Saudis/Arabs following Chinese lead on equity crops

ARTICLE: “Saudis plan to grow crops overseas: Kingdom in talks with five countries; Effort to secure food supplies,” by Andrew England, Financial Times, 13 June 2008, p. 3.

China’s been pursuing this for a while, according to reports, so I presume some example effect here, which may or may not be true but is worth supposing, I suppose.

Still, the mirror-imaging here of the Kingdom proposing “strategic reserves” is telling, yes?

So Rising Asia’s demands exacerbate the Middle East’s “addiction” to foreign food just like our “addiction” to foreign energy.

Being who they are, no surprise that the Saudis want equity crops, or stalks in the ground that they own directly. Bit of a chimera, though. When push comes to shove, just watch the export limits get slapped on the market by the suppliers for reasons of internal stability. I mean, within limits, you can hedge your future costs through futures contracts, but you’re never going to secure food with any degree of confidence for the truly bad times. It just doesn’t work.

If you’re wealthy, risk comes in price, not supply, so such ultimate hedging is an illusion. Hell, trying to lock in long-term bilat prices won’t work either, because under the right market conditions, the locals will break the deals and tell you to go screw yourself because they can get a better price elsewhere. Happens all the time in energy (watching Russia today), so what makes anyone think food will be immune?

Still, learning curves must be scaled. This is part and parcel of the journey from Gap to Core.

Comments

[Michael]

The Irish potato famine happened when all of Ireland's other crops were doing well--people were literally starving in the midst of plenty. As the Irish work force thinned out, British landlords lost their estates from lack of people to work them and produce those wonderful grain and beef crops. Needless to say Britain's relationship with the Irish wasn't helped.

Even if the Saudis are able to hold the providing countries to the contract, they may only be delaying the inevitable and making it worse.