SAUDIS INVEST IN FOREIGN AGRICULTURE FOR FOOD

C O N F I D E N T I A L SECTION 01 OF 02 RIYADH 001174

STATE PLEASE PASS TO DEPT OF AGRICULTURE

SENSITIVE
SIPDIS

E.O. 12958: DECL: 09/17/2017
TAGS: ECON EAGR ETRD EINV PGOV PREL SA
SUBJECT: SAUDIS INVEST IN FOREIGN AGRICULTURE FOR FOOD
SECURITY AT HOME

Classified By: Charge D'Affaires Michael M. Gfoeller
for reasons 1.4 (b) and (d).


1. (C) Summary: One of the unintended consequences of the
dramatic increase in oil prices has been huge inflation in
basic commodities, including grain. Food security continues
to be a concern in Saudi Arabia, especially with regard to
lower and middle income population, and foreign workers. The
Saudi Arabian government (SAG) is seeking alternative sources
for grain importation, particularly investing in agricultural
initiatives in third-world and developing countries in return
for reduced prices on grains. The SAG also hopes to use
these investments to help create sustainable development and
jobs in less-developed countries. Rising costs of food have
caused considerable concern among lower income groups, both
Saudis and guest workers. If inflation continues unabated,
it could undermine political stability in the Kingdom. End
summary.


2. (C) On July 27, Econoff met with Taha Alshareef,
Assistant Director General for Foreign Trade, and Ahmed Al
Sadhan, General Manager of the National Office for Industrial
Strategies, at the Ministry of Commerce. In this meeting, Al
Sadhan stated the need for Saudi Arabia to seek alternative
grain sources in response to rising global food prices.
Saudi Arabia has 1.76% arabale land, and water scarcity makes
it impossible to sustain the current levels of grain
production in the Kingdom.


3. (C) Saudi concern over food security is not new.
Historically, all grains have been imported into Saudi
Arabia, apart from wheat, which was grown in the Qassim
region using fossil water from the aquifer. In the 1980s and
90s, the government employed massive subsidies, the result of
which Saudi Arabia was even briefly a wheat exporter until
water depletion drove them to import all grains.


4. (C) Al Sadhan said the SAG is currently in its sixth
week of feasibility studies of investing in farms in
third-world and developing countries, whereby Saudi rials
would pay the operating costs of the farms and provide
management; in exchange for local land, labor, and a portion
of the grain produced (particularly wheat and rice). He also
said the countries in which the farms operated could use the
remainder of the grain produced to ameliorate their own
rising food costs. Alshareef noted that private Saudi
companies have had success with similar ventures in the past.



5. (C) Al Sadhan said this initiative comes directly from
King Abdullah, as part of his effort to make KSA a "good
world citizen" and implement his view that "rich countries
have an obligation to help less wealthy nations." However,
he stressed a desire to maintain a low profile on the
feasibility study, for fear that target countries might
inflate the cost of farm-land in anticipation of investment.
Al Sadhan specifically mentioned Sudan and India as potential
target countries. He also suggested the possibility of
future collaboration with the U.S. farming industry.


6. (C) Currently the Ministries of Commerce and Industry,
Foreign Affairs, Agriculture, and Finance are coordinating on
the feasibility study. The SAG is also seeking investors
from the private sector.


7. (C) Comment: SAG interest in these investments appears
genuine for the primary purpose of addressing the fundamental
food security issue, though the driver behind this new
initiative is the sudden price inflation of basic
commodities. Rapid rise of oil prices has caused sudden
price inflation, but because of variants in income
distribution, there is the risk of civil unrest if food
prices become too high, particularly from the lower and
middle class Saudis, as well as the foreign worker
population.


8. (C) Food price inflation could pose a direct threat to
the social contract between the House of Saud and the bulk of
the population. Therefore these programs seem aimed less
directly at the economy and more at the goal of maintaining
political stability in the Kingdom. Although keen to keep
these projects quiet during the initial fact-finding stages,
it seems highly probable that upon announcement, the SAG will
accentuate the public relations angle of sustainable
development and job development in less-developed countries.
End Comment.

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GFOELLER