Fertilizer as Strategic Assets: Canadian Bid for Israel Potash Producer Crumbles

Canadian Potash Corporation of Saskatchewan’s planned takeover of Israel Chemicals, a large producer of Potash has run into massive opposition.

Israel’s finance minister Lapid and trade unions oppose the deal vigorously as they fear loss of jobs royalties and a strategic asset.

Potash Corp itself was target of protectionist sentiment in 2010 when a bid by Australian BHP Billiton  and a possible counter bid by Chinese Sinochem led to vigorous opposition in Canada that derailed the deal.

In a world of high food prices fertilizers are increasingly perceived as strategic assets as I argue in the last chapter of Oil for Food. Asia in particular has a potash shortage.

The Middle East’s position in global phosphate reserves is more dominant than in the case of oil where it holds 60 percent of conventional reserves. Morocco alone holds over three quarters of global reserves after the recent revisions by the International Fertilizer Development Center and the US Geological Survey.

Iraq has another 9 percent, albeit its reserves are undeveloped. Syria, Jordan, Tunisia are also substantial producers as will be Saudi Arabia once its Al-Jalamid project is fully operational.

As reserves in the two largest producers worldwide, China and the US deplete, the importance of the Middle East in global phosphate markets will grow and therefore their importance for global food security.

Al-Dahra Land Deal in Egypt Declared Illegal

An Egyptian court has declared a 100,000 feddan (43,000ha) land acquisition by Abu Dhabi based Al-Dhara illegal.

The transaction happened in 2008 and Al-Dahra anticipated to invest $500 million in the southern Toshka Valley where land has been reclaimed from the desert and is supposed to be irrigated with water from the Nile, which is transported via canals to the project area.

Al-Dhara would lose its acquired land except for a paltry 100 feddans. Something similar happened to Saudi Arabia’s Kingdom Holding in 2011 when it lost most of its land in the Toshka Valley that it had acquired in 1998.

The ruling came after  an anti-corruption case against the former Egyptian Minister of Agriculture Yousef Wali. Wali was also Deputy Prime Minister and General Secretary of the ruling NDP before he was stripped of his official positions in 2004 already under another corruption charge. As a large landowner he used to be a driving force of the Mubarak’s regime drive at economic liberalization.

The Toshka valley project’s diversion of water from the actual Nile bassin is regarded critically by southern riparians like Ethiopia. The Egyptian government hopes to cultivate wheat in the valley as part of its current program for wheat self-sufficiency. However, the  salty soils and the hot climate are hardly suitable for wheat cultivation.

For Gulf countries the examples of Al-Dahra and Kingdom Holding show the risks of legal uncertainties and highlights the importance of fair and transparent deals. Reliance on backdoor deals with corrupt regime representatives can backfire.

The preference of Gulf countries for developed agro-markets like Australia or Argentina will likely be reinforced by these developments.

Gulf Food Inflation and Statistics

The GCC food retail sector is to hit $106 billion over the next five years according to a report by consultancy company AT Kearny.  Three quarters of this market are Saudi Arabia and the UAE alone.

The interesting snippet of information is that they see the food share of total consumer spending of $300 billion at 28 percent.

This would be pretty high. Not as high as in developing countries where this share is mostly between 40 and 60 percent, but higher than in OECD countries where its ranges mostly between 10 and 20 percent.

This was also the range that was mostly given in a survey by YouGov Siraj in 2007 (see on page 34). However, the survey revealed also that about ten percent spent between 30-50 percent and more on food. Additionally it might have had a sample bias as it was conducted over the internet with incentivized participants. As poor migrant workers often do not have internet access or are illiterate they might have been underrepresented due to sample bias.

The really deplorable thing is that we do not really know. Gulf statistics are not reliable and lack detail. The share of food in the general Consumer Price Index (CPI) is 26 percent in Saudi Arabia, 14.3 percent in the UAE, and 18 percent in Qatar and Kuwait.

Saudi Initiatives for more Water Efficiency

Saudi Arabia has seen a number of new initiatives that aim to use  water more efficiently.

Degremont, the water-treatment unit of Suez Environnement (SEV) has won a $52 million contract. It will desalinate brackish groundwater to produce drinking water for 3,000 households in the Riyadh area that have been hitherto supplied by water trucks.

As water tables sink and one has to drill deeper and deeper into aquifers, desalination is not only needed for sea water but also for increasingly brackish groundwater. As far as such water is used for agriculture there is a direct trade-off between water security and the demands of subsidized food production.

In another development, the Precision Agriculture Research Chair (PARC) of King Saud University (KSU) is implementing a  research project funded by King Abdulaziz City for Science and Technology (KACST) under the National Plan for Science and Technology (NPST). The goal is to use water, fertilizer and pesticides more efficiently with the help of drip irrigation and precision farming.

On two pilot farms in Haradh and Al-Kharj water savings for wheat amount to 30 percent and for alfalfa to 20 percent. While this is laudable it has to be kept in mind that even then water consumption of the two crops is prodigious, particularly for alfalfa which can be planted year round and needs about five times more water than wheat.

Water efficiency gains are not an alternative to reduce these crops and focus on more value added crops like vegetables that can be grown in green houses. This is the focus of a third project of PARC on the “Use of saline water for tomato production in hydroponic green houses”.

Saudi Water Study Delays Agro Reform

“The country’s national agricultural strategy will be approved once a water studies report has been completed, according to Samir Qabbani, a member of the agricultural committee at the Riyadh Chamber of Commerce and Industry and an agricultural consultant.
The strategy was submitted to Custodian of the Two Holy Mosques for his approval. It is currently being studied by the Supreme Economic Council, according to a report published in a local newspaper on Friday.”

Meanwhile, the partial wheat phase-out has not decreased water consumption as farmers switch from wheat to even more water consuming alfalfa which is needed for the Kingdom’s expanding dairy industry.…..

Sukuks, Savola and Milk

Saudi food conglomerate Savola is issuing an Islamic bond (sukuk) with a maturity of  seven years.

Savola is the largest sugar refiner in the Middle East but also has a 36.5 percent stake in Saudi dairy producer Almarai.

Bloomberg Business Week recently ran a good profile on Almarai  and its founder and major shareholder Prince Sultan bin Mohammed bin Saud al-Kabeer. The story pointed to the importance of feedstock imports from Argentina.

It seems that the expansion plans of the Saudi dairy industry are backed up by financial prowess.

Saudi milk production rising amid water concerns

Saudi Arabia’s dairy industry is bucking the trend of agricultural downsizing: Wheat production is declining and will be phased-out by 2016 (if everything is going according to plans and rearguard fights of ago-lobbies notwithstanding).

Milk production however is rising and will grow 27.2 percent to 2.4mn tons by 2016/17.

A motion by the Saudi Majlis al-Shoura some time ago was opposed by the Ministry of Agriculture which tends to represent the water guzzling agro-industry, which is often in royal hands like the leading dairy producer Almarai.

The argument was that dairy production is not water intensive because it uses imported feedstock like barley. This of course conveniently overlooked the water consumption for green fodder (mainly alfalfa) and for raising the cattle itself (drinking water, cleaning the stables etc.).

Interests are vested and the phasing-out of wheat production will not mean a reduction of water consumption if dairy production and associated green fodder production keeps rising.

Saudi Ethanol Project in Sudan

The Sinnar state government in Sudan signed a partnership with the Saudi Tala Company to produce sugar, ethanol and bio-fuel from Jatropha. The project’s size would be 165,000 acres and its costs $650 million.

If this project is implemented it would be a new trend. Internationally, over half of  announced land aquisitions have been for biofuel projects according to Oxfam., but the Gulf countries have mainly focused on food production so far.

The ethanol production at the Kenana Sugar Company in Sudan, which is half owned by Saudi and Kuwaiti capital is an outlier. Its ethanol production makes better use of molasses by-products of sugar production and takes advantage of European subsidies for ethanol, but is hardly an end in itself.

If implemented, the Jatropha project of Saudi Tala would be a first as far as Gulf investors are concerned.

Saudi Russian Grain Deal

Saudi company Najd Trading and General Contracting has inked a contract with Russian SAHO over guaranteed grain sales by Russian SAHO.

SAHO has 400,000 hectares of land in in its home region Novosibirsk and southern and central Russia.

Saudi Arabia imports more than 40 percent of globally traded barley for its livestock industry and Russia is one of its main suppliers.

SAHO wants to become one of the top three firms in Russian grain marketing which is so far dominated by international traders like Glencore. Glencore in turn has also attracted Gulf investors during its recent IPO.

UAE: Rhodes Grass Phase-Out Lags Behind

The UAE’s plan to phase-out water intensive production of Rhodes grass lags behind. Rhodes grass dominates field crops with 94 percent. Alfalfa, which is the dominant green fodder in Saudi Arabia contributes another 4 percent.

In Saudi Arabia alfalfa production has actually increased after farmers started to plant it as a substitute for the phase out of subsidized wheat production since 2008.

Without increased water tariffs or rationing a reduction in green fodder production is not be had.