Water fears lead Saudis to end grain output

Saudi Arabia plans to halt wheat production by 2016 because of concerns about the desert kingdom's scarce water resources, according to a US government agency.

The Saudi Arabian government has not publicly given details of the move, which comes as global cereal prices surge, driven by strong demand and lagging supply. Top-quality wheat prices for baking bread hit a high this week of $25 a bushel and have more than doubled since January.

Saudi Arabia will begin reducing production annually by 12.5 per cent from next year and will use imports to bridge the domestic consumption gap, the US Department of Agriculture - which collects information on global supply and demand for agricultural commodities - said in a report about the Saudi plan.

It estimates that Saudi Arabia's wheat imports will reach 3.4m tons by 2016, which could place the Gulf state in the top 15 largest importers of the cereal. The country at present imports a negligible amount of wheat, while producing about 2.5m tons annually.

The forecasted increase in demand from Saudi Arabia, in addition to already high consumption in the region - Egypt is the world's second largest wheat importer - would tighten global wheat supplies even further, analysts said.

The US report said that "the main reason for change in the local wheat production policy was concern over the depletion of fossil water since the crop is grown on 100 per cent central pivot irrigation".

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."

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