FOOD VS. WATER: FARMS FACE CONFLICTING GOVT

C O N F I D E N T I A L SECTION 01 OF 02 JEDDAH 000184

SIPDIS

SIPDIS

RIYADH, PLEASE PASS TO DHAHRAN; DEPARTMENT FOR NEA/ARP

E.O. 12958: DECL: 04/30/2018
TAGS: EAGR ECON EFIS ELAB SENV SA
SUBJECT: FOOD VS. WATER: FARMS FACE CONFLICTING GOVT
PRIORITIES

Classified By: Acting Consul General CB Toney for Reasons 1.4 (b) and (
d).


1. (U) As farmers throughout the Hijaz prepare for the
phase-out of the SAG's 30-year drive for wheat
self-sufficiency, many wonder if recent increases in food
prices could cause the government to reconsider. The
Ministry of Agriculture's January decision to move gradually
to full reliance on wheat imports follows decades of
groundwater depletion by domestic farming. Recent trips by
Pol/Econoffs to the western regions of Tabuk, Jizan, and Al
Baha revealed an ambivalent response from the agricultural
sector. Some farmers are shifting to crops with higher
export potential or more efficient water usage, while others
expect the government to sustain or even increase its
purchasing of domestic grain in response to growing
discontent over high food prices. Their decision is further
complicated by labor concerns and the uncertain direction of
provincial economies.

DWINDLING AQUIFERS IN TABUK


2. (C) During a March 23 visit to the northwestern
wheat-producing province of Tabuk, Pol/Econoffs met with the
regional council, where members described the agricultural
sector's reliance on aquifers and their alarm over the
dropping water table. They also confided their belief that
water concerns will lead the SAG to reduce funding for
agricultural infrastructure in favor of projects that would
develop other sectors of the economy. They cited a recent
increase in financial support from Riyadh for new
universities, hospitals, and power grids in the province.


3. (C) Council members said that Riyadh has also approved the
construction of ten wells and eight dams in the province, but
that these are not expected to provide a long-term solution
for the region's current rate of water usage. They also said
that several desalination plants have been commissioned, but
that desalinated water is too expensive for agricultural use
and will be restricted to human consumption for the
foreseeable future.


4. (C) Pol/Econoffs visited the Tabuk Agricultural
Development Co. (TADCO),where the manager, Saeed Salem Al
Omar (strictly protect),showed some wheat fields that may be
converted to add to production of fruit, potatoes, and olive
oil. Although TADCO's wheat production is consumed
domestically, Mr. Al Omar said that it exports olive oil to
Europe, and hopes to expand this market significantly. At
nearby ASTRA Farms, Pol/Econoffs observed newly expanded
facilities for harvesting and processing flowers, which are
also aimed at European markets. Mr. Al Omar said that TADCO
has invested millions of riyals in irrigation technology to
conserve water, and noted that most of the consultants on its
payroll specialize in reducing water consumption. An
engineer on site said that the farm's water efficiency has
roughly doubled in the past 20 years.

AL BAHA NERVOUS ABOUT LOW RAINFALL, UNCERTAIN ABOUT FUTURE
AGRICULTURAL POLICY


5. (C) During an April 15 visit to the southwestern
agricultural region of Al Baha, Pol/Econoffs heard separately
from both Governor Prince Mohamed Bin Saud and the municipal
council that the decreasing availability of water, following
a year of low rainfall, was among their greatest concerns.
Unlike Tabuk, Al Baha relies more heavily on precipitation
and dams than on aquifers. Council members said that
although wheat was not a dominant crop in Al Baha, they are
concerned that the SAG's decision to end its wheat
self-sufficiency efforts could foreshadow a broader pullback
in government support for agriculture. They also said that
although they are trying to diversify their economy by
expanding Al Baha's manufacturing and tourism sectors, the
region's economic health will continue to depend on the
success of its farms.

RESPONSES TO INFLATION FAIL TO CURB PRICES, MAKE IT MORE
DIFFICULT TO HIRE SAUDIS


6. (C) The SAG has responded to high inflation rates,
particularly in food prices, by cutting import duties on a
wide range of goods. Mr. Al Omar of TADCO said that any
downward price pressure this might place on his company has
been more than offset by continuing inflation in the world
food market. Asked to speculate whether high food prices
might cause the SAG to reconsider the decision to end its
wheat self-sufficiency program, Mr. Al Omar said he did not
think so, although he did expect the government to play an

JEDDAH 00000184 002 OF 002


increasing role as a buyer of domestic wheat and other
grains. (NOTE: local press reported on April 21 that the
Ministry of Agriculture is proposing to increase the price of
wheat purchased from local farmers, but MoA contacts have
confirmed that the phase-out is still proceeding, with a 12
percent reduction in domestic production expected in 2008,
along with the first wheat imports since 1985. END NOTE.)
Mr. Al Omar also said that recent government salary
increases, also a response to inflation, will exacerbate the
tendency for Saudis to eschew agricultural jobs in favor of
government employment.

STRUGGLING TO CREATE JOBS THAT SAUDIS WILL TAKE


7. (C) Council members in Tabuk, Jizan, and Al Baha all cited
job creation as a top priority, but admitted that most Saudis
are reluctant to work in the agricultural sector. Farm
managers in all three regions described a heavy reliance on
South Asian and African expatriates for manual labor.
Technical and managerial positions are often filled by
Egyptian, Indian, or Pakistani expatriates, the result of
both a skills gap in the Saudi workforce and the widespread
belief that even skilled agricultural vocations require more
work for less pay than jobs in the government sector.
Nonetheless, council members in all three regions expressed
hope that modernizing farms, in coordination with new
universities, could induce more Saudis to take agricultural
jobs.


8. (C) At banana and mango farms operated by the Jizan
Agricultural Development Company (JAZADCO),Pol/Econoffs
observed recent investments in mechanization and
transportation that reduce the manpower required for
irrigation and harvesting. This modernization has added new
technical jobs which are currently filled by expatriates.
Asked whether many such positions might eventually be filled
by graduates of the recently launched Jizan University, a
Saudi manager was skeptical, saying that university students
tend to favor employment in the commerce, medical, or
government sectors. At nearby shrimp farms operated by
JAZADCO and the Saudi Fisheries Company, Pol/Econoffs met
with executives who expressed similar doubts. One said that
the Saudi shrimp industry's traditional purpose is food
security, not job creation. "It's the same priority that
originally motivated wheat self-sufficiency," he said, "only
instead of limited groundwater, we have the Red Sea."


9. (C) COMMENT: In addition to slowing the decline of
groundwater reserves, the decision to end wheat
self-sufficiency is congruent with other actions the SAG is
taking to modernize its economy and bring skilled jobs to the
Kingdom, such as making large investments in education and
infrastructure. Although rising food prices could prove to
be a greater short-term concern than unemployment, the
government's large oil-funded budget surplus should give it
the option of covering any food shortfall through imports,
even at inflated world prices. END COMMENT.
TONEY