Buying the farm

tauringhuang.

Aug 21st 2008
From The Economist print edition

Feeding its own people more cheaply


WHILE Saudi Arabia sets up its first sovereign wealth fund, ordinary Saudis are more preoccupied with the rising price of food. This is prompting the Saudi government to consider a new direction for foreign investment: buying farms in the poorer parts of the world.

Inflation in Saudi Arabia is running in double digits, its highest rate for three decades. Last December, 19 prominent Saudi clerics gave warning that inflation constituted a crisis that would lead to social unrest and crime. Since then, the poorest Saudis have got poorer, with prices going up across the board because of rapid monetary growth. Food and housing costs are rising fastest.

The Saudis’ need to import food is sure to increase. For decades, their government has poured money into farm subsidies, producing some of the world’s costliest wheat. As a result, the largely desert country is self-sufficient in wheat, though it has to import rice. But the authorities have decided that, with a fast-growing population and mounting industrial needs, they cannot waste costly desalinated water in the wheat fields, so will phase out production by 2016.

Instead, the desert-agriculture dream may be fading in the face of an alternative: outsourcing abroad. The cabinet recently decided to study other ways of improving food security, perhaps creating a new holding company to buy farms and fisheries overseas. Saudis are thinking of buying rice farms in Thailand, the world’s biggest rice exporter. Rice prices are climbing especially fast, as several rice-producing countries have restricted exports, fearing domestic shortages. Thailand has even flirted with the idea of an OPEC-style rice cartel.

Investors from elsewhere in the Gulf, including Qatar and Abu Dhabi, are scouring the world for undeveloped farmland to buy, especially in Pakistan and Sudan. Libyans and other Arabs have been checking out Ukraine. Kuwaitis have been looking in Myanmar, Cambodia and Laos. But the Arabs should note that grandiose farm schemes in Sudan have had a long history of failure; the UN’s World Food Programme currently feeds 5.6m people there, since the Sudanese cannot feed themselves.

If Saudis owned farms abroad, they might be more confident about the security of their food supplies. As well as injecting capital, the kingdom could also offer cheap fertiliser, which it can produce by using subsidised gas. But Saudi investors may be resented for buying up primary commodities from poor countries, while monopolising and limiting the output of their own special one: oil.