximately 40 million cases of product per annum, being recognized as one of the major key players among others.
Despite the challenges of water scarcity, Saudi Arabia owns promising opportunities in the sector as it seeks to diversify its economy and be lead by revenues resonated from non-oil sectors. The country plans to produce one million tons of fish in the upcoming 16 years, based on reports, and develop 42 fishing ports in the Red Sea and Arabian Gulf by 2026. The country also plans to expand a total of 145 local organic farms.
By Fatma Khaled
