Saudi Arabia Agribusiness Report Q2 2010
In BMI's Saudi Arabia Agribusiness Report for Q2 2010 we look at the measures this cash rich but food poor kingdom is taking to ensure adequate and affordable food supplies for its population. In 2008/09, wheat production plummeted even more than the kingdom's agricultural planners had anticipated. Output fell 33.5% year-on-year (y-o-y) to 1.70mn tonnes. This was enough to cover only two thirds of the country's wheat consumption. The previous year Saudi Arabia was self-sufficient in wheat.
Everyone had expected a fall in production following the resolution at the end of 2007 to cut support to wheat producers in a bid to save the country's dwindling water resources. Without the government's high procurement price, wheat production is unprofitable in the country. The government announced it would cut the amount of wheat it purchased by 12.5% every year up to 2016. The government had expected production to fall at a similar rate. The collapse in output saw a rush among wheat exporters to take advantage of the new market. By the end of 2009, Saudi Arabia had imported more than 2mn tonnes of wheat since the policy was introduced, up from basically zero before 2008.
Much to the ire of the US and other wheat exporters, Canada has proved to be the most competitive supplier, alone providing well over a third of Saudi Arabia's wheat imports. We expect competition among exporters, grappling for footholds in the market, to remain fierce. As wheat production in the kingdom continues to collapse, import demand will grow ever higher. By the end of our forecast period in 2014, we expect annual imports to be creeping towards 3mn tonnes.
The removal of support for wheat production will further weaken Saudi Arabia's food security position. To compensate for this, the government is encouraging companies to invest in farmland and agribusiness companies abroad. Saudi Arabia is one of the leading players in the so called 'land grab' strategy that has developed following the spike in world food prices in 2007 and 2008. We fully support efforts to invest in agribusiness companies abroad - particularly in developing countries where domestic firms lack the capital and expertise to unlock the potential of their agricultural industries.
Large-scale leases of agricultural land are a more problematic issue. If handled well, deals to lease land to foreign companies with the money to invest in modern production technology could be beneficial for both the investing country and the host country. New farms can create job opportunities and facilitate technology transfer as well as supplying food to both the local and export markets. If local farmers are not fully consulted over the deals, however, it may appear an almost colonial encroachment on their land, resulting in opposition and the possible abandonment of a deal, as happened with a Korean company's plan to plant thousands of hectares of grain in Madagascar.
source: www.marketresearch.com
In BMI's Saudi Arabia Agribusiness Report for Q2 2010 we look at the measures this cash rich but food poor kingdom is taking to ensure adequate and affordable food supplies for its population. In 2008/09, wheat production plummeted even more than the kingdom's agricultural planners had anticipated. Output fell 33.5% year-on-year (y-o-y) to 1.70mn tonnes. This was enough to cover only two thirds of the country's wheat consumption. The previous year Saudi Arabia was self-sufficient in wheat.
Everyone had expected a fall in production following the resolution at the end of 2007 to cut support to wheat producers in a bid to save the country's dwindling water resources. Without the government's high procurement price, wheat production is unprofitable in the country. The government announced it would cut the amount of wheat it purchased by 12.5% every year up to 2016. The government had expected production to fall at a similar rate. The collapse in output saw a rush among wheat exporters to take advantage of the new market. By the end of 2009, Saudi Arabia had imported more than 2mn tonnes of wheat since the policy was introduced, up from basically zero before 2008.
Much to the ire of the US and other wheat exporters, Canada has proved to be the most competitive supplier, alone providing well over a third of Saudi Arabia's wheat imports. We expect competition among exporters, grappling for footholds in the market, to remain fierce. As wheat production in the kingdom continues to collapse, import demand will grow ever higher. By the end of our forecast period in 2014, we expect annual imports to be creeping towards 3mn tonnes.
The removal of support for wheat production will further weaken Saudi Arabia's food security position. To compensate for this, the government is encouraging companies to invest in farmland and agribusiness companies abroad. Saudi Arabia is one of the leading players in the so called 'land grab' strategy that has developed following the spike in world food prices in 2007 and 2008. We fully support efforts to invest in agribusiness companies abroad - particularly in developing countries where domestic firms lack the capital and expertise to unlock the potential of their agricultural industries.
Large-scale leases of agricultural land are a more problematic issue. If handled well, deals to lease land to foreign companies with the money to invest in modern production technology could be beneficial for both the investing country and the host country. New farms can create job opportunities and facilitate technology transfer as well as supplying food to both the local and export markets. If local farmers are not fully consulted over the deals, however, it may appear an almost colonial encroachment on their land, resulting in opposition and the possible abandonment of a deal, as happened with a Korean company's plan to plant thousands of hectares of grain in Madagascar.
source: www.marketresearch.com
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