By Kevin Baxter, MEED Energy & Industries Editor
As the Gulf peninsula's largest country, Saudi Arabia faces unique challenges in feeding a population of 27 million scattered across almost 2 million square kilometres.
The UAE's Alpen Capital states in a report that the kingdom consumed almost 28 million tonnes of food in 2011, of which 80 per cent was imported. It also forecasts Saudi Arabia's food consumption will grow at a rate of 4.2 per cent between 2011-2015. The cost of food imports is estimated at $10bn a year.
The shortfall between domestic production and imported supply highlights the serious challenge facing Saudi Arabia in terms of securing food resources for the long term.
Riyadh has acknowledged the issue and initiated a number of schemes, both domestically and abroad, aimed at diminishing the potential for future food shortages.
Difficult terrain in Saudi Arabia
Domestically, the two biggest issues facing food production are Saudi Arabia's rugged terrain and its harsh climate. Despite being the world's 13th largest country by size, only a tiny fraction of the kingdom's land, 1.7 per cent, is suitable for crop production.
The situation has compelled Riyadh to look abroad for arable land on which to produce food crops. To date, the kingdom has agreed several multibillion-dollar deals with countries such as Sudan, Egypt and Pakistan for land plots to produce crops for domestic consumption.
Adding to the food challenge is a lack of food manufacturing facilities currently operating within the kingdom. Mahboob Murshed, managing director at Alpen Capital, says potential foreign investors are deterred from entering the kingdom due to the high levels of bureaucracy and restrictive ownership regulations.
"In Saudi Arabia, the vast majority of manufacturing plants are either owned by a local company or are joint ventures between locals and multinationals such as the US' Kraft Foods," says Murshed. "There are very few expatriates who own operations in the kingdom, compared with neighbouring countries such as the UAE."
Murshed estimates there are 160-170 food manufacturing plants in the UAE. While there is a lack of similar data available for Saudi Arabia, he estimates that there are proportionally fewer plants operating within the kingdom.
The problem arises from the lack of opportunities for expatriates to establish and operate facilities in which they hold 100 per cent ownership rights. The Saudi Arabian General Investment Authority has recognised that it needs to sell the idea of investing in the kingdom to outside investors.
However, many of the economic cities it is planning to develop do not offer the same freedom of trade as free zones in neighbouring GCC countries.
Despite this, the presence of multinationals and large local companies operating in the kingdom signifies the importance of the market regionally. Many of the established players are keen to further expand their presence in Saudi Arabia.
In May, Kraft Foods opened an extension to its Nabisco Arabia plant, located in Dammam. The expansion of the plant, which operates as a 75:25 joint venture between Kraft and the local Olayan Group, was initiated in response to strong demand for the company's products both within the kingdom and across the GCC.