SAUDI FOREIGN AGRICULTURE INVESTMENT PLANS: OPPORTUNITIES

UNCLAS SECTION 01 OF 06 RIYADH 000102

SENSITIVE
SIPDIS

DEPT FOR E(YUN),EEB/TPP/MTAA, EEB/IFD/ODF, NEA/ARP, NEA/RA
USDA FOR JOHN BREWER
NSC FOR PRADEEP RAMAMURTHY
STATE PLEASE PASS TO USTR FOR CHRIS WILSON

E.O. 12958: N/A
TAGS: EAGR EINV ECON EAID SENV PGOV PREL SA
SUBJECT: SAUDI FOREIGN AGRICULTURE INVESTMENT PLANS: OPPORTUNITIES
FOR INCREASED TRADE, ASSISTANCE, AND U.S. JOBS

Ref: A. 09 RIYADH 1447

B. 09 RIYADH 713

C. 09 RIYADH 575

D. 08 RITYADH 1258

E. 08 RIYADH 1174

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1. (U) This is an action request for EEB and USDA. Please see
paragraph 17.

Summary and introduction
--------------


2. (SBU) After decades of heavy support for domestic agriculture
that made this arid Kingdom one of the world's largest wheat
exporters for many years, the Saudi government has changed its focus
to implementing a new plan to enhance food security. It will do
this by phasing out wasteful agricultural subsidies and investing in
agricultural projects abroad. Saudi companies have already
announced significant investments in Sudan, Ethiopia, and Egypt.
Saudi officials have noted that the U.S. is one of the 16 countries
they have selected as priorities for investment. The SAG has
carefully selected countries to balance crops, geographic diversity,
and political risk. This initiative also offers potential areas for
cooperation on foreign assistance. It also offers an opportunity to
promote investment and job research in the U.S., which would be a
tangible demonstration of the value of outreach to the Muslim world
and offer an opportunity to broaden and deepen our strategic
relationship. End summary.

Agricultural plan moving forward successfully
--------------


3. (SBU) Assistant DG for Foreign Trade at the Ministry of Commerce
and Industry, Taha Alshareef, explained Saudi Arabia's food security
strategy to Econcouns January 13. Alshareef said Minister of
Commerce and Industry Abdullah Alireza leads a ministerial committee
in charge of implementing the King Abdullah Initiative for Saudi
Agricultural Investment Abroad, along with the Ministers of
Agriculture, Finance, and Foreign Affairs. For his part, Alshareef
sits on the initiative's steering committee, which includes four
deputy ministers. He said several technical teams focus on specific
implementation issues, including country selection, bilateral
investment treaties, offtake agreements, financial assistance, and
strategic food reserves. Stakeholders such as host country
landowners also are included in the process, he said. Priority
countries for Saudi agricultural investment include Argentina,
Brazil, Cambodia, Canada, Ethiopia, Indonesia, Kazakhstan, Mali, the
Philippines, Senegal, Sudan, Tanzania, Turkey, Ukraine, the U.S.,
and Vietnam.


4. (SBU) Alshareef said the Saudi government would not invest
official funds under the initiative, stressing that the private
sector would either invest directly in farms or develop partnerships
with farmers overseas, as best fits the condition of the country.
He said the Saudi government is creating a 3 billion riyal ($800
million) fund under the Saudi Public Investment Fund (PIF) to invest
in agriculture abroad and that he is a member of its board. KPMG is
the initiative's financial and administrative advisor, he said, and
16 firms have been invited to develop the company's business plan.
Alshareef said the steering committee recently met with Benning &
Company to discuss a proposal for construction of strategic food
reserve facilities in Saudi Arabia and abroad -- a key priority
under the initiative.


5. (SBU) Alshareef noted the original Royal Decree announcing the
initiative specifically listed the United States as a country of
interest, due to its annual agricultural surplus. Alshareef said
officials working on the initiative wanted to send a technical team
to the U.S. to explore opportunities for investment. Alshareef said
that as Saudi companies identify specific opportunities, the SAG
will pursue Bilateral Investment Treaties (BITs) with the specific
countries in that regard. He said the SAG may be interested in
concluding a BIT for agriculture with the United States.

Ag ministry touts program's foreign aid aspect
-------------- -


6. (SBU) A high-level Agriculture Ministry contact indicated to Ag
Attache that an important objective of the King's initiative is
helping poor African countries develop their agriculture sector.
The SAG is willing to help develop infrastructure to facilitate
Saudi agricultural investment in these countries more effectively.
The contact said the Saudi government will make sure that a

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significant percentage of the agricultural products produced by
Saudi companies abroad will be available for sale domestically at
competitive prices in the countries in which the food is grown. He
described the King's initiative as investing in hundreds of
thousands of hectares of fertile land to produce large quantities of
selected commodities to meet Saudi demand as well as to improve
productivity to increase food supplies sharply in the targeted
countries.


7. (SBU) Contacts in the Ministries of Commerce and Agriculture also
told Ag Attache that Ethiopia has offered Saudi agricultural
investors one million hectares of fertile farm land on a long term
lease and expressed its willingness to furnish attractive investment
packages to meet requirements outlined in King Abdullah's
initiative.

Riyadh symposium
--------------


8. (SBU) On December 13, the Riyadh Chamber of Commerce and Industry
hosted a symposium on Saudi Arabia's foreign agricultural
investments. It was attended by Minister of Commerce and Industry
Abdullah Zainal Alireza and Minister of Agriculture Fahad Bin
Abdulrahman Balghunaim, as well as other senior Saudi officials,
Riyadh-based diplomats, representatives of international
organizations, major domestic agricultural development companies,
individual investors, and academics.


9. (SBU) Minister Alireza inaugurated a workshop entitled
"Experience, Opportunities, and Challenges in Agricultural
Investment Abroad." The Minister told symposium attendees that
Saudi Arabia has reached an advanced stage of negotiations with
several agricultural producing countries regarding its food security
plans. The Minister detailed progress that has been made since the
initiative was announced in 2008. He explained that the initiative
was a response to high agricultural commodity prices which prevailed
in 2007 and early 2008, as well as export restrictions or bans
imposed by major agricultural products exporters such as India,
Russia, Argentina, and Vietnam.


10. (SBU) According to the Minister, the initiative is intended to
prepare Saudi Arabia for any future international food crises by
providing a guaranteed food supply and maintaining sustainable
living standards for the Saudi people. To achieve the Kingdom's
food security requirements, Saudi investors should produce
agricultural commodities in priority countries and export sufficient
quantities to the Kingdom to meet domestic demand, as well as to
build strategic reserves of basic food products such as rice, wheat,
barley, and livestock products.


11. (SBU) The following is a detailed summary provided at the
workshop of the King Abdullah Initiative. Begin text:

King Abdullah Initiative for Saudi Arabian
Agricultural Investment Abroad for Food Security
-------------- ---

-- The plan aims to achieve food security by guaranteeing food
supply for Saudi Arabia and building up strategic stock reserve
levels to avoid future food crises by providing incentives to Saudi
companies and individuals to invest in foreign countries that have
comparative advantage in agricultural production.

-- Saudi private companies and individual investors will take the
leading role in investing in strategic agricultural crops overseas.
However, Saudi government funds could also consider joining hands
with Saudi investors in agricultural investments abroad.

-- King Abdullah's Initiative identified countries that are rich in
agricultural resources and offer investment incentives as well as
enforce encouraging administrative regulations.

-- The Government will establish strategic reserves for major
commodities to meet domestic demand in case of shortages in the
world agricultural food supply.

-- The potential host country should allow the export of adequate
quantities of produced crops to Saudi Arabia to meet its domestic
consumption and to contribute in building up strategic reserve of
major commodities in Saudi Arabia.

-- Saudi agricultural investments overseas will be long term
commitments through different options such as land ownership, long

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term lease or joint ventures.

-- The newly established $800 million Saudi government fund will
provide credit facilities to firms that will be engaged in
agricultural investments abroad. The fund will be also used to
build infrastructure, if needed.

-- The host countries should allow the Saudi investors to select the
agricultural crops they want to produce.

-- The Saudi government will facilitate Saudi foreign agricultural
investments by negotiating and signing bilateral agreements with the
selected countries to protect and facilitate Saudi investments
abroad.

Strategic crops targeted
--------------

Under King Abdullah's Initiative, the Saudi government targets eight
crops: rice, wheat, barley, yellow corn, soybean meal, oil seeds,
sugar, and green fodder (mainly alfalfa, Rhodes Grass and Sudan
Grass.) The following are estimate of annual Saudi consumption of
strategic crops (in million metric tons):

Crop Quantity
-------------- --------------
Wheat 2.7
Barley 7.0
Yellow Corn 2.0
Soybean meal 0.8
Rice 1.3
Sugar 0.7

Agricultural processing and projects
targeted by the initiative
--------------

-- Vegetable oil processing
-- Concentrated animal feed production
-- Construction of silos
-- Seed production
-- Construction of abattoirs

Ministerial committee to facilitate
Saudi agricultural investments abroad
--------------

A royal decree was issued in 2008 to form a ministerial committee
(MC) led by the Minister of Commerce and Industry to implement the
King Abdullah Initiative. Other members of the committee include
the Minister of Agriculture, and deputy ministers from the
ministries of Foreign Affairs, Finance, Agriculture, and Commerce.
The MC formed a steering committee and a technical committee to
initiate visits to targeted countries to evaluate investment
opportunities.

The MC evaluates the following conditions to consider a country to
approve for Saudi agricultural investments:

-- Political and social stability.

-- Legislative and organizational stability.

-- Economic stability including implementation of market based
economy.

-- Abundance of natural resources including suitable climate,
fertile land, and abundance of water resources.

-- Availability of labor at competitive cost.

-- Strategic location of a country, which includes proximity to
Saudi Arabia, to reduce transportation time and cost.

-- Existence of laws/regulations that fight administrative
corruption.

-- Availability of attractive incentives for investors.

-- Clear and transparent investment regime.

-- Strong political relationships with Saudi Arabia.


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-- Exemption from paying customs fees on equipment and other
products required for agricultural investment.

-- Exemption from income tax on agricultural production and
processing for reasonable period.

-- Guaranteed right to export to the Kingdom of adequate quantities
of agricultural commodities produced by Saudi companies to cover
consumption and build up strategic reserve.

-- Assurances for Saudi investors to choose among eight targeted
commodities for foreign investments

-- Possibility of long-term investment through land ownership or
long term land lease.

-- Willingness to sign binding bilateral agreement to protect and
guarantee long term Saudi agricultural investments.

-- Guaranteed availability of all needed agricultural investment
resources including fertile land and abundant water resources that
will allow production of large quantities of some of the strategic
crops such as rice and wheat at sufficient quantity and at low and
stable prices.

Countries targeted
--------------

King Abdullah's Initiative currently targets the following six
countries: China, India, Mali, Senegal, the U.S., and Ukraine. The
MC has the authority to suggest additional potential countries.

Additional countries included
--------------

The Saudi MC added another 15 countries to the list of targeted
countries after conducting feasibility studies regarding
agricultural investment opportunities of each country. The
countries are Canada, Pakistan, Turkey, Ethiopia, Poland, Sudan,
Indonesia, Vietnam, the Philippines, Myanmar, Kazakhstan, Romania,
Uruguay, Brazil and Argentina.

Countries visited by the MC
--------------

Since King Abdullah's Initiative was announced in 2008, the MC led
by the Minister of Commerce and Industry has made exploratory visits
to Ethiopia, Turkey, Ukraine, Egypt, Sudan, Kazakhstan, the
Philippines, Poland and Vietnam. The Saudi government is preparing
a draft treaty that will be submitted to targeted countries to
govern Saudi Arabia's Agricultural Investments Abroad.

Possibility of Establishing Partnership
with Chinese Companies in Africa
--------------

The Saudi government encourages Saudi companies to join forces with
specialized Chinese companies involved in agricultural production in
Africa because of their strong presence in Africa. The government
encourages Saudi companies to partner with their Chinese
counterparts in livestock and fish production in order to benefit
from Chinese expertise in developing and running agricultural
investments in Africa.

Saudi Companies Implement
King Abdullah's Initiative
--------------

-- The first shipment of high quality Ethiopian rice produced using
facilities provided under King Abdullah's Initiative arrived in
Saudi Arabia at the end of January 2009.

-- In early February 2009, a consortium of Saudi investors indicated
plans to invest $267 million in agricultural projects in Ethiopia
and Sudan after completing feasibility studies. Also, Hail
Agricultural Development Co (HADCO),one of the six large private
agricultural companies in Saudi Arabia, announced its intention to
invest $45.3 million in Sudan to produce wheat and corn. It was
announced that the Saudi government-owned Saudi Industrial
Development Fund would provide soft loans to cover 60 percent of the
total investment cost. HADCC, which was established in northern
Saudi Arabia in the early 1980s, produces wheat, corn, dates,
grapes, olives, animal feed, broiler meat, and table eggs.

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-- In 2008, SAVOLA Group, the largest retail chain and foodstuff
processor in Saudi Arabia, announced its plans to invest millions of
U.S. dollars in purchasing and developing thousands of hectares of
agricultural lands in several countries including Egypt, Sudan,
Ukraine, Brazil and Ethiopia. The firm aims at guaranteeing an
uninterrupted supply of sugar and edible oils for its production
facilities, with plans to purchase land and develop agriculture
infrastructure to grow beet sugar, rice, edible oils (sunflower,
corn, and canola) and other commodities.

-- Al Rajhi's International Investment Company disclosed at the
December 13 symposium plans to spend at least $400 million by 2011
to produce wheat, corn and sorghum in Egypt and Sudan in next few
years. The firm has started the cultivation of 42,000 hectares in
the Egyptian Toshka project and expects the first harvest by the end
of May 2010. In addition, the company provided information on its
ongoing project in Sudan to cultivate sorghum on 52,521-hectares.

-- Jenat, another consortium formed in March 2009 by four Saudi
companies (TADCO, Almarai, JADCO and Food Products Co) announced
plans to invest $40 million in Sudan and Ethiopia to produce wheat,
barley and animal feed.

End text.

What the Saudis want to know about U.S. agriculture
-------------- --------------


12. (SBU) As noted above, the United States is one of the initial
six countries that the royal decree authorized the Ministerial
Committee to evaluate for possible Saudi agricultural investments.
Saudi potential investors and government officials are aware of the
availability of vast fertile agricultural land in the U.S. that
could produce most of the strategic crops targeted by King
Abdullah's Initiative. However, Saudi officials are seeking more
information on U.S. rules and regulations governing foreign
investments in the U.S. agricultural sector. They have asked
specifically for the following:

-- Information on kinds of incentives that the U.S. and Saudi
governments offer to attract foreign investment in the U.S.
agricultural sector.

-- Rules and regulations that govern foreign ownership of U.S.
agricultural lands.

-- The possibility of long term leasing of agricultural lands.

-- The cost per hectare of agricultural land for the different
options (buy, lease, and/or joint venture).

-- List of states that produce the eight strategic commodities
(rice, wheat, barley, yellow corn, soybean meal, oil seeds, sugar,
and green fodder).

-- List of states that depend on rain fed cultivation versus
irrigation based agriculture.

Comment
--------------


13. (SBU) We believe the Saudi government is committed to pursuing
this initiative which allows it to foster the growth of Saudi
companies and reduce aspects of food price increases. Doing so
would have significant environmental benefits (especially in slowing
depletion of nonrenewable fossil aquifers).


14. (SBU) The initiative's plan to invest in African countries also
offers the opportunity to form partnerships to support our own
foreign assistance priorities. Although the idea of Saudi farms in
Africa may sound farfetched, the Kingdom has for years hired foreign
managers and laborers to administer its farms and other
agribusinesses (e.g., most Saudi wheat farms currently have Egyptian
managers). We think the Kingdom may be able to replicate its
agribusiness model in Africa successfully, especially since it
probably will be willing to pay above-market prices for the food
produced.


15. (SBU) In recent years, food security has not been a major
problem in Saudi Arabia although food prices have become politically
sensitive. The Kingdom's grocery shelves long have been fully
stocked with a wide variety of cheap foods, not only filling the

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needs of large Saudi families but also serving the diverse tastes of
its large expatriate workforce. However, food makes up a large
percentage of the average Saudi family's expenses, and with 2009 per
capita GDP just above $13 thousand dollars (driven down 22% from
last year due to lower oil prices and the international financial
crisis),the Saudi government wants to prevent food insecurity from
creating political instability. Saudi food prices accelerated
rapidly in 2007, causing significant public complaints and calls for
government intervention. Older Saudis, like the King, still
remember the days before oil production brought an end to hunger in
the Kingdom. They view the United States as blessed with
agricultural wealth in the same way that they have been blessed with
prodigious oil reserves.


16. (SBU) We believe Saudi officials would strongly welcome the
opportunity to develop investments in the United States. We would
welcome Washington agencies' assessments of interest in this
program, which we believe could both support job creation in the
United States and potentially advance our foreign policy goals in
some very poor countries. If Washington agencies believe this is
worth pursuing, we believe it could play a very significant role in
expanding our bilateral strategic relationship. End comment.


17. (SBU) Post requests EEB and USDA assistance to provide relevant
information (see paragraph twelve) we can pass Saudi officials
working on the King's initiative.

Smith