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Saudi fodder output ban spurs Almarai to buy US land

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Saudi Arabia's Almarai, the world's largest integrated dairy company, made a $31.8m land purchase in California in the face of domestic fodder output curbs which have fuelled a slide in its share price.

A ban by Saudi Arabia on fodder production in is driving companies to secure overseas supplies.

The 1,790 acres of land, acquired through Almarai's Fondomonte California operation, will provide Almarai with alfalfa hay for its dairy business.

California is one of the more popular states for foreign investors in US land, who face curbs on purchases in many areas.

Some 2.5% of privately held California farmland is in foreign ownership, compared with 1.3%, 1.1% and 0.7% respectively for the major corn-growing states of Illinois, Indiana and Iowa, according to US Department of Agriculture data.

Profit warning

Shares in Almarai plummeted on Sunday, as the group issued a profit warning, citing a ban on production og fodder, as well as an increase in energy and water tariffs.

Almarai calculated that cost of increasing its green fodder imports at around 200m riyals, or $53m, in 2016 with the amount rising until 2019 as all domestic purchases were phased out.

In addition Almarai calculated the direct and indirect costs of the increased tariffs would at 300m riyals of costs in 2016.

Almarai shares in Riyadh closed down nearly 9% on Sunday, at 69.92 riyals.

Halt to production

Last month, the Saudi cabinet announced that it would stop the cultivation of all green fodder over the next three years.

The move is part of a wider campaign in Saudia Arabia to reduce local agriculture, in order to protect its water resources.

A drive to achieve self-sufficiency in wheat contributed to a sharp reduction in Saudi's water reserves, which have been depleted by more than four-fifths.

Overseas investment

The government has already pledged to end wheat production from 2016 onward.

This shift away from agriculture is driving interest in overseas purchase.

Last year the Saudi government announced financial assistance to investors buying farmland overseas.

Arizona

purchase

In 2014 Almarai acquired 9,834 acres of farmland in Arizona, for alfalfa production.

The company last year announced a strategy of expansion outside Saudi Arabia, particularly in Africa.

And last month the chief executive of Saudi food group Salic, an arm of the state-owned Public Investment Fund, said the group was looking to buy land in Sudan to grow fodder for its meat business.

Sudan was signalled out as an ideal location, thanks to its dry weather and the availability of water.

Almarai shares in Riyadh were down 0.7% at 69.25 riyals on Monday.

By Agrimoney.com

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