Saudi Arabia's wheat farmers need SR25bn compensation

Saudi Arabia should exempt its wheat farmers from the remaining farming loans and pay them nearly SR25 billion (Dh24.48bn) in compensation for its decision to halt local production to save its water wealth, a local study has proposed.

The Gulf kingdom, the world's richest in oil resources and one of the poorest in water, should also take other measures to prevent massive losses by the wheat farmers as a result of the suspension of domestic wheat production and sale of land and agricultural equipment at much prices, said the study issued by the Riyadh Chamber of Commerce and Industry this week.

It warned that the decision to halt local wheat production and rely on imports, gradually enforced this year, would have many negative effects on the farmers, including a sharp fall in their income, abandonment of the profession by many of them, a drop in local cereal per capita, and a deterioration in unemployment.

"There are three proposals for the government to deal with this problem… one of them is to pay them direct compensation of SR200 per tonne of wheat, which will cost the state coffers about SR3.2bn this year," it said.

"Another proposal is to buy their land for SR5 per square metres. This could cost the government SR10bn, which could be used to set up a farming investment company abroad in collaboration with the farmers. The third proposal is to buy their land and pay them SR25bn as a direct compensation over a period of eight years starting from this year."

In early 2008, Saudi Arabia announced plans to import wheat and cut purchases of the grain from local farmers by 12 per cent a year to conserve water after reports about an alarming fall in underground resources.

Officials said the government would start reducing purchases of wheat from local farmers gradually and move to 100 per cent reliance on foreign imports by 2015.

Saudi Arabia produces 2.5 million tonnes a year of durum and soft wheat. Cereal and dairy farms across the country account for 85 per cent of water consumption.

The decision to rely on imported wheat follows a surge in Saudi Arabia's food imports over the past few years, with the bill peaking at more than $12bn in 2008 compared with $9bn in 2007 and $7bn in 2006.

Saudi Arabia is recording one of the fastest growth rates in food imports in the Arab world, averaging 8.3 per cent during 1995-2008.

Keep up with the latest business news from the region with the daily Emirates Business 24|7 newsletter. To subscribe to the newsletter, please click here

Follow Emirates 24|7 on Google News.