Saudi Arabia’s state agricultural investment body, Saudi Agricultural and Livestock Investment Company (Salic), has paid $188 million (€172 million; £130 million) for a 20 percent stake in Brazilian beef producer Minerva, the latest in a long line of moves by the kingdom to shore up its food security.
The investment, which will support Minerva’s expansion into Saudi Arabia and other Middle Eastern markets, continues the kingdom’s strategy of buying agri assets globally after a failed self-sufficiency programme which caused severe water shortages and squeezed food supplies.
“The deal ticks all the boxes for Salic,” Adam Oliver, a partner at agribusiness consultants and investment managers Brown & Co told Agri Investor. “Namely it meets the mandate to invest profitably in agriculture and associated value chains in order to help food security and comes at a time of weak internal beef demand in Brazil due to major macroeconomic challenges, with the Brazilian real is at its lowest level against the dollar in its 20-year history.”
Salic was established in 2011 to make agri investments in overseas companies and land, and is part of a wider initiative to encourage Saudi agri companies to take strategic stakes in foreign agri companies, as the country gets to grips with a booming population, minimal arable land and dwindling water resources.
A programme aiming for self-sufficiency in wheat and other crops saw Saudi Arabia’s water use grow to double the global average per head, with agriculture using 90 percent of the country’s supplies. After food shortages in 2008, the country cancelled the programme in favour of a global investment approach which has recently seen a flurry of activity.
In May last year Saudi Arabia paid $200 million for Canada’s state-owned wheat buying organisation, the Canadian Wheat Board, to aid the country’s shutdown of domestic wheat production to reduce water supplies, a move the United Nations Food and Agriculture Organisation (FAO) has long advocated.
UN FAO spokesman Christopher Emsden told Agri Investor that “where water is short, FAO and the ERBD [European Bank for Reconstruction and Development] have advocated a trade rather than autarky solution to food-supply needs. Subsidising the growing of wheat in parched dry regions is very expensive and uses water. So where possible, [countries should] focus on growing high value-added items like fruit and vegetable for export and use the money to import more wheat. This may be significant in Saudi Arabia where the domestic farm subsidy regime not so long ago led to the existence of Saudi wheat exports.”
The kingdom has also been on a land-buying spree, primarily targeting Africa, but also acquiring land in the US. The country has bought thousands of hectares in Ethiopia to grow rice and other crops, is developing a pineapple plantation in Zambia, has leased 500,000 hectares in Tanzania and is the largest single country investor in Sudan, cultivating 1 million acres and investing $1.7 billion in three dams in the country.
The motivations for all this activity are clear. Saudi Arabia’s arable land is less than 2 percent and its population is forecast to grow from 29 million today to nearly 60 million by 2050. And the UN says such investments can fill “alarming capital gaps” in the agricultural sector of the host countries.
But some have raised concerns about the possible social, economic and environmental impacts of these investments.
In a 2012 report on land acquisitions in Africa, South Africa’s Standard Bank said “under-selling of agricultural assets (both land and, perhaps more critically, water) remains a profound threat,” and that land sales “have the potential to be deeply destabilising because of the social strains brought about by the relocation of local inhabitants”.
Saudi Arabia is not alone in looking outside its borders to ensure its future food supply. Qatar has bought huge tracts of land in countries such as Sudan and Nigeria and the Canada-based International Institute for Sustainable Development says China has acquired around 12 million acres of overseas land to grow crops.
Emsden says that while the number of “land-grab” announcements has fallen for four years in a row, the UN has brokered a set of agreed rules on responsible investment in agriculture and food systems.
Land acquisitions may be slowing, but Saudi Arabia’s agri diversification programme continues apace. This week the partly state-owned dairy company Almarai Co paid $31.8 million to buy land in California to supply its business with alfalfa hay as the country aims to phase out growing green fodder by 2019.