At first glance the results seem impressive: in less than a decade Saudi Arabia has turned itself into the breadbasket of the Gulf. Between the mid-1970s and 1985 wheat output grew more than tenfold, to over 2 million tons. During that period the increase in Saudi production accounted for four-fifths of the rise in wheat output for the entire Middle East and North Africa.  Wheat production is now far above domestic needs and there is a severe shortage of storage capacity. In 1984 Saudi Arabia gave Bangladesh 50,000 tons in food aid, and in 1985 started selling wheat to several Gulf states. King Fahd recently announced that the kingdom has talked with the European Economic Community about exporting Saudi wheat to Europe.  John Block, US Secretary of Agriculture, called the Saudi wheat program “crazy,” but the official Saudi position is that it has been “a thrilling story of real success.” 
The “success story” is not confined to wheat production. The kingdom now has an exportable surplus of eggs, is about 70 percent self-sufficient in poultry meats and produces 40 percent of its milk consumption. During the Third Plan (1980-1985) the agriculture sector as a whole grew at an unprecedented average annual rate of 8 percent.
To achieve all this, the Saudi Arabian government has spent vast sums of its oil wealth on price supports, grants, input subsidies and interest-free credit. This has been justified in the name of “food security,” “diversification of the economy” and “improving rural welfare.” The result is a modern farming sector that appears to be technologically sophisticated but is economically very inefficient. Now that oil revenues have declined and the real costs have become clearer, the government has begun to question some of these policies. But a powerful farm lobby has emerged which limits the government’s options.
Until the mid-1970s, environmental factors primarily shaped the structure of Saudi agriculture. Only in the Asir region, close to the Yemen border and covering about 3 percent of the land area, does the annual rainfall allow limited rainfed cultivation. Subsistence farms existed here and in the southern Tihama coastal plains where farms were watered by stream diversion. Further north along the coast and in the western highlands, oases based on shallow ground water from wells and springs supported both subsistence and some commercial farming. In the central and northern parts of the interior, in Nefud and Nejd, agriculture was confined to scattered oases previously integrated with pastoral nomadism. The richest farming areas (dates were the principal crop) were traditionally found nearer the Gulf coast, in the large oases of al-Hassa and Qatif. These enjoyed high water tables, natural springs and relatively good soils. Everywhere outside Asir, cultivation depended on simple irrigation which determined both the location and scale of agriculture holdings. Farms were mostly owner-occupied and small. 
Mechanical pumping had spread without really changing the existing system. Though the growing cities needed more and more food, farmers did not increase their production much; they faced competition from subsidized imports and found greater financial rewards in non-farm employment. Even so, various regions were affected differently. Commercial farming using medium lift pumps grew in the central region, stimulated by the nearby Riyadh market. Average holding size began to grow there and tenant farming (with absentee owners) became more widespread. But the bulk of the agricultural resources of the country remained in the western and southern regions, where three-quarters of the country’s farm population cultivated 53 percent of the total cropped area.
Over the past decade a totally new structure has emerged. Many farms in the traditional sector have slowly become more commercialized and are now making greater use of modern inputs, especially irrigation equipment. The major change is the emergence of factory-style production units for poultry and eggs, large integrated meat and dairy farms, greenhouses for vegetables, and vast wheat farms established on virgin land. All these are technologically sophisticated and capital-intensive. They are financially viable only because of generous government assistance. Some establishments, for instance those for poultry and egg production, should more properly be classified as industrial units. The bulk of the increase in food production has come from this modern sector.
The surge of wheat and fodder cropland in the modern sector has depended almost entirely on mining the non-renewable groundwater reserves whose location and size were established by a series of surveys in the 1960s. According to early estimates, the main aquifers held reserves of 337.5 billion cubic meters and the total probable reserves exceeded 500 billion cubic meters.  Some of this water, where it was accessible at shallow depths or as natural springs in the eastern region, had long been used for cultivation; the rate of extraction was limited until recently. In the 1970s, about half of the two million cubic meters of water used annually in agriculture came from these non-renewable sources. The knowledge of the size of the reserves, the availability of modern technology to tap deep aquifers and the financial resources to cover the costs were behind the decision to exploit them to extend crop production.
A number of minor agricultural development projects existed in the 1960s, but with the rise of oil revenues in 1973 the government put major subsidy schemes into effect and interest-free agricultural credit also soared. The main channel for disbursing funds has been the Saudi Arabian Agricultural Bank, established in 1964 to provide subsidized loans to small farmers. In 1974-75, the value of loans advanced nearly equalled the total credit given in the previous decade (Table I). The loan ceiling increased from 12,000 Saudi Rials (SR) to SR 20,000 in 1974 and now stands at SR 20 million.
In this new phase the bank has generally favored the larger farmers and projects, especially those in the central and northern regions. By 1985, the average value of loans exceeded SR 4 million. Already in 1975 the two regions were receiving a disproportionately large 64 percent of the credit supplied by the bank but by 1985 their share had climbed to 80 percent. During the same period the share of credit going to the western and southern regions fell from 26 percent to 13 percent. In the late 1970s only five percent of farmers in Jizan had received subsidized loans.  Interest-free credit amounted to a very large subsidy, equivalent to about two-fifths of the value of the loans. 
The agricultural bank is also the main agent for administering a wide range of input subsidies, amounting to as much as 50 percent of the value of some inputs. In addition, subsidies disbursed by the Ministry of Agriculture and Water amounted to about SR 150 million in 1982 and have been rising. The agricultural sector also enjoys preferential rates for electricity. The geographical distribution of input subsidies is at least as skewed as that of loans. Most agricultural machinery and irrigation pumps are destined for the virgin land projects. Thus the traditional sector receives little of these handouts.
The subsidy program encourages waste. Livestock is kept in feed lots longer than is optimal; machinery is discarded rather than repaired; crops are over-fertilized. The surge in barley imports, from 530,000 tons in 1978 to over 6.5 million tons in 1986, is far larger than the increase in livestock output and suggests that barley is smuggled to neighboring countries.
The government put the wheat price support program into effect in 1979. It set the original purchase price at SR 3500/ton, about six times the world market price. The farmers’ response to this incentive, given the other favorable circumstances, has been overwhelming. The resulting surplus forced the government to lower support to SR 2000 in 1984 (with guarantees to maintain it until 1989). When production continued to climb, the government imposed delivery quotas on the largest producers. The wheat lobby persuaded the government to revoke this order. The government then resorted to delaying payments, an ineffective weapon against the influential producers. In the meantime, the Grain Silos and Flour Mills Organization undertook a crash program for erecting silos. Even without the cost of storage, the program’s expense continues to be a major drain on the budget. In 1984, the organization had to pay SR 3700 million more to buy the wheat domestically than to import it. 
Rice growers in Japan and at times sugar beet growers in Europe have enjoyed similar or even higher protection. But there the subsidy has been used to maintain existing family farms rather than to spur growth. Such price supports are usually in lieu of direct subsidies, but in Saudi Arabia there are substantial subsidies as well. So Saudi “farmers” have double the fun.
These generous incentives have produced abuses. Yemenis have reportedly bought wheat shipped to famine victims in Africa and smuggled it over the Empty Quarter to sell at enormous profit (through Saudi farmers) to the government.  The new dairy farms have found it more profitable to grow wheat on the land given to them for fodder crops and buy subsidized imported feed instead. Alarmed by the tremendous rise in feed grain imports and to reduce the wheat surplus, the government recently started a price support program for barley (at SR 1000/ton). It is unlikely that there will be a significant shift from wheat to barley, though the latter may be grown as a summer crop, with even greater demand on the country’s scarce water resources.
Public land grants were originally aimed at settling bedouins, but the Public Lands Distribution Ordinance issued in 1968 had wider objectives.  This decree provides for the allocation of five to ten hectares of land to individuals free of charge. It allows land grants of up to 400 hectares to companies and organizations and up to 4,000 hectares for special projects. A number of projects have exceeded even the latter limit. In 1983 five companies received 127,500 hectares. There has been a decided shift in favor of allocating increasing numbers of progressively larger plots to the corporate sector (Table II). The total area of land distributed to this sector alone, much of it since 1981, exceeds the cropped area recorded in the 1974 agricultural census. Consequently, a radically different farming structure has been created, one dominated by highly mechanized units owned by businessmen and operated mainly by foreign workers.
The 1960s surveys of agricultural and water resources gave impetus to the land distribution program. Since the groundwater reserves are located east of the Arabian Shield, nearly all the distributed land has been in the relatively thinly populated Central and Northern regions. Only three percent has gone to traditional farmers in the western and southern regions. This pattern belies the government’s assertion that its policies are aimed at raising rural incomes.
Although in theory anybody could apply for land, in reality land distribution to individuals was based on criteria of tribal membership. Those with the right connections received land which they later sold to other farmers or businessmen. The 1968 law completed the process which had begun much earlier with the abolition of tribal diras (common grazing territory). By allowing individual possession of land, it has led to the emergence of land markets in an area where collective rights had prevailed. 
The program was also the instrument for creating large scale farming. The Saudi government, like many others in the region, has been enamored of the idea of “agribusiness.”  Peasant farmers are considered unresponsive to market opportunities, and incapable of learning to use modern technology. They are only fit to receive charity. A large portion of the new modern-sector “farms” belongs to politically and financially influential individuals with favored access to government largesse. In the partial list of the largest companies (Table III), the wide involvement of members of the royal family is particularly striking. Obviously, royal rather than rural welfare is the prime consideration. Prince Muqrin ibn ‘Abd ul-Aziz, the governor of Hail, chairs the Hail Agricultural Development Co. Founded in 1982, this was by 1984 the largest wheat producer in the kingdom. His brother, Prince Majid ibn ‘Abd ul-Aziz, chairs a slightly smaller company in neighboring Tabuk. The largest integrated dairy farm in the world (Saudi Arabian Agriculture and Dairy Co., Saadco) is principally owned by their nephew, Prince ‘Abdullah al-Faisal, the eldest son of King Faisal.
The merchant families, though not as prominent, are still well represented. Sulaiman ‘Abd ul-Aziz al-Rajhi, of the al-Rajhi family of money changers, owns the largest poultry farms, supplying nearly one-half of the kingdom’s chicken meat and one-quarter of its eggs. Sulaiman Olayan is a partner of Prince Khalid ibn ‘Abdullah ibn ‘Abd ul-Rahman ibn Saud in the Saudi Agricultural Development Co. The merchant community is also closely involved in agriculture as import agents for the whole array of inputs used in the modern sector.
Foreign agribusiness concerns, aided by their local agents, have reaped bountiful harvests, both figuratively and literally. When the US Secretary of Agriculture criticized the Saudi wheat program, he was being too parochial. Had he put on his feed-seller’s hat, he would have applauded the drive for food self-sufficiency. The US Secretary of Commerce has certainly been overjoyed by the rise in Saudi imports of American farm machinery, chemicals, seeds and genetic stocks. His department has been busy conducting market surveys of emerging opportunities. American, European, Japanese and Australian firms compete in this fast-growing and lucrative market, where price is of little concern to buyers. The size of the agricultural inputs market (including feed grains), now about $2 billion, annually far exceeds the value of food imports displaced. All major manufacturers and grain suppliers, and many minor ones, have representatives in the country. The al-Khorayef brothers’ John Deere agency has been that company’s largest distributor worldwide. 
Foreigners cannot own farms in the kingdom, but through minority share holdings in Saudi concerns they have benefited from the subsidies. Alfa-Laval, the giant Swedish firm, held a 12.5 percent stake in Saadco. Big profits are in development and management contracts. The same firm was paid SR 440 million for equipment and technical services for the first two phases of the project. FMC, the American conglomerate, in partnership with Olayan, manages most of National Agricultural Development Company’s farms. Many firms from Denmark, Holland and Australia are involved in dairy, poultry and wheat production. An Irish company, Masstock, under the patronage of Prince Sultan ibn Muhammad ibn Saud, has been an important contractor for setting up dairy and wheat farms. None of the foreign firms had prior specific expertise in agricultural production in an environment similar to that of Saudi Arabia, but they have been paid well to learn.
The size of the new farms and their technological complexity has meant near-total dependence on foreign managers and technicians, who are mainly European and American. The unskilled farm hands are also largely expatriates (Asians and Egyptians), because production is located either in remote areas (wheat) or near the large cities (factory-type units). This limits the supply of local rural labor. Saadco has about 450 employees, including 60 European and American technicians and managers; Saudis are employed only in sales and distribution. In 1981, before much of the recent expansion had occurred, 40 percent of the agricultural labor force was foreign. The geographical distribution of expatriates was uneven, 55 percent of the labor force in the Central region but only 23 percent in the Southern region. 
Much employment is naturally seasonal. This is ideal for those American managers who plant their own crop in the US, spend October to April in Saudi Arabia, and return in time to tend their land. But the temporary nature of farm work is a major drawback for field workers who are mainly illegal migrants easily susceptible to exploitation and abuse. In 1981, when the agricultural census recorded about 240,000 non-Saudis, according to the Ministry of Labor there were only 14,000 foreign agricultural workers with residence permits. Living conditions for migrant farm laborers are grim. They live on isolated farms, without their families, in tents or converted shipping containers.
As agriculture continues to grow, it will rely increasingly on foreign workers. This is contrary to a major goal of the Fourth Plan, which is to reduce the number of foreign workers. Saudis in established rural communities are not sufficiently trained for the skilled jobs; nor are they willing to become simple wage earners on distant farms. It is unlikely that the rural-urban drift will turn into migration between rural areas. The country’s continued need for foreign agricultural workers undermines the rationale for “infant agriculture” protection. The constant turnover of this labor force will significantly lower the “learning curve” presumed by the subsidies.
Diversification or Wasteful Consumption?
The kingdom’s agricultural growth has been touted as diversifying the productive base of the economy to provide for the eventual decline of the oil revenue. Although some of the factory-style units (mainly poultry farms and greenhouses) may be economically viable, the rest of the sector is a drain on the economy and can be supported only as long as the oil sector produces a surplus. At the planned rate of expansion, water reserves will be depleted long before the oil runs out.
Many of the subsidized farms are not even commercial enterprises, but hobby or amenity farms valued as weekend retreats or summer places. In Saudi Arabia’s arid setting, there is understandable attachment to green land; the oil wealth allows some to enjoy it at unrealistically low prices.
The recent expansion of cropped areas has increased the use of water markedly. Nearly all of the increase has come from depletable ground water reserves. There is an opportunity cost for using this water on agriculture when vast sums are spent to supply desalinated water for other needs. The implicit cost may actually dwarf the budgetary subsidies to the sector.
Even if we assume aquifer water has zero opportunity cost, it is still very expensive to extract. Wells 500 to 1500 meters deep cost between SR 700 and SR 1200 per meter. The engine and pump set and the center-pivot sprinkler system add further to the expense.  It is never economical to grow grain crops with water drawn from such depths. It can be done in Saudi Arabia because up to 70 percent of the capital cost is subsidized, fuel is practically given away, and crop prices are artificially raised.
The actual situation is worse. This is because water has an opportunity cost which in some cases is extremely high. At the rate of water consumption projected in the Third Plan, it appeared that the reserves would last for over a century. But the planners grossly underestimated water use in agriculture, and they did not anticipate the rate at which shortages would develop in particular localities. New estimates (still probably on the low side) show that in 1985 agriculture was using 7,430 million cubic meters of water, nearly four times the planned figure and well over the total water demand projected for 1999. Already in several areas aquifer depletion is lowering pumping depth and forcing conservation measures.  With the expected life of reserves much reduced and direct competition between different users developing, the opportunity cost of water is a pressing matter.
The calculation of this cost is quite complex, and there can be no single rate. But one can still get an idea of the magnitudes involved. Saudi Arabia has the largest water desalination program in the world, producing about 400 million cubic meters in 1985. Desalinated water is exceedingly expensive, about SR 9/cubic meter.  If one assumes that desalinated water and ground water are perfectly substitutable, the water alone to grow a ton of wheat costs about SR 21,000.  Of course, the two sources of water are not completely interchangeable, and all desalinated water projects cannot be eliminated. Much of the ground water is brackish and has to be mixed with desalinated water for drinking. Also, the aquifers are not all near the urban centers. There is, however, some substitutability — as in the case of Riyadh region, where heavy agricultural and industrial-urban use of ground water has forced greater reliance on desalinated water piped 460 kilometers from Jubail. The Fourth Plan allocates SR 14,156 million to investment in desalination plants, much of which would not be necessary if water consumption in agriculture could be lowered.
Even though the Fourth Plan recognizes the need to impose a charge for water to encourage greater economy in its use, it projects a doubling of agricultural water use within 15 years. At such levels of consumption, Saudi agriculture cannot conceivably support a realistic charge for water.
Food Security and Self-Sufficiency
Saudi Arabia is concerned to supply its population with cheap foodstuffs. As long as expanding food output was not a government goal, subsidizing food imports was sufficient to ensure cheap supplies. Such subsidies were originally introduced in 1959 and continue to this day. Before the government introduced various financial incentives, agriculture suffered from competition from cheap imports. As domestic production has risen, the budgetary implication of simultaneously fulfilling consumer and producer needs has forced the government to reconsider its policies. It is now more willing to impose tariffs on imports to protect domestic producers still further. For example, in 1983 a 20 percent duty was put on egg imports, and in 1985 the tariff on poultry meat was raised from 10 to 20 percent. The farm lobby, claiming that European dairy farmers are heavily subsidized, is now asking the government to replace the subsidy on imported powder milk with a duty.  It is also calling for free milk distribution to relieve the surplus. Given the growing budget constraints and the political power of the farm lobby, it is likely that the consumer will have to bear an increasingly larger burden of the high cost of domestic food production.
The official government position, expressed in the plans, is that the incentive programs are intended to raise rural incomes. However, the government has consciously fostered very large farms near urban centers and on previously unsettled regions. The established rural communities have been only marginal recipients of the subsidies. Furthermore, output from the modern sector has often competed directly with produce from the traditional sector. Subsidies on imported feed grains have undermined the cultivation of coarse grains which were the mainstay of peasant farming in the southern region.
The Fourth Plan sees an additional bonus in raising rural incomes, namely the expected slowdown in the rural-urban drift. This is a totally bogus rationalization. It is a puzzle why the government would want to keep its own population on the farms while it continues to import labor to fill its city jobs. Even if the rural population were not willing to take the available employment, it might still be cheaper to support them in urban centers where most of the infrastructure is already in place. Interestingly enough, the Second Plan argued for agricultural development as a mechanism for releasing labor to the other sectors.
Since the mid-1970s, the government has constantly stressed attainment of greater food security as the main justification for its agricultural policies. The Third Plan called for “a prudent level of self-sufficiency in food production” and recently the minister of agriculture declared “to produce your own food on your own land, it is a matter of security.”  Clearly, less reliance on food imports is considered synonymous with greater food security. The apparent success in reaching more self-sufficiency in certain food items, achieved at such tremendous cost, has not materially increased food security.
Despite the rapid growth in agricultural output, the kingdom’s import structure is not noticeably different from that of the other Gulf states with little domestic food production. In 1983, food imports’ share in total merchandise imports was 10.6 percent in Saudi Arabia compared to 11.6 percent in Kuwait and 8.3 percent in the UAE. In addition, the rise in production has led to higher imports of inputs such as fertilizers, pesticides and farm machinery. Payments for foreign labor, technology and management also grew rapidly. The expansion of livestock products has turned the country into a very large importer of feed grains. Barley imports have grown from a half a million tons in 1978 to 6.5 million in 1986, making Saudi Arabia the world’s largest importer of barley. The country now faces far greater risk of supply disruption. Lower import dependence for certain commodities has been achieved at the expense of greater reliance on other imports, including labor, management and technology, with no obvious gain in security. Embargoes other than food can just as effectively disrupt the country’s food supply.
The preoccupation with food security is largely misplaced and the strategy adopted is totally inappropriate. Although Saudi Arabia imports a large portion of its food consumption (about 60 to 70 percent), it is not a dominant element in any particular market, except barley. For such commodities as wheat and rice, Saudi consumption is a tiny percentage of world trade. Within Saudi Arabia, consumer expenditure on grains, including the most important grain, rice, is only 10 percent of the food budget.  Reaching self-sufficiency in wheat, therefore, has symbolic rather than strategic significance. The risk the kingdom has to face is short-term disruption, not the long-term deterioration of world food balance. This type of risk can best be overcome through strategic reserves.
The greening of Saudi Arabia turns out to be much less than a miracle. The real achievements have been modest and totally dependent on the continued injection of funds from the oil sector. It may appear that the agricultural sector has not been as lavishly treated as some other sectors, but the real economic costs have been and will continue to be extremely high. As Saudi Arabia adjusts to its reduced oil revenues, it will have to cut back on its extravagant agricultural programs and the sector will decline just as spectacularly as it has grown.
 US Department of Agriculture, Middle East and North Africa: Situation and Outlook Report, April 1986.
 Quoted in Middle East Economic Digest (hereafter MEED), June 1986, p.25.
 Director General of Agricultural Development quoted in The Middle East, January 1986, p.34.
 For a fuller description of the agricultural setting of Saudi Arabian agriculture, consult Howard Bowen-Jones and Roderick Dutton, Agriculture in the Arabian Peninsula, Economist Intelligence Unit Special Report #145.
 Kingdom of Saudi Arabia, Ministry of Planning, The Fourth Plan, p.133.
 US Department of Commerce, Report on International Market Research Survey on Agricultural Machinery and Equipment; Saudi Arabia, April 1982, p.43.
 This is my own estimate based on the assumption that the average loan maturity is five years and the discount rate is 10 percent per annum.
 This estimate is based on the international price of wheat plus $50/ton for freight and handling charges.
 The Economist, April 6, 1986, p.75.
 For a detailed description of the various land distribution policies see E.G.H. Joffe, “Agricultural Development in Saudi Arabia: The Problematic Path to Self-sufficiency,” in P. Beaumont and K. McLachlan, Agricultural Development in the Middle East (New York, Wiley, 1985).
 See Ugo Fabietti, “Sedentarisation as a means of Detribalisation: Some Policies of the Saudi Arabian Government Toward the Nomads,” in Tim Niblock, State, Society and Economy in Saudi Arabia (London, Croom Helm, 1982).
 For a comparative account of such policies, see R. Springborg, “New Patterns of Land Reform in the Middle East and North Africa,” Middle East Journal, Spring 1977.
 Wall Street Journal, May 22,1984.
 Ministry of Agriculture & Water, Census of Agriculture 1981-82 (in Arabic).
 For more information, see Beaumont and Dutton, op. cit.
 See The Fourth Plan, p.139.
 Private communication from Dr. H. Askari.
 This estimate is based on the assumption that a hectare of land producing an average harvest of 4 tons requires about 9000 CM of water.
 MEED, March 22, 1986, p.28.
 New York Times, April 21, 1985.
 Ali D. Johani, Michael Berne and J. Wilson Mixon Jr., The Saudi Arabian Economy (Croom Helm, London 1986), p. 116.