For decades, Saudi Arabia seemed to regard its most precious resource as limitless.
The Saudis built huge installations in the desert, and pumped out vast quantities of the stuff.
Well, you know what? Though few are talking about it right now, Saudi Arabia’s royal family recently called it quits on more pumping. They’re finally admitting that their wells could literally run dry if they don’t stop.
So they’re shutting down their huge turbine pumps, designed to pull up thousands of gallons a minute from the depths of the earth. The fields, the pride of the Kingdom and developed at a cost of billions, will soon be left to the desert sands.
Perhaps you’ve already figured it out. I’m not talking about oil, but instead — water. Let me explain…
From the late 1970s onward, Saudi Arabian businessmen spent an estimated $85 billion developing wheat crops and production of other kinds of grains in the country’s northern desert. Underlying it all was the existence of a Lake Erie-sized aquifer of “fossil” water, so named because of its origins in the last Ice Age.
On satellite photos, the fields look like giant green circles, as much as a mile in diameter — a function of the center-pivot sprinkler systems used to irrigate the wheat.
For the last 30 years or so, Saudi Arabia’s experiment seemed successful. The production of wheat, barley and alfalfa soared from 201,000 hectares in 1973 to more than 1.1 million hectares in 1992. By the 1990s, the country turned itself from an importer of food into a net exporter, with much of its excess crop sold to neighboring countries.
Experts warned over the years that the Saudis’ endeavor couldn’t last. In a famous 2004 report called “Camels Don’t Fly, Deserts Don’t Bloom,” Saudi analyst and banker Elie Elhadj said it was doubtful his country could sustain its domestic farm production. It drained too much water.
Looks like he was right.
The Next Hot Commodity
The last harvest of Saudi-grown wheat was in May, according to a recent Bloomberg report. Starting next year, the country will need to import 100% of that crop.
It doesn’t end there. The Saudis also need to import alfalfa, too. Some of the largest dairy farms in the world are located, paradoxically, in Saudi Arabia. Those dairy cows need alfalfa to eat and produce milk.
So the backers of one of those giant dairy farms, Almarai Al Badiah, recently bought an existing farm in another country. They’re going to grow the alfalfa their cows need and then ship the stuff back to the Kingdom.
Here’s the punch line: The ranch is in Arizona — yet another hot dry place where water is precious (and where, much like Saudi Arabia — there are no groundwater restrictions for large rural water users such as farms and ranches).
New Opportunities Are Surfacing
You can see the pattern here. As Jeff Opdyke has warned before, clean fresh water is fast becoming a strategic resource, for nations, states and local communities. As that happens, it creates investing opportunities (one of which Jeff laid out in this Sovereign Investor portfolio pick).
And while all the talk of fights over water sounds dire, it doesn’t have to be. In the end it’s forcing everyone (even the Saudis, who are starting construction on a huge solar-powered seawater desalination plant) to think about the wise use of their limited water supplies and how that water is managed and priced.
Editorial Director, The Sovereign Society