Saudi Agriculture: Food Security is the Main Priority for ARASCO

Interview with Dr Abdulmalik Al Husseini, CEO of ARASCO

What is Saudi Arabia’s biggest challenge in agriculture?

KSA faces mainly three major challenges as follows:

1-Poor water management practices: KSA has no perennial rivers and is dependent on fossilized ground water, which is non-renewable. KSA spends about 1.7% of its GDP on providing water for various applications, primarily agriculture which accounts for over 85% of the total water consumed. Our previous policy to become self-sufficient in wheat resulted in extremely high consumption of available water resources. Subsequently the Government has taken steps to phase out wheat cultivation by 2016. However many of the erstwhile wheat farmers shifted to cultivation of alfa-alfa, a more water intensive crop which had a detrimental impact on water consumption. Clearly there is an immediate need to phase out domestic cultivation of forage crops.

The prevalence of flood irrigation increases water consumption for existing crops. For example in the case of date palms, water productivity of flood irrigation is 3.6-m3/ kg of dates, compared to 1.2-m3/ kg in the case of more efficient micro irrigation.

Another issue plaguing the industry is prevalence of un-regulated bore wells around the country. There is an urgent need to curb them.

2- Poor farm management practices: Many farmers still use poor farm management techniques which include poor irrigation practices, poor pest management practices, lack of awareness about soil fertility and water quality etc. This has a negative impact on the crop yield which directly impacts the economic return per unit of water consumed. For example, average yield of date palms in the Kingdom is around 45 kg/tree, while that of regional and global peers like UAE and USA exceed 80-100 kg/tree.

3- Labor shortage: The agricultural sector in Saudi Arabia is heavily dependent on jobs such as cleaning, harvesting crops and grazing animals. The sector has traditionally had an overwhelming percentage of foreign labourers. Availability of labour has been impacted severely by the recent clampdown on illegal visa holders since the agro related jobs do not seem to fulfil the aspirations of Saudi nationals. The sector is in urgent need of a sustainable framework to meet the demand for labour.

What is the outlook for the Kingdom’s agriculture sector?
 
Phasing out of high water consuming crops: Unsustainable crops (defined as crops which do not justify the water consumption), will be phased out. Hence the sector will rapidly see the disappearance of domestic forage cultivation through a combination of incentives and penalties as well as policy interventions on the lines of the wheat phase out.

Investment in lands abroad for food security: The KSA Government has actively encouraged investments in the agricultural sectors of Sudan, Ethiopia, South America, Canada and Ukraine in an attempt to create a stable source of food supply for the Kingdom. The programs however, are yet to fully materialize to make a significant dent in the overall water consumption in the kingdom. One can expect that the local agriculture sector companies and the Government will actively participate in this initiative in the next 5  – 10 years.

Other developments: Our Government has been formulating policies to promote sustainable agriculture focused on Food Security. The government intends to aid cultivation of sustainable crops to the extent that they support food security. Restricting exports will also contribute to self-sufficiency and preservation of domestic natural resources. Improved farm management practices such as greenhouses for fruits and vegetables, micro irrigation, integrated pest management, soil quality management & yield improvement, are expected to emerge in a significant manner in the Saudi agricultural landscape in the not so distant future.

What strategic policies should be implemented?

Water, in spite of being one of the key resources in the kingdom, is taken for granted by the agriculture segment. There is a need for the Government to act fast with a holistic solution that serves the need for water conservation at the same time taking care of the legitimate needs of the farmers. For example- one can introduce water tariffs to control water consumption at the same time provide support to farmers through subsidy for micro irrigation investments and yield improvement solutions.

The usage of micro irrigation systems can reduce water consumption in farms by up to 2/3rd of that for flood irrigation. Government needs to bring out policies favoring usage of micro irrigation systems and further support it through: (1) awareness building and training to farmers on usage of the systems (2) financial incentives in the form of soft loans or subsidies.

Other areas include promoting greenhouse farming especially in fruits and vegetables. This will ensure better economic returns to farmers (improved yield, improved quality) and providing better quality crops to consumers.

Should Saudi Arabia build its own domestic food supply?

“Ensure food security through appropriate mix of domestic cultivation and imports” .. It is clear to all critical stakeholders in the Kingdom that sustainable food security can be ensured only through an intelligent mix of domestic agriculture and imports. The policy thrust of the Kingdom is hence to go for domestic cultivation of only sustainable crops. Strategic imports of water intensive food grains, animal feed raw material and forages will supplement the rest of the nutritional needs of the Kingdom. Securing imports through suitable backward integration into overseas logistics and overseas contract farming will also be critical for food security.

How do you see the issue of subsidies? How are they affecting the private business and doing business in the agro-industry?

The MOF currently provides import subsides for 31 animal feed grains and feed ingredients such as yellow corn, soybean meal, barley, DDGS, and alfalfa hay. The higher the protein and energy contents of the feed grain and ingredient, the higher the subsidy it receives.  In recent years, the government subsidy program for barley imports has made barley the most price competitive feed option for farmers, compared to other processed feed.  Global barley prices are set based on the Kingdom’s demand and subsidy levels in a way neutralizing the impact of subsidy. In the longer term, subsidy parity for all barley substitutes (corn, feed wheat, PKC, etc) will work in the favor of the Kingdom.

The Government can use subsidies to bring about a change in the practices towards improvement without impacting the livelihood of farmers. Subsidies could be provided directly to farmers or through intermediates (private businesses) that in turn pass the same to farmers – e.g. feed manufacturers who can pass on the benefits to livestock farmers.

How does ARASCO view the problem of water depletion and managing water resources vs. self-sufficiency?

Our region is the most water scarce part in the world. Saudi Arabia in particular has one of the lowest water availability. This is further being depleted by dependence on non-renewable water sources for consumption. The maximum demand for water is from agriculture (around 85%). As the population of Saudi Arabia increases, it will not be possible to allocate as much water to agriculture. Hence there is a need to promote sustainable crops and phase out the non-sustainable ones – the shortfall has to be compensated through imports.

As a private sector company, we are committed to support the Kingdom’s best interests as articulated through existing and emerging Government policies for sustainable agriculture, food security and water conservation. We are proactively equipping ourselves to provide cost competitive complete solutions for the agricultural and livestock farmers across our Group companies through upgrade of internal capabilities and strategic partnerships.

ARASCO introduced new feed products that consume lesser water and are more affordable to the ranchers. Currently, the company markets about one million ton of full feed to the local livestock sector, which corresponds to about 1.5 million tons of traditional feed, thus saves almost 1.125 million m3 of irrigation water. Upon completion of the current expansions, ARASCO production ceiling of full feed is expected to rise up to 3 million tons per year, this translates to around 4 million tons of traditional feed which includes within its constituents 2 million tons of green fodder that need 3.375 billion m3 of irrigation water. Hence, through its feed products, ARASCO shall be able to save about 21% of total water consumed by the agricultural sector in the Kingdom, where this percent approaches half the amount of water used for the production of green fodder.

How do you provide food security?

ARASCO plays a significant role in supporting the food supply chain in the Kingdom. Actually, it is one of the main enablers of food security in terms of producing or even helping other parties produce food through an integrated portfolio of commercial activities that collectively contribute in increasing production or generally raising the quality of food products.

Our stated corporate mission is to support food security without compromising water security. The overall theme of all our products and services as well as our operations is sustainability. ARASCO’s poultry and corn products businesses directly help in food security of Saudi Arabia. The feed business ensures better absorption of concentrate by livestock thereby reducing undigested wastage (2% wastage in Wafi vs. 30% wastage in Barley). ARASCO also minimizes water consumption in all its domestic manufacturing operations. Superior feed of ARASCO directly contributes to higher yielding diary livestock, thereby increasing the production of dairy products. In addition to providing food security, ARASCO also contributes to water security by importing water intensive food grains and forages. One of our businesses provides agricultural inputs such as fertilizers, pesticides, insecticides etc. which improve the overall yield and quality of crops.

ARASCO also owns Labs having advanced equipment with latest scientific and analytical technologies. Through this BU, it plays a pioneering role in raising the quality and safety standards of the products in the nutrition and livestock sectors in the Kingdom. The company also has a comprehensive “Logistics” unit through which it provides services of transport and shipping to the company affiliate business units and customers alike.

How secure are the imports of raw materials?

Securing raw materials for food security of the kingdom is one of the dominant themes of our Group strategy. We have built strategic relationships with global suppliers of food grains and forages across the world (South America, North America, South East Asia, South Africa and Australia). We also have invested in our own shipping capability to ship a significant percentage of our raw material, in addition to investing in the agricultural sectors of strategic sources like Sudan and South America.

What are your commodities hedging strategy – how do you manage volatility?

We are not in the business of speculating on commodity prices; however we manage the commodities market volatility through our experience of buying diverse commodities across different time periods of the year. We are not dependent on any one commodity in the world market at any point in the year and our operations are flexible to sync with the procurement strategy.

Do you see Saudi Arabia developing into a logistics and transshipment hub that can rival Dubai?

We believe that each country has its unique advantages and hence needs its unique footprint in the global logistics map. The Kingdom is already one of the most significant importers due to its large consuming economy. One expects that we will increasingly become important as a regional producer and hence will have additional imports and exports to manage. The Kingdom also has long coastlines in the East and the West and several strategic ports including emerging ones.

With all these combined advantages, Saudi Arabia will become a critical multi-port logistics and transshipment hub in its own right.

Tell us the story of ARASCO?

Established in 1983, ARASCO began its activities by providing agricultural services and has steadily evolved since then into one of the most prominent national companies, ranking among the largest companies in the Kingdom.  ARASCO’s business is currently concentrated in producing compound feed, poultry, agricultural inputs, food ingredients, raw food supplies as well as related logistics, technical, analytical and advisory services for customers in the Kingdom and the Region.

ARASCO’s mission is to support food security in a sustainable way in the Kingdom in particular and the Region in general. ARASCO’s medium term vision is to be a critical enabler of a sustainable & eco-friendly food supply chain in the whole Region. We are about 2500 employees and growing rapidly. We have demonstrated commitment to the Kingdom’s Nitaqat strategy across all levels and have a great pool of homegrown Saudi talent. We are also consistently ranked among the top employee friendly companies in the Kingdom.

What is your strategy for the next 2-3 years?

ARASCO’s strategy is focused on delivering value to all its critical stakeholders, and while it’s ultimate strategic objective is to deliver value to its owners by developing the portfolio of businesses, it has grown successfully over the years. Our focus has also been on building a portfolio that is aligned with the Kingdom’s policies in ensuring food security in a sustainable manner. This focus and integration also enables the development of synergy benefits across the business portfolio.

ARASCO’s current strategy has two dimensions:
(1) Grow existing businesses
(2) Develop entirely new businesses that can align with existing ARASCO supply chains.

For the past decade, ARASCO has been on path of transformation, which started with decentralization and then concentrated on upgrading critical management systems and working on alignment and motivation of its critical human resources. We have come a long way on this path since embarking on this historic journey. Operational Excellence is the cornerstone of most of our business strategies and we have launched a massive operational excellence program called ENSIAB, which will be in motion for the next couple of years. The company is making rapid progress with the main objective to reduce operation cost and waste with resultant benefits in lower cost, better customer delivery and ultimately profitability.

We are also working on making strategy management a core competency of the Group; which allows us to design and implement flexible and innovative strategies across our Group companies, in rapidly changing business environments.