Saudization vs. Farming

Saudization in the farm sector proves to be impossible. Of half a million people working in agriculture, less than 2,000 are Saudis. The quotas of the Nitaqat program for workforce nationalization are missed by a wide margin.

Farmers are up in arms as they have to comply with quotas, but cannot find Saudis to work in the fields, as a white collar mentality prevails and wages are unattractive.

Iran’s New Three Tiered Exchange Rate and Food Trade

Iran continues to be plagued by financial sanctions that hurt its ability to export oil and import vital goods like food or gasoline, which is scarce due to a lack of refining capacity.

One way to cope with this issue have been oil for food barter arrangements with Pakistan and the acceptance of non-convertible Indian rupees as payment for oil. Now a new coping strategy has been devised with a new currency system.

As the Iranian Rial has lost about half of its value compared to the dollar over the last year, the government has switched from a managed float that kept the official exchange rate in balance with free market rates to a three tiered system that rations foreign exchange.

Such a system was already in place during the Iraq-Iran war in the 1980s and during the subsequent reconstruction in the early 1990s. Food imports had high strategic importance for the Iranian leadership during the war as I outline in chapter four of my Oil for Food book.

The allocation mechanism of the new currency system highlights the crucial importance of food imports for political legitimacy.

The highly subsidized official rate of IR12,260 is less than half the free market rate of IR26,880 rials and applies only to imports of essential commodities like grains, meat, sugar, vegetable oil, and medicine.

For all other items, importers essentially have to pay the double:

The second tier is a “non-reference” rate that only trades about 2 per cent below the free market rate. It currently stands at IR 23,927 and applies to livestock, metals and minerals.

All other imports like appliances, cars or clothes are regarded as less essential and strategic.For them one has to pay the free market rate.

It remains to be seen how this oil for food nexus plays out as the Iranian nuclear stand-off unfolds and whether the US might be tempted to use food trade in an openly political way as it did – unsuccessfully – during the 1970’s.

UAE to Increase Use of Treated Waste Water

The UAE plans to increase its use of treated waste water , which is about half as cheap to produce than desalinated water.

Yet, almost half of it is currently being dumped into the sea instead of using it for landscaping or planting crops.

Beside landscaping, Golf courses and district cooling, highly treated waste water could also be used to plant crops, at least fodder crops. To balance out peaks and troughs in agricultural water consumption a storage system for treated waste water is suggested.

Chicken and Sheep Prices up in Saudi Arabia

The Saudi Minister of Agriculture Fahd Balghunaim expects meat and chicken prices to remain on elevated levels due to the rise in feedstock costs.

He encouraged Saudi consumers to switch from overpriced local sheep varieties to imported ones from Australia or Somalia and argued that quality differences between them were rather perceived than real.

Self-sufficiency in chicken production stays at 45 percent. A massive expansion program is planned. Like dairy production and unlike wheat which is being phased out until 2016, chicken production is slated for expansion.

Antibiotics are a common phenomenon in chicken production globally but seems to be frowned upon in Saudi Arabia, at least in theory. The Minister said:“I swear by Allah that our chickens are hormone and antibiotics free.”

Ag Growth in the Gulf: Fertilizer and Organic Farming

While wheat production is being phased out in Saudi Arabia there are growth areas in Gulf agriculture, like organic farming and indoor vegetables.

The Gulf also solidifies its position as a major fertilizer producer for global agricultural markets. This is not only true for nitrogen based fertilizer like ammonia and urea that is gained from natural gas, but also for the Al-Jalamid phosphate project, which has started to produce and aims at a 10 percent market share of globally traded Diammonium Phosphate (DAP) fertilizer.

Phosphates are now the focus of Saudi Arabia’s largest mining company Maaden and make up 60 percent of its value according to a research report of Al Rajhi Capital.

On a global level it needs to be noted that the Middle East holds the vast majority of global phosphorus/ phosphates reserves. Fears of a ‘peak phosphate’ by as early as the 2030s have been overblown after the massive upgrade of the Moroccan reserve base, first by the International Fertilizer Development Center and then by the US Geological Survey. Morocco now holds over three quarters of global phosphorus reserves according to the new estimates.

Like Jordan, which also holds considerable reserves, Morocco has been offered GCC membership in the wake of the Arab spring. While this was about politically strengthening Arab monarchies, it is conceivable that Middle Eastern countries might use their fertilizer production in the future to foster relations with agricultural producer countries and improve their food supply security.

Saudi Milk Production: Expansion and Feedstock Worries

Saudi dairy giant Almarai, which has farms with 135,000 cows is concerned about rising feed prices, especially corn and soybeans.

It plans further expansion, even though the Saudi dairy industry has been attacked by a motion of the Majlis al-Shoura for its high water needs in the past.

This could lead to an increased interest in outsourcing water intensive production of green fodder like alfalfa. Almarai already acquired an Argentinian farm earlier this year.

Impact of Global Food Price Rise on the UAE

The recent rise in global food prices, particularly animal feed like corn and soybeans, impacts on the UAE, which has the highest pass-through of international prices in the GCC according to a Word Bank paper.

The UAE’s system of food price controls will come under pressure because of this. Either the government starts to give subsidies to retailers as it has already done with partly government owned Agthia, or retailers will withdraw certain items from sales should they perceive necessary cross-subsidies as excessive. A black market would develop.