A Saudi Arabian plan to establish massive farms, perhaps as large as 247,000 acres, in places like Sudan, Ukraine or Kazakhstan, is not a threat to global trade, says a University of Saskatchewan professor.
But it is an indicator that the basic rules of economics are often ignored. Or irrelevant.
“What’s interesting to me is that the price of grain and the price of oil are related to one another. If the price of oil is high, the Saudis can probably afford to buy their grain,” said Richard Gray, of the College of Agriculture and Bioresources at the U of S.
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According to a recent report by The Financial Times, Saudi Arabia is planning to build a mega-farm outside its borders to combat rising grain prices and soothe national anxieties about food security.
Saudi Arabia, however, is not the only country with such ambitions. The United Arab Emirates and Libya are considering similar plans.
“This is a new trend within the global food crisis,” Joachim von Braun, director of the Washington-based International Food Policy Research Institute, told the Times. “The dominant force today is security of food supplies.”
While the concept of having an offshore farm that supplies a portion of a country’s food may be appealing, Gray said it doesn’t make economic sense.
“It’s not necessarily an efficient way to organize a farm. And it’s certainly not an efficient way to organize trade.”
The Saudis might be better off selling the wheat from their offshore farm on the open market, Gray said. Then they can buy wheat for their needs from Australia or Canada, depending on the time of year and who has the best price that month.
Moreover, Gray said, massive farms are not always massively productive.
“The large corporate model of farming has failed, repeatedly. Name one part of the world that uses decentralized corporate farming for grain production. And it’s not that it hasn’t been tried.”
If these mega farms are developed, Gray is not worried that it will tip the balance of world trade.
“This is not a big thing,” he said. “And it will do very little to contribute to global food security.”
Alex Winter-Nelson, a professor in the department of agriculture and consumer economics at the University of Illinois, agrees with Gray’s message that massive offshore farms make minimal economic sense. He said the concept isn’t surprising because Saudi agricultural policies aren’t always logical.
“They tried very hard to become self-sufficient in wheat … but they’re growing some of the most expensive wheat in the world,” said Winter-Nelson, commenting on Saudi Arabia’s three decade program of irrigating the desert. The program will be phased out by 2016, however, because it has nearly exhausted the nation’s aquifers.
Although the Saudis’ latest scheme to secure food isn’t based on sound economics, Winter-Nelson said this kind of capital investment could be good news for Africa.
“There’s a lot of room for foreign private investment in Africa, in agriculture in particular,” said Winter-Nelson, who is also a professor with the Centre for African Studies at the University of Illinois.
“You’ve got a number of countries that are politically stable … a place like Ghana or Tanzania. Those are countries where there’s a lot of agricultural potential.”
Asked if this will lead to another form of colonization, where foreigners control African resources, Winter-Nelson said it’s possible to have mutually beneficial investment.
“A lot of countries need basic infrastructure investment. Public-private partnerships could supply electrical grids and road networks. It might make sense for everybody.”
