The "Holy Crap" Files

Sharon March 3rd, 2008

I’m going to guess that most people missed what I think might be the most shocking news of the week. No, it wasn’t Chavez massing on the Columbian Border, Obama overtaking Clinton in Texas polls or the EU Energy Commissioner announcing oil could hit $200 Barrel

No, the big news got almost no attention, but it should have.  It was the revelation that Saudi Arabia has decided to stop growing wheat, and rely entirely on imports because they don’t have enough water to grow their own food.  The Financial Times reports,

The decision would represent a significant shift in policy for the Saudi administration, which launched an agricultural development programme in the 1970s, including the establishment of irrigation networks, to become self-sufficient for some food supplies.

From producing about 3,000 tons of wheat in 1970, Saudi Arabia became a net exporter and by 1991 production had reached 3.8m tons, according to government -figures.

However, water resource issues have previously led to reduced production of wheat and other grains. Demand for water is increasing rapidly in Saudi Arabia as the population has swelled from 7m in 1974 to about 24m, and the economy expanded during the oil boom, with the government seeking to boost industry.

The country has no permanent rivers or lakes and very little rainfall, and the government has relied on dams to trap seasonal floods, tens of thousands of deep wells and 27 desalination plants.

“Water will always be a critical issue in the kingdom, a country that relies on desalinated water for drinking and other uses will always be under pressure,” said Said Alshaikh, chief economist at National Commercial Bank.

“It is so expensive to produce water in Saudi Arabia.”

 It is almost impossible to overestimate how significant this is.  Think about it – the House of Saud and its government have an enormous investment in keeping their society stable – it is the key to the power of any ruling body, and particularly important in Saudi Arabia, where there is a great deal of such instability.  Food riots are the last thing Saudi Arabia can afford. 

 Now let us assume that this policy shift is being made in full awareness of the present biofuels boom, rise in staple food prices and the associated instability.  We’re already seeing food riots in some places, and these seem bound to continue.  Absolute shortages are being discussed and Saudi policy makers are clearly aware of climate change and its potential impact on their region.  Meanwhile many nations, including Russia, are raising tariffs and exporting less grain because of fear for their own people’s supply, further stressing availability. 

There are only two possible explanations for this.  The first is that Saudi Arabia’s absolute water shortages are so extreme that they simply cannot afford to use water for agriculture.  If this is the case, then it does not bode well for the the Saudi people, or for the long term stability of the government or the region.  The fact that the government is willing to risk food shortages in the longer term to protect its limited water supplies now suggests a real and deep and urgent crisis that will likely become more acute if climate change accelerates, as it seems bound to.

The other possibility is that Saudi Arabia is confident of its long term ability to outbid just about anyone for grain production, and is confident that supplies will continue to outstrip demand in the future.  This seems just barely possible to me – that the Saudis recognize that their resources will become so valuable that they can outbid car owners, and even nations trying to keep food reserves.  But since Saudi Arabia will become an enormous consumer of imported wheat, and already relies heavily on food imports, this strikes me as the less likely scenario.  Few nations are willing to give up minimal sovreignty and become dependent – as the article notes, this reverses a long term commitment to independence.  

I doubt that major Saudi leaders are unaware of the projected growth in food needs worldwide – they know they will be competing with an expanding population and an expanding demand for meat and biofuels.  Their oil reserves will likely make them rich for some time to come as oil prices remain high and rise, but the House of Saud has never shown any great desire to redistribute its wealth to the general populace, which it would effectively have to do to import and subsidize wheat and other foodstuffs for a population that is growing nothing.

 No, the far more likely explanation is that the water crisis in Saudi Arabia is so severe that they cannot feed themselves and provide for the water needs of their population.  And if things are already that acute, how long until the next choice has to be made, and the next and the next?  How long before the populace of Saudi Arabia begins to express its discontentment?

In a time of rapidly rising food prices, where projected growth in agricultural prices is almost infinite, and as the planet reaches a crisis point in feeding itself, the decision of a nation to simply give up growing staple foods is a signficant and drastic choice that is most likely motivated by teetering on the edge of a real disaster.

And it is a disaster that we should be paying attention to for a number of reasons.  The first, and simplest is that it mirrors hard choices that will have to be made elsewhere.  As the planet gets hotter and dryer, more and more places will have to make these choices.  As aquifers are depleted, more and more countries will depend on one another to meet their food shortfalls – and more and more hunger will result.

 But also, virtually all scenarios that postulate a reasonably ordinary decline in oil supplies postulate them in a world where global exports operate as they do now, and oil is sold on the market place.  But if Saudia Arabia is experiencing extreme enough concerns about water to stop agriculture, this shows an underlying fissure in the stability of that country.  We depend on Saudi goodwill – or rather, the goodwill of the House of Saud – for a large portion of our present and postulated future oil supply.  But the Saudi people do not love us, and it is not impossible to imagine that our supplies might not decline evenly, but precipitiously in the event that the Saudi government was unable to hold power. 

Edited to Add: A little while after I posted this essay, a piece by Yair Wallach appeared on The Oil Drum that provides more detail on the way food price rises will play out in the Middle East.  It does not mention SA’s decision not to grow wheat, but provides more evidence of the ways food and water may destabilize Mid-East politics.   

Sharon

17 Responses to “The "Holy Crap" Files”

  1. Phil Plasma says:

    Thank you for bringing this to light, I had not seen it in the news at all.

  2. Yes, I saw this, and also did a double-take. Whatever the reasons are, with grain shortages projected world-wide, this is a deadly serious move on their part, which means there are some deadly serious reasons behind their choice to make it.

    What I think is going on is a combination of the two reasons you mentioned (a serious shortage of potable water and a confidence in the continued market for their oil) PLUS a recognition of the likelihood that there is going to be enough un-meetable demand for oil now and in the future that the Saudis will easily be able to choose not only *how much* they will charge for their oil, but also choose *who they will sell it to.*

    My best guess is that countries who can pay and who are also willing to supply growing Saudi food needs as a way of “sweetening the pot” will get preferential treatment when it comes to buying Saudi oil. I see this as as a sign that the future market for Middle Eastern oil will be not be just price-based, but will also be based even more than it is now upon some kind of quid pro quo.

    In other words, we’re srsly about 2 B pwnd.

  3. Alan Locklear says:

    I can think of another, related, reason for the Saudi decision. It’s possible, although maybe not too likely, that the House of Saud has decided that their supplies of oil and natural gas are too valuable to use to operate those 27 desalinization plants and the pumps for those thousands of deep wells. This would imply that the Saudi petroleum reserves are in much worse shape than even pessimistic estimates would have it, but given the Saudis’ well-known reticence about those reserves, who can say?

    Shutting down irrigated agriculture (in a country with little to no history of growing crops) would undoubtedly be easier than imposing other sorts of petroleum conservation measures on a country whose lifestyle is even more petroleum-profligate than ours.

  4. Matt says:

    And yet another scenario – -could a Saudi Soveriegn Wealth fund purchase an American company experiencing financial problems which also holds vast amounts of morgtages?

    Would the Sovereign Wealth Fund then hold those mortgages and have control over what is grown there and where it is shipped?

    Seriously, could a foreign country grow their wheat on our land and ship it home?

  5. Matt – I could be wrong, but I believe there are still some limits to the type of property a foreign country can own here. Now, sure, there may be ways to get around that with shadow corporations and such, but I don’t know.

    But my guess is still that it would be much easier for them to just have us assume all the risk and do all the work of growing the grain or whatever else they need and harvesting it and storing it and shipping it – and just use the carrot of their oil as the incentive to keep us selling it to them instead of selling it to someone else (or giving it to someone else – I’m thinking of overseas food aid programs, here.)

  6. Another thing to consider is that the Saudi’s may be having salinization issues with their croplands. When you irrigate desert areas, it often brings up salts from the subsoil that begin to accumulate near the surface and eventually interfere with the land’s ability to grow many common crops. Thirty years is plenty of time for that sort of problem to begin to show up.

    It might be interesting to see how their yields have been doing over the past few years. If yields have been noticeably declining, it is possible that there may be other issues besides lack of fresh water at work. If this is true, halting agricultural production now would save water resources while allowing the land to recover some from the salt damage in case it was needed for agriculture again later. In the meantime, there is still the world grain market, for however long that lasts. And they hold powerful incentives to turn that market to meet their own needs for quite some time to come.

  7. Leila says:

    This has no external internet link/source, it’s a bit of gossip from a food and agriculture professor at the American U. of Beirut. He heard the same news from a colleague, with this addendum:

    “the Saudis are apparently renting irrigated land in Sudan and Egypt ($500 per hectare) and hiring the locals to produce their wheat need. He said something like half a million hectares in Sudan, or $250 millions in land rental per year.”

    http://landandpeople.blogspot.com/2008/03/i-heard-from-colleague-today-that-saudi.html#links

    The Saudis are outsourcing. Look at the map. Sudan and Egypt are closer to Saudi than Kansas is to New York State, by a long shot. I’m not saying this is a great solution, but it is a solution that makes some sense to this amateur bystander.

    Of course they’re having food riots in Egypt, and wheat shortages all over the Arab world, and they’ve been building on arable land all over the Arab world (and Israel) for two generations. My grandparents on the coast of Lebanon grew wheat on property that’s all planted with concrete high-rises today. (The family sold out in the 60s). Oh yes, and the refugee camp of Ain-el-Helweh sits on some of our best wheat-growing arable land. Tell me when you think *that* question is going to get resolved – we still hold title but we’re waiting for Middle East Peace or Armageddon, whichever comes first, before we can expect the Palestinian refugees to return to their homes or otherwise leave the camp. (or we might get compensated – I’m not holding my breath). And the property is still paved over so it’s not going back to wheat farming for generations.

  8. “the Saudis are apparently renting irrigated land in Sudan and Egypt ($500 per hectare) and hiring the locals to produce their wheat need. He said something like half a million hectares in Sudan, or $250 millions in land rental per year.”

    What that means (since the Egyptians are net IMporters of wheat) is the Saudis are now competing with the Egyptians, on their own soil, for Egyptian-grown wheat.

    My guess is the government will eventually put a stop to that arrangement, as prices rise and reserves grow even shorter. I don’t see any way around that.

  9. Leila says:

    Rock and a hard place for the Egyptians, I would say. The Saudis tend to get what they want.

    You can’t imagine how much fertile land Egypt has paved over in the last thirty years. It’s a heartbreaker.

  10. Old_Grey_Mare says:

    If I am not mistaken, they also use water for injecting into the oil wells to increase production

    Mary

  11. Leila says:

    Saudis wouldn’t even be growing wheat without it being as heavily subsidized as it is now. Maybe they have realized that it is cheaper to outsource? Plus there have been wheat shortages there due to the subsized wheat being fed to animals instead of going to the bakeries. And apparently there is a huge black market of it being exported to egypt/sudan.
    Leila
    (different than above Leila)

  12. Sharon says:

    Mary, I think the water used to keep up production in oil fields is salt ocean water, not fresh drinking water.

    Sharon

  13. How confusing. Two Leilas? I am the original Leila (Bedouina) and I’ll start using my last name here. I was confused myself when I read the third Leila post – I didn’t write that!

    Nice to see you, other Leila!

  14. anon says:

    See this post at itulip. It has links to the growing issues of salinity in irrigated Saudi Arabian farm lands

  15. >>See this post at itulip. It has links to the growing issues of salinity in irrigated Saudi Arabian farm lands<<

    Thanks, anon. I read both the forum note and the paper you linked.

    I grew up in the southern end of the San Joaquin Valley, and increasing salinity in the desert topsoil is something the farmers have to fight all the time in their irrigated fields. I’m not surprised the Saudis are having similar problems. Salinity may not be the main reason they’ve decided to stop farming grains at home but it does seem to at least be a contributor.

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