There was a rather curious article in the Financial Times on Wednesday February 27th. 2008. The headline was " Water fears lead Saudis to end grain output." The gist of the story is that due to concerns about the desert Kingdom's scarce water resources they intend to halt wheat production by 2016 and import the 3.4 million tons they presently require. Aside from the implications for wheat prices (which are already at new highs) what does this say about the water resources for the entire region. The byline was Andrew England in Cairo and Javier Blas in London.
This is the link to the story but you will have to log in to see it. http://www.ft.com/cms/s/0/029b7dfe-e4d7-11dc-a495-0000779fd2ac.html
Should investors be concerned about this?
Are there enough water resources available to sustain the dramatic growth of consumption that is and will be taking place in Dubai for example?
Do any investors or potential investors in this area have access to data that that would reassure other potential investors?
Is this one of those things that could destroy value in the medium term!
Now I'm not going to make out that I am an expert on theses matter. I have only stayed in Dubai for one night and landed there whilst in transit; but I did notice that there appears to be quite a bit of water in the immediate vicinity. I think they call it the Arabian Sea and Arabian Gulf.
My idea would be to use some of that water.
Getting the fish out should not be too difficult, and to remove the salt perhaps, given time, I could come up with some sort of process.
I think I would call it Un-salt-igration, or something like that. They didn't happen to give a contact address for the guy in charge of water in Dubai, did they?
I think I ought to let him know.
My idea would be to use some of that water.
Getting the fish out should not be too difficult, and to remove the salt perhaps, given time, I could come up with some sort of process.
I think I would call it Un-salt-igration, or something like that. They didn't happen to give a contact address for the guy in charge of water in Dubai, did they?
I think I ought to let him know.
Most of the Gulf is already dependent on water from de-salination plants and I suspect that the Saudi's decision is based on the economics of de-salination rather than water shortages per se. Wheat prices are higher than they've been for a while but de-salination plants aren't cheap to run either. The higher prices have tempted more and more growers to revert to growing wheat and prices will fall as that happens. 3.4 million tons is a drop in the ocean (excuse the pun!) compared to worldwide production and the UK was already producing between 4/5 times that amount before farmers started returning more land to wheat production. Wheat prices have risen to the level they have because they had previously fallen so low that it became uneconomic for US farmers to produce it and they moved over to other crops. The fall in wheat production in Australia because of their recent drought problems has since forced prices back up which has then tempted US farmers back into wheat production and away from crops such as soya.
I think the more likely situation is not that the Saudi's are frightened of the water running out but that they have decided that by 2016 it will be cheaper to import wheat than grow it themselves by the time you factor in the cost of producing the de-salinated water for irrigating the home grown crop and that as wheat prices fall they will gradually move over to importing more and more of it, thereby saving themselves money on water production.
SM
I think the more likely situation is not that the Saudi's are frightened of the water running out but that they have decided that by 2016 it will be cheaper to import wheat than grow it themselves by the time you factor in the cost of producing the de-salinated water for irrigating the home grown crop and that as wheat prices fall they will gradually move over to importing more and more of it, thereby saving themselves money on water production.
SM
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